Auto Dealership Fraud

Most often, when asked, the dealer sales representative will say that a used vehicle has never been damaged or in any previous accidents. In fact, the salesperson rarely knows whether what he or she is saying is true or even bothers to check into it. They are only concerned with making the sale today and will most often simply tell you what you want to hear. If the dealer makes an affirmative representation that a vehicle is accident free and/or has never been damaged when it actually has is actionable fraud. Failure to disclose frame damage is per se actionable fraud.

A salvaged and/or rebuilt vehicle is one that has been damaged so severely that an insurance company considered it a total loss. A prior lemon Law Buyback is a defective vehicle that was previously “repurchased” or bought back under the California Lemon Law and then resold at auction. In salvaged vehicle cases, the vehicle is almost never restored to a safe condition. In prior Lemon Law Buyback cases, the vehicle is often never properly repaired or cannot be, and can either be unsafe, or worth far less than a non-Lemon Law Buyback. California requires the disclosure of the salvaged history and prior Lemon Law Buyback history on the title of the vehicle (known as a “branded title”). Any failure to disclose a salvage, rebuilt history, or prior Lemon Law Buyback is a violation of California law.

Spot Delivery is when a dealership allows (or requires) the consumer to drive the vehicle home immediately upon making the sale while the dealer is still working on securing financing for the consumer’s purchase. While perfectly legal and often times helpful to the consumer, the spot delivery can lead to what is known as a “yo-yo financing scheme.” Once the consumer has grown accustomed to the car and showed it to friends, family and co-workers, the next thing the consumer knows, the dealership calls him or her back and requires them to sign a new contract. Often, the interest rate increases, the payments increase, the down payment increases, or the length of the loan changes– often to the detriment of the consumer. Often, the dealer will state that the consumer cannot cancel the sale and is “required” to sign the new contract and agree to the new terms, and/or that the consumer’s trade-in has been “sold.” These are also referred to as “yo-yo” scams because the dealer sends the vehicle out and pulls it back in like a yo-yo. In most all cases, the consumer can elect to cancel the deal altogether and get his or her down payment and trade-in back. However, the dealer rarely informs the consumer of his or her rights and often misrepresents the consumer’s rights, duties and obligations under the contract– all violations of California law.

This occurs when the consumer owes more on the trade in vehicle than the actual cash value of the vehicle. Then, the consumer is led to believe that the dealership is valuing the trade in vehicle at the same amount as what is still owed to the finance company, thereby “breaking even.” But, the actual cash value of the trade-in is less than the amount owed and the difference is added to the cash price of the new vehicle. By fictitiously inflating the cash price of the vehicle by packing in the “negative equity” from the consumer’s trade-in, the dealership usually violates the Federal Truth in Lending Act (TILA) and other state disclosure laws in addition to misrepresenting the true terms of the sale in violation of California and Federal law.

In this common scheme, the dealer fictitiously inflates your monthly payment quote (usually on a hand written worksheet) so that the finance and insurance department can make money selling you optional accessories and insurance (alarms, service contracts, GAP insurance, paint/fabric protection, window etching, low jack, etc.) with little or no increased to the agreed upon monthly payment. The dealer utilizes these methods to keep the consumer from knowing how much the monthly payment would have been without the optional items that were “packed” in the initial monthly payment quote. In many cases, optional items are misrepresented as being mandatory, included in the sale price, or “free.” This deception effectively destroys the consumer’s “option” to decline the extra items and thereby decrease the monthly payment and total cost of purchase, in violation of California law.

California law requires that a dealership cannot sell a vehicle for more than the advertised price (even if the customer is unaware of the advertised price.) The consumer will typically come in asking for the advertised vehicle at the advertised price, but will then be switched to a more expensive model, or simply charged a higher than advertised price. The sales person may have told you there are no more vehicles at that price, or that the advertisement was a mistake. You may have even been charged more than the advertised price for a vehicle advertised in the media or on the internet or that you have to pay a higher price due to your credit score. If so, these are examples of false advertising that violates California law.

California law requires that if the transaction is primarily negotiated in Spanish, then a Spanish translation of the contract must be provided to the customer prior to signing the English language contract OR the consumer provides his or her own translator. Often, the Spanish Language disclosure violation is coupled with payment packing, false advertising, negative equity fraud, or some other fraud that is difficult to discover if not disclosed in Spanish to the Spanish speaking consumer. Failure to comply with the Spanish Translation law gives the consumer right to cancel the sale under California law.

Many times, dealerships will get their used vehicles from auctions, and in those auctions are large fleets of former rental cars, police vehicles or taxis. For obvious reasons, these vehicles are most often worth less than a similar non-rental/police taxi vehicles. Dealers often buy these vehicles at auction for far less than blue book and then pass them off as trade-ins vehicles to the unsuspecting consumer so the dealer can make a larger profit than otherwise possible. Failure to properly disclose the prior rental, police or taxi history of a used vehicle conspicuously and prior tot he signing of the sale contract is a violation of California’s consumer protection laws.

Most manufacturers and new car dealerships have certified used vehicle programs. Generally, a used vehicle that passes certain standards is labeled “Certified Used” or “Certified Pre-Owned” which represents to the consumer that the vehicle is “like new” other than the mileage and free from prior damage (including prior accidents), and other defects. However, dealerships often represent that vehicles qualify as “Certified Pre-Owned” that don’t actually meet their own “Certified” used vehicle standards. Consumers end up paying a premium for a vehicle that does not even qualify as “Certified” which is actionable fraud under California law.