Dealer Fraud

Generally, most car buyers are well aware of common dealer tricks and dealership scams. However, there are car buyers who are less experienced can easily fall for commonly used dealer tactics.

Remember that when selling a new or used car, the car dealer makes profit in two ways. First they profit from the sale of the vehicle itself, and second, from the interest paid by the buyer. One thing that you should keep in mind when you intend to buy a vehicle is that the dealer will, most probably, try to trick you into paying as much for the car as possible.

Dealership Mark-Ups is one of the tricks most commonly used by the dealers. Usually, car dealerships are in a tight relationship with certain finance companies and try to encourage their customers to use that specific finance company. Car buyers can avoid this auto scam if they secure their own financing with a bank or credit union rather than through a dealership. Dealerships make profit from the interest paid as the finance company of the dealer may increase the loan rate by a few points and the dealership receives the difference you have paid.

The car buyer can easily avoid the dealership mark-ups fraud by comparing auto loan lenders. Do not accept the first loan packaged offered, and never accept dealership financing. First shop around and find the deal that is the best for you.

You’ve probably already heard about the C.A.R.S (Car Allowance Rebate System) Act, otherwise known as the Cash for Clunkers program. Pursuant to the act, the government will give a used car owner a credit of $3500-$4500 toward the purchase of a new car when the old clunker is traded in at an automobile dealer. The system encourages individuals to get rid of their old cars in favor of more fuel-efficient vehicles.

There are a few requirements that must be met in order to be eligible for a rebate on your trade in. The basic rules of the Cash for Clunkers program are as follows:

• The vehicle being turned in must be less than 25 years old on the trade-in date.
• The trade-in vehicle must get 18 miles per gallon or less according to revised EPA standards.
• The trade-in vehicle must be drivable.
• The fuel efficient automobile must have a MSRP of $45,000 or less.
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in date.
• Rebate money can only be applied to the purchase or lease of new vehicles that qualify. The money cannot be applied to used vehicles.
• A qualifying lease means a lease of an automobile of not less than 5 years.
• Car rebates must be $3500 if the new car gets at least 4 mpg more than the trade-in, or $4500 rebate if the car gets at least 10 mpg or more than trade-in.
• For SUV’s, pick-ups, or minivans, a rebate of $3500 will be given if the new vehicle gets at least 2 mpg more than the trade-in, or $4500 if it gets at least 5 mpg more than the trade-in.

Participating in the program is very simple. All the customer needs to do is bring the required information to a local dealer. The dealer then prepares the necessary paperwork and submits it to the appropriate agency. The National Highway Traffic Safety Administration makes sure that all requirements have been properly met and sends a finance credit voucher to the dealership.

However, consumers should be aware that there are scammers who will try to take advantage of uninformed consumers. There are websites offering pre-registration for the CARS program and offer to register the consumer with local dealers. Buyers should be aware that they don’t need any pre-registration.

Another type of fraud perpetrated by car dealers through the Cash for Clunkers program is charging the consumer a specific fee (usually $250) for administering the CARS program. Please remember that the dealer cannot charge you this fee when you purchase or lease a new vehicle.

The CARS program can be a great opportunity for you, the car dealer, and the economy if you know the rules.

Sometimes car dealers sell poorly rebuilt, wrecked or salvaged vehicles. Thus, after the purchase car buyers find that the vehicle is unsafe and moreover it is priced too high. The majority of these vehicles were involved in accidents or floods. Most of the vehicles look good on the surface, but they may have steering problems, defective brakes, inadequately welded parts and overall, poor handling.

Most of the state laws require car dealers to inform customers before purchase if the car has, to their knowledge, a “salvage title” or has been involved in an accident. If a car dealer fails to disclose any such information it is considered fraud.

Make sure to inspect the vehicle thoroughly before buying. Especially, look for the following;

• matching of paint on the outside and inside of the door frame.
• parts of the car should line up with each other and the spaces between the hood and trunk and around the doors are straight.
• flood damage is fairly evident in certain vehicles by the presence of mud or dirt under the mat in the trunk, or moisture under the seats or inside the trunk or hood. There may also be watermarks inside the doors.
• if the car has an out of state title, it may have been moved to another state due to its extensive damage.

During the car negotiations of the car deal customers get to know a number of terms, such as purchase price, options, down payment, trade-in credit, monthly payment, interest rate, loan term, and balloon payment. All these elements of a car deal lead to confusion or fraud. It is difficult for the customer to focus on all of the terms mentioned by the car dealer. If the customer focuses on one of the terms he will probably miss all the others and car dealers know this.

