Dealer Fraud

Scenario: You go to trade in your car and find out its worth less than the money you have outstanding in payment and the car dealer sells you gap insurance at double the price it should cost.

Avoid this scam: If your car is worth less than the money you currently owe on a loan then you should purchase Gap Coverage, if your car gets wrecked or stolen you will only get the money its worth not the money you owe and this could end up with you having no car and a large loan still to pay not to mention any excess fees that may also apply. Gap Coverage will protect you in this instance, which can be purchased from many online sources.

Down payment is the amount paid by the customer that covers a significant part of the actual cost. This amount is deducted from the actual cost and loan is taken to pay the remaining cost. Interest rates on such loans are greatly influenced by the down payment. This situation is true even for cars. However, one needs to be wise while making a decision on how much down payment to be made while purchasing a car.

While buying a car, a customer is expected to shell down at least 20 percent of the vehicle cost towards down payment. This strategy is quite beneficial as it ensures that the buyer is not “upside down”, meaning that the buyer is not owing more than the actual value of the car. Being upside down is not financially beneficial as the buyer would end up paying an amount that is higher than the car worth. Also, the car would have a negative equity or fetch less value when one wants to trade in his old car to a new vehicle. When a customer makes a 20 percent down payment, he would be the one dictating financial terms. In these situations, buying or trade-in of an old car would always be at the discretion of the buyer.

While taking a car on lease, an entirely different strategy works out. “Cap cost reduction” is the term used when down payment is made while leasing out a car. With the intention of lowering monthly payments, many times people make a down payment of at least $3,000. In times of an accident, this down payment is taken as the coverage for the car damage and is not refunded. There is no chance of getting this money even if the customer has a collision and gap insurance. Hence, it is not advisable to put money on the car that is being leased out. Since, leasing does not require any down payment, the amount that was intended for such purpose could be saved in a bank account. Customer would be in a favorable situation if he is ready to make higher payments and roll the drive-off costs into monthly lease payments.

GAP Insurance, also referred to as GAP Waiver or GAP Addendum, is an abbreviation for Guaranteed Asset Protection. In the event your insurance company declares your vehicle a total loss from accident or theft GAP Insurance will pay the difference between the ACV (Actual Cash Value) your insurance company determines they will pay and what is owed to the bank on your vehicle. An easier way to explain this is that GAP Insurance will pay your negative equity (difference between your vehicles ACV and what is owed to the bank) so that you are not responsible to pay the bank, potentially thousands of dollars, on a vehicle you are no longer able to drive. Most GAP Insurance companies will also cover your insurance deductible and may give you additional money to use as a down payment on a new vehicle.

In a packing case, the customer is quoted an inflated monthly payment. Once the customer accepts the monthly payment amount, the dealership adds accessories (alarms, service contracts, GAP insurance, paint/fabric protection, window etching, low jack, etc.) in order to reach the inflated monthly amount. The customer does not realize that the accessories are optional nor that they are paying extra for the accessories (they are led to believe the accessories are included with vehicle or not told at all.)

At the height of the ether, the customer is “t.o.’ed” (turned over to the Dealership Finance Manager). This person’s job is to close the deal and maximize the profit in the process. If done really well, the customer will never know how bad it really is.

Much like passing the baton in a relay race, the smoother that the Turnover is executed, the less likely it is that the customer will expect what is about to happen next. At this point, the customer actually thinks the hard part is over with and that all they have to do is sign some papers. After all, that’s what the sales person said they were going to do next. Actually, the selling process is still going on. The customer has just arrived at “part two”.

The F & I Manager can also be called a “Business Manager” or something similar. The reality, however, is that they are just another sales person in the chain. Their job is two-fold: first, to get all the paperwork signed; second, to sell (or pack) soft add-on’s into the deal. This is where knowing the customer’s background can be extremely useful. If the customer is married, credit life and disability insurance become much easier to sell (”gosh, you wouldn’t want the bank to come and take your car and leave your wife/husband stranded if something suddenly happens to you, would you?” is a question that is most effective when asked right in front of the other spouse). If the customer had a trade in with “negative equity” (a phrase invented by the car sales business), it is easy to convince them that they really do need Gap insurance.

