Car Dealer Fraud Law
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.
Know Your Rights!
Articles About Auto Dealer Fraud Law
- Do I Have a Right to Ask the Dealer for a CarFax Report Before I Sign?When dealing with an auto dealership to purchase a vehicle, it may be possible to request a CarFax report. However, this may only be possible if the vehicle is registered and has a file with the website.
- Yo-Yo Financing TacticsYo-yo financing is detrimental to those affected by these situations, and it occurs through a deal with the car dealership when the financing falls through even if the person was told he or she is approved at the company.
- The Warranty was Voided but It Did Not Show on CarFax Report. Is that Fraud?Carfax reports may not reveal all the details of a vehicle that is being sold. However, if reparations are not made with the company, those managing it may be liable for damages or criminal charges such as fraud.
- Weeks after Purchase, I Discovered the Odometer was Rolled Back. Can I Sue?There are various crimes involved in car sales. Odometer fraud is one of these, and it does permit the new owner certain actions when he or she discovers the crime. Even though this is not a legal action, there may only be so much time to pursue a course after the odometer issue is revealed.
- Two Days after Buying a Used Car, the Transmission Failed. Can I Return It and Get My Money Back?When purchasing a car, the stipulations that provide for returning it are very specific in most contracts. If the individual obtained the vehicle from a car dealership, the contract agreement may specify what is permitted for returning the vehicle. However, in most of these situations, money is not returned.
- Used Car Seller Did Not Tell Me the Warranties Expired – Is this Dealer Fraud?Fraud with an auto dealer may be committed when the employees have practiced unfair or unreasonable activity or are deceptive.
- Car Dealership Altered the Financial Paperwork, Can I Get Out of the Deal?Many auto dealers file paperwork when someone comes in for a new deal. On the files that are recorded, there are certain fields that detail the financial situation of the client.
- Is it Dealer Fraud if the Dealer did not Disclose a Salvage Title?Car dealership fraud is possible through a number of activities and actions taken by the company. One of these is when the business does not disclose certain information. If the vehicle was totaled and the insurance company signed off on a salvage title being issued for the non-repairable or defective car, this must be disclosed very obviously to the customer seeking a new vehicle.
- What Kinds of Car Purchase Issues are Considered Auto Dealer Fraud?There are many different types of fraud that may be perpetuated by an auto dealer when working with a client seeking a new vehicle. These may be through invalid income numbers, reports of higher down payments, recorded expenses that are much lower as well as misrepresentation and a lack of disclosure about various items with the vehicle.
- Auto Dealer Fraud: When Is It Worth It to Hire a Lawyer?One of the most common types of consumer fraud is auto dealer fraud. A claim of this nature can arise from a number of misrepresentations, deceptive practices or other unethical or immoral behavior. When consumers feel scammed by auto dealers, they may consider hiring a lawyer.
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