Information on Ohio's Consumer Laws from Attorney Daniel Myers, Myers Law, LLC, not legal advice
You’ve heard the expression “Now I’ve seen everything.” Every few weeks I say that to myself, and without fail, some vehicle dealer does something to surprise us. It’s almost like these used car dealerships innovate and research the most effective ways of ripping-off consumers. In this post, I want to go over some of the most common, and surprising, ways that Used Car Dealerships rip-off their customers, why we end up suing them, and what their normal game plan is after we sue them. Be warned, and be prepared. These warnings are in addition to the normal warnings, like that you should never sign or agree to an arbitration clause.
By the end of this post, you will see why you need to call your Service Contract, Warranty, and GAP administrators immediately to verify you have coverage.
According to a January 2019 Forbes article, discussing a Gallup Poll, car salesmen and car saleswomen are one of the least trusted professionals that we deal with (we won’t talk about lawyers for now). Certainly there are honest salespersons, but the used car sales industry is a notoriously dishonest industry with lots of ways for dealerships and salespeople to take advantage of a consumer, even when the consumer does everything by the book. Here are the top rip-offs we have come across, either by most common, or most damaging. The first one is no surprise, but the rest might surprise you.
There are some steps you can take to protect yourself, but even if you do everything you can, it won’t always protect you from the worst or most fraudulent dealerships or practices.
Some car dealerships lie about the car they are selling you. We have seen dealerships lie about performance of the car, the condition of the car, mileage of the vehicle, or vehicle history. Throughout the entire State of Ohio (Cleveland, Akron, Youngstown, Columbus, Toledo, Sandusky, and even Cincinnati), we have represented both consumer and commercial buyers who experienced each of these issues. In one case, we sued a used car dealership that sold a truck after they installed an engine with over 100,000 miles on it, which also had a governor that prevented the truck from going highway speeds. They represented the vehicle had less than 80,000 miles on it, and that it ran fine. They didn’t say anything about their engine work. In another, the dealership advertised a car to out-of-state buyers, saying there was “no rust” and “no leaks,” just for the buyers to discover when they received the car that various lines were leaking, and the frame was so rusted that it could not be lifted to have work done on it.
To protect yourself, you have to ask questions about the vehicle before you buy it. First, ask about the history (Has this been in any accidents? Has any major system or part been replaced or repaired? Any structural damage to the vehicle? Was it ever in a flood? Did it experience water damage? Where did you get it from? Was it ever a total loss or salvage? Any aftermarket modifications? Etc.). If you don’t ask the questions, you won’t find out the answers until it is too late.
Second, get the car inspected by your own mechanic. Some mechanics will charge you $100 or more, but if you are going to plunk down $10,000 or $20,000 or $30,000 on a used car (include the financing when you are thinking about the price), then you should spend the couple hundred dollars to avoid a $30,000 mistake. If you don’t get the car inspected, you may miss big issues that you could have discovered to either (1) avoid the purchase, (2) negotiate a better price, or (3) get the dealership to correct. Many cars are sold “as-is,” and in those situations, this is one of the most important things you can do. If the vehicle has a warranty, it is still important to get it inspected.
Third, make sure anything promised or represented about the vehicle is put in writing and included in the contract. Consider writing it on the “you owe / we owe” document, or on the contract itself. If the dealership says the vehicle has new tires, or was never in an accident, or makes any other similar representations (more than just “it’s a good vehicle”), then make sure they put it in writing on the contract or on a document signed and made a part of the contract. If you don’t, the contract normally says that “no prior oral representations were made” or something like that, and you could be waiving your right to hold them to their promise or to their representation about the vehicle. Get it in writing.
Recently, we have noticed a substantial increase in the number of dealerships that sell a Service Contract to a customer but never provide the actual coverage, or sell coverage that isn’t worth the cost paid for it. Service Contracts are not warranties (Service Contracts cost you extra on-top of the vehicle price, while warranties are included in the price of the vehicle). Unlike a warranty, the Service Contract is really a contract between the purchaser and a third-party administrator (not the dealership or manufacturer) that oversees the Service Contract claims and payments. There are often lifetime or system coverage limits and a ton of exclusions on these policies. Dealerships mark up the price of these contracts, often charging the customer hundreds, or thousands, of dollars more than what the administrator charges for the Service Contract. Because dealerships have such a high profit-margin on these, the price of these Service Contracts is almost always negotiable.
Often with these contracts, bad dealerships lie to you in two ways. First, some dealerships sell Service Contracts that provide no coverage for the vehicle, at all. This could be because the vehicle make and model is excluded by the contract terms, or because the vehicle has been modified with aftermarket parts or repairs. The devil is in the fine print / details. In either of these situations, the dealership made money off of you by selling you something that has $0 value to you. That’s deceptive and unfair. It is also illegal. We’ve sued multiple dealerships over this issue.
