Auto Fraud Diagnostic

Although there are countless forms of auto fraud, this question-and-answer diagnostic covers some of the most common scams experienced by car buyers. If you answer “Yes” to any of these, you may be a victim of auto fraud. Read the appropriate sections and consult an attorney if you still believe you were defrauded.

For victims of auto fraud in Southern California, please call the Public Counsel Consumer Hotline at (213) 385-2977 x700

 

1) Is the price listed on the contract different from what the salesperson said you would pay? Yes No
2) If you financed your vehicle at the dealership, is the interest rate on the contract different from what you were told? Yes No
3) Were you charged for any accessories or options that you didn't agree to? Yes No
4) Did you pay a larger downpayment than what is listed on your contract? Yes No
5) Were you charged for a service contract (warranty) that you didn't agree to? Yes No
6) Were you charged for any insurance that you didn't agree to? Yes No
7) If you traded in another vehicle, were you given less credit than the car was worth? Yes No
8) Were you told that you had to pay a higher interest rate because your credit was bad? Yes No
9) Were you told that you had to finance the vehicle at the dealership? Yes No
10) Were you told that the dealership's rates came "straight from the bank" or were "standard bank rates"? Yes No
11) Were you told that the bank required customers to buy a service contract if they wanted financing? Yes No
12) After you bought the car, did the dealership ask you to come back and sign a new contract? Yes No
13) Were you tricked into a lease, believing that you were purchasing the car? Yes No
14) If you have a lease, were you told that you would own the car at the end of the lease? Yes No
15) Were you told that the dealership would "refinance" the vehicle after a certain period of time, and lower your payments? Yes No
16) If you have a co-signer on your contract, did the salesperson fail to tell you that the co-signer is legally responsible for making the payments? Yes No
17) Did the salesperson lie to you about the condition of the car? Yes No
18) Did the salesperson fail to tell you about preexisting problems with the car? Yes No
19) Do you suspect that the vehicle has more miles than is shown on the odometer? Yes No

 

 

Question 1: Contract Price Different From Price Quoted to Customer

One form of auto fraud is the practice of quoting a lower price that the number that is ultimately included in the contract. This bait-and-switch tactic, often targeted at non-English speaking customers, can be applied to the vehicle’s price, the price of accessories, service contracts, and any other cost item.

Another variation on this practice is to confuse customers about the “out the door price.” Customers are led to believe that the total cost to drive the car off the lot is X, when in fact the total cost is actually much more. For example, a customer who is told, “The out the door price is $15999”, may find that the $15999 price does not include $1500 in accessories, $1200 in taxes, government fees, etc.

To avoid this practice, read every line of the contract carefully. Make sure you distinguish between the following:

  1. CASH PRICE VEHICLE (which includes only the price of the car BEFORE all the other costs),
  2. CASH PRICE ACCESSORIES (which includes any add-ons like alarms),
  3. TOTAL CASH PRICE (which includes the price, the add-ons, taxes and service contracts),
  4. SUBTOTAL (which includes everything under TOTAL CASH PRICE plus any government fees); and
  5. AMOUNT FINANCED (this is the amount of credit that you are taking out, which is generally the SUBTOTAL minus the downpayment and other rebates.

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Question 2: Interest Rate on Contract Different From Rate Quoted to Customer

Another form of auto fraud is the practice of quoting a lower interest rate than the rate that is ultimately included in the contract. This tactic is intended to make the customer believe that they are getting a better interest rate than they really are. A higher interest rate by even one point could end up costing the customer hundreds, even thousands, of dollars over the life of the loan.

To avoid this practice, make sure the ANNUAL PERCENTAGE (APR) box on the contract accurately reflects what the dealer quoted you. You may also wish to ask the dealer what the Buy Rate is. The Buy Rate is the rate at which the dealer can get a vehicle financed. Any rate above the Buy Rate means that the dealer can make more on the sale. Most reputable finance companies do not allow the dealerships to impose an APR that is more than 3 percentage points over their buy rate.

