In a Saturday editorial board piece, The New York Times scolded the auto loan industry, proclaiming that its practices are a “bastion of predatory lending and racial discrimination.” And emulating its favorite leftist, Massachusetts Sen. Elizabeth Warren, the Times relies on a thoroughly discredited “study” that features the unsupported claim that auto loans cost Americans nearly “$26 billion” in unfair charges a year.
Like all liberal institutions, The New York Times looks out from its ivory tower thinking that everything it sees should be heavily regulated. Such is the case with this editorial calling for stricter federal control on the auto loan industry. Unfortunately for the veracity of its claim the Times errs in using a discredited “study” to prove its contention that Americans — especially Americans of color — are getting ripped off.
“Predatory car loans, like abusive mortgages and exorbitant student loans, are also an economic drag,” the paper of record proclaims. And as an example of that drag, the paper regurgitates the claims from a study released by an advocacy group called the Center for Responsible Lending (CRL).
In 2011 the CRL released a study entitled “Under the Hood: Auto Loan Interest Rate Hikes Inflate Consumer Costs and Loan Losses.” In the study the CLR claimed that predatory loan practices costs borrowers $25.8 billion in unfair charges every year.
The Times cites the study, insisting that, “A report by the Center for Responsible Lending estimated that dealer markups on loans made in 2009 would cost consumers an additional $25.8 billion over the lives of their loans.”
But is this nearly $26 billion in losses real? Warren sure thinks so. In a speech at the Levy Economics Institute of Bard College’s 24th Annual Hyman P. Minsky Conference, on April 15, 2015, Warren called for harsh regulation to be brought to bear on the auto loan industry. During that speech she cited the same study and the same $26 billion loss.
The number made the “Fact Checker” at The Washington Post curious. So, Glenn Kessler and his crew checked out the CLR study to see if the $26 billion panned out.
It turns out that not only is the number unprovable, the study itself is so flawed as to be utterly worthless. The CLR study uses hit-or-miss data from only 25 lending agencies out of the industry wide number of 175 and only included one of the top 20 lenders at that. As Kessler notes, the data is derived from a “subset of a subset” making the study’s conclusions “practically meaningless.”
The CLR study inflates numbers, sometimes by more than half, and even makes guesses in many other cases. Finally, the method that CLR used to reach the nearly $26 billion figure goes unexplained in its study.
Kessler and his fact checkers ultimately gave Warren and this flawed study its worst rating of four Pinocchios. The study is clearly false and anyone, like the Times, using its findings is relying on biased claims, not science to prove the point that auto lenders are “predatory.”
Follow Warner Todd Huston on Twitter: @warnerthuston. Email the author at email@example.com.