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Long-term loans: The fuel that’s powering Canadian car sales





This story is part of a series we’re calling Debt Nation looking at the state of consumer debt in Canada. Look for more coverage in the coming days, including on mortgages and credit card debt.

Canadians are buying more cars than almost ever before, but a closer look reveals they’re taking longer and longer to pay them off, too.

More than half of all new car loans are currently financed for  84 months — seven years — or longer. Industry standard used to be to amortize car loans over 60 months — five years — but as low interest rates settled in, payment periods began to stretch longer and longer to make monthly payments as low as possible.

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Longer terms allow the lender make more money in interest payments off each car loan.

Interest rates on car loans can range from zero per cent to the high single digits, depending on the make and model, time of year and the duration of the loan.

Market research firm J.D. Power Inc. collects sales data from more than 1,200 Canadian car dealerships across the country, and has noticed a troubling trend.

In a nutshell, “long-term financing has exploded in Canada,” the company’s automotive expert Robert Karwel said. At one point earlier this year, 55 per cent of all new car loans were for at least 84 months.

That can be than seven years to pay off a steadily depreciating asset, and it’s a growing piece of Canada’s debt puzzle.

The figure has since inched down a little to 51 per cent as of September, Karwel says, but for comparison purposes less than 10 per cent of American car loans are stretched out over that long a period.

Most are fixed-rate loans, but even so, if Canadians are five times more likely than Americans are to have a long-term car loan, they’re five times more vulnerable down the line as the cost of all their other forms of debt creeps higher.

“People are buying more expensive cars, and that’s been facilitated by [this type of] financing, because you can spread the payment over long enough of a time,” Karwel says.

Canadians are on track to buy two million vehicles this year, but more and more people are taking seven years or more to pay them off. (Eduard Korniyenko/Reuters)

The appeal for a car buyer is obvious.

The average price of a new car in Canada last year was just over $33,000 last year. If you pay cash up front, you’d likely get to knock off quite a bit of that total in terms of dealer incentives and instant rebates.

But if you finance it over seven years or more, it’s not hard to get the monthly payment to well under $500 a month, and even a modest down payment up front would result in much lower payments down the line.

Read more stories in our Debt Nation series:


  • WEDNESDAY | Full news coverage of Bank of Canada announcement on interest rates
  • THURSDAY | CBC business reporter Peter Armstrong takes a look at the current state of household debt in Canada; Don Pittis analyzes what the Bank of Canada news means for Canadians’ finances
  • FRIDAY | CBC business columnist Don Pittis explains why credit card debt can be a dangerous trap

Squeezing that same car into shorter-term loan saves money in the end but can add hundreds of dollars to the monthly payment.

Which is a big reason why B.C. resident Jakky McDonald jumped at the chance to get an 84-month loan when she bought a new Kia Forte earlier this year.

Jakky McDonald is more than satisfied with her seven-year car loan because the terms allowed her to pay off her student loan. (Glen Kugelstadt/CBC)

The 24-year-old wasn’t in a position to pay cash up front, so she knew she’d finance.

Based on what the dealer offered, she went with a seven-year payment plan, but the salesman pitched her on one extra enticement she couldn’t refuse. While checking her credit history, the salesman noticed that she had about $4,500 in student loans on her file. He suggested she roll those debt into her new zero per cent interest car loan.

“He said you might want to consider taking any other debt you might have that does have interest on it, you know, to this because it will save you money in the long run,” she recalls him saying.

She checked the fine print, and ended up doing exactly that. Six months later, she says she’d make the same call in a heartbeat. In McDonald’s case, the plan hinged on getting zero per cent on the loan.

True, she may have missed out on a few other incentives had she paid cash up front, but refinancing almost $5,000 worth of student loan debt in one fell swoop worked for her.

Albertans tend to have the biggest amount of car-related debt, partly because of the province’s penchant for expensive pickup trucks, TransUnion’s Matt Fabian says. (CBC)

“I opted for $4,500 cash back and then they wrote me a check for that,” she said. “And I just went and put it right on my loan.”

Her case clearly illustrates the selling point for consumers of some of these loans — but it’s not hard to come up with the down side.

Experts say that one of the biggest risks of such loans is that as the loan terms stretch into seven eight or even nine years, it’s not uncommon for the borrower to still owe more against the car than it’s worth, when they come to need another car in a few years time.

In financial parlance, that’s known as having negative equity, but in layman’s terms it feels a bit like having your finances turned upside down and underwater.

Dealers lure in buyers with incentives like zero per cent financing, but those enticements often come with incredibly long term payment periods and no rebates up front. (Daniel Acker/Bloomberg)

J.D. Power numbers suggest that more than 30 per cent of Canadians who trade in a car owe more on the car than it’s worth.