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Question 3: Customer Charged For Accessories Or Options They Did Not Agree To

Some auto purchasers are surprised when they get home to discover that they have been charged for accessories or options they never agreed to. Although most dealerships will only charge customers for the options they authorize, it is not uncommon for unscrupulous dealerships to include many items that were never discussed.

To avoid this practice, read every line of the contract carefully. Make sure you closely examine the CASH PRICE VEHICLE and the CASH PRICE ACCESSORIES. Are there any amounts listed that you did not authorize? When negotiating the price of the vehicle, make sure you ask the dealer if the price includes any accessories or options that come with the vehicle.

If you’ve been victimized by this practice, talk to the dealer and demand that they refund any amounts that you did not authorize. File a complaint with the Better Business Bureau and make a complaint with the Department of Consumer Affairs.

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Question 4: Downpayment On Contract Does Not Reflect What Customer Paid

Another form of fraud is the fraudulent practice of not crediting the full amount of the customer’s downpayment. This tactic may occur when a customer pays the downpayment in more than one installment or pays it in cash and forgets to get a receipt.

Make sure you closely examine each line of the TOTAL DOWNPAYMENT section of the contract. Pay particular attention to the Deferred Downpayment (payments to be made at a later date) and Cash lines. Were you credited for the full amount you paid as a downpayment? When negotiating with the dealer make sure that the amount of the downpayment is a specific amount that both of you agree upon. And make sure to get a receipt for any payment that you do make.

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Question 5: Customer Charged For An Unwanted Service

A common complaint among auto fraud victims is that the dealership charged them for a service contract that they did not want or authorize. Sometimes, the salesperson will imply that the warranty is part of the deal, even though the customer is actually being charged for the service contract.

To avoid this practice, read every line of the contract carefully. Make sure you closely examine the SERVICE CONTRACT line of the contract.

If you find that you have unknowingly purchased a service contract, immediately contact the service provider (there should be some documents referring to the service contract included with the sales contract). You can usually cancel such contracts and be refunded the unused portion of the contract. File a complaint with the Better Business Bureau and make a complaint with the Department of Consumer Affairs.

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Question 6: Customer Charged For Unwanted Insurance

Another fraudulent practice employed by some unscrupulous salespersons is to charge the customer for insurance that the customer did not want. There are various types of insurance that could be included in a contract. The most common are: vehicle insurance, credit insurance, and GAP insurance (debt cancellation contract).

Make sure you closely examine the STATEMENT OF INSURANCE, the APPLICATION FOR OPTIONAL CREDIT INSURANCE, and the OPTIONAL GAP CONTRACT sections of the contract. If you find that you have unknowingly purchased insurance, immediately contact the insurance provider (there should be some documents referring to the insurance policy included with the sales contract). You can usually cancel such policies and be refunded for the remaining period of your contract. Contact the dealership and immediately demand a refund of any amounts you paid. If you do not get any response, send a letter with your complaint to the General Manager. If none of this works, get legal help.

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Question 7: Customer Given Insufficient Credit For Trade-In Vehicle

Many customers trade in their old vehicles when they purchase another new or used vehicle at a dealership. In some cases, however, the amount of credit quoted by the salesperson is different than the amount of credit actually credited under the contract.

Another variation of this fraud is to misrepresent to the customer the market value of the car – e.g., “The blue book on your car is about $2000 (when, in fact, it’s much more).

To avoid this practice, find out the blue book value of your trade-in before you visit the dealership. Take that information with you. If the dealership offers much less than the bluebook value, consider selling the car to a private party

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Question 8: Customers Told That Their Credit Is Poor

Most consumers know that people with bad credit are generally charged a higher interest rate for financing. However, a surprisingly large percentage of consumers, including many auto customers, have no idea what their credit report looks like.

