Dealer Fraud

Odometer fraud is one of the oldest forms of auto fraud. Consumers are clearly willing to pay more for vehicles with lower mileage, thus creating an incentive to rollback the mileage on odometers. Odometer fraud can be accomplished in various ways: physically repositioning the numbers, changing the mileage reading electronically, replacing the entire odometer, and/or disconnecting the odometer. Dealers sometimes orally misrepresent the mileage and put the odometer reading on the trip meter.

To avoid this practice, you should closely read the odometer. The average person drives approximately 12,000 miles per year. Is the mileage on the vehicle way below the average? You may want to ask the dealer to explain why. You should also get a vehicle history report. You can get summary title reports from service providers such as: Carfax (www.carfax.com), AutoCheck (www.autocheck.com), and CarFraud.com (www.carfraud.com). The history reports usually include information on vehicle mileage. A major discrepancy between the mileage reported and the actual mileage could signify fraud (especially if the actual mileage is lower than previously reported).

If you suspect that you have been a victim of this type of fraud, you may wish to contact the DMV and/or consult with an attorney who specializes in auto fraud.

Believe it or not, there are usually no hidden tricks to these super-low financing rates. They truly are great deals offered by the manufacturers to help the dealers move out certain models which may be lagging in sales. There are, however, some things you should be aware of:

• Only about 20% of car buyers actually qualify for these special loans. You need a good credit score (usually 680 or higher).
• The dealership ends up making far less money on these special financing deals than they would on regular financing, so the dealership’s Business Manager may try to convince you that you don’t qualify for the low rate. If you know that your credit score is good, don’t fall for that.
• You usually have a choice between the low financing rate and a rebate. For buyers who need the cash for their down payment, the rebate may be a better way to go.
• These special low-financing rates are sometimes only applicable to short-term auto loans (2-3 years) and do not apply to the typical five-year loans that most buyers prefer.

Most consumers know that people with bad credit are generally charged a higher interest rate for financing. However, a surprisingly large percentage of consumers, including many auto customers, have no idea what their credit report looks like.

This lack of knowledge facilitates fraud. While most dealerships will deal honestly with customers, some dealerships will defraud customers by (falsely) telling them that their credit is terrible – as a way of justifying exorbitant interest rates. The scam makes sense: people are willing to accept interest rates if they think that the rate is based on their credit. Unfortunately, this is not always the case. In the last few years, various class actions have been brought (both nationally and in California) alleging that minorities pay significantly higher financing, even when the numbers are adjusted to statistically account for differences in credit. In short, minorities with equally good credit often pay more.

If you’re thinking of financing a vehicle through a dealership, you should consider taking the following steps:

(1) Obtain a copy of your credit report and be familiar with both your score and your credit history.

(2) Compare financing rates at local banks and credit unions. Many will offer competitive rates much lower than dealerships.

(3) Write down your expenses, go through your budget, and be clear on what you can afford.

(4) Go in knowing what interest rate is fair based on your credit history, the age of the car, and how long you are looking to finance.

(5) If the dealership makes any statements about your credit that you believe are questionable, ask to see your credit report.

(6) Remember that interest rates are negotiable, and that the rate quoted to you by the dealership probably includes a discretionary markup. Feel free to negotiate.

Title washing allows dealers and individuals to remove salvage branding from car titles to minimize their losses. Titles are washed by transfering a salvaged vehicle to a state that doesn’t recognize the brand. When the state issues a new title, it may no longer show that it had been salvaged. If not, the seller will move it from state to state until the branding is gone. When it is, the vehicle’s history will have been “washed” clean.

We all know what it means to be upside-down in the physical sense. The blood rushes to your head and it’s hard to breathe, all because it’s not the natural state of the human body. In vehicular terms, being upside-down is a completely different, yet equally unpleasant phenomenon. When it comes to your car, truck, minivan or SUV, being upside-down in your car loan is not a physical problem, but a financial one.
In car dealership slang, it simply means that, late in the life of your auto loan, you still owe more money to your car financing organization than the vehicle is now worth.

