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.

One of the most common forms of auto fraud is failing to disclose preexisting and/or known problems with the vehicle. Cars often have documented histories of mechanical problems. Some dealers try to sell vehicles with known mechanical problems by either misrepresenting the car’s condition or simply by not telling the prospective buyer about these problems. Do not be fooled just because a vehicle appears cosmetically clean and mechanically sound. If the vehicle you are interested in comes without a warranty or “as is,” you should be extra cautious.

One form of hiding a vehicle’s history is called “lemon laundering.” Many states, including California, have lemon laws, which essentially require a manufacturer to repurchase a defective vehicle. Lemon laundering is the resale of these defective vehicles without disclosing their prior history. A possible sign of lemon laundering is when a car that is close to new is being sold as used.

Other forms of this type of fraud include misrepresentations about prior owners or prior use. For example, dealers often tell consumers that a car has only had one owner, when in fact it has had multiple owners. Dealers may also conceal the fact that a vehicle was a rental car. Dealers may also hide a vehicle’s history as stolen and recovered; stolen vehicles sometimes have undetected and unrepaired problems.

To avoid this practice, you should have the vehicle you are interested in inspected by a mechanic and/or an auto body repairperson before you buy it. You should also get a vehicle history report. Look for evidence of a questionable history. For example, was the vehicle owned by multiple owners or a rental car company? Does it appear as if a manufacturer repurchased the vehicle? In more complicated cases a complete title history may be obtained from the DMV.

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

One of the most common forms of auto fraud is the practice of misrepresenting the true condition of the vehicle. Dealers often tell buyers, “The car is in excellent condition.” Unfortunately, they are not always telling the truth. Do not be fooled just because a vehicle appears cosmetically clean and mechanically sound. If the vehicle you are interested in comes without a warranty or “as is,” you should be extra cautious.

Vehicles that have been wrecked, declared a total loss by an insurance company, or rebuilt have what is called a salvage title. The title of the vehicle (and registration) must disclose that the vehicle is a salvage. It is unlawful to sell a salvaged vehicle without telling the buyer. The price of a salvaged vehicle is generally much less than an equivalent non-salvaged vehicle. Salvaged vehicles may have major safety defects depending on how well it was rebuilt. It is usually not very difficult to find out whether or not a vehicle is a salvage.

Other vehicles may have been wrecked and rebuilt, but were not declared a total loss by an insurance company. These types of vehicles are much harder to identify because they do not carry the salvage title.

To avoid this practice, you should have the vehicle you are interested in inspected by a mechanic and/or an auto body repairperson before you buy it. 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). Look for evidence of a salvage history. For example, if an insurance company held title to the vehicle, it could mean that it was wrecked and declared a total loss. In more complicated cases a complete title history may be obtained from the DMV.

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

Another form of auto fraud is the practice of quoting a lower interest rate than the rate that is ultimately included in the contract. This tactic is intended to make the customer believe that they are getting a better interest rate than they really are. A higher interest rate by even one point could end up costing the customer hundreds, even thousands, of dollars over the life of the loan.

To avoid this practice, make sure the ANNUAL PERCENTAGE (APR) box on the contract accurately reflects what the dealer quoted you. You may also wish to ask the dealer what the Buy Rate is. The Buy Rate is the rate at which the dealer can get a vehicle financed. Any rate above the Buy Rate means that the dealer can make more on the sale. Most reputable finance companies do not allow the dealerships to impose an APR that is more than 3 percentage points over their buy rate.

One form of auto fraud is the practice of quoting a lower price that the number that is ultimately included in the contract. This bait-and-switch tactic, often targeted at non-English speaking customers, can be applied to the vehicle’s price, the price of accessories, service contracts, and any other cost item.
Another variation on this practice is to confuse customers about the “out the door price.” Customers are led to believe that the total cost to drive the car off the lot is X, when in fact the total cost is actually much more. For example, a customer who is told, “The out the door price is $15999”, may find that the $15999 price does not include $1500 in accessories, $1200 in taxes, government fees, etc.

To avoid this practice, read every line of the contract carefully. Make sure you distinguish between the following:

(1) CASH PRICE VEHICLE (which includes only the price of the car BEFORE all the other costs),
(2) CASH PRICE ACCESSORIES (which includes any add-ons like alarms),
(3) TOTAL CASH PRICE (which includes the price, the add-ons, taxes and service contracts),
(4) SUBTOTAL (which includes everything under TOTAL CASH PRICE plus any government fees); and
(5) AMOUNT FINANCED (this is the amount of credit that you are taking out, which is generally the SUBTOTAL minus the downpayment and other rebates.