Distraction is an art that many car salesmen study diligently. For example, many people have become a victim of dealer fraud by focusing on just monthly payments. You will be able to avoid car scam and to get the best deal if you separately handle your financing and trade car. This simplifies the negotiation and leaves you able to focus only on the best purchase price for the vehicle.

This fraud is common when you go to the dealership and want to lease a new car. The salesperson will tell you that the dealership is ready to accept your old leased vehicle as a trade-in and may offer you a good deal on a new lease. However, you should remember, that trading in a leased car is not a good idea.
Most people don’t have any equity in their old leased car to help them buy or lease a new car. Many problems can arise from this situation. One of the dealer tricks used when you lease a vehicle is taking your old leased vehicle and returning it to the leasing company. Leasing company later sends you a bill for early termination or buyout. Another thing the dealership may do is putting the car on their used car lot after buying the car from the leasing company and adding the buyout cost, less the trade-in credit, to the price of your new vehicle. If you have reached the end of your lease and have no equity in your leased vehicle, it is better to return the car to the leasing company.

In case you don’t want to pay for the preparation fee, simply tell the car dealership to credit you the amount of the preparation fee service on your contract. If the car dealer refuses to do so, just walk away from the deal. Remember, that it is legal for a car dealer to charge you for preparation fee, however if you step into the dealership armed with information it will be very hard for dealer to scam you and you will be able to save your money. There are more and more scams and fraud going on today and the best way to protect yourself from dishonest dealers and car fraud is to educate yourself and be well informed.

If you think you are a victim of the preparation fee scam, you won’t be able to report it to the authorities. However, you should report the car dealership to your state’s Better Business Bureau.

Car preparation fee is a good way for the dealer to make a quick profit from customers in the range between $500 and $2500. In fact, this fee is not illegal, but it is considered a dealer fraud, because these fees are covered not by the consumer, but by the factory.

Generally, car dealers charge consumers for peeling of plastic off the seats, checking of fluid levels, vacuuming the interior, and washing and waxing the exterior. Most consumers do pay for this because they are not informed that these fees are already paid for and listed on the MSRP. The fraud when you have to pay for something that is already paid for is also known as Double Collecting. This car fraud is very common among car dealers today and you should be very careful not to be a victim of this scam.

One of the most annoying things about the purchase of a vehicle is to find out that it has sustained prior material accident damage. According to the law the sale of 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 is illegal. Also the vehicles sold as Certified Pre-Owned vehicles are required to be sold according to the dealership’s advertised certification standards. It is prohibited for car dealers are to sell an unsafe vehicle.
If the customer asks questions about a new or used vehicle, the dealer is obligated to provide any information to the best of his knowledge. Thus if the customer asks a dealer whether a vehicle has been in a prior accident and the dealer gives incorrect information than the action of the dealer is termed as misrepresentation can be auto fraud. Another type of car fraud may be dealership’s failure to disclose material damage, even if previously “repaired.”

One area of car dealer fraud that is quite common today involves fraud in car leases. On the surface car leases appear as less expensive for the consumers, but the truth is they are almost always more expensive. And though the credit crunch, dealers are still able to arrange for financing for car leases.

The most common lease fraud is the old “bait and switch.” This happens when a consumer goes to a dealer to buy a car and believes he is buying a car, but is instead switched into a lease. Sometimes consumers are told that they need to sign up for a lease “for a short time” to let interest rates come down.” However when the consumer returns “in a few weeks” to change the deal to a purchase the salesperson who negotiated the lease with him is nowhere to be found and no one at the dealer has any interest in changing the consumer into the promised purchase transaction.

Car dealers have various reasons why they want to put you into a lease rather than to a purchase. One of the reasons is that car dealers often get larger incentive bonuses from the leasing companies to put consumers into a lease, so dealers frequently make more money from the lenders on leases. Same with the manufacturers: depending on what is going on with vehicle inventory, manufacturers will often give dealers incentives to put consumers into leases instead of purchases. Finally, lease contracts are confusing, permitting dealers to throw more curveballs into the lease which result in higher hidden fees and payments by the consumer.

Insurance scam happens when the dealer tells you that if you purchase your insurance from them or a company that they work with you will avoid paying higher interest rates. Remember that this is not mandatory. This scam also applies to the car dealer telling you that you must pay life insurance or extended warranties due to “bad credit.” Avoid this scam by simply walking away from the deal.

Turnover scam is just another way to really wear the person down. This dealer fraud occurs when the dealership sends over many different salespeople continuing to ask the customer to invest time and get you to hurry up and buy. This dealer tactic is also called harassment. Avoid this fraud by threatening to leave if they don’t stop it.