13 Ways a Car Dealer Commits Fraud
13 Ways a Car Dealer commits Fraud, and most of it is done right in the Finance Office! Lots of thugs in Dealer Finance! And they are groomed by none other than the dealer owner!
Content written by Kevin Hunter The Homework Guy and The Amazing Elizabeth, The Homework Gal. Dealers and their Finance Offices are ripe for an FTC investigation pretty much at any time, and this is a big reason why YOU threatening an FTC complaint is so compelling to getting them to stop their nonsense.
Just make sure you keep the FTC threat complaint to yourself until you’re in Finance. While it may make you uncomfortable, cornering the Finance Officer is EXACTLY what you want to do. He or She knows the dealer owner will simply make them the fall guy if the Police or the FTC shows up.The stuff we are presenting here today commonly comes up in the news, with sometimes dealer owners, but more often managers and finance officers going off to jail when it happens. Why is it often Management level employees who go to jail because owners pretend they were operating on their own, undiscovered by the owner. The managers get made to be the Fall Guy. Every time the FTC investigates a Car Dealership, multiple cases of fraud are discovered, much like the 13 Fraud Forms we’ll discuss today. 13 Forms of Fraud seems like a lot, but it’s not all inclusive. There are actually many MORE!
If you wonder how dealers get away with this stuff, there are two answers. Number one, the Agencies overseeing the Auto Industry are small with limited staff and financial resources, and it might interest and surprise you if we say, that’s actually NOT such a bad thing.
To this point, and as our viewer Joel Welch commented on our recent video titled 8 illegal things Car Dealers do. Joel writes, You don’t want these agencies to be “big enough”. Agencies that big find new things to do that have nothing to do with consumer protection. We agree Joel, agencies with tons of money and nothing but time on their hands could ultimately be quite dangerous. The Number 2 Reason that allows Dealers to get away with this stuff has to do with our viewers. Not enough Car Buyers are aware that these things are crimes, and subsequently fail to file complaints on the offending dealerships. YOU must play your part!
Indeed! You have to play a part, friends, to help stop this stuff. Ok, here we go!
Number 1: Power Booking. This is something that is done by the Finance Office when they lie to the bank about the trim level of the vehicle that you are purchasing. Representing that a new or used vehicle has features or options that it does NOT have is fraud. They do this to artificially inflate the vehicle value to get a bank approval. Liz, you’ve noticed potential for this when booking car values for viewers on Black Book. The VIN doesn’t always reveal an exact trim level, does it.
No. Quite often two or three options come up, and in this case, dealer finance officers are selecting the more valuable trim level. It’s all in the effort to get a bank approval, which the customer might actually appreciate, but it cheats the bank.
Dealers who mess with the banks pretty much always get caught, eventually. And when they do, they normally get sent off to jail.
Number 2: forged signatures. This is another form of fraud committed by Dealer Finance in the attempt to force the purchase of things like an extended warranty or a vehicle service contract and a number of other add-on items into the car deal without customer consent.
Number 3: Inflating the total purchase price above the sticker price by concealing options the consumer did not request, or by including other unapproved and undisclosed fees. This is a crime of omission. They just put the stuff in your car contract, without saying anything about it!
Number 4: Falsely stating that optional features are required. Many of you are unaware that no seller of a given product can make the purchase of that product contingent on the purchase of other products. That not only violates the FTC Regulations, but violates law in pretty much every state in our country. Could you imagine going to the grocery store and being told, I can’t sell you the bread ma’am, unless you also buy butter and ham and cheese. And then, MOST of our customers also get the Mayonnaise!
Number 5: Advertising a vehicle for a certain price and then telling consumers that the advertised deal is no longer available and attempting to sell them an alternate vehicle at a higher price, often known as a bait and switch scheme. We just mentioned this on in a recent show, but Bait and Switch is so common is earns repeated mentions.
Number 6: Falsely representing a used vehicle as being new, even though it was originally purchased from the dealership and then later returned. This would also be true of a vehicle a new car dealer allows one of its managers to drive for 10,000 miles, and then present it for sale as a new car.
Number 7: Claiming that a warranty offers protections that it does not offer, or falsely representing an extended service contract as an extended warranty.
We’ll be back with Fraud Form Number 8, right after this message from Mary Jo!
Number 8: Hiding a lemon vehicle or hiding critical vehicle Information. When buying a used car, always run a vehicle history report and have an independent mechanic inspect the car. We don’t recommend ever skipping that step when buying a Used Car. If a dealer misrepresents a car’s condition to conceal that the car is a lemon or was involved in a crash, that is fraud. Also included in this is withholding any other important material information about a new or used vehicle.
Number 9: Odometer Rollbacks. Manufacturers have taken many steps to try prevent this crime, but it’s still happening out there. Misrepresenting the total mileage on a used vehicle through an odometer rollback is STILL a more common form of fraud than most people are aware of.
Number 10: Misrepresenting a consumer’s credit score or eligibility for financing in order to get him or her to agree to a higher interest rate or other unfavorable terms. This is a false statement made to YOU about your own credit by the Finance Officer.
Number 11: Falsely stating that a consumer who is leasing a vehicle will own the vehicle when he or she finishes making payments. This is totally false.
Number 12: Allowing a consumer to drive off the lot with a vehicle under the false belief that a loan application is pending and then having the consumer return to sign for a different, more expensive loan, known as yo-yo financing.
Number 13: Backdating new financing documents to the original purchase date. This is a crime commonly heaped on the crime of “Yo-Yo” Financing!
Besides learning about ways dealers commit fraud here, you can also visit our friend Dan Whitney’s channel.
He’s a terrific consumer protection attorney out of Maryland and has been on a mission to bust unscrupulous dealers for years.
Many of these illegal activities we’ve discussed by dealers have been observed by law enforcement agencies in the motor vehicle marketplace, and have continued for years in the face of repeated federal and state enforcement actions.