This lack of knowledge facilitates fraud. While most dealerships will deal honestly with customers, some dealerships will defraud customers by (falsely) telling them that their credit is terrible – as a way of justifying exorbitant interest rates. The scam makes sense: people are willing to accept interest rates if they think that the rate is based on their credit. Unfortunately, this is not always the case. In the last few years, various class actions have been brought (both nationally and in California) alleging that minorities pay significantly higher financing, even when the numbers are adjusted to statistically account for differences in credit. In short, minorities with equally good credit often pay more.

If you’re thinking of financing a vehicle through a dealership, you should consider taking the following steps:

  1. Obtain a copy of your credit report and be familiar with both your score and your credit history.
  2. Compare financing rates at local banks and credit unions. Many will offer competitive rates much lower than dealerships.
  3. Write down your expenses, go through your budget, and be clear on what you can afford.
  4. Go in knowing what interest rate is fair based on your credit history, the age of the car, and how long you are looking to finance.
  5. If the dealership makes any statements about your credit that you believe are questionable, ask to see your credit report.
  6. Remember that interest rates are negotiable, and that the rate quoted to you by the dealership probably includes a discretionary markup. Feel free to negotiate.

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Question 9: “You have to finance the car here at the dealership.”

Most dealerships receive a significant percentage of their income through markups on vehicle financing. As a result, many dealerships aggressively encourage their customers to arrange their financing through the dealership. In most cases, the dealership does not itself provide the financing – it assigns the contract to a finance company and receives a certain percentage of the contract as markup. There is nothing illegal about this practice.

Consumers should know, however, that they have no obligation to finance the vehicle through the dealership. Customers can pay cash, or, alternatively, find financing through a local bank or credit union. Dealerships that tell customers they must obtain financing through the dealership are not reputable. If you are told that you must finance the vehicle to obtain a certain price (or to buy the car at all), contact the Department of Consumer Affairs and the Better Business Bureau.

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Question 10: “These are standard bank rates. We can’t negotiate.”

Most dealerships that arrange financing do not provide the credit themselves. These dealerships assign the contract to a finance company, and receive a markup (often called a “dealer reserve”) if the interest rate on the contract is above the bank’s “buy rate.” What customers don’t often realize, however, is that the interest rate quote they receive is discretionary. Dealerships can, and often do, quote interest rates significantly higher than the bank’s “buy rate.” The markup is their profit.

Some dealerships, however, take advantage of customers by misrepresenting (or implying) that the interest rates they quote come directly from the bank and are non-negotiable. This is misleading because dealerships generally have discretion to quote any interest rate up to 3 percentage points above the bank’s “buy rate.”

The lesson for consumers is that financing rates are always negotiable. Dealerships that imply their hands are tied on a particular financing rate are probably not being honest with you.

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Question 11: “You need to buy a service contract (or some other extra) to get this price.”

Extras like car alarms, appearance packages, and service contracts (extended warranties) are significant profitmakers for auto dealerships. Given this fact, some unscrupulous dealerships trick customers by telling them that they must purchase one or two accessories to obtain the price quoted by a salesperson or advertisement.

Customers need to know that accessories are optional. Reputable dealerships have strict policies against requiring the purchase of any extras. If you hear this sales tactic, insist on the quoted price WITHOUT the accessories. Consider contacting the Better Business Bureau and the Department of Consumer Affairs.

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Question 12: Yo-Yo Sales – Asking Customers to Come Back

Most auto contracts involving dealer-arranged financing contain a clause that specifies that the contract is contingent on the financing being accepted. This clause is included because, in some circumstances, the dealer cannot obtain financing for the customer, and has to ask the customer to return the car.

One well-known form of auto fraud takes advantage of this clause. In the most common form of this scam, customers are contacted, after they have taken the car home, and are told that they must come back to the dealership. Once back at the dealership, customers are told that, because the dealership is having trouble arranging the financing (purportedly because of the customer’s bad credit, low income, etc), they must pay more downpayment, higher interest rate, etc. This practice, known as a “Yo Yo” sale, takes advantage of the fact that a customer who has already taken the car home is more psychologically invested in the sale, and is more likely to agree to pay more to get the sale to go through.

