Car dealer fraud

Car dealer fraud is among most popular consumer complaints all over the world. The term «car dealer fraud» is applied to deceitful and illegal practices used by auto dealers at almost every step of the car buying process - from advertising to negotiating price and terms of financing. Unfortunately, a major part of consumers may easily fall a victim to auto dealer fraud as they know nothing about dealer illegal tricks and are unaware how to protect their rights.
There are a large number of tricks and scams in car dealers` arsenal which they use to increase their profit at the expense of the customer. Below are described the most frequently used costly and devious car dealer scams.
The 4-square method
4-square method is an auto dealer`s equivalent of Three Card Monte. It`s a negotiation technique which is designed to swindle customers by mixing vehicle price, trade-in value, monthly and down payments into one paper sectioned into four squares (that`s why it`s called 4-square method). If a customer concentrates only on one section of the worksheet (as a rule, it`s monthly payment) he can be easily ripped off by salesperson on the other 3 squares to the dealership`s advantage. Moving around the numbers the salesperson can easily persuade the customer that he`s getting a good deal when he`s actually being ripped off. Fortunately this dealer trick is easy to counteract by handling each component of the transaction separately.
Shell Game
This scam is based on exploiting customer`s hot buttons. The salesperson knows that buyer wants to trade-in his old vehicle for a certain price. He will offer him this amount but simultaneously will raise the price of a new vehicle. This scam can have another scenario. The salesperson will agree to a certain monthly payment the customer can afford but at the same extending loan term to another 4-5 months or increasing interest rate. As a result customer forced to pay off the long-term loan or high interest will end up spending more money that he initially planned.
Bait and Switch
Bait and switch car dealer scam is as old as hills. This is a classic trick in which the promise of low advertised interest rate or car price is used to entice potential buyers into dealerships. But showing up at the dealer`s showroom the customer finds out that the offer has expired, the advertised vehicle has already been sold, the price has gone or any other excuse which dealers use to explain why the advertised offer is not available any more. But the customer is inhaling that new-vehicle smell and foretasting the pleasure of driving it that`s why it`s not very difficult for dealer to persuade the customer to purchase another one at a higher price at the meantime offering lower trade-in value and expensive interest rate. If a dealer has no intention to honor its offer the only way to counteract the scam is to walk away immediately.
Spot Delivery Scam (Yo-yo Financing)
Spot delivery scam also known as yo-yo financing is another sneaky tactics used by car dealers. Mainly subprime buyers as well as inexperienced customers are vulnerable to this scam. Its scenario is as follows. After negotiating a favorable (for the customer) bargain the dealer allows the customer to take delivery of the vehicle in spite of the fact that financing is not actually complete. A short time later a newly-fledged car owner is pulled back to the dealership`s place and told that financing fell through. Instead he is offered a deal less favorable than initially discussed and pressured to sign a new financing agreement with higher rates and fees. The hope is that after a certain period of time in a new vehicle the owner will be averse to give it up, even if he has to pay more.
The bad thing is that renegotiating terms of car purchase and even repossessing a vehicle is legal and dealers can do it whenever they aren`t happy with the negotiated terms. One of the worst factors of spot delivery scam is that a customer who has traded his vehicle in will be denied to get it back. Advocacy groups are fighting to prohibit these deceitful practices but car dealers don`t give in.
Packing the Contract with “Back End” Add-ons
Contract packing, one of the most discrete form of car dealer fraud is reported to be in the list of most frequent consumer complaints. “Back end” of the deal is a profitable way for dealers to earn extra money. So they use a large number of tricks to manipulate buyers and force them to buy add-on products ranging from credit life insurance to paint sealant and rustproofing. In some cases customers may be told that these products are obligatory and included with the car. If customer apply to financing through dealer they may be pressured to buy aftermarket products with the excuse that it`s required by finance organization.
Deceitful dealers may go further wrapping add-on products into the contract without disclosing. This scam usually happens when the customer is concentrated on a monthly payment only. For instance, he may be told that his monthly payment is $300; at the same time it won`t be disclosed that $250 is for vehicle and $50 for aftermarket product. To to avoid packing scam one shouldn`t negotiate car price based on monthly payment. Aftermarket products are optional and customers can refuse to pay for these high-profit items.
