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Automobile Fraud: 2.5.2.2.2 Deal files and file jackets

The major filing system maintained by motor vehicle dealers is based on “deal files.” A deal file is the complete record of a single vehicle transaction. While dealers have differing filing systems, most deal files are grouped by new or used vehicle, sorted by year, and are filed alphabetically by the buyer’s last name.

Automobile Fraud: 2.5.2.2.3 The worksheet, purchase order, and retail installment sales contract

The worksheet is one of the most important items in the deal file. The form is sometimes called a “four-square” worksheet, because it usually deals exclusively with the four primary aspects of a deal, at least from the dealer’s viewpoint: purchase price, trade-in allowance, cash down payment, and monthly payment. In many high-pressure selling systems, the four-square is used to confuse and pressure consumers into accepting purchase terms that are less than equitable. The document is important because it reflects the course of the negotiation.

Automobile Fraud: 2.5.2.2.4 Recap sheets and charge backs

Depending on the computer system used by the dealer, most dealers will have some sort of a “recap” document. This document details the profit on the transaction by department, the salespeople who earned commissions on the deal, their pay, the house share, and the dealer’s net profit. This document can be quite useful in discussing dealer culpability. If a recap sheet is not in the deal file, the dealer probably has them stored in some other filing system. Log books may also have similar information.

Automobile Fraud: 2.1.2.3 Rollbacks and Disconnects

One way to misrepresent an odometer reading is to physically roll the odometer back. With older, mechanical odometers this rollback is often accomplished by breaking into the odometer mechanism and using hand tools to reposition the odometer numbers. Electronic odometers require more sophisticated techniques, but equipment to do so is quite easily obtained—over the internet, among other places—and at fairly low cost.

Automobile Fraud: 2.1.2.4 Collusion by Subsequent Owners

Once a party tampers with an odometer, subsequent transferors can collude in the fraud by passing the vehicle on without disclosing the mileage error, even though they know or at least suspect that the reading is not accurate. For odometer and other types of car fraud, wholesalers and dealers may transfer a vehicle between states or between dealers until the dealer selling to the consumer can plausibly deny knowledge of the fraud. In reality, the dealer selling the car to the consumer has a good idea what is happening.

Automobile Fraud: 2.1.2.5 More Subtle Forms of Odometer Fraud

More subtle forms of odometer fraud involve a dealer accurately disclosing in writing to the consumer that the odometer reading is inaccurate, but hiding this written disclosure from the consumer in one fashion or another. The dealer may even make oral representations about mileage that counter this written disclosure. Odometer issues may also arise when a car is wrecked and rebuilt with used parts. The consumer is defrauded when the odometer shows a lower mileage than is accurate for the engine and other key components.

Automobile Fraud: 2.1.2.6 Common Forms of Odometer Fraud Today

One common type of odometer fraud takes place after business fleet leases expire. The lessees return the cars and the lessors sell the vehicles to wholesalers. These vehicles are typically two-year-old or three-year-old cars which have been driven 25,000 to 35,000 miles per year. The wholesalers then roll the odometers back so that the odometers reflect a more normal usage of 10,000 to 15,000 miles per year. The wholesaler at the same time alters the written mileage reading that the lessor disclosed on the title assignment or on a separate reassignment form.

Automobile Fraud: 2.6.2.6 Dealer Knowledge of Carfax Report; Other Title Searches

Car dealers today routinely use Carfax or similar services on all cars they purchase. The dealer will try to use the car’s clean bill of health from Carfax as evidence that the dealer had no knowledge of the fraud. As described earlier,255 a clean Carfax summary report does not mean the car is clean. On the other hand, a Carfax report showing a discrepancy is evidence that the dealer knew the car had problems.

Automobile Fraud: 2.6.2.7 Wholesaler or Other Seller’s Reputation

Dealers know the reputation of car wholesalers. Experts indicate that the name of the dealer selling the vehicle to the retail dealer is one of the most significant indicators of a potential problem with a car.259 For example, the consumer should establish, if possible, that a car was bought at a car auction, and that the reputation of that auction’s cars and the wholesale dealers supplying the auction was so thoroughly bad that the dealers should at least have checked the cars out in some fashion.

Automobile Fraud: 2.6.2.8 A Pattern of Misconduct

A dealer’s pattern of misconduct in other car sales strengthens the case for intentional fraud. It also suggests the possibility that the case could be brought as a class action or at least by joining several individual owners in one action.

