Auto Fraud
Anyone who has ever visited a car dealership to buy or lease knows what an unpleasant experience it can be. I compare it with going into a jungle; only a hunter is, at least, armed with a rifle, compared to a consumer who has little or no protection but his wits. Even the most sophisticated consumers fall prey to the dealership’s time-tested organized and systematic approach geared to wear-down and beat up all who venture onto the car lot.
DOES THE FOLLOWING SOUND FAMILIAR?
The ordeal begins when you drive-up to the lot, get-out and begin to look for a car. Barely before you step out of your car and begin to look you are approached by a salesman (called the “meet and greet”). You may decide on a car and if you’re lucky it is a car that you select and not one selected by the salesman. You decide to go for a test drive. At that point you may want to take a long look at your own car because it may be the last time you ever see it. When you get back from your drive don’t count on getting them to quote you a price even if you ask for one. More than likely, you will be asked “what monthly payments you can afford.” This is their preferred approach to negotiating financial terms. The salesman will generally disappear to meet with the sales manager who will almost always tell the salesman to get more money down or raise the price. Any price that you agree to and sign for is binding on you but not on them. One thing we’ve noticed a lot lately is that the price seems to change from the time it is verbally quoted to the point it is eventually transferred to the paperwork you are asked to sign. It is absolutely critical that the price put down as either the “cash price” on the buyer’s order or the “amount financed” on the retail installment sales contract closely match the price verbally quoted and agreed upon. This is where the element of trust is so frequently violated and which we find heartbreaking. NEVER TRUST. If you see a discrepancy you must inquire. You might be told something like “Oh, that figure also includes the finance charge.” No, the finance charge is required to be disclosed separately from the cash price. The figure they are falsely referring to is also required to be separately disclosed as the “total of payments” which includes both the cash price as well as the finance charge.
After many hours when you are sufficiently mentally and physically exhausted and your resistance is waning, you are ushered into a smaller area where the light is not as bright and you find yourself sitting across from an F&I (finance and insurance) person who is in the process of printing out numerous documents for you to sign. He is in a hurry. If you haven’t already been offered a soft drink before you meet the finance person, you will be at that point. While you don’t have to pay for it, this could turn-out to be the most expensive soft drink you ever had. If you are a couple you can count on a large plant or object placed between the two of you to discourage communication and observation.
IT MAY SURPRISE YOU...
…but dealers make very little profit from the sale of a car. Most of their profit comes from the interest rate, sale of insurance and other products such as credit life and disability insurance, service contracts or extended warranties and GAP insurance. Although these products are optional, you may be told that you have to buy one or more of them to obtain credit, and they are added to the price upon which the finance charge is calculated. The paperwork is presented with the instruction to sign here and sign there with little opportunity to read it, and no opportunity to understand it.
By this time you would sign anything to leave and that’s exactly what they’re counting-on. When you get home and finally review all the paperwork you, may find it differs from what you were promised. Unfortunately, when people discover they’ve been victimized they are too embarrassed to take action. The important thing is not to be ashamed because there is nothing to be ashamed about. Everything a predatory dealership does is designed to deceive you. We’ve seen college professors and engineers swindled in this way.The problem with most consumers is that they assume they are dealing with seemingly honest people whose word has some meaning and value to them. Not true. There’s something about owning a brand new vehicle which makes reasonably intelligent and educated people let their guard down. A predatory dealership is built on fraud and deception. While you are despairing your salesman is sitting around with his salesman buddies laughing about how he “knocked your head off” (an expression actually used by sales people). It doesn’t matter that the buyer has a physical or mental disability which prevented him or her from being able to protect themselves. The engine that runs this business is profit and greed. Fraudulent profit.
DO NOT DESPAIR
Fortunately, our lawmakers don’t live in caves. They know what goes on and have enacted laws which protect consumers after the fact. The most common question I am asked by consumers is whether there is a three day right of cancellation. Unfortunately, there isn’t, at least in Ohio and Kentucky. However, all states allow you to sue under common law (non-statutory claims) for fraud where victims can obtain punitive or exemplary damages if the fraud is serious enough. The dealer’s attorney will often argue that the written contract will take priority over any false verbal representations made to you by the sales representative. This argument is incorrect because fraud, being a tort and not a contract claim, will survive independently of any contract claim.
