The Bad and the Ugly in Car Deals
While some car dealers are reputable, many are not. Even reputable car dealers may unknowingly sell you a "lemon." Unscrupulous sales personnel, finance managers and dealers take advantage of consumers in many ways. Their tricks and scams are limited only by their imagination, and your willingness to trust them and desire to believe what they tell you.
These tactics can involve any aspect of the transaction and may include:
- Selling known defective vehicles
- Deceptive and unfair leases
- Financing tricks
- Deceptively selling add-ons
- Missing disclosures
- False advertising
Understanding vehicle defects and some of the dealers' tricks can help. A thorough examination of all your sale or lease documents, and often your credit report, is a crucial first step to understanding what happened.
Defects The Tip of the Iceberg
Defects can be just the tip of the iceberg. Persistent defects may bring your car within the state lemon laws and they may indicate bigger problems.
Lemon Laws and More
Lemon laws aren't the only laws covering defective vehicles. Lemon laws offer broad remedies but cover your vehicle for only a short period. Massachusetts has both new and used vehicle lemon laws. Covered defects are more limited under the used car law. A new, low-mileage used car may be covered by both laws.
New & Used Lemon Laws - Both of these laws require you to give the manufacturer (new) or dealer (used) a specific number of tries (or days out of service) to fix the defect. If the defect remains, you can get either a replacement (new only) or your money back (both). If the manufacturer or dealer won't comply, you can ask for arbitration by the state or sue in court.
"Lemon Aid" Law - Your sale may be voidable if your car fails state inspection within seven days of the sale. If repairs will cost more than 10% of the purchase price and the vehicle is for personal or family use, you can get your money back. But you have only 14 days from the sale date to take the required steps. Most Massachusetts dealers perform the state inspection (and charge you for it). So, generally, consumers find out too late their vehicle won't pass an independent state inspection. We've never seen a car that failed the dealer's inspection, even though it failed a later independent inspection.
Other Warranty Law - Other state and federal laws cover more defects than the lemon laws and for a longer period. You may even have a right to cancel the deal entirely. In Massachusetts, the car must be fit for its ordinary purpose. This coverage can very broad and the federal Magnuson-Moss warranty law may require the dealer or manufacturer to pay your attorney's fees. These laws are important considerations whenever a defective vehicle is involved.
Secret Warranties - Sometimes manufacturers know about a widespread problem with a particular system on a vehicle model. They issue technical service bulletins (TSBs) telling dealers about the problem and how to repair it. The manufacturer may have a policy to pay for repairs for this problem after the warranty expires, but only its regional offices and perhaps some of its dealers know of this "warranty adjustment policy." Only consumers who complain loudly and persistently to the regional office find out about and get the benefits of this policy. The TSB on the problem might indicate a secret warranty policy.
To look for information on vehicle defects for your car model you can check the following websites:
Center for Auto Safety
Consumers for Auto Reliability and Safety (CARS)
National Highway Transportation Safety Administration
Search for TSBs at NHTSA
The Massachusetts Office of Consumer Affairs website has more detailed information on:
Massachusetts Lemon Laws and “Lemon Aid” Law
Other helpful information on vehicles
Hidden History Can Be Dangerous
Your newly purchased car may not be what it appears. A full investigation is important for any defects that aren't quickly and easily repaired. Thorough inspection of both the vehicle and its title history are necessary to uncover most of these problems. Investigation may show, for example:
- Previous wreck damage, flood or salvage titles
- Lemon law "buyback"
- Former commercial usage
- Rolled-back odometer
Wrecks and Salvage Vehicles - Many wrecked and flood vehicles, even those sold for salvage, are rebuilt so the untrained eye can't detect the damage. They are auctioned to dealers who put them on their lots for sale. Their history isn't generally disclosed to the buyer. Not only is the car’s value lower than it otherwise would be, it may also be unsafe.
"Laundered Lemons" - Defective "lemon" vehicles, bought back from consumers by manufacturers under state lemon laws are resold. Often they get only minor repairs and the persistent defect remains. Dealers buy them at auctions for resale, sometimes in other states. Then they sell these low-mileage cars to unsuspecting consumers, sometimes as "new." Buyers may be told the cars are "demonstrators" or "executive" models. Massachusetts law requires dealers to post written disclosures of previous lemon law history, but we've never seen one used.