Negative Equity Scam
With negative equity scam being one of the most frequently used the car dealer assures the customers to pay off their trade-in no matter how much they owe. Such kind of ads which are constantly shown on TV, broadcasted on the radio and published in print media may seem enticing to car owners who are upside-down on their trade-in, i.e. have “negative equity”(owe more that the vehicle worth). FTC (Federal Trade Commission) recommends consumers to refer carefully to misleading vehicle trade-in offers. The scam occurs when the dealer pays off the loan and includes it in the new car contract. So the customer is forced to pay not only for a newly purchased car but for the balance owed on his old vehicle trade-in. The following example illustrates how this scam works. If a loan payoff is $12,000 but the car is worth $10,000 until trading in for a new vehicle the owner must pay negative equity which is worth $2,000. Dealer will pay this amount at the same time wrapping it in a new car purchase contract. As a result customer will have increased monthly payment, higher balance and extended loan term.
“Mistakes” in the Contract
When buying a car customer is due to sign a lot of paperwork, and wading through it can be stressful when a finance manager or salesman is waiting impatiently for him to sign all the papers. Those who feel repugnance to numbers or lacking in math skills will occur in uncomfortable situation and possibly will overlook mistakes in the contract. “Mistakes” in the paperwork occur very often: curious how they usually favor the car dealer. Errors can be found on the loan term, agreed purchase price, down payment, interest rate or really anything. In some cases the discrepancies can be glaring. For instance, when a buyer signs a leasing agreement assuming that it was a car purchasing contract, or when the trade-in value is unintentionally missed. In order to avoid such cases of car dealer fraud vehicle buyers should carefully review all the documents and make sure that the numbers and items match with what`s been agreed upon.
Title washing
Title washing scam is on the rise. Most cases of this scam is registered after major disasters such as hurricanes and floods. Let`s reveal how this scam works.
In many states the cars damaged in a flood, car crashes, fire or other disasters and totaled by insurance company are due to be branded with “junk”, “salvage” or “rebuilt” titles. If vehicles get such kind of title they lose their market value, and it`s very difficult for dealers to “get rid of” them. As for fraudulent dealers they aren`t plagued with such kind of problems, they simply take the vehicle to one of the states where law is lenient to what makes up a “salvage” title. In these states it`s quite easy to rebuilt the title. i.e. erase its bad history. So “salvage” cars return to its native state “clear” and are sold to unsuspecting buyers at a higher price. Car owners thinking that they have purchased used cars in good condition very soon start experiencing serious problems with them. Driving “salvage” cars may be very dangerous especially those with wiring, engine or brakes damages. Vehicle history report and VIN number check in major cases will help buyers to avoid this scam.
Forced Warranty Scam
This scam occurs when a customer is told that he is not eligible for loan until he pays for extended warranty. Finance officer can present various justifications why extended warranty is included with the vehicle. One of them is that a credit organization wants to be indemnified against problems that a car damage may cause. Salesperson may bring another excuse; as resources of used car is partially exhausted a financing company wants the customer to buy extended warranty in order to be sure that in case of car breakdown its owner will be able to pay for it. If a customer turns down the offer to buy extended warranty a salesperson can start persuading him to agree in exchange of getting a better interest rate or other benefits. Buying an extended warranty is optional, and financing organizations cannot require customers to buy it in order to qualify or the loan, so all the dealer`s tricks aimed at forcing the customer to buy it are illegal.
Curbstoning
Auto dealers who pose as private car sellers are called curbstoners. Curbstoning is another car dealer fraud used to defraud consumers or to elude the Federal Trade Commission rules regarding selling used vehicles. The dealers post ads in different sites (Craiglist, eBay etc.) and under disguise of car owner sell wrecked, “salvage” or lemon vehicles. According to Used Car Rule dealers must disclose to customers full information about the car. But this rule is not applied to private sellers, that`s why it`s profitable for car dealers to sell their vehicles “as is” without disclosing important information about their past.
Odometer Fraud
Odometer fraud is another illegal trick used by dealers to make it appear that the cars` mileage is lower that it actually is. According to NHTSA (National Highway Traffic Safety Administration), odometer tampering is considered to be a serious crime. Dealers sell vehicles with high mileage at a higher milking vehicle buyers out of several billions annually. As a rule this car fraud is not limited to odometer rollback. It includes recondition of paperwork and title. In particular odometer tamperers destroy initial title documents and substitute them with duplicate certificates which contain lower mileage figures. To cover up their tracks tamperers create transfers to false dealerships.
It`s thought that digital odometers are quite impossible to roll back.But actually digital odometers are even easier to tamper. They are being reprogrammed with the help of software and devices originally designed for getting faulty odometers recalibrated (it`s legal).
What to Do when Falling a Victim to Car Dealer Fraud
Customers who have recently purchased a car and suspect any wrongdoings should apply to qualified car dealer fraud attorney who will be able to evaluate whether they are victim of fraud. If their rights were violated the attorney will assist them in obtaining justice and getting compensation for the economic losses.

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