__________________________________________________
[ To Learn more our services and areas of practice, please visit our website at www.DealerFraud.org]

The sales person emphasizes all the attributes of the new(er) car and all the negative aspects of the old(er) car while working the deal. All the usual factors are in play: mileage, age, options, equipment, plus the usual personal factors that are customer-specific. The idea is to get the customer so wrapped up in the idea of getting the new car, and how much it will improve their life, the envy of others, family harmony, their peer reputation, etc., that they lose track of the numbers in the deal. This is called putting the customer in the ether. The deeper the ether, the higher the gross profit on the deal. The objective at this stage is to get the customer firmly committed to the deal. That is why getting the customer to say “yes” is so important at this stage of the sales process. Part of that “yes” psychology is getting the customer to sign their name to a worksheet or other form of early commitment. Something, almost anything, has to be signed by the customer before the Turnover takes place. Committed to the deal, the customer will be less suspicious, more trusting, and easier to deceive when he/she is “t.o.’ed” to “F & I”.

This also means that some sort of payment amount must be agreed to before the Turnover. It often starts with the sales person presenting three numbers written on the worksheet. It often looks something like this:

700/-0- down 600/1k down 500/5k down

The numbers don’t necessarily have anything to do with reality. What the sales person often says when presenting the numbers is something like “with no down payment, your monthly payment is going to be about $700. If you put $1,000 down, I can get your payment down to $600. But if you really want to pay less each month, then I have to have $5,000 down on the financing.” The psychological motive is, obviously, to “scare up” as much down payment money as possible by putting a huge monthly payment right in the customer’s face.

Notice that the sales person may have said nothing at all about how long the loan will be for. The customer doesn’t know if they are talking about a 3 year loan, a 4 year loan, or a 5 year loan. The absence of that information gives the F & I department more flexibility to determine what they interest rate and price will end up being, and just how much of the “soft add-on’s” they can pack into the deal’s numbers. Of course, this high monthly payment shock is where the customer often has their first stroke. Soft add-on’s are things like credit life insurance, disability insurance, Gap insurance, rust-proofing, fabric protection, paint protection, etc. The idea is that the sales person creates the room in the monthly payment for these things to be packed into the deal by the F & I department after the Turnover.

Of course, the sales person often has no real intention of ending up with a $700 monthly payment, but they know that if they start out with a “500 - 400 - 300″ set of numbers, there will be less chance of landing the customer on a higher number in the first place. By presenting the “700 - 600 - 500″ numbers, the sales person has already conditioned the customer to expect that the monthly payment is going to be much higher than they thought. Having accepted that as the reality of the situation (after all, the sales person deals with these numbers every day so they must be right), the Dealer now has more room (and leverage) to actually end up with a higher number.

Once a payment number has been agreed to (usually with the customer initialing or signing the worksheet number that they go along with), the customer is ready for the Turnover.

__________________________________________________
[ To Learn more our services and areas of practice, please visit our website at www.DealerFraud.org]

Some car dealers may try hard to get you to purchase an insurance policy when you’re buying your car. One type,gap insurance, covers the difference between what the car is worth and the amount you still owe on it. Say the car is worth $10,000 but you still owe $12,000. If your car is a total loss, a gap insurance policy will cover that $2,000 difference. Another favorite, credit life insurance, will pay the balance of your loan if you die before you’ve been able to repay it.

These policies may or may not make sense for you. In either case, you want to understand what you’re purchasing, and have the opportunity to decline it and shop around for better prices.

__________________________________________________
[ To Learn more our services and areas of practice, please visit our website at www.DealerFraud.org]

These are the stories of dealer fraud victims of former Whitehall Discovery Ford owner/manager Tony Nielsen, sentenced to jail for felony fraud.
Nielsen has confessed to defrauding hundreds of customers of more than $300,000 through an extended warranty scam and failure to pay off loans on traded-in cars. He pleaded no contest last month to three counts of larceny by conversion of more than $1,000 but less than $20,000.

Prosecutors said more charges would not have lengthened his sentence.
Judge ordered Nielsen to jail for 10 months, with eligibility for work release — but only for 48 hours a week, if he gets one. The judge vetoed a defense request that Nielsen, 43, now of Wayland, either get extra time off jail to work at an existing job in that area, 100 miles from here; or continue his current trade of flying around the country conducting “tent sales” for days at a time.

