The federal consumer agency is sounding warning bells about the growing debt Canadians are taking on through auto loans

The federal consumer agency is sounding warning bells about the growing debt Canadians are taking on through auto loans

BY BARBARA SHECTER, FINANCIAL POST

The federal consumer agency is sounding warning bells about the growing debt Canadians are taking on through auto loans.

Consumers have been taking advantage of stretched amortization periods in recent years to take on more debt without increasing their monthly payments, the Financial Consumer Agency of Canada revealed Tuesday in a research report tracking market trends.

But they are often buying more car than they can afford, paying much more interest, and, in some cases, going on to buy new cars before the original loans are fully repaid.

“In these circumstances, consumers put themselves in the position of having to roll the debt owing on the long-term loan into the loan for the purchase of the new vehicle, thereby potentially stepping onto an ‘auto-debt treadmill’,” the agency warned.

The FCAC conducted research in the summer and fall of last year in a targeted review that tapped the country’s biggest banks for information, as well as smaller lenders focused on the auto sector.

Particular attention was paid to the information consumers receive about the terms of their auto loans, and to issues with potential impact on consumers, such as “negative equity” and non-prime lending, the report said.

“Recent trends in extended-term car loans have raised several concerns,” said Lucie Tedesco, commissioner of the FCAC. “Consumers must carefully examine their needs and their financial situation to ensure they can repay their car loans without undue strain, and with a full appreciation of the total interest charges and value of the car throughout the loan period.”

The FCAC called the growth in long-term car loans “worrisome,” noting that the average new car loan last year had a term longer than 72 months, up from about 65 months in 2010.

In the same five years, the share of consumers trading vehicles with “negative equity” has risen by 50 per cent – up to 30 per cent of consumers in 2015 from 20 per cent in 2010.

“Although significantly more consumers are carrying negative equity when they break their existing auto loans, the average amount of negative equity carried by consumers who are underwater … has hovered around $6,700,” the report says.

Vehicles depreciate quickly, which means the negative equity peaks in the early years of a loan when the portion of each payment dedicated to interest tends to be larger. Holding the loan longer eventually moves the borrower into a “positive equity” position. That typically happens by the fourth year in a standard 60-month auto loan, but the longer loans leave many borrowers in negative equity positions into the fifth year and even well beyond it, the report says.

The FCAC is not the first to zero in on auto lending as an area of concern. Debt-ratings agency Moody’s Investors Service raised similar red flags in 2014.

In a report that fall, Moody’s noted that auto lending by banks had grown at a compounded annual rate of 20 per cent since 2007, “significantly outpacing” the growth of even red-hot mortgages, credit cards, and lines of credit. In seven years, vehicle loans had jumped to $64 billion from $16.2 billion.

The authors of the Moody’s report warned that with household debt already at record levels, the concerted push into auto lending – buoyed by low interest rates and longer amortization periods that reduced a buyer’s monthly payments — had exposed Canadian banks to the risks of soured loans and lower recovery rates in the event of a downturn.

“Since our report, both consumer debt levels and auto loans at Canadian banks have increased,” Jason Mercer, one of the authors of the Moody’s report, said Tuesday. “Today, Canadian consumers face increased uncertainty due to persistent low oil prices and potential housing overvaluations, so these risk remain as relevant as ever.”

The Financial Consumer Agency of Canada says consumer groups have also expressed concern, and it is responding by focusing oversight and education efforts on the auto loan market.

One step will be to ensure the indirect lending activities of federally regulated financial institutions, including auto loans, comply with federal legislative and regulatory requirements.

According to the FCAC report, long-term car loans – those of six years or more — constitute about 60 per cent of the car loan portfolios of Canada’s largest financial institutions.

The Agency is also collaborating with provincial and territorial governments to ensure that consumers receive the information they need when entering into a car loan.

Financial Post

Saskatchewan government won’t create special regulations for Uber

By CKOM

THE CANADIAN PRESS

SASKATOON _ The provincial government has told the City of Saskatoon that it won’t be creating special regulations for ride-sharing companies such as Uber.

The news was delivered to a meeting of the city’s transportation committee in a report from the city solicitor.

The committee heard from several representatives from Saskatoon’s taxi and limousine industries.

All were united in saying that Uber was a predatory business that undercuts their companies by shirking regulations.

Committee chairman Randy Donauer said he would support a reduction in the regulations for taxis alongside any move to allow Uber into Saskatoon.

In the meantime, Donauer reassured the industry members in the gallery that as it stands right now, the current taxi bylaw remains in force, meaning a potential Uber driver would have to pay for a traditional taxi licence in order to operate.

California-based Uber is an app-based business that allows people to request rides over their phones and sets them up with drivers in their personal vehicles. Getting an Uber ride is typically cheaper than taking a taxi.

In January, Edmonton became the first jurisdiction to legalize the new industry. Calgary city council also recently passed a bylaw which could start in April.