If you are asked by a dealership to come back after signing a contract, and are told that the financing is problematic, consider taking the following steps:

  1. ask to talk to the finance company representative to understand exactly why the financing is a problem;
  2. ask to get a copy of the decision by the finance company;
  3. call other banks or credit unions to obtain financing;
  4. do not re-negotiate the contract on the spot – take your time, do your homework about financing, and stick to your original terms.

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Question 13: Buy-Lease Switch

Buying a car is not the same as leasing a car. Although most car buyers know the difference, many do not.

If you were told you were buying a car, only to find after you went home that the contract you signed was in fact a lease, you’ve been scammed. If the dealership refuses to honor the representations of its sales staff, see a lawyer.

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Question 14: “You will be leasing, but you will own the car after 5 years”

A variation on the standard buy-lease switch is the scam that tricks customers into believing that they will own the car after leasing for a period of time. Most leases don’t work that way. Most leases require you to pay a substantial residual payment to purchase the car at the end of the lease – you don’t simply own it at the end of the lease.

If you were told that you would own the car outright at the end of the lease, you may have been scammed. Check your contract to see if there is a residual payment that is due at the end. See a lawyer.

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Question 15: “Don’t worry about the APR, we will refinance you after a year.”

While most dealerships clearly explain the APR involved in a contract, some dishonest salespeople will deceive customers into believing that the APR on the contract will go down in the future. When asked about the APR, some dealerships trick customers by telling them that the interest rate is only temporary, and that the dealership will “refinance” the customer after a certain period of time if the customer makes payments on time.

Don’t be fooled. Dealerships usually do not have the ability to refinance a contract since the contract is assigned to an independent finance company. Unless the consumer takes the initiative and obtains refinancing on his/her own, the APR on the contract will, in all likelihood, be the APR that the customer will have for the life of the loan. If you hear this sales tactic, chances are you are being scammed. Contact the Department of Consumer Affairs, or see a lawyer.

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Question 16: “We need your friend [or family member] to sign as a reference.”

In some cases, where a customer’s income or credit history is not sufficient to finance a vehicle purchase, finance companies will accept the contract if there is a second individual – a “co-buyer” or “co-signer” – who also signs the contract. The abuse occurs, however, when co-signers are misled about the responsibilities they are accepting. Some customers are told that the co-signer is merely being used as a “reference” and has nothing to do with the car.

Statements like these are false. In the event that payments are not made, the co-signer’s credit can be affected, debt collection efforts can be made against the co-signer, and the co-signer can be sued for the payments that are owed. In short, the co-signer is equally responsible for making the payments on the vehicle. Only sign a contract as a co-signer if you are prepared to accept these responsibilities.

If you are a co-signer and were misled about your responsibilities, consider taking the following steps:

  • Get a copy of your credit report to make sure that there are no negative references on your credit as a result of the loan;
  • Contact the finance company, explain the fraud that has occurred, and try to get your name off the loan;
  • If this doesn’t work, talk to the buyer and see if the loan can be refinanced to take your name off the financing;
  • If you find that your credit has been negatively affected, get legal help.

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Question 17: Did the salesperson lie to you about the condition of the vehicle?

One of the most common forms of auto fraud is the practice of misrepresenting the true condition of the vehicle. Dealers often tell buyers, “The car is in excellent condition.” Unfortunately, they are not always telling the truth. Do not be fooled just because a vehicle appears cosmetically clean and mechanically sound. If the vehicle you are interested in comes without a warranty or “as is,” you should be extra cautious.

Vehicles that have been wrecked, declared a total loss by an insurance company, or rebuilt have what is called a salvage title. The title of the vehicle (and registration) must disclose that the vehicle is a salvage. It is unlawful to sell a salvaged vehicle without telling the buyer. The price of a salvaged vehicle is generally much less than an equivalent non-salvaged vehicle. Salvaged vehicles may have major safety defects depending on how well it was rebuilt. It is usually not very difficult to find out whether or not a vehicle is a salvage.

