Automobile Fraud

A surprising number of new and used car sales involve dealer fraud, deception and unfair business practice. Consumer fraud by an auto dealer is common for several reasons.

For one thing, American car expenditures amount to hundreds of billions of dollars a year. Furthermore, car sales are complicated transactions. They involve state titling and registration laws, trade-ins, financing, leasing, physical damage and liability insurance, credit insurance, options, and other fees. Car dealers take advantage of the complexity of car sales when dealing with consumers, resulting in fraud.

According to the National Consumer Law Center, auto dealer profits on sales of new cars are small. Dealers make more money on the financing, insurance, service contracts and repairs, and on the sale of used cars. This results in a huge financial incentive to “push the envelope” and increase dealer profits.

Dealer employees, especially Finance and Insurance (F&I) staff and Management are driven by commission. The higher the profit from an automobile sale, the more they make. The more cars sold, the higher the commissions.

Finally, and perhaps most importantly, there is a culture at many auto dealers that stealing from the consumer is okay. The rules of the game are “buyer beware.”

Used Car Fraud: The Real Story Behind Carfax

Car dealers often use Carfax as a tool to reassure consumers that the car they are buying does not have a negative history. However, what dealers don’t tell consumers is that Carfax information is incomplete and not necessarily up to date.

As auto fraud attorneys, we have seen dealers increasingly take advantage of the lag time between an accident and the information getting to Carfax. The dealer will knowingly buy a car at auction that has been wrecked and market it as a clean Carfax car. The dealer knows that the wreck history is not yet showing up on Carfax. http://www.cbc.ca/marketplace/2009/vehicle_history_reports/main.html. A more comprehensive vehicle history report is available from http://www.autocheck.com.

Auto Warranty Fraud: The Window Sticker

We often see car dealerships represent that a car is of a certain quality, including that it may be covered by a “warranty” of the “remainder of the factory warranty.” The FTC Used Car Buyer’s Guide Regulations require that there be a window sticker affixed to the window of every used car shown for sale at a dealership and that the window sticker accurately list whether the car has a warranty or is sold “as is” or without warranties.

Dealers will often remove the window sticker that was on the car with the warranty representation and then have the customer sign a “window sticker” that has been marked “as is.” When the customer returns later for warranty service, he or she is shown the latter form and the warranty is denied.

Odometer Fraud

Odometer fraud is a type of auto fraud that involves tampering with the odometer so that its reading is less than the actual mileage of the automobile. Odometer fraud can also refer to a failure to disclose the fact that an odometer has exceeded its mechanical limits. For example, the car shows 55,000 miles on the five-digit odometer, but the car has really traveled 150,000 miles.

Federal and state laws regulate what mileage information must be available to the consumer and how that information should be disclosed. The law also requires that the disclosure be made on the title, if available. The law is designed to allow the consumer to actually see the title. However, auto dealers frequently do not allow their customers to see the title even when it is available. The automobile history is hidden from the customer.

Auto Fraud Involving Wrecked & Salvaged Autos

More frequently than one may believe, auto dealers sell used cars that have been wrecked or salvaged without disclosing this to the consumer. Dealers sometimes sell used cars that were stolen and later recovered without disclosure.

Such car dealer fraud can have serious consequences. For example, used cars may be sold without air bags because they are expensive to replace and often left off of repaired wrecks. Here in the Southeast, we are seeing many automobiles that were flooded in either Louisiana or Georgia that are being sold without disclosure.

Protect yourself from purchasing a wrecked or salvaged automobile by learning how to identify a damaged used car.

Bait and Switch Fraud

Bait and switch is a type of automobile fraud that involves advertising a particular automobile make or model or finance terms and then claiming that it is no longer available. We saw significant bait and switch with regard to the availability of “Cash for Clunkers” government rebates for trade-in vehicles.

Yo-Yo Car Sales

The "yo-yo" or "spot-delivery" sale typically proceeds in the following way:

The consumer negotiates and believes a vehicle’s installment contract or sale is final, and the dealer gives the consumer possession of the car "on the spot." The dealer leads a consumer to believe that all the conditions necessary for the proper sale of the vehicle have been met by the consumer and that the vehicle has, in fact, been sold on credit issued by the dealer.

Usually, the purchasers and dealer have executed all the necessary documents to complete the transaction, including buyer’s order, retail installment contract, Truth In Lending Disclosures, application for title, and odometer disclosures.

The dealer later tells the consumer to return the car because the financing (which the consumer understood and had been led to believe was approved) had fallen through. If the consumer does not return the vehicle or agree to rewrite the transaction on less favorable terms, the dealer repossesses the vehicle.

Often, the dealer has already sold the trade-in vehicle. This leaves the consumer in the disadvantageous position of not having any transportation unless he or she agrees to the less favorable terms. Also, the dealer will rely on the customer’s attachment to the car and the fact that he or she has already shown it off to others. These factors combine to pressure the customer into signing the less favorable deal.

Other Deceptive Car Sales Techniques

Used cars often have documented histories of mechanical problems or other history that would be important to a car buyer. “Lemon laundering” is the resale of a car that was repurchased by a manufacturer or dealership from a consumer under one of the modern lemon laws. We are even seeing examples of lemon cars being sold as certified pre owned vehicles.

Another typical dealer sales pitch is that a used car has only had one previous owner who took excellent care of the car. In reality, that car has had more than one owner or was a rental car.

For wrecked, salvaged, flooded and misrepresented cars, the dealers do not inform the salesperson about the cars they are selling. Salespeople will cross the line between what may be permissible "puffing" by a retailer and what is considered auto fraud. Puffing is “a statement purporting to be merely the seller’s opinion or commendation” of the car. Auto fraud would be making a representation about a quality of a car in response to a direct question.

Fortunately, the law will protect a consumer from a dealer who knows about the history of the car even if the dealer’s salesperson did not know the history.

A dictionary of car dealership terminology has been created by Ohio consumer lawyer, Ron Burdge.

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