However, Uber officials suspended operations in Edmonton after the Alberta government announced it would not make insurance available to drivers until the summer.

In addition, the province is requiring ride-hailing drivers to get criminal record checks and have at least a Class 4 driver’s licence, which is a commercial licence.

canada-press

Technology Woes Continue to Drive Up Problems: J.D. Power Vehicle Dependability Study

Technology Woes Continue to Drive Up Problems: J.D. Power Vehicle Dependability Study

Problems with technology continue to affect vehicle reliability according to the J.D. Power 2016 U.S. Vehicle Dependability StudySM (VDS), released today. The number of problems with infotainment, navigation and in-vehicle communication systems—collectively known as audio, communication, entertainment and navigation or ACEN—has increased and now accounts for 20% of all customer-reported problems in the study. ACEN is now the most problematic area on most vehicles and is the cause of the industry’s 3% year-over-year decline in vehicle dependability.

“The increase in technology-related problems has two sources,” Renee Stephens, vice president of U.S. automotive at J.D. Power, noted. “Usability problems that customers reported during their first 90 days of ownership are still bothering them three years later in ever-higher numbers. At the same time, the penetration of these features has increased year over year.”

The problems most often reported by owners are Bluetooth pairing/connectivity and built-in voice recognition systems misinterpreting commands. Navigation system difficult to use and navigation system inaccurate are also among the 10 most frequently reported problems.

Building Trust in Technology
While automakers, suppliers and even the U.S. government are enthusiastically moving toward putting fully autonomous vehicles on the roads, consumers need to have confidence in the technologies currently in vehicles before they will be willing to take their hands off the wheel of self-driving cars.

“If you think about the technology problems from the study in the context of conversations around autonomous vehicles, the industry clearly has more work to do to secure the trust of consumers,” said Stephens. “Right now, if consumers can’t rely on their vehicle to connect to their smartphone, or have faith that their navigation system will route them to their destination, they’re certainly not yet ready to trust that autonomous technology will keep their vehicle out of the ditch.”

Expected reliability remains critical in today’s automotive market. More than 50% of owners cite expected reliability as one of the most influential reasons for choosing a specific make and model.1 At the same time, concerns about reliability have risen this year as a reason to avoid particular models.

“The decline in reliability coupled with a record number of vehicle recalls and safety-related complaints2 affect consumer confidence,” said Stephens. “Dependability has a direct impact on purchase decisions and brand loyalty.”

Among owners who experienced no problems with their vehicle, 55% purchased the same brand again. In contrast, only 41% of owners who experienced three or more problems with their vehicle stayed with the same brand for their next purchase. Additionally, only a third of owners who had to replace a component outside of normal wear items said they would definitely repurchase or lease the same brand again.

Highest-Ranked Nameplates and Models
Lexus ranks highest in vehicle dependability among all nameplates for a fifth consecutive year, with a score of 95 problems per 100 vehicles (PP100).

  • Porsche (97 PP100) follows Lexus in the rankings, moving up from fifth in 2015.
  • Following Porsche in the rankings are Buick (106 PP100), Toyota (113 PP100) and GMC (120 PP100).

General Motors Company receives eight segment awards and Toyota Motor Corporation six.

  • GM models receiving an award include the Buick Encore; Buick LaCrosse; Buick Verano; Chevrolet Camaro; Chevrolet Equinox; Chevrolet Malibu; Chevrolet Silverado HD; and GMC Yukon.
  • Toyota awardees include the Lexus ES; Lexus GS; Lexus GX; Toyota Prius v; Toyota Sienna; and Toyota Tundra.

Others models to receive segment awards are the Fiat 500; Honda Fit; Mercedes-Benz GLK-Class; MINI Cooper; MINI Coupe/Roadster; and Nissan Murano.

Key Study Findings

  • The overall industry average is 152 PP100 this year, compared with 147 PP100 last year.
  • Among owners who experienced a Bluetooth pairing/connectivity problem, 53% said the vehicle didn’t find/recognize their mobile phone/device.
  • Among owners who indicate having experienced a voice recognition problem, 67% say the problem was related to the system not recognizing/misinterpreting verbal commands.
  • The number of engine/transmission problems decreases to 24 PP100 in 2016 from 26 PP100 in 2015.
  • Seven of the top 10 problems are design-related. Design-related problems account for 39% of problems reported in the study (60 PP100), a 2-percentage-point increase from 2015.

The 2016 U.S. Vehicle Dependability Study is based on responses from 33,560 original owners of 2013 model-year vehicles after three years of ownership. The study was fielded from October through December 2015.

The study, now in its 27th year, examines problems experienced during the past 12 months by original owners of 2013 model-year vehicles. Overall dependability is determined by the number of problems experienced per 100 vehicles (PP100), with a lower score reflecting higher quality. The study covers 177 specific problem symptoms grouped into eight major vehicle categories.
Learn more about J.D. Power automotive studies at www.jdpower.com/cars/

Forbes: 15 New Cars To Avoid

Forbes: 15 New Cars To Avoid

Although it’s sad to think about, not every new vehicle is a winner. For those considering purchasing a new car, it’s important to know which vehicles you should avoid.