Automobile Fraud: 2.6.2.9 Warnings from Dealer Associations or State Regulators

Frequently, a state automobile dealers association and the state motor vehicle dealer regulator will issue bulletins, letters, or other warnings about specific abuses. A bulletin may warn against selling a rebuilt car without disclosure to the consumer. The failure to abide by a specific warning can be very powerful evidence to a jury, particularly when the warning is coming from the dealer’s own association. Dealer association bulletins about changes in the law are useful to dispel dealers’ claims that they did not know the law required certain disclosures or records.

Automobile Fraud: 2.6.2.11 When Dealer Informed Service Contract or Warranty Is Void

Often a dealer will sell a service contract on a used vehicle for a third-party service contract company (such as a manufacturer). When the contract is forwarded to the service contract company, that company may discover the odometer discrepancy, void the service contract, and notify the dealer.262 The same scenario can occur with wreck damage. A dealer’s concealment that the service contract has been voided certainly provides evidence of the dealer’s knowledge and intent to defraud the consumer.

Automobile Fraud: 2.6.2.12 Access to a Computer Read-Out of True Mileage

It is becoming increasingly common for vehicles to come equipped with computer modules that measure the odometer mileage. Even if the odometer has been tampered with the computer module will reflect the true mileage. Many factory-authorized repair shops now have equipment that can read the odometer reading from this module.

Automobile Fraud: 2.6.3 Wholesalers and Other Dealers Transferring the Car to Dealers

In investigating odometer fraud, a key question is who had control of a car when the odometer reading was altered. A complete title history hopefully will show when an odometer reading was first recorded as being lower than a prior odometer reading (indicating when the rollback occurred).

This comparison will pinpoint a very narrow time and, thus, group of owners who could be responsible for the alteration. Look also for signs of alteration on the title documents, and who was the car’s owner at that time.

Automobile Fraud: 2.6.4.1 Dealer-Only Automobile Auctions Described

Wholesale “dealers only” car auctions are somewhere in the background, if not the foreground, of almost any fraudulent sale of a vehicle with a salvage history, odometer rollback, or laundered lemon history. This subsection describes these auctions, and the next two describe special auctions of salvage vehicles and auctions that are open to the public.

Automobile Fraud: 2.6.4.2 Salvage Auctions

Salvage auctions are different than dealer-only automobile auctions. The salvage auction sells wrecked and flood-damaged cars before they are repaired. These auctions may clean up the cars and remove loose parts, but few perform any significant repairs. The auction will generally have the word “salvage” in its name, such as Insurance Salvage Pool. Salvage auctions are often owned by insurance companies.

Automobile Fraud: 2.6.4.3 Public Auctions

Unlike dealer-only auctions, public auctions are open to the public. These auctions lack even the minimal self-regulation that the arbitration system provides for dealer-only auctions, by which dealers are able to object to defective vehicles for a few days after the auction. As a result, public auctions tend to attract vehicles with defects that would make them unattractive to dealers.

Automobile Fraud: 2.6.4.4 Auction Culpability for Car Fraud

This section examines what evidence should be investigated to determine if an auction has special culpability for conspiring to fraudulently pass on a car with a problem history. Section 10.4.5, infra, examines whether an automobile auction is liable for problems with a car if it acts on behalf of an undisclosed principal.

Automobile Fraud: 2.6.5 Insurance Companies

Insurance companies obtain ownership of salvage vehicles and pass them on to junk yards, parts dealers, and automobile rebuilders. The insurance company usually receives more for a salvage vehicle if it can keep a salvage brand and its own name off the title.281 These are the two areas of insurance company culpability that should pose special concern, and they are very easy to uncover.

Automobile Fraud: 2.6.8 Creditor Financing the Sale to the Consumer

The creditor that finances the sale to the consumer may also be liable. Such a creditor is liable if it facilitates a dealer’s fraud by making financing available when it knows or has reason to know of the fraud.296 Ratifying another’s fraud, or knowingly accepting the benefits of it, will also make a secured creditor liable even if it was unaware of the fraud at the time it occurred.297

Automobile Fraud: 2.6.9 Prior Private Owners

Sometimes a prior consumer owner of a vehicle trades it in to a dealer or sells it privately without disclosing known damage or other problems with it. Some of the laws discussed in this treatise do not apply to individual consumers. For example, some state deceptive practices statutes impose obligations only on companies and individuals that regularly engage in consumer transactions. Many state motor vehicle laws apply only to dealers, manufacturers, or auctions.

Automobile Fraud: 2.1.11.1 Introduction

Much of the discussion in this chapter assumes that a vehicle’s identification number (VIN) and title belong to that vehicle, and the focus is on using that information to uncover the vehicle’s true history. But in an increasing number of cases the VIN itself is phony and, at some point in the car’s history, a counterfeit or otherwise bogus title was inserted into the chain of title. The vehicle loses its past identity and assumes a new identity.