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Lemon Car Laundering-An Atlanta Story

On Behalf of | Jul 22, 2016 | Consumer Lawyer, Firm News, Georgia Fraud Lawyer, Lemon Car Cases

Consumer advocates call it “lemon laundering.” It is the resale without proper disclosure of cars with a history of chronic problems which required the manufacturer to buy it back under the lemon law.  This occurs all too frequently in Georgia. We have had success in pursuing Georgia automobile dealers for this conduct. We have handled cases involving Nissan, GM and Hyundai vehicles.

We have all heard of the Lemon Law. This law, applicable to new cars, provides that if the consumer has a recurring problem, or if the car is out of service for 30 days or more in a specified time, then the consumer may make the manufacturer buy the car back. When the car is bought back, what happens? These cars will typically be less valuable than other non lemon cars. Most consumers would steer away from a car that is known to have a history of problems.

Manufacturers typically administer repairs to the car then resell the car at large “closed” auctions where only dealers of that type of car may buy them.  These cars are typically low miles, recent model cars.  Most states require that the manufacturer put a brand on the title of the car and provide notice to the first consumer purchaser of the car after the repurchase. Texas requires that a “hanger” be placed on the car advising it was a lemon law buyback.  Texas and Georgia require that the new purchaser sign a form mandated by law advising them the car was a lemon.

One way to launder a lemon is to take it to a dealer-only auction out of state, says Rosemary Shahan, president of Sacramento-based Consumers for Auto Reliability and Safety (CARS). Frequently, vehicles repurchased in states that have “title branding” laws are auctioned in states that don’t have those laws (Illinois does not), where they get “clean” titles, Shahan said.  Other methods include hiding the “disclosure” in a stack of documents to be signed or calling the customer to return after the purchase to sign documents, claiming there was an error, or “we missed one document”, then having the customer sign the disclosure without the customer ever realizing it. We have seen a  pattern of this occurring at a specific South Atlanta dealership.

The Georgia Lemon Law, OCGA 10-1-790 provides:

(a) No manufacturer, its authorized agent, new motor vehicle dealer, or other transferor shall knowingly resell, either at wholesale or retail, lease, transfer a title, or otherwise transfer a reacquired vehicle, including a vehicle reacquired under a similar statute of any other state, unless the vehicle is being sold for scrap and the manufacturer has notified the administrator of the proposed sale or:

(1) The fact of the reacquisition and nature of any alleged nonconformity are clearly and conspicuously disclosed in writing to the prospective transferee, lessee, or buyer; and

(2) The manufacturer warrants to correct such nonconformity for a term of one year or 12,000 miles, whichever occurs first.

GA. COMP. R. & REGS. §122-23-.02. Return, Transfer and Resale of a Reacquired Vehicle provides:
(1) A reacquired vehicle shall not be transferred, leased, or sold, either at wholesale or retail, unless the following conditions are met:

(a) At the time of each transfer of the reacquired vehicle, the transferor shall provide the transferee the form required by Rule 122-23.01.
(b) The ultimate consumer must be provided the opportunity to read the form in its entirety before purchasing or leasing the reacquired vehicle.
(c) Both the transferor of the reacquired vehicle and the ultimate consumer must sign the form at the time of the sale or lease to the ultimate consumer. The original of the form shall be provided to the ultimate consumer. The transferor of the reacquired vehicle must send a copy of the completed and dated form to the Administrator within thirty (30) days from the date of the sale or lease.

(2) The manufacturer shall activate the warranty required pursuant to O.C.G.A. § 10-1-790(a)(2) at the time of the sale or lease of the reacquired vehicle to the ultimate consumer. The manufacturer shall also notify the Administrator that the warranty has been activated within ninety (90) days of the sale or lease.
Authority O.C.G.A. §§ 10-1-790 and 10-1-795

We located a dealer selling lemon buyback cars here in Georgia without proper disclosure. It seems that they have sold hundreds of cars without following the rules for presale disclosure of the lemon history.

After our discovery, the Georgia Office of Consumer Protection initiated an investigation and entered into a consent decree with the dealer. The terms include

The Attorney General alleges that Respondent has used unfair or deceptive acts or practices in the conduct of consumer transactions and consumer acts or practices in trade or commerce as declared unlawful by O.C.G.A. Sec.10-1-390 through 407. Specifically, the Attorney General believes that Respondent may have violated the FBPA, the Georgia Lemon Law, O.C.G.A. Sec.10-1-780 through 798, and various provisions of the Georgia rules and regulations implementing the Georgia Lemon Law by allegedly engaging in the following acts or practices:

A. Prior to June 2015, failed to deliver to each Ultimate Consumer (as defined below in Section VIII, A, 1), at the time of transfer of a reacquired motor vehicle, of the original of the form required by Ga. Comp. R & Regs. 122-23-.02 to be retained by the consumer as required therein. Failure to comply with this rule is a violation of the Georgia Lemon Law’s requirements for the transfer of reacquired vehicles, O.C.G.A. sec. 10-1-790(a). Pursuant to O.C.G.A. sec.10-1-793(a), failure to comply with the Georgia Lemon Law also  constitutes a violation of the FBPA’s general prohibition against unfair and deceptive acts or practices, O.C.G.A. sec 10-l-393(a).

B. During certain time periods after December 2014, providing to consumers, along with other transaction documentation, copies of a “Manufacturer Buyback Program” handout, attached hereto as Exhibit “4,” misstating the nature, risks and benefits of purchasing a reacquired vehicle. This alleged conduct is a violation of O.C.G.A. sec. 10-1-393(a) and  sec10-1-393(b)(5), which prohibits representing that goods have characteristics and or benefits that they do not have.

C. Failing to ensure that each form required by O.C.G.A. sec 10-1-783(b) (Lemon Law Rights Statement) was fully completed pursuant to Ga. Comp. R & Regs. 122-20-01. This alleged conduct is a violation of O.C.G.A. sec. 10-1-393(a).

It is indeed gratifying when your work brings to light a pervasive fraud which can then be stopped.

Links to other articles

http://www.ohiolemonlaw.com/buyer-beware/laundered-lemons/

http://articles.chicagotribune.com/2002-06-25/business/0206250055_1_lemon-laundering-dealership-gm-dealer

http://www.nytimes.com/2007/08/26/automobiles/26LEMON.html?n=Top%2FClassifieds%2FAutos%2FTopics%2FMotoring&_r=0

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