More often than not, that gap gets rolled into the new car loan in the form of new debt, which extends the payment plan even further and puts borrowers even more in debt when they need to do it again in a few years time. And the cycle goes on. And on. The longer the loan, the more likely it is to present a problem down the line.

“You’re just spreading that same risk over a … longer period of time,” says Matt Fabian, research director at credit reporting firm TransUnion.

While Fabian notes that delinquency rates for car loans are still low, long-term car loans are a growing piece of Canada’s debt picture — especially as Canadians are buying bigger, more expensive cars.

Most car loans come at a fixed rate, a fact that makes them somewhat insured from rate hikes to come. But that hides  the reality that hikes elsewhere can make even those car payments even hard to come up with every month.

Almost half of new car buyers trade in an old car to help finance the purchase of a new one, but almost a third of them are upside down on their old car anyway. (CBC)

“That car loan payment doesn’t increase, but if you have a variable rate mortgage and a line of credit, those do,” Fabian says.

Economist Benjamin Tal at CIBC agrees that car loans are really a matter for concern in as much as they fit into Canadians’ overall debt loads.

But he’s especially worried about people with negative equity — who owe more than their car is worth, even after years of paying it off.

Because consistently doing that means “you’re becoming more vulnerable to the risk of higher interest rates,” as he puts it.

That may sound bleak, but fortunately, J.D. Power’s Karwel says there’s an easy solution to the problem.

“For consumers at least, there’s a safety valve for all this … and the safety valve is … just keep your car. If you’re financing for 84 months, keep your car for 84 months and this problem goes away.”


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U.S. Charges Chinese Tech Giant Huawei, Top Executive





WASHINGTON (AP) — The U.S. Justice Department is filing charges against Chinese tech giant Huawei.

A 13-count indictment was unsealed Monday in New York charging Huawei, two of its affiliates and a top executive at the company.

The charges include bank fraud, conspiracy to commit wire fraud, and violating the International Emergency Economic Powers Act.

A separate case filed in Washington state charges Huawei with stealing trade secrets from T-Mobile.

Meng Wanzhou, the company’s chief financial officer, was arrested in Canada on Dec. 1. Prosecutors allege she committed fraud by misleading American banks about Huawei’s business deals in Iran.

Prosecutors charge Huawei used a Hong Kong shell company to sell equipment in Iran in violation of U.S. sanctions.

Huawei is the world’s biggest supplier of network gear used by phone and internet companies.

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24 Million Mortgage And Bank Loan Documents Leaked Online





A trove of more than 24 million financial and banking documents, representing tens of thousands of loans and mortgages from some of the biggest banks in the U.S., has been found online after a server security lapse.

The server, running an Elasticsearch database, had more than a decade’s worth of data, containing loan and mortgage agreements, repayment schedules and other highly sensitive financial and tax documents that reveal an intimate insight into a person’s financial life.

But it wasn’t protected with a password, allowing anyone to access and read the massive cache of documents.

It’s believed that the database was only exposed for two weeks — but long enough for independent security researcher Bob Diachenko to find the data. At first glance, it wasn’t immediately known who owned the data. After we inquired with several banks whose customers information was found on the server, the database was shut down on January 15.

With help from TechCrunch, the leak was traced back to Ascension, a data and analytics company for the financial industry, based in Fort Worth, Texas. The company provides data analysis and portfolio valuations. Among its services, the Ascension converts paper documents and handwritten notes into computer-readable files — known as OCR.

It’s that bank of converted documents that was exposed, Diachenko said in his own write-up.

Sandy Campbell, general counsel at Ascension’s parent company, Rocktop Partners, which owns more than 46,000 loans worth $4.4 billion, confirmed the security incident to TechCrunch, but said its systems were unaffected.

“On January 15, this vendor learned of a server configuration error that may have led to exposure of some mortgage-related documents,” he said in a statement. “The vendor immediately shut down the server in question, and we are working with third-party forensics experts to investigate the situation. We are also in regular contact with law enforcement investigators and technology partners as this investigation proceeds.”

An unspecified portion of the loans were shared with the contractor for analysis, the statement added, but couldn’t immediately confirm how many loan documents were exposed.

TechCrunch has learned that the vendor is New York-based company OpticsML. Efforts to reach the company were unsuccessful. Its website is offline and its phone number was disconnected from service.

In a phone call, Campbell confirmed that the company will inform all affected customers, and report the incident to state regulators under data breach notification laws.

From our review, it was clear that the documents pertain to loans and mortgages and other correspondence from several of the major financial and lending institutions dating as far back as 2008, if not longer, including CitiFinancial, a now-defunct lending finance arm of Citigroup, files from HSBC Life Insurance, Wells Fargo, CapitalOne and some U.S. federal departments, including the Department of Housing and Urban Development.

Some of the companies have long been defunct, after selling their mortgage divisions and assets to other companies.