Judge also placed Nielsen on probation for 30 months, ordered him to perform 100 hours of community service in the County, and ordered him to pay full restitution to his victims.
Much of that has already been paid — more than $300,000 worth, authorities say. Judge also ordered Nielsen to pay another $78,052 to Universal Warranty, the insurance company that covered the extended warranties. Additional restitution to other victims will be determined later.

Authorities say Nielsen began keeping customers’ payments for extended warranties without buying the policies, and failing to pay off the outstanding loans on traded-in cars, so he could pay his own creditors’ bills when his business began to falter about three years ago.
The dealership also failed to forward customers’ payments for “gap insurance” to cover the difference between the value of a car totaled in an accident and the amount owed on a new car.

At the time of the frauds, from April 2005 through August 2006, Nielsen owned and operated Discovery Ford at 3001 W. Holton-Whitehall in Whitehall Township. The dealership has had a new owner since November 2006 and a new name, Whitehall Ford. Nielsen has no connection to the current dealership.
The criminal case was the outcome of a complicated, yearlong investigation by the state police that included repeated interviews with more than 400 people. Investigators also painstakingly scrutinized reams of financial documents.

The investigation began in August 2006 after police were contacted by a customer who had taken a vehicle to another Ford dealer for service and learned the car never was registered for an extended warranty. Investigators quickly found Nielsen’s dealership had failed to forward money paid by customers for the warranties. In many cases, the payment was $2,000.

Nielsen’s victims say his criminal actions ruined their credit ratings and, at least for a time, their lives.
The consequences for some included garnisheed paychecks, daily calls from creditors and the inability to borrow money — all because they were innocent victims of a crime.

“He robbed us of our credit-worthiness,” said victim Cindy Guerrero. “He robbed us of our life … Our creditors, they’re hounding us all the time.”

Guerrero and fellow victim Mary Beth McDonald spoke to Judge in court before sentencing. Both bought vehicles from Discovery Ford; both traded in their old vehicles to the dealership; and both — like some two dozen other customers — were burned when Nielsen failed to pay off the liens on the old cars.

Like other victims of the crooked dealer, Guerrero and McDonald found their lives turned upside down soon after buying vehicles from him.
McDonald told a financial and emotional horror story in court.
The young Fremont resident, now 27, was five months pregnant with her fourth child when she bought a minivan from Discovery Ford in April 2006 because she needed more car seats for her growing family.

Within two weeks, she got a letter from the credit union that had the lien on the smaller car she had traded in: She was past due on a payment for a car she no longer owned.
“So I called Discovery Ford,” she said. “They said, ‘The check’s in the mail.’”
It wasn’t.
After considerable back-and-forth, none of which got the loan paid or satisfied the credit union, she and her husband, Nick — both names were on the old loan — were sued. Eventually the credit union won a default judgment because McDonald missed a court date — she says she wasn’t notified of the hearing — and by December 2006 her paychecks were being garnisheed. She hired a lawyer. It didn’t solve the problem but added a new $880 bill.

In the meantime, she got a surprise. On the very day in August 2006 that she entered the hospital for the birth of her son, Travis, she heard the news: Discovery Ford was being criminally investigated. Soon she was telling her story to investigators.
But it didn’t ease the McDonalds’ plight.

Because of the judgment, their credit rating was ruined. Recently they submitted to credit agencies a letter from a County Prosecutor, provided to all of Nielsen’s victims, attesting that they were victims of a crime.
Mary Beth McDonald hopes that succeeds, “so that I’ll be able to apply for loans.”
McDonald, Guerrero and other individual victims also will be awarded restitution after the correct amount is decided. Hicks ordered that determination to be made by Feb. 15.

In court, Senior Assistant Prosecutor argued passionately for the toughest possible sentence — in this case, a year in jail, which would have been above sentencing guidelines.
“These innocent individuals are still fighting with their credit reports, and they didn’t do anything wrong,” Hilson said. “These folks’ trusts were violated. They got screwed.”

Nielsen declined the opportunity to speak. Defense attorney argued for leniency, given the ex-dealer’s ongoing efforts to pay complete restitution once he was caught.
The judge said restitution “doesn’t wash away the crime.” Hicks said when Nielsen’s business faced tough times, the car dealer responded by turning to criminal acts that victimized others.
“You exported the hurt to people who are less able to bear it,” Judge said.

__________________________________________________ 

[ To Learn more our services and areas of practice, please visit our website at

www.DealerFraud.org]