Other vehicles may have been wrecked and rebuilt, but were not declared a total loss by an insurance company. These types of vehicles are much harder to identify because they do not carry the salvage title.

To avoid this practice, you should have the vehicle you are interested in inspected by a mechanic and/or an auto body repairperson before you buy it. You should also get a vehicle history report. You can get summary title reports from service providers such as: Carfax (www.carfax.com), AutoCheck (www.autocheck.com), and CarFraud.com (www.carfraud.com). Look for evidence of a salvage history. For example, if an insurance company held title to the vehicle, it could mean that it was wrecked and declared a total loss. In more complicated cases a complete title history may be obtained from the DMV.

If you suspect that you have been a victim of this type of fraud, you may wish to consult with an attorney who specializes in auto fraud.

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Question 18: Did the salesperson fail to tell you about preexisting problems?

One of the most common forms of auto fraud is failing to disclose preexisting and/or known problems with the vehicle. Cars often have documented histories of mechanical problems. Some dealers try to sell vehicles with known mechanical problems by either misrepresenting the car’s condition or simply by not telling the prospective buyer about these problems. Do not be fooled just because a vehicle appears cosmetically clean and mechanically sound. If the vehicle you are interested in comes without a warranty or “as is,” you should be extra cautious.

One form of hiding a vehicle’s history is called “lemon laundering.” Many states, including California, have lemon laws, which essentially require a manufacturer to repurchase a defective vehicle. Lemon laundering is the resale of these defective vehicles without disclosing their prior history. A possible sign of lemon laundering is when a car that is close to new is being sold as used.

Other forms of this type of fraud include misrepresentations about prior owners or prior use. For example, dealers often tell consumers that a car has only had one owner, when in fact it has had multiple owners. Dealers may also conceal the fact that a vehicle was a rental car. Dealers may also hide a vehicle’s history as stolen and recovered; stolen vehicles sometimes have undetected and unrepaired problems.

To avoid this practice, you should have the vehicle you are interested in inspected by a mechanic and/or an auto body repairperson before you buy it. You should also get a vehicle history report. You can get summary title reports from service providers such as: Carfax (www.carfax.com), AutoCheck (www.autocheck.com), and CarFraud.com (www.carfraud.com). Look for evidence of a questionable history. For example, was the vehicle owned by multiple owners or a rental car company? Does it appear as if a manufacturer repurchased the vehicle? In more complicated cases a complete title history may be obtained from the DMV.

If you suspect that you have been a victim of this type of fraud, you may wish to consult with an attorney who specializes in auto fraud.

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Question 19: Do you suspect that the vehicle has more miles than is shown on the odometer?

Odometer fraud is one of the oldest forms of auto fraud. Consumers are clearly willing to pay more for vehicles with lower mileage, thus creating an incentive to rollback the mileage on odometers. Odometer fraud can be accomplished in various ways: physically repositioning the numbers, changing the mileage reading electronically, replacing the entire odometer, and/or disconnecting the odometer. Dealers sometimes orally misrepresent the mileage and put the odometer reading on the trip meter.

To avoid this practice, you should closely read the odometer. The average person drives approximately 12,000 miles per year. Is the mileage on the vehicle way below the average? You may want to ask the dealer to explain why. You should also get a vehicle history report. You can get summary title reports from service providers such as: Carfax (www.carfax.com), AutoCheck (www.autocheck.com), and CarFraud.com (www.carfraud.com). The history reports usually include information on vehicle mileage. A major discrepancy between the mileage reported and the actual mileage could signify fraud (especially if the actual mileage is lower than previously reported).

If you suspect that you have been a victim of this type of fraud, you may wish to contact the DMV and/or consult with an attorney who specializes in auto fraud.

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