Because fraud may sometimes be difficult to prove all states have consumer protection laws which provide you the relief you need if you are patient. In Ohio the Consumer Sales Practices Act allows you to prevail as long as there is a misrepresentation of fact. Unlike fraud, the consumer doesn’t have to prove that the person who made the false statement knew that it was false; only that the representation was false. The same is true with Kentucky’s Consumer Protection Act. As a remedy they allow you to choose between canceling the deal (rescission) or keeping the deal but being able to sue for monetary damages. In both instances you are entitled to recover your attorney fees. The Ohio Attorney General has expressly enacted rules and regulations which govern the sale and advertisement of motor vehicles which provide that if any of these rules are broken a consumer may sue for triple his or her actual damages.
SPOT DELIVERY OR YO-YO SCAM
There are too many dealer scams to list in this short summary. One of the most common is the Spot Delivery or “Yo-Yo” Sale. In this scenario a dealer enters into a retail installment sales contract with the customer and becomes the actual creditor-seller. It then delivers the vehicle to the customer. At some point thereafter the dealer attempts to sell or assign that contract to a third party finance source. If it is unable to sell or assign the deal it will contact the customer and demand that the customer return the vehicle, therefore, lying to the customer that it was unable to obtain financing. In fact, it already agreed to finance the deal (hence Yo-Yo). The theory behind this is that if the customer has had the vehicle in his possession for some time and where it has been shown to friends and family he or she will likely “fall in love” with it and will do anything to keep it. Knowing this, the dealer may also use the spot delivery scam to extort additional sums from the customer either in the form of a larger down payment or in raising the monthly payment terms from those it agreed to earlier. We have had some success in these cases arguing that spot delivery is per se a violation of the federal truth-in-lending act when the spot agreement is not integrated into the retail installment sales.
To Buy or Lease
Often people will ask whether it’s best to buy or lease a car. The Answer is that it depends. The best option, in my opinion, is to buy assuming you can afford to make a sizable down payment and significant monthly payments thereafter. And, of course, the larger the down payment the lower the monthly payment. If you are a smart and do your research you can usually negotiate a good deal with the dealer. However, unless you have the means, a lease can be a decent option. A lease will allow a consumer to put little or no money down and also provide for low monthly payments. But, other than those 2 obvious benefits, keep-in-mind that your ability to negotiate the terms of a lease is significantly more limited than when you buy. Leases are significantly more profitable for the dealer than the average sale so you will find the dealer is more eager to steer you in that direction. The obvious fact that stands out is that at lease termination you will no longer have a vehicle. Of course, this is not a problem if, from the outset, you intend to surrender the vehicle and enter into another lease which is what leases are designed to do. For older persons, however, this can be a problem because, for a person living on a fixed income, it can be difficult to obtain financing in order to purchase a vehicle.
One of the more inflexible terms in a lease is the price which you pay at lease termination. This figure is dictated by the leasing company or bank with which the dealer does business and over which the dealer has no control and, therefore, is non negotiable. Unfortunately, many people believe that at lease end they can re-negotiate that figure. Not true. Rather than negotiate for any reduction, you will discover that the vehicle will be re-taken and sold to someone else.
Leases are extremely complicated and the average consumer will find the terms foreign to them and difficult to understand; especially, if they are inclined to think in terms of how they’ve purchased and financed a vehicle in the past. It is extremely easy for an unscrupulous dealer to take advantage of the consumer. For example, any trade or down-payment you might make can be made to easily disappear. You are much better off selling your trade to private individual.
Finally when it comes to cost, typically, if one makes all the lease payments and then agrees to purchase the vehicle at lease termination which will usually require financing, the total amount one will end-up paying will far exceed the total of payments one will make if the vehicle was simply purchased and financed from the outset.