Though not all files contained the highly sensitive and personal data points, we found: names, addresses, birth dates, Social Security numbers and bank and checking account numbers, as well as details of loan agreements that include sensitive financial information, such as why the person is requesting the loan.

Some of the documents also note if a person has filed for bankruptcy and tax documents, including annual W-2 tax forms, which are targets for scammers to claim false refunds.

But the database stored documents in a random order, and were not easily followable or presented in an easy to read or formatted way, making it difficult to follow from one document to another, said Diachenko.

We verified the authenticity of data by checking a portion of names in the database with public records.

“These documents contained highly sensitive data, such as Social Security numbers, names, phones, addresses, credit history and other details which are usually part of a mortgage or credit report,” Diachenko told TechCrunch. “This information would be a gold mine for cyber criminals who would have everything they need to steal identities, file false tax returns, get loans or credit cards.”

Although the documents originate from these financiers, one bank — Citi, which helped to secure the data — said it had no current relationship with the company.

“Citi recently became aware that a third party, with no connection to Citi, was storing certain mortgage origination and modification documents in an unsecure online environment,” said a Citi spokesperson. “These documents contained information about current or former Citi customers, as well as customers from other financial institutions. Citi notified law enforcement, initiated a thorough forensic investigation and worked quickly to ensure the information could no longer be publicly accessed.”

Citi confirmed that “third party is a vendor to a company that had purchased the loans and we have found no evidence that Citi’s systems were compromised.”

The bank added that it’s working to identify potentially affected customers.

Dozens of other companies are affected, including smaller regional banks and larger multinationals.

A Wells Fargo spokesperson said the data was obtained by Ascension from other entities that purchased Wells Fargo mortgages. HSBC said it was investigating if any of its customers’ data, including past customers, and confirmed it had “no vendor relationship with Ascension since 2010.” When reached, CapitalOne did not comment at the time of publication. A Housing and Urban Development spokesperson did not respond to a request for comment. The department is currently affected by the ongoing government shutdown. If anything changes, we’ll update.

It’s the latest in a series of security lapses involving Elasticsearch databases.

A massive database leaking millions of real-time SMS text message data was found and secured last year, as well as a popular massage service and, most recently, AIESEC, the largest youth-run nonprofit for working opportunities.

Updated at 5pm ET: with comment from HSBC and additional details regarding OpticsML.

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Brandon Truaxe, Founder of Deciem Skin Care Company, Is Dead At 40





Brandon Truaxe, the former CEO and founder of the skin care company Deciem, has died at age 40.

An executive at the company confirmed Truaxe’s death in an email to Vox, which also obtained the email sent by acting CEO Nicola Kilner to Deciem’s staff.

“I can’t believe I am typing these words. Brandon has passed away over the weekend. Heartbroken doesn’t come close to how I, and how I know many of you will be feeling,” read the email, which also indicated that the company’s “offices, warehouses, factories and stores” would all be closed Monday to “take the time to cry with sadness, smile at the good times we had, reflect on what his genius built and hug your loved ones that little harder.”

A spokesperson for the Estée Lauder Cos., a minority investor in Deciem, told HuffPost: “Brandon Truaxe was a true genius, and we are incredibly saddened by the news of his passing. As the visionary behind Deciem, he positively impacted millions of people around the world with his creativity, brilliance and innovation. This is a profound loss for us all, and our hearts are with Nicola Kilner and the entire Deciem family.”

Representatives of Deciem did not immediately respond to HuffPost’s request for comment, but they did post a heartfelt message about Truaxe on their Instagram page.

“Thank you for every laugh, every learning and every moment of your genius. Whilst we can’t imagine a world without you, we promise to take care of each other and will work hard to continue your vision. May you finally be at peace. Love, (forever) your DECIEM,” they wrote.

The Toronto-based company, nicknamed “The Abnormal Beauty Company,” was called Deciem after Truaxe’s intention to launch 10 lines under the brand’s umbrella, though the brand has now exceeded that. Arguably its most famous line, The Ordinary, has gone on to achieve near-cult status for its affordable prices and ubiquity. The line is currently sold at Sephora.

As for Truaxe, he has had a multitude of highs and lows with the company. On the heels of a near-rave review in The New Yorker in early 2018, Truaxe began to appear erratic on social media and use the company’s pages to post bizarre messages and videos. By the end of the year, Estée Lauder took legal action against him, and Truaxe was ousted by a judge as CEO. Kilner has been the acting CEO ever since. Additionally, Truaxe was issued a restraining order by several executives at Estée Lauder.

While the cause of Truaxe’s death is currently unknown, a report published in Canada’s Financial Post in December 2018 indicated that he’d been previously hospitalized for mental health issues several times and had problems with drug use. 

The response on social media has been widespread, as many fans of his skin care brand mourn his death:

This article has been updated with comment from Estée Lauder Cos. and a message posted by Deciem.

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