Daily Rentals - Other vehicles may be previously leased or daily rental cars. In Massachusetts, such prior usage must be disclosed, but that doesn't always happen.
Odometer Rollbacks - Rolling back the odometer is another common way to conceal important information about a vehicle's history and is illegal. A rolled-back odometer makes the car look like it has less mileage than it actually has and seem less "used." This raises the car's apparent value, along with the amount a dealer can charge for it. Even newer, computerized odometers can be rolled back.
Checking Vehicle History - You can check some aspects of your vehicle's title history, or the title history of a vehicle you are interested in purchasing by getting a report on it from CarFax. A CarFax report can be a beginning and may indicate a questionable past for the vehicle. However, these reports are not always complete. They also do not contain all the information in a full title history, located in state motor vehicle records.
Lease disclosures are not as straightforward as those for sales. Unscrupulous dealers can more easily hide the true cost of the car or the value they give for your trade-in. Dealers can make more profit from a lease than a sale. Leases are such good deals for dealers, they often try to convince customers to lease who originally intended to buy.
If you end the lease early for any reasonthe car is wrecked or stolen, for example you pay a penalty. Early termination penalties (on the back of the lease) are usually unreasonable and hard to understand. The penalty can be much higher than the finance company's lost interest when the lease ends early. Many of these penalties are illegal and can be challenged, even if you haven't ended your lease.
Financing Sleight of Hand
Dealers have many tricks and ways to stack the deck in their favor may involve vehicle financing. Some of them include:
Delivery before Credit Approval - Dealers sometimes deliver vehicles to buyers before financing is approved, a practice called "spot delivery." Spot delivery benefits only dealers. Dealers convince buyers to sign a finance contract, keep their trade-in and give them the car to drive home. This practice has many variations. For example:
- Financing Approval "Pending" - The dealer says the contract isn't binding and can be canceled if the buyer doesn't like the final financing terms. But later, when the approved financing terms are higher, the dealer changes its tune. They tell buyers that the car already belongs to them, that their trade-in is gone and their only choice is to sign the new contract or leave the vehicle to be repossessed.
- Financing "Approved" - The dealer tells the buyer financing has been approved when it really hasn't been yet. Later, when financing isn't approved, the dealer insists the buyer must sign a new contract with financing terms less favorable to the buyer. If the buyer refuses to sign or bring the car back, the dealer may illegally threaten "repossession" or arrest for "theft" of the vehicle. Sometimes, even though it has no right to do so, the dealer actually repossesses the car.
Dealers in these examples violate your rights in many ways. A thorough examination of the facts, the transaction and vehicle documentation, and your credit history is crucial to determining your rights in these instances.
Hidden Dealer Profit - Dealers often say they will get you the best financing deal possible. But they generally get the best deal for themselves. Banks and finance companies may allow dealers to charge you a higher interest rate than you qualify for. The difference goes to the dealer as a "yield spread." It's extra interest you don't know you didn't need to pay. Dealers may send your credit application to several finance companies looking for the best deal for themselves. Your credit report will reveal this.
Blank Documents - Sometimes dealer personnel have you sign blank documents. They have a variety of explanations, but there's no legitimate reason for asking buyers to sign blank documents. When this happens, the dealer wants to be able to control information inserted later or wants to insert false information. Don't sign any document that contains blanks or false information.
No Copies - Dealers often don't give buyers copies of signed credit applications and other documents. We've seen income on credit applications changed after the buyer signed. Massachusetts and federal law both require car dealers to give you a copy of contracts you sign. Be sure to get a copy of anything you sign immediately after signing it so you can prove what was on the document when you signed it. You can use our Auto Document Checklist to check your own documents.
Making You Feel Invested - A favorite ploy of dealers is to make you wait so long for price or financing approval, or for preparing the paperwork, that you already feel invested in the process. They may keep you waiting until you are tired, hungry, or until closing. They may even take the keys to your trade-in so you can't leave. Their goal is to make you less likely to carefully read your documents, more agreeable to added charges, and less likely to notice discrepancies between the deal you made and the final paperwork. And if you do notice a change they made, you may be less likely to want to wait while they correct it.
