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Automobile Fraud: 1.2.13 Used Cars Sold with Missing Airbags

Airbags are a costly item to replace when a bag has been deployed, is defective, or has been stolen, and the typical consumer may not be able to tell whether an airbag has in fact been replaced. There is a temptation for dealers to sell vehicles without disclosing that an airbag is missing.

Automobile Fraud: 1.2.14 Yo-Yo Transactions

A common dealer practice is to complete a sale and send the consumer home with the vehicle, but demand the vehicle back if the dealer cannot sell the installment sales agreement on terms it considers sufficiently advantageous. Such practices raise a number of legal issues.

Automobile Fraud: 1.2.15 Sublease Scams

The automobile sublease scam involves a firm taking over, for a fee, and without the lessor’s or creditor’s permission, an automobile lease or car installment payment from a consumer who wants to get out of their automobile lease or credit agreement obligations. The firm then subleases the car to another consumer.

Automobile Fraud: 1.3.1 Introduction

Automobile fraud encompasses a wide array of abusive practices: automobile repairs, warranty performance, selling techniques, financing, leasing, insurance, deposits, options, repossessions, and more. This treatise focuses on the actual sale of the car and on misrepresentations and nondisclosures that there is something wrong with the car or the car’s history.

Automobile Fraud: 1.3.2 Automobile Warranties and Repairs

While this treatise contains a section examining warranty claims in the automobile fraud context, automobile warranty issues, including new and used car lemon laws, are examined in much more detail in NCLC’s Consumer Warranty Law.1 Chapters 14 and 15 of that treatise focus on new and used car warranty issues, respectively.2 The general discussion of the Magnuson-Moss Warranty Act and Uniform Commercial Code (UCC) law in other chapters of that treatise is certainly relevant to automobile war

Automobile Fraud: 1.3.3 Deceptive Pricing and Sales Techniques

Deceptive dealer pricing, advertising, and high pressure sales techniques are examined in NCLC’s Unfair and Deceptive Acts and Practices.5 Deception and unfairness are broad standards that apply to any type of dealer misrepresentation, failure to disclose, or overreaching, and thus the discussion throughout Chapter 4 of Unfair and Deceptive Acts and Practices is especially relevant.6 In addition, that treatise analyzes:

Automobile Fraud: 1.3.4 Trade-Ins and Financing

Substantial dealer abuses involve financing and trade-ins. Financing frauds are quite varied, but often involve the consumer paying more in finance charges than the dealer initially promised or than the consumer was led to expect. Kickbacks to dealers from lenders are also common. Another prevalent practice is spot delivery or yo-yo selling. In one of these sales, a consumer buys and takes possession of a car on the spot. Later the consumer is told that the deal fell through, and the consumer will have to pay more in financing costs or purchase a different car.

Automobile Fraud: 1.3.5 Credit Insurance, GAP Insurance, and Service Contracts

The sale of credit insurance, GAP insurance, and service contracts (also known as extended warranties or mechanical breakdown insurance) is a major profit center for car dealerships. These items are dramatically overpriced, dealers do not adequately disclose that they get to keep a large cut of the item’s price as a commission, and the policies may not provide the promised benefits. There is also a great deal of discretion in pricing these items and individual consumers often pay many times more for the products than other consumers.

Automobile Fraud: 1.3.7 Leasing

Leasing is an important profit center for dealers and a frequent area of automobile fraud. Recently the use of leasing has again expanded and now represents between a quarter and a third of the total volume of cars financed at the dealership. The federal Consumer Leasing Act, Regulation M, and state leasing statutes set out disclosure requirements and standards about early termination and default penalties.

Automobile Fraud: 1.3.8 Repossessions and Collection Activity

Automobile repossessions, repossession sales, and deficiency claims are important areas of automobile fraud. Their significance to a consumer attorney is accentuated because consumers often will not go to an attorney after they have been defrauded at the time of a car’s purchase, or even after their car is repossessed, but will go to an attorney after they have been defrauded, their car seized, and the creditor brings a deficiency claim on top of it all.

Automobile Fraud: 1.3.9 Force-Placed Automobile Insurance

When consumers do not obtain physical damage insurance on their cars, their lender may purchase force-placed insurance, which is insurance selected by the lender to cover the risk of loss to the car, but which is paid for by the consumer. Such transactions have obvious potential for abuse as the lender may purchase the insurance from the company that promises the most money or other benefits to the lender, even if the consumer is forced to pay an outrageous amount for the product—which is of little benefit to the consumer in any case.

Automobile Fraud: 1.3.10 Credit Reports

To aid the dealership in sizing up the consumer and negotiating a purchase price, car dealers may pull a consumer’s credit report almost as soon as the consumer enters the dealership. This practice is illegal under federal law. Another abuse concerning credit reports occurs when, for legitimate reasons, consumers stop making credit or lease payments, but the lender reports the consumer to a credit reporting agency as being in default. Both these issues are covered in NCLC’s Fair Credit Reporting.28

Automobile Fraud: 1.3.11 Discrimination

Studies have found that women and minorities pay more at car dealerships. There are also indications that they are discriminated against in the amount they pay for automobile loans and leases. For more on discrimination claims, see NCLC’s Credit Discrimination.29