(Contributed post on common auto dealer fraud for our North American readers)
Most everyone goes into the process of purchasing a motorcycle or car with a healthy degree of skepticism.
However, while you may be prepared for aggressive sales tactics, some dealers also engage in blatantly fraudulent behavior that may catch you by surprise.
When you are an automotive attorney, you reach the point where nothing surprises you anymore. From filing fraudulent loan applications to rebuilding salvage titles and hoisting them on unsuspecting consumers, some auto dealers have almost turned fraud into an art form. And their favorite victims are those with limited incomes and poor credit.
There are many federal and state laws that penalize fraudulent sales, marketing, and financing schemes. However, thousands of consumers still fall victim to fraud every year. Below, we review what attorneys have to say about some of the most common types of auto dealer fraud.
Knowingly Selling Bad Vehicles
When you think of auto fraud, one of the first things that probably comes to mind is dealers making false claims about a vehicle’s condition.
Thomas R. Breeden, a consumer rights attorney in Virginia explains, “One of the most common types of fraud is selling a vehicle without disclosing that it has a history of damage, such as a salvage title due to extensive body and frame destruction or other title blemishes.”
When you complain, the dealer may try to hide behind an “as-is” clause in your contract to avoid responsibility. However, this does not excuse them from failing to disclose known problems with a vehicle. In fact, some states prohibit “as-is” sales completely, and other states severely restrict them.
Even if the dealer claims you’re out of luck, you should consider consulting an attorney about the problem. They can advise you of any options you have for making an auto dealer fraud claim.
False Odometer Readings
Texas attorney Allen Stewart Odometer also points out that “odometer tampering is a common fraudulent scheme.” Used car dealers will roll back the odometer to make it look like it has fewer miles on it.
Stewart points to data from the National Highway Traffic Safety Administration stating that more than 450,000 vehicles with false odometer readings are sold each year. This fraud costs American consumers more than $1 billion yearly.
Another way car dealers commit fraud is to inflate prices above sticker value. They can also add hidden charges without disclosing or explaining them to the customer. Sometimes they will even represent that certain upgrades or services are “required” to get the customer to pay for things they don’t need or want.
George O. West III has a law practice in Las Vegas that focuses on representing fraud victims. He observes that “[i]t is not uncommon for people to begin to realize they were the victim of auto fraud only after speaking with” an attorney. “Often people have a general feeling that something did not go quite right when they bought their car but may think it is part of the process.”
West explains that although “hidden charges or overcharging . . . may look suspicious, . . . the consumer may not understand exactly what or why they are being charged.” Consumers expect some degree of nickel and diming, so they may just overlook some of these charges. But in fact, many of these types of charges are blatantly fraudulent.
Bait & Switch
Another common type of fraud occurs when a dealer tells you one thing and then changes their tune later. When it comes to marketing, this often takes the form of a “bait and switch.”
A bait and switch occurs when the dealer advertises something to get you into the store, such as a particular price or a financing deal. However, when you actually try to take advantage of the deal, they tell you that the car is no longer available and sell you something similar—or even the same car advertised—at a higher price.
Pauliana Lara, an auto fraud attorney in Southern California, explains, “They get the client very excited, and the client is very emotional, and they end up buying the car.” Lara had a client who fell victim to this scheme and ended up paying $3,000 more than the advertised price for a Prius. When he checked the ad again after getting home with his new car, he realized the car he bought had the exact same VIN as the car in the advertisement.
“Yo-yo” sales also involve dealers changing their tune after you’re already on the hook. Missouri attorney Summer Masterson-Goethals explains that a yo-yo sale involves delivering the car to the consumer without finalizing the transaction: “The consumer believes they have a deal but later, the dealer informs the consumer that the transaction fell through for one reason or another and makes the consumer either return the car or agree to different terms than originally bargained for . . . .” Masterson-Goethals warns that sometimes the dealer will even sell the consumer’s trade-in vehicle before going back on the deal.
Credit Application Fraud
Credit application fraud is extremely common among car dealers. In fact, the Maryland firm of Whitney, LLP reports that 1 in 5 credit applications it reviews for clients reveals credit application fraud and sometimes even forgeries.
Common tactics used in credit application fraud include:
- Falsely inflating the applicant’s income;
- Misrepresenting a person’s job title or how long they have worked for an employer;
- Falsely reporting that the applicant has a job they don’t have;
- Faking a trade-in so it looks like the borrow has made a larger down payment;
- Inflating the value of the vehicle so it looks like the borrower has made a down payment when they haven’t or so that the loan-to-value ratio appears greater;
- Not reporting the applicant’s other financial obligations; and
- Stating that the applicant’s rent or mortgage payments are lower than they are.
Georgia auto fraud attorney Michael Flinn relates the example of a retired truck driver he represented. Despite Flinn’s client making only $1,500 a month, a dealership sold him a $35,000 vehicle by falsifying his credit application. Eventually, employees at the dealership received federal fraud charges.
Flinn advises consumers to “[a]sk to see the credit application filled out before you sign it. Don’t let there be blanks for your income. Do not agree to providing false income information. . . . Be suspicious if you are being sold more car than you thought you could afford.”
It’s never a good idea to obligate yourself on a loan you can’t afford to pay. This is especially true if the dealer talked you into a more expensive car by fraudulently securing your loan. If you can’t afford to pay your loan, your car will be repossessed. This will affect your credit score and can even lead to bankruptcy.