LA’s billionaire king of subprime auto lending
Car title loan lenders get a bad rap from the majority of society because most people are unable to put themselves in their “brother’s shoes.”
Here is an example of a real-world car title loan lender who enables average folks who need a car in order to get to work, pick up their kids…
Setting the scene
Every weekday around 6 a.m. Don Hankey, 76, arrives by chauffeured car at his office near Hancock Park. Hankey started in the auto business nearly 50 years ago, when he took over his father’s car dealership at Vermont and Beverly. That business eventually grew into The Hankey Group, a collection of seven mostly car-related companies: Insurance, rentals, technology, but also real estate. The real moneymaker of the group, however, is Westlake Financial Services, a huge subprime auto lender that does business throughout the U.S., Mexico, India and the Philippines.
On a recent morning at 7 a.m., the company had already approved 286 deals. By the end of the day, Hankey said, he expected that number to hit 20,000. Interest rates for these loans can reach as high as 30% (versus the national average rate of about 4% on a 60-month loan). “We try not to say no,” said Hankey. “We just try to make it impossible to buy the deal,” either through high-interest rates or demanding more money down.
On accusations of predatory lending:
“Let’s say you have somebody with bad credit, so they either have to pay 18% interest or not get a car at all. Are we better off just not giving them a car? I think they need a car. Maybe it provides a job for them that they wouldn’t otherwise have. There’s good and there’s bad to it, but I think that I think the good [out]weighs the bad.”
On the origins of the subprime auto lending boom:
“You know, people say they’re going to pay their house payment first. And then a funny thing happened in 2008, 2009 [during the mortgage meltdown] … Many people let their house go, but they needed that car, and they couldn’t go to work without the car. They left their house…and kept their car payments current.”
That means Hankey, and other lenders can make money two ways: From their borrowers paying back those high-interest loans, and by selling those loans off to Wall Street, where demand increased post-recession.
“People buy that credit. They were very concerned during the Great Recession that these things would default. But what happened is that almost all of them got paid in full, and you saw the defaults on real estate. People go out of their way to hold onto their car in a bad period of time.”
As long as people need cars to get to work, Hankey says, he’s not worried about a massive wave of defaults like what happened in the housing market a decade ago.
Originally Posted here: “Subprime Auto Lending.”