Car Dealer Fraud Law



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What is Auto Dealer Fraud Law?

Auto dealer fraud law consists of state and federal rules designed to protect consumers shopping for vehicles, and to punish dealerships that take advantage of their customers. These laws deal with deception and unfair practices by dealers, as opposed to the sale of defective vehicles, which is the subject of a separate set of rules known as “lemon laws.” Primary sources of auto dealer fraud law include the FTC regulations found at 16 CFR 455 (the Used Car Rule), other federal and state consumer protection laws, and the common law tort of fraud.

To members of the public, vehicle purchases and leases are complicated transactions with which they may have little experience. Dealers, on the other hand, are well-versed in these transactions. They are also incentivized by commission pay structures and the potential for financing profits. Fraudulent dealers may rationalize their conduct based on a general attitude within the industry – especially the used car industry – that ingenuity in the sales process is acceptable, and that customers buy at their own risk.

Common Examples of Illegal Practices

Most types of fraudulent activity that take place at auto dealerships can be characterized as either non-disclosures, or affirmative misrepresentations. Non-disclosures occur when a salesperson withholds information affecting the desirability or value of a vehicle. Examples include a failure to inform the customer that the vehicle was previously used as a rental, that it was involved in a collision or sustained other hidden damage, or that the vehicle’s warranty has expired.

Affirmative misrepresentations are meant to mislead customers in much the same way as non-disclosures, but in this type of fraud, the salesman takes a more active role. Examples include odometer tampering, “bait and switch” advertising, and asserting that a vehicle contains options or features that it does not. Auto dealerships have also been caught quoting a monthly payment amount at the time of sale that reflects not only the ticket price and interest, but additional items and services the customer does not know about or want.

In some cases of affirmative misrepresentation, the deceit is even more blatant. Dealers may lie to a customer by saying a car is new when it has been used, or by labeling a vehicle as certified pre-owned, when no such endorsement was made by the manufacturer. In other cases, victims may have their down payments or trade-in vehicles misappropriated by the dealership.

One particularly common scheme, referred to as “yo-yo financing,” begins with the dealer selling the customer a vehicle under a payment plan. Several weeks later, the dealer contacts the customer with the unfortunate news that the financing company has rejected the customer’s credit application. At this point the customer has come to rely on the vehicle as his or her exclusive means of transportation, and the dealer is able to pressure the customer into a more expensive in-house payment plan.

Proving Fraud and Collecting Damages

A victim of auto dealer fraud will likely find a tort action to be the most effective means of inflicting meaningful retribution upon the dealer and obtaining a significant damage award. To establish a common law claim for fraud, the victim must show that the dealer omitted or misrepresented material facts, resulting in a financial loss for the victim. To qualify as material, the facts at issue must pass the “but for” test. In other words, but for the omitted or misrepresented facts, the customer would not have purchased the vehicle.

Once fraud is proven, the victim may be entitled to various remedies tailored to the specific circumstances, such as being allowed to surrender an unwanted vehicle and having the court order a refund of all payments made toward the purchase. The victim may also be allowed to cancel any outstanding loan balances or obligations, and receive compensation for wrongful repossession of the vehicle, if that occurred. Court costs and attorney fees may be available, and in cases of especially shameful or predatory conduct by the dealer, the victim may be awarded punitive damages.

Class Action Lawsuits Alleging Dealership Fraud

It would be unusual for an otherwise honest auto dealer to commit an isolated act of fraud. More likely, the actions that harmed a particular plaintiff were merely one occurrence in an ongoing scheme perpetrated by the dealership owner or employees. When the fraud is discovered and made public, other customers may come forward with similar complaints. This can lead to a class action lawsuit to determine the rights of all plaintiffs in one proceeding. For a single victim, a class action suit has benefits and drawbacks, and the matter should be discussed with an attorney.

Hiring an Auto Dealer Fraud Attorney

Attorneys who pursue fraud claims typically accept cases on a contingency fee basis. This means that if you have been victimized by auto dealer fraud, you can probably retain counsel and file suit with little or no upfront cost. To find out if you have a claim worth pursuing, contact an attorney to discuss your case.

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