Dealer Fraud

It is a common scene to see a lot of added fees on the car of your choice even if a price has already been agreed upon by both parties.

Extended Warranty: You are the one who have to decide whether or not a warranty will be added an extra year. No dealer maneuvering should be making that decision.

Dealer Preps: Try to not pay more than what is listed on the car site or the sticker price. Some dealers try to add dealer prep costs when the price is already in plain sight.

The Big APR Switch: This may be the most disappointing and frustrating scam a buyer may encounter. What is worse is that it could happen after you have taken your dream car home and drove it for a week. After that time, you suddenly get a phone call from your dealer informing you that they are increasing your interest rate and subsequently your monthly fees. According to the dealer, this is because there was a problem that was overlooked in your loan application, which is supposed to be thoroughly reviewed. Make sure that you have studied all your financing options even before you step into the car dealership. Communicate with your bank or online financing sites to provide you information in order to avoid getting scammed by this nasty tactic.

An increasingly common car sales tactic is the “spot delivery” or “yo-yo sale”—allowing a buyer to take delivery of a vehicle before the dealer has confirmed that another entity will buy the finance agreement. (Technically, in most dealer-arranged financing, the dealer is the original lender or creditor. The dealer then sells the finance agreement to a third party lending institution). The yo-yo sale involves telling buyers that they are approved for financing on a specific vehicle, having them sign all the paperwork, and allowing them to take the vehicle home. A few days or weeks later, the salesperson calls the buyers and informs them that the financing has “fallen through.” The salesperson tells the buyers that they can keep the vehicle if they agree to pay a higher interest rate or get a co-signer. Alternatively, the salesperson might tell the buyers that they must buy a different vehicle. Essentially, the car dealer tries to rewrite the contract with terms that are more favorable to the dealer and less favorable to the buyer. If consumers express unwillingness to comply with the post-sale demands, then the salesperson threatens repossession or arrest.

However, this sales tactic is illegal. Federal law (as well as the laws of some states) prohibits this type of transaction. The federal Truth in Lending Act, for example, requires clear and conspicuous disclosure of financing terms, including the annual percentage rate (APR). Spot deliveries make the point at which financing begins uncertain, which causes the annual percentage rate (APR) stated in the finance agreement to be incorrect. Moreover, because the dealer is usually listed as the creditor or lender in a finance agreement, financing has not “fallen through.” Instead, the dealer has been unable to sell the finance agreement for as much profit as it wants. Through spot deliveries, dealers are merely attempting to increase their profits by having the consumer enter into a new finance agreement. However, dealers should still be bound to the original sales terms.

Make sure you ask for the drive away price, which is the final cost to you including all fees, taxes and options. However, there are other ways to get the best deals on a new car. For example, call the car manufacturer directly and ask about cash back programs because local dealers may be unaware of them. Or if you are in college or are a recent graduate within the past few years, you may qualify for a manufacturers rebate up to $500. In addition, ask the manufacturer for a factory-to-consumer direct incentive. Tell the automaker the type of car you want and they may offer you a cash rebate or low financing. However, check around concerning financing because you may be able to find a lower interest rate from another source entirely, like from a credit union. Or better yet, ask your local car dealer about a customer loyalty rebate which can be worth a few hundred dollars if you already own or lease a car from a particular dealer you are seeking to buy a new car from. Also, if you plan on having future repairs or general services performed at the dealership, let the dealer know this upfront. It may warrant a few hundred dollar rebate since dealers make much of their profits on parts and repair services.

In addition, dealership salespeople may have a secret code you may want to break! The code tries to hide the real value of the car you are trading in and/or the profit the dealer is making on your particular car deal. The code is not standardized throughout the industry, so you may have to put your thinking cap on. Here is how it may work. Look for handwritten notes at the top of the paperwork you are asked to fill out. If you see alphabet letters scribbled on your trade-in appraisal, like for example, FJJJ, this may mean the dealer thinks your car is worth $6000. The F stands for the 6th letter in the alphabet and the Js stand for zeros, which equals $6000. The idea here is if you see notations like this, you may safely assume the dealer thinks your trade-in is worth something different from what is being offered to you. Be subtle, but this is your cue to try and get more for your trade-in. Always get your trade-in appraisal in writing. This keeps the dealer from offering you much less for it when your new car arrives if the new car you want is not on the lot when you make your final deal with the dealer.

Furthermore, consider ordering your new car direct from the factory instead going to a dealership car lot. This way you can possibly avoid costly options that too many dealership cars come loaded with. A dealership may likely accept a small profit from a factory order because it is a quick and easy sale, plus the dealer then does not have to pay the automaker for storing the new car on the dealers lot!

However, the flip side to this is if the dealer thinks you may opt to order from the factory, he may be willing to significantly cut the price of the cars on the lot more so than usual. Also, any rebates and incentives you get deducted from the price of a new car, always make sure they do not expire before you take delivery!

