Saturday, April 24, 2010

When the Going Gets Tough, the Tough Get an Attorney

It’s been a tough couple of years for just about everyone in this business. I suspect there is an exception though – attorneys that specialize in suing car dealers.

It seems that the recent economy has caused a higher than usual amount of disgruntled customers. An example is the customer who can no longer afford his or her car payment and would like to find a way out of the deal. Then there are the folks who got used to trading in their vehicles pretty much at will. No down-payment? No problem. Upside-down? No sweat. Well, as we’ve become painfully aware, those days are over. So, unfortunately, there are customers out there who feel that they got “screwed” by a dealer because they owe far more than their vehicle is worth and actually need money down to trade it in.

Enter the consumer attorney. Just Google “auto dealer fraud” and you’ll see what I mean. Besides the numerous law firm websites, you’ll find several consumer advocate sites which “educate” people about “car dealer scams”. After browsing through a few of these sites, a consumer may decide to call for a “free consultation” or ring up his local attorney general’s office. Not a pleasant thought. An innocent dealer can easily become the target of a government investigation or lawsuit simply because a customer is trying to wiggle out of a transaction.

According to the above-mentioned websites, these are some potentially “fraudulent activities” by dealers:

• Improper contract disclosure and concealing material facts

• Negative equity/Over allowances

• Payment packing

• Backdating of rewritten contracts

• Forced service contracts or “add-on” concealment

• Undisclosed deferred down payment

• Foreign language translations

• Used vehicle disclosures/Misrepresentation

• New/Used/Demo/Unwind misrepresentation

• Forgery

• Fraudulent credit applications

• Improper Contract Rescissions

• “Yo-yo financing” or spot delivery

• Overcharging of fees

• Undisclosed prior vehicle history or damage

• Odometer issues

• Bait and switch advertising

• False & misleading advertising

• Lying about credit scores

• Buy-lease switch

• Straw purchases

• Price gouging or discriminatory pricing

• Failure to sell at advertised price

• Contract re-negotiation

• Warranty fraud

A number of actions also start out as potential lemon law claims. I’ve actually seen freeway billboards for Lemon Law attorneys. The infamous 10,000 RV negative equity case in California began as a service contract dispute on a used motor home. Once the plaintiff attorneys got their hands on the deal jacket, well, the rest is history.

Unfortunately, dealers are more and more frequently becoming the targets of lawsuits, enforcement actions and, of course, the associated negative publicity. Attorneys general in many states identify accusations against dealerships as being their #1 concern, and recognize the political capital in going after dealers.

It’s more important than ever for dealers to dot there “I”s and cross their “T”s when it comes to compliance. Processes should be put in place to ensure that transactions will hold up to legal scrutiny in case of a customer complaint, such as:

• A vehicle history report should be run on all used vehicles to detect potential disclosure problems such as prior rental, damage, mileage, title issues, etc.

• A consistent process should be used for quoting payments, rates, etc.

• Consider having price caps on F&I products.

• Have an extra set of eyes check out all paperwork. If a mistake or oversight is discovered, correct it immediately.

• All employees should be properly trained in both legal compliance and company procedures.

In this environment, it is vital to take compliance seriously and understand that it is downright fashionable to target auto dealers. Let’s not make it so easy for them.

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