Phony Downpayments - Other schemes involve phony downpayments or non-existent trade-in vehicles. You don't benefit. When these phony downpayments are added, the cash price is raised a corresponding amount.
High Pressure Tactics - Other high-pressure tactics may include:
- Telling you the price is good only today, to discourage you from taking time to think it over. You have a right to take a copy of the purchase and financing contracts home to read.
- Discouraging you from reading the documents they ask you to sign
- Telling you "sign here, sign here, sign here. . . ." without giving you time to read or see what you are signing
- Misrepresenting the nature of documents they ask you to sign
- Putting amounts or rates different from what you agreed to into the final documents
Beware of the "Pack" -- Deceptive Sales of Add-ons
The "extras" the dealer's finance manager sells you after you agree to a price for your vehicle are one of the biggest areas of dealer profit. Sometimes they tell you these extras are required when they are not or slip extra items into your documents without your noticing. Other times they hype these extras with inaccurate descriptions, gloss over answers to your concerns or use double-talk to confuse you. Dealers have a term for these extras the "pack."
Extended Warranties and Service Contracts - Extended warranties and service contracts are generally overpriced and of little value. Service contracts that cost the dealer only a few hundred dollars are commonly sold for up to $2000. The price is as high as the finance manager thinks you will pay. These products may duplicate warranty coverage that comes with your car. Their actual coverage is usually narrower than the finance manager describes. It may be hard for you to get their benefits. You may need to use that dealer for your repairs instead of your own mechanic. Some companies routinely deny benefits if you can't completely document all of your service work or for other questionable reasons.
Credit Life, Disability and Unemployment Insurance - Dealers get hefty commissions from credit insurance. They may tell buyers credit insurance is required for financing, although it isn't. If you need life insurance to pay off your vehicle, it is usually less expensive to buy a term life insurance policy from your own agent.
GAP Coverage - Another commonly sold extra of more value to the dealer in commissions than of value to you. GAP coverage pays the difference between your outstanding loan balance and the amount paid out by your insurance company if your car is totaled. You are paying a lot for the possibility that you will total your car after its value is less than what you owe on the loan.
"Etching" and Other Worthless Theft Protection - We've seen dealers selling "etching" that was nothing but a removable plastic window sticker. We've also seen convoluted and incomprehensible agreements to "replace" stolen vehicles that were merely a way to lock you into buying another car from the same dealer. None of these gave the buyer any real benefit. And none gave the buyer a rebate if they cancelled the agreement. The money went into the dealers' pockets and stayed there.
Documentary Fees - This item is pure dealer padding in your contract and represents no true costs to them. They may tell you it is required, but if you refuse to pay and they want your business, the dealer will remove the charge.
Missing Disclosures Are Common
The law requires dealers to give buyers several written disclosures that buyers rarely receive:
Lemon Law Notices - The new and used lemon laws both require written notices of your rights under these laws. Notices must be posted on the vehicle window and given to the buyer at the time of sale. These disclosures are often missing.
Resale of Lemon Law "Buybacks" - If a Massachusetts dealer sells a vehicle that was bought back by the manufacturer under any state's lemon law, a notice to this effect must be posted on the vehicle's window. We have never seen one of these notices where it was required.
Buyers Guide - A Buyers Guide disclosing warranty and defect information must be posted on the window of all used vehicles and must be given to the buyer. Often this disclosure is missing.
False Price Advertising
A Massachusetts dealer can't sell you a vehicle for more than its advertised price even if you didn't see the ad before buying the vehicle. Advertisements for individual vehicles must list the car's stock number. Compare that number with the stock number listed on your invoice or contract.
If Your Rights Have Been Violated
Unrepaired defects can lower your vehicle's value and may be dangerous. Often the law requires manufacturers or dealers to fix them, take them back or compensate you. Unscrupulous car dealers use a variety of unfair, deceptive and fraudulent tactics to maximize profits from your deal. These tactics are illegal.
If you feel your rights have been violated, you should contact your lawyer to plan the best course of action for your individual case.
The Law Office of Yvonne W. Rosmarin has helped many clients fight back against dishonest dealers and unrepaired defective vehicles.