A CATALOGUE OF DECEPTIVE PRACTICES: CAR CASES

By Tom Domonoske

The Yo yo sale:

In the classic yo-yo sale the consumer signs a credit contract, is given a temporary registration and temporary license plates, and properly thinks the transaction is complete. The consumer is only waiting for the permanent DMV documents and anticipates making the payments pursuant to the schedule on the credit contract. The dealer does not notify the DMV about the sale and instead tells the consumer that a new credit contract on different terms must be signed. Sometimes the consumer ends up with a different car, the same car on different terms, or no car at all. Some important questions are what are the terms of the credit contract, do other documents contradict the credit contract, how did the dealer process the title to each car involved, and what was the consumer told about the sale.

For a variety of reasons, a dealer may have on its lot a car that is still relatively recent with not too high miles. The dealer may decide to pass it off as new when it actually has to be disclosed as used. The FTC Buyer’s Guide has a definition for a used car that requires having the Buyer’s Guide, commonly called the window sticker, prominently displayed. If the dealer uses the new car label instead of the Buyer’s Guide, the dealer is representing the car as new. The contract documents will also show whether the dealer represented the car as new, as will the documents filed by the dealer to title the car. A Carfax report can be used to see if the car was previously titled, but that is not the only way it could be used. If the car was used as a demo, or was sold and driven, but then not titled before the sale was cancelled, the car is used. Like previous wrecked cars, these cases have good potential for punitive damages.

Bait and Switch takes many forms, and the yo-you sale mentioned above is actually one type. Many consumers will have responded to a specific advertisement but will not have bought the car in the ad or obtained the credit terms that were advertised. Locating the ad is the quickest way to develop the case and show the bait and switch.

The Buyer’s Guide should describe the warranties that come with the car. Many states have limits on the ability of dealers to disclaim warranties, and no dealer should be able to disclaim express warranties actually made to close the sale. Check to see that the Buyer’s Guide was prominently displayed on the car, the consumer received a copy of the guide that was displayed, and that it bears the consumer’s signature. Then check to see if other contract documents contradict this document. Pursuant to Magnuson-Moss, if the dealer makes any warranty or sells a service contract, it cannot disclaim the implied warranty. Under the same statute, the dealer cannot require that warranty work be made in its shop unless it provides that warranty work for no charge.

The Truth in Lending Act is familiar to most legal aid offices, but most of the clients are presenting disclosures that they were given only after they signed the contract. The TILA requires that the consumer receive these in a form that can be kept prior to the consumer signing them. Ask the clients if they received a copy to keep, to put in their pocket, to walk out with, prior to signing. If items are included and labeled as options, ask the consumer why they purchased that item. Although checking the basic validity of the APR should be a standard practice, most dealers have programs so that their disclosures initially look accurate. Check to see if the tax amount is proper, if the down payment and trade-in amounts are accurate, and if the consumer really provided the full down payment. The numbers should not just be internally consistent; they should properly reflect reality.

When a car dealer also decides to start selling insurance, many other issues arise. States have different disclosures that are required for insurance products, and you must check to see what disclosures were made to the consumer. In Virginia, for credit insurance to be excluded from the finance charge, the dealer or creditor must disclose the monthly payment and amount financed if no credit insurance is purchased.

In addition to the disclosures required by the TILA, many states have their own statutes regarding the documents for the sale of cars and for a credit sale. Many consumers are routinely asked to sign blank documents, so be sure to ask the clients if each of the documents was fully filled out when it was signed. Also, some of the documents have to be presented at certain times, so finding out when consumer saw each document and received a copy is important. For instance, in any car sale in Virginia a fully completed Buyers Order must be presented to the consumer prior to the consumer agreeing to the sale, and a signed copy provided after it is signed.

For a variety of reasons, a dealer may be withholding title from a consumer, or withheld title from the consumer for quite some time before providing it. Each state’s titling statutes will require the seller to have title, and to transfer title to the purchaser. When the dealer withholds title, the dealer is not giving the consumer the benefit of the bargain, and the dealer will have engaged in some violation of the titling process. Sometimes the dealer will not have had title at the time of sale, and other times it is withholding a title that it always had. Regardless, even in a credit sale, the dealer should sign the title over at the time of sale, and definitely before issuing any temporary tags or temporary registration documents.

Many different car pricing services are available, some in paperback and some through the internet. Check with the consumer to see when they were told what the cash price of the car would be, and find out if a lower number had ever been discussed or advertised. The dealer may inflate the price of the car to a credit customer for many different reasons, but they all boil down to the dealer wanting more profit. If you can, determine what the price would have been if the credit customer had paid cash and had no trade-in. A dealer may not charge a credit customer a higher price, and may not inflate the cash price to cover any alleged negative equity in a trade-in.

For credit sales where the consumer has been making payments, get a copy of the account history that shows how the payments have been applied to the account. Check the credit contract to determine that the procedure in the credit contract was the procedure followed. For instance, although the credit contract might call for simple interest allocation, the creditor may be using a precomputed formula of applying the whole payment to the total of payments. State law should determine the allowable late fees and when they could be assessed.

If the consumer’s car was repossessed, obtain an accounting for all payments to the account that shows exactly how the balance due was claimed. If the car has been sold, a proper UCC notice of sale should have been received by the consumer and by any other party obligated on the credit contract. For the states that have adopted the statutory remedy section of UCC 9-507, a significant recovery may be obtained according to the statutory formula. Check to see that the sale was commercially reasonable and was sold pursuant to the sale described in the notice. Repossessions and subsequent debt collection can also raise issues under the Fair Debt Collections Practices Act. Determine if the creditor used a third-party and if any misrepresentations were made.

Used as new:

The odometer fraud case:

Odometer fraud has many forms, and involves far more than the dealer rolling back the odometer of a car. First, try to identify if the odometer disclosure was made to the consumer on the title of the car the dealer was selling. Only in limited circumstances may a car dealer make the federal odometer disclosure in a place other than the title of a car. A Carfax report may be obtained for a small fee from this service using the internet. That report and a DMV history on the car in every state in which it was titled can identify the prior odometer disclosures. Many cases will turn on whether the dealer should have been able to tell from the condition of the car that the odometer reading was not accurate. Other cases will involve the dealer not making the odometer disclosure on the title to avoid disclosing to the consumer the information about the vehicle history that shows on that previous title.

If the consumer is having significant problems with the car, or unusually high repair bills, or tires wearing out early, the consumer may have been sold a prior wreck. Again, a Carfax report and DMV history can help identify the history. Also, have a competent mechanic or autobody person check the car thoroughly for evidence of prior wreck damage. The particular requirements for disclosure of salvage history or prior wreck damage vary from state to state, and knowing what forms need to be used when is important. These cases can have very strong jury appeal for punitive damages and can be easier to persuade private lawyers to take.

© 2007 Consumer Lawyers Group:   The Greene, Benjamin, and Cropsey Firms. Private and class action litigation including (depending on the firm): Mortgage closing fees, predatory mortgages, lemon law, deceptive trade practices, deceptive lending practices, TILA, RESPA, HOEPA, fraudulent business practices, social security disablity (SSD), real estate matters, defective products, credit matters, bogus fees, identity Theft, insurance matters, matrimonial, workers compensation, scams and rip off's generally.