The auto industry and their dealers are rife with scams and fraud and the potential buyer needs to be armed with the knowledge of how these scams work and how to avoid them. There are many dealers that run reputable businesses and can get buyers into a vehicle without using fraudulent means, but there are always those individuals or companies that are looking for ways to take consumers for a ride. The state of California, San Diego and Los Angeles in southern California in particular, is home to many of these scam artists. Even smaller states like Oklahoma have their share of fraud cases and attorneys there are as busy as lawyers in the larger California market. If you are fortunate, you won’t be a victim of one of these disreputable dealers, but it is wise to be aware of potential scams before you head to the dealer. Here are some tips on dealing with auto fraud.
People with bad credit are often the victim of fraud at dealerships. They are easy prey, often due to the fact that they believe they cannot get financing. The worst offenses usually occur in the finance office, where the potential buyer often lets their guard down. One way to lessen the chance of being scammed is to show up with no trade and to have your financing done through your bank, with a bank draft in hand.
One of the most common frauds committed by car dealers and one that attorneys see frequently brought to them is the advertising fee scam. Dealers slip into the contract an advertising fee. Often times the advertising fee is on the factory invoice. Dealers add in a second advertising “fee” which becomes pure profit for them. The way to avoid it is to simply ask that it be taken off the contract. If the dealer tells you that the factory doesn’t charge them an advertising fee, have them show you the invoice. If there is no fee on the invoice, which is unlikely, it is okay for the dealer to charge between 1% and 3% of the Manufacturers Suggested Retail Price or MSRP for an advertising fee. If it does not appear on the invoice, then the fee is completely negotiable. If it does appear on the invoice, then that is a case of dealer cost and is not negotiable.
If you feel you are the victim of auto fraud, the best way of dealing with it is to contact a lawyer and learn what your options and rights are. If you have a good case, a lawyer will have no problem presenting your grievance to the court.

Auto fraud can occur at any stage of the vehicle purchase process, from advertising to signing on the dotted line. Here are some common situations that can give rise to auto fraud.

Improperly inflating a vehicle’s invoice price: Improper inflation of the invoice price include making additions to the invoice figure, when those charges were originally included in the invoice price (i.e. destination charges)

Bait and Switch: A form of false or deceptive advertising or selling the advertised vehicle at a price higher than the advertised price.

Add-On Concealment: Concealing the inclusion of certain optional “add-ons” during the negotiation process, or the costs of those add-ons, but including those add-ons in the final vehicle price.

Vehicle Trade-Ins: Undervaluing and underpaying for a car buyer’s trade-in vehicle.

New Dealer Returns: Selling as a new vehicle that was actually returned to the dealer because of a defect or persistent mechanical problem or was returned shortly after purchase for some other reason.

There are a number of federal and state laws designed to protect consumers from the many deceptive and unsavory practices used in connection with purchasing and financing an automobile. Auto fraud is a very broad area. There are many different types of auto fraud, and the defendants include: insurance companies, car dealers and manufacturers, extended warranty companies, service contract companies and car finance companies.

Few things are more annoying in the purchase of a vehicle than to find out that it has sustained prior accident damage. In many states, it is illegal to sell a new vehicle that has sustained some form of body, structural, collision, or other damage up to a certain percentage of the manufacturer’s suggested retail price for the vehicle without first disclosing the prior damage to the buyer. It is also generally considered illegal to sell an unsafe vehicle, to make affirmative misrepresentations about a vehicle, new or used, or to lie to a consumer in response to questions asked about a vehicle.

So, for example, if you ask a dealer whether a vehicle has been in a prior accident and the dealer denies any knowledge while being aware of a prior accident on the vehicle, that misrepresentation can be auto fraud. Likewise, if a dealership fails to disclose material damage, even if previously “repaired,” this can also be fraud.

If you notice any problems in the appearance or performance of the vehicle, the best way is to have it inspected by a body shop.

The following is a list of auto dealer activities which may signal possible auto fraud in your automobile transaction for either purchase or lease of a vehicle in California.

• Selling you a vehicle that was previously repurchased from a prior owner as a lemon without full disclosure to you
• Selling you a vehicle that was previously salvaged as a total wreck without full disclosure to you
• Selling you a vehicle that had previously been used as a rental vehicle without full disclosure to you
• Failing to provide you with a written contract in the language in which you negotiated the transaction, specifically in Spanish, Vietnamese or Tagalog as well as certain other languages specific,
• Prematurely selling your trade-in vehicle and then later trying to undo the transaction
• Improperly calculating the negative equity on your trade-in
• Switching you from a sale to a lease without full disclosure
• Charging more than the advertised price for the vehicle
• Failing to disclose to you the vehicle history including records of all substantial accidents causing considerable damage

There may be many other improper acts committed by the dealer, which may not constitute fraud by themselves. Nevertheless, if one or more of these types of behaviors occur they may indicate that there is something improper about the transaction and you should be very wary about signing any documents without further review and understanding of the transaction

Few things are more aggravating in the purchase of a vehicle than to find out that it has sustained prior material accident damage. It is illegal to sell a new vehicle with any unrepaired damage, any structural damage or even if repairs were made costing more than 3% of the vehicle’s value. Vehicles sold as Certified Pre-Owned vehicles, meanwhile, must live up to the dealership’s advertised certification standards. It is always illegal to sell an unsafe vehicle, and if you asked specific questions about a vehicle, new or used, the dealer is obligated to provide truthful responses (to the best of his knowledge).

So, for example, if you ask a car dealer whether a vehicle has been in a prior accident and the dealer, that misrepresentation can be auto fraud. Likewise, if a dealership fails to disclose material damage, even if previously “repaired,” this can also be fraud.

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