You find the car you are interested in buying and have pre-arranged a banker’s check with a reputable online lender or credit union. When you go to pay the dealer explains that they cannot accept the bankers check as they have had trouble with them cancelling the checks in the past or they always seem to bounce. The car dealer then offers you a loan to sort this problem out as you are eager to buy your new car but the interest rate on the finance is higher than what you had previously arranged.

If your bankers check was with a well known company then there should never be such issues as the car dealer is explaining as if would be well known news.

If the dealer offers you a better rate of interest then there is nothing wrong here.

How to avoid this scam: The best thing to do here is work out if the loan has a higher interest rate than you are currently paying and if not then tell them you are on to their scam and walk out the door.

Car dealers are constantly thinking of new ways to make more profit and take advantage of car buyers. One of the most recent and commonly used car dealer tricks is Spot Delivery.

Spot Delivery occurs when the consumer has chosen the car, filled out all the paperwork and the car loan application with the car dealer’s finance department. The car dealer will tell the consumer that although the car loan hasn’t been “officially” approved yet, the consumer can drive the car home.

However when the consumer does so the dealer calls a few days later and lets the consumer know that the car loan wasn’t approved at the interest rate previously discussed. The dealer will also tell that the buyer was approved at a higher rate.

Thus, the consumer will most likely have to pay thousands of dollars more than he/she expected. When the consumer tries to walk away from the deal the car dealer will probably inform that they already sold your trade-in so you have no options. The dealer will also tell you that they will sue you if you don’t agree to the new terms. Check your loan agreement. If it includes a “writ of rescission,” which means that you agreed to pay a higher interest rate if you did not qualify for the original loan then you are probably stuck.

Now, the Dealer has to sell “the paper”. That means the Dealer has to get the Bank or some other lender to buy the retail instalment sales contract or the lease agreement, if they haven’t already. Most of the time, the Dealer has gotten a tentative (or even final) loan approval on the deal before the car is actually delivered to the customer.

One thing also to be aware of when you finance the purchase of a car through a dealer is that dealers receive a kickback from the lenders for the privilege of faxing your credit application to the lender. The dealer and lender share in an undisclosed “yield spread premium” as it’s called in the industry. Yield spread premiums are a dirty little secret, the auto lending industry has not owned up to. Car dealers do not do the actual money lending, but they send the buyer’s application to lenders, who tell them what interest rate the buyer would qualify for. That rate is called the “buy rate”. However, if the dealer already got the buyer to sign onto a loan with a higher interest rate, the dealer and lender split this extra “yield spread premium” which can result in thousand to several hundred dollars difference.

In those cases where financed has not yet been approved, the car is “spot delivered” to the customer. In California, a dealer has 10 days to get the financing approved. The forms Dealers use in California state that the customer agrees to either get their own financing or to bring the car back if the Dealer is unable to assign the loan within 10 days of the contract. The Dealer is required to refund any down payment or the trade in vehicle’s allowance, less some small charge for the customer’s use of the vehicle, often based on mileage driven.

There are different ways to know if your paperwork has been forged. It could be forged if your monthly payment and interest rate on the bill/statement from the lender is different from the amounts listed on your purchase contract; if the dealer asked you to sign a second contract changing the terms of the original contract and you refused. Your paperwork could also be forged at the dealership if you signed a credit application with blanks.

Sometimes, dealerships forge the signature of customers on subsequent contracts that change the terms of the original signed contract. This happens especially when the customer refuses to sign off on the new terms.

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

Buying a new or used car?  Don’t get cheated by "Phony Financing"
It’s the auto industry’s dirty little secret. It  happens to millions of car buyers every year, even with the most sophisticated, savvy consumers. And you don’t even realize you’ve been cheated.
Phony Financing
The secret? Auto dealers commonly bump up the interest rate you pay to finance your car, truck, or SUV. Over the life of the loan, the extra hidden interest you pay costs you hundreds or even thousands of dollars in added financing costs. These are costs you should not have to pay.
For example, if your credit is good, you may qualify for a loan with a 4% interest rate. But the dealership charges you 8%. Or 12%. Or sometimes 21% or more.
The dealer gets a hidden "kickback" or fee from the lender based on the amount of interest you pay. The more you pay in interest, the more profit the dealer makes. Typically, the dealer and lender split the extra interest you pay 60-40, with the dealer pocketing the lion’s share.
The dealership finance manager may seem friendly and tell you, "Don’t worry. I’ll get you the best possible rate." But instead, he will charge you the highest rate he can. He may even mislead you into thinking your credit is worse than it really is.
This scam affects almost everyone who finances through a car dealer. But studies show that the added costs are likely to be even higher if you are African American or Latino.

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