Forbes understands this, and recently released a list of the 15 vehicles they suggest buyers avoid based on things like initial quality and resale value depreciation. Vehicles on the list include the BMW 7 Series, Dodge Journey, Jeep Compass, Mitsubishi iMiEV, and Scion iQ – see below for the full list.

Vehicles to Avoid Buying for 2016
BMW 7 Series
Cadillac XTS
Dodge Journey
Fiat 500L
Jeep Compass
Jeep Patriot
Jeep Wrangler/Wrangler Unlimited
Lincoln MKS
Lincoln MKT
Mitsubishi iMiEV
Mitsubishi Mirage
Nissan Armada
Nissan Titan
Scion iQ
Smart ForTwo

Insurance claims for lost and stolen vehicles rise in 2015

Insurance claims for lost and stolen vehicles rise in 2015

Source: Edmonton,Alberta / 630 CHED

More and more cars seem to be disappearing in Alberta.

In 2014, there were 2,600 insurance claims for missing vehicles. Last year, that number jumped to 4,200, around a 60 percent increase.

The Insurance Bureau of Canada’s lead investigator, Dan Service, says there are two common types of vehicle theft.

“One is an opportunistic event where someone needs to get from point A to point B, or they’re going to commit a crime, and they’ll steal a vehicle, and then we’ll find it again,” explains Service. “The other kind are vehicles that are stolen for profit, generally by an organized crime group, and those ones, they disappear.”

Service says they don’t know if the number of claims is up due to the tough economy, with people making fraudulent claims to avoid making payments. However, he does says any case which raises red flags over fraud do get looked at very seriously, and the consequences are severe. (scb)

Nova Scotians not keen on tech that could save them money on car insurance

Nova Scotians not keen on tech that could save them money on car insurance

By David Burke, CBC News

Several insurance companies in Nova Scotia are offering a program that allows people to save up to 25 per cent on their car insurance, but few people are opting to take part, according to OTC insurance and the Insurance Bureau of Canada.

In order to apply for the discount, people have to volunteer to install what’s known as a telematics device in their car.

The small device is installed under a car’s steering wheel and records an individual’s driving habits for six months.

The device records things like driving distances, the time of day the car is driven, and sudden acceleration or braking, said Christine Gaudreau, the vice president of OTC insurance in Halifax.

At the end of the six months the device is turned over to the insurance company and it uses the data to determine if the user should get a discount on their insurance.

“We’ve been advertising quite heavily on the radio and seems like people are very leery about having this device in their vehicle for the insurance companies to look at,” said Gaudreau.

Depending on how well a person drives, the insurance company could give them up to a 25 per cent discount.

If a person drives badly, there’s no penalty and their rate will remain the same, said Gaudreau.

Despite all the advertising OTC has only had about 50 people sign up for the program.

“I think it’s probably more of a big brother situation, may be who knows?” said Gaudreau. “I’m not comfortable with it in my car.”

“But for some people that use their vehicle very little, it’s probably very beneficial to them.”

Telematics more popular in Ontario and Quebec

The Insurance Bureau of Canada is the national industry association representing Canada’s private, home, auto and business insurers.

It said Nova Scotia has been slow to adopt telematics compared with other parts of the country.

“Well there is a bit of a slow uptake from what we’re hearing so far in Nova Scotia. But that’s not abnormal for any new technology especially when it’s related to a product like auto insurance,” said Amanda Dean, vice president Atlantic with the Insurance Bureau of Canada.

Dean said she doesn’t have exact numbers breaking down how many people are using telematics across the country.

She said due to the privacy concerns involved with telematics, most companies have not released any figures detailing how many consumers are using the technology. But she said the insurance bureau is seeing definite trends.

“Well it’s existed in other parts of the country for some time and that was in response to consumer demand in those parts of the country. So there’s a bit more uptake let’s say in Quebec or Ontario for example,” said Dean.

She said on average insurance premiums are lower in Nova Scotia then they are in places like Ontario, and that can make people more willing to try telematics to get lower rates.

Privacy concerns

David Fraser is a privacy lawyer with McInnes Cooper in Halifax, he has mixed feelings about telematics.

“Once this information is generated, it exists and it can be used for other other purposes. It can be subpoenaed in connection for with a lawsuit, the police could get a search warrant and it just adds to the amount of digital debris that we leave behind in the run of the day,” said Fraser.

He also questions how accurate the information will be and how it will be interpreted.

But Fraser said the overall idea of charging people based on exactly on how they drive makes a lot of sense.

“If you are somebody who speeds regularly, who passes recklessly, who slams on the brakes or kind of spins his tires when he’s leaving as the light turns green, maybe that person should be recognized and have higher premiums,” said Fraser.

“But that’s part of a broader discussion we need to have.”

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