Buy Here Pay Here car dealers fall under a patchwork of regulations that vary widely from state to state, even from Nebraska to Iowa. And there are a few federal laws, which don't often get vigorous enforcement — although that soon may change.
There have been a few broad crackdowns, as a Los Angeles Times review found.
For instance, in 2004 an Ohio chain settled a federal class action for $21.8 million, paying up to $500 each to 123,000 customers who said they were misled about their used-car loans.
In 2006, the Kentucky attorney general reached a $7.4 million deal with the national J.D. Byrider chain to settle allegations of deceptive sales practices.
But such large legal actions are rare.
The Federal Trade Commission, Uncle Sam's main consumer protection watchdog, hasn't prosecuted a major auto lending case in more than a decade, Reilly Dolan, assistant director of financial practices, told the Times.
"That hasn't been our focus," he said, "because it has been more of a problem for the states."
State-level enforcement varies with the aggressiveness of authorities, the perceived scope of the problem and the tools each state's laws provide.
In 2005, the Iowa Attorney General's Office, which says it makes a priority of car-loan complaints, cracked down on Dan Nelson Automotive Group, a chain with lots in South Dakota and Iowa, including Council Bluffs. Although the company's stated interest rates were within the 27 percent limit Iowa allows for older used cars, the dealerships were accused of a long list of deceptive sales practices — including misleading advertising, hiding the final price of cars, failing to honor warranties and falsely promising to help repair credit.
The upshot: The company quickly went bankrupt and its two former owners, Daniel Nelson and Christian Tapken, agreed to a settlement that gave customers some financial relief. Then federal prosecutors jumped in. This year the two men were sentenced to prison for conspiring to falsify bank records.
Because Buy Here Pay Here lots are both auto dealers and consumer lenders, and because states take varied regulatory approaches, it's not always clear who has authority over them. For instance, California doesn't recognize Buy Here Pay Here dealers as a distinct branch of the used-car business and applies no rules to their unique practices.
Iowa, in addition to the interest rate cap on car loans — which ranges from 21 percent to 27 percent, depending on the vehicle's age — requires auto dealers to observe a 10-day grace period when a payment is missed.
Nebraska law imposes an 18 percent cap on installment contracts such as Buy Here Pay Here dealers use. Conventional loans fall under a 16 percent cap. Both states require Buy Here Pay Here dealerships to be licensed and to heed the same anti-fraud laws other businesses face.
"Every state kind of has a patchwork when it comes to financial regulation," said Amy Greenwood-Field, an official in the Nebraska Banking and Finance Department.
Iowa finds the industry a steady source of grievances, said Bill Brauch, who heads the attorney general's consumer protection division.
"There are some Buy Here Pay Here dealers who operate by the book. ... I don't want to paint with a broad brush," he said. "But it's an area where there are problems. ... We actively seek complaints."
Meanwhile, at the federal level, the industry has been thrust under a big regulatory question mark.
Last year Congress, in reaction to subprime lending abuses that ushered in the Great Recession, created a new Consumer Financial Protection Bureau. It was specifically given authority over Buy Here Pay Here dealers.
But selection of a director for the infant bureau is hung up in partisan dispute. It's not clear when Congress will get a director named or what rules the bureau will write.