Here’s an example. You buy a $30,000 car with $2,500 down, finance it over a common 60-month term, but in three years you decide you want to sell it. Your payoff on the auto loan is $18,000, but your car is only worth $15,000 at this time. This means you are $3,000 upside-down, because in order to pay off your original auto loan, you would need to make up the difference between what your car is worth ($15,000) and what the car loan payoff is ($18,000).
Being upside-down in an auto loan isn’t all that uncommon these days, although there are no published industry figures. Jim Moynes, vice president, automotive marketing for Ford Motor Credit Company, one of the world’s largest auto finance companies, says that “negative equity,” or being upside-down, depends to a great extent on how you structured your purchase in the first place.
He says, “A large portion of the vehicle’s depreciation occurs in the first two to three years of ownership, regardless of make or model. Loans amortize over the term of the loan you took out, and typically there’s a period there where the depreciation outpaces the amortization. When you’re in that period, you’re in a position where you have negative equity. Once your amortization crosses over that line of the depreciation curve, which typically flattens out as the vehicle gets older, you get back to equity.”

Most dealerships that arrange financing do not provide the credit themselves. These dealerships assign the contract to a finance company, and receive a markup (often called a “dealer reserve”) if the interest rate on the contract is above the bank’s “buy rate.” What customers don’t often realize, however, is that the interest rate quote they receive is discretionary. Dealerships can, and often do, quote interest rates significantly higher than the bank’s “buy rate.” The markup is their profit.

Some dealerships, however, take advantage of customers by misrepresenting (or implying) that the interest rates they quote come directly from the bank and are non-negotiable. This is misleading because dealerships generally have discretion to quote any interest rate up to 3 percentage points above the bank’s “buy rate.”

The lesson for consumers is that financing rates are always negotiable. Dealerships that imply their hands are tied on a particular financing rate are probably not being honest with you.

A common complaint among auto fraud victims is that the dealership charged them for a service contract that they did not want or authorize. Sometimes, the salesperson will imply that the warranty is part of the deal, even though the customer is actually being charged for the service contract.

To avoid this auto fraud, read every line of the contract carefully. Make sure you closely examine the SERVICE CONTRACT line of the contract.

If you find that you have unknowingly purchased a service contract, immediately contact the service provider (there should be some documents referring to the service contract included with the sales contract). You can usually cancel such contracts and be refunded the unused portion of the contract. File a complaint with the Better Business Bureau and make a complaint with the Department of Consumer Affairs.

Another form of fraud is the fraudulent practice of not crediting the full amount of the customer’s downpayment. This tactic may occur when a customer pays the downpayment in more than one installment or pays it in cash and forgets to get a receipt.
Make sure you closely examine each line of the TOTAL DOWNPAYMENT section of the contract. Pay particular attention to the Deferred Downpayment (payments to be made at a later date) and Cash lines. Were you credited for the full amount you paid as a downpayment? When negotiating with the dealer make sure that the amount of the downpayment is a specific amount that both of you agree upon. And make sure to get a receipt for any payment that you do make.

Title washing hides the history of a vehicle that’s been salvaged. Salvage titles are assigned to cars that are deemed a total loss by insurance companies. This is also referred to as “branding” a vehicle. This doesn’t mean the car can’t be driven but vehicles branded with salvage titles have lower market values and are difficult to sell. Title washing washes away a vehicles branding. Once the branding is eliminated, the car’s value goes up and it’s a lot easier to sell. You can see why so many car owners might be motivated to “wash” their titles.

While most dealerships clearly explain the APR involved in a contract, some dishonest salespeople will deceive customers into believing that the APR on the contract will go down in the future. When asked about the APR, some dealerships trick customers by telling them that the interest rate is only temporary, and that the dealership will “refinance” the customer after a certain period of time if the customer makes payments on time.

Don’t be fooled. Dealerships usually do not have the ability to refinance a contract since the contract is assigned to an independent finance company. Unless the consumer takes the initiative and obtains refinancing on his/her own, the APR on the contract will, in all likelihood, be the APR that the customer will have for the life of the loan. If you hear this sales tactic, chances are you are being scammed. Contact the Department of Consumer Affairs, or see a lawyer.