Second, used car dealerships sometimes fail to send the money or application into the Service Contract administrator. This means the customer has no coverage–there is no Service Contract because it never made its way to the Service Contract administrator. The dealership keeps the money and never buys the coverage, hoping that the customer never uses the coverage, or hoping that coverage can be faked by doing minor repairs at the dealership that cost less than what the customer paid for the contract. This is fraud, and we are seeing this occur more and more in 2019.
The only ways to prevent being taken advantage of on a Service Contract is to (1) not buy it in the first place, (2) read all of the fine print and vehicle exclusion list, and (3) ask about whether your vehicle would be covered, getting the dealership to promise coverage in the purchase agreement. Additionally, after you pay the money and buy the vehicle, consumers should call the administrator on the Service Contract and ask whether they actually have coverage or not. This is a must. Don’t ask the dealership, ask the Service Contract administrator (identified in the Service Contract, itself). You may find out they want to charge you $3,000 for a Service Contract that only covers $2,500 per system. That’s probably something you should consider before buying the coverage.
If you finance a used car through the dealership, they often have you sign a “spot delivery” or “conditional delivery” agreement. This is also called a Yo-Yo sale, and there is a lot written out there about it. In most cases it violates Federal Truth-in-Lending Act requirements, and state consumer protection laws. The dealership will tell you that they think you can get financed for a specific rate, or they tell you you are approved, but later they call you to tell you “we could not get you financed at that amount,” and then demand that you pay a larger deposit, or agree to a higher interest rate, or buy a different car, or return the car they sold to you. This is, in most cases, illegal, but much of the industry does it, as if it is business-as-usual. It is almost always a lie, as well. This has been referred to as a Yo-Yo sale because they send you out with the car and pull you back under false pretenses.
When the dealership tries to get you financed, it offers you a rate, tells you what the downpayment and size of payments would be, and says what the finance charges are. The dealership is actually the initial lender. Then, the dealership goes out to find a different company to buy the lending agreement from the dealership, and the dealership assigns the agreement to that other company. Sometimes the other company is a bank, and other times it is a non-bank lender. Not all companies are the same. What makes the dealership’s claim a lie is when it says “we couldn’t get you approved” or “we couldn’t get you financed” at a specific amount. They could, they just chose not to do so.
These companies that buy the lending agreements from dealerships can buy it with recourse, or without recourse. If it is assigned without recourse (what the dealership wants), and you later fail to make payments, the lender comes only after you and the co-signers for the money. If it is assigned with recourse (dealerships won’t do this), and you later fail to pay, the lender can still come after you, but it can also go after the dealership for the rest of the payments. The lender is more protected when it is assigned the contract with recourse, and therefore it will lend on almost any terms. The dealership could almost always get you approved for financing if they sold the agreement with recourse, but they just don’t want to. This means that when they tell you they can’t get you approved, they are often deceiving you, or just lying to you. They could get you approved if they wanted you. They’d rather get more money from you, or push you into a worse car for the same high cost, or threaten you so they can keep your deposit.
In order to help protect yourself from this, (1) get a commitment on the financing before you leave; (2) in the State of Ohio, consider recording the sales and financing conversation when you ask for that commitment; and (3) ask for proof of the rejection or denial, and ask why they didn’t offer the assignment with recourse. You can even call the finance company / assignee to get proof or confirmation that you were turned down. Don’t take the dealership’s word for it, because some never even shop your finance agreement around; they act like they did when they just stuck it in a drawer and waited. You may need to look elsewhere to buy your car.
If you ever financed a used car purchase, you probably were offered, or bought, a GAP Addendum or similar coverage. GAP means “Guaranteed Asset Protection.” GAP coverage helps to protect the lender, and also you, if your vehicle is lost, stolen, or destroyed. Your comprehensive insurance coverage only pays for the value of the vehicle. That value immediately diminished after you purchased the vehicle. Additionally, if you financed the vehicle, you owe more than the value because of the interest rates and finance charges. Even if your vehicle is a total loss, and you receive a full check for its value from your insurance company (which you likely will need to use to pay toward the financing on the vehicle), you are usually underwater on the vehicle, and still owe the rest of the payments to the lender or finance company. GAP coverage helps to pay, eliminate, bridge, or reduce, the gap between the value of your vehicle, and the amount of the balance you actually owe on the contract (including finance charges and interest). GAP could pay some or all of the balance left on the vehicle after you pay off the insurance payment to the finance company or lender. It can be very important.
The problem is that more and more dealerships are failing to send in the coverage payments or GAP Addenda / paperwork to the companies that actually provide and administer the coverage. This is similar to the issues with Service Contracts discussed previously. This means the consumer is in for a terrible surprise when the car is lost to an accident–there won’t be any GAP coverage, and the consumer still owes thousands or tens of thousands of dollars on the vehicle. The dealerships sometimes play the odds that a customer would not use the coverage, and pocket the customer’s money instead of sending it in. This is fraud, it is dishonest, and it is illegal.
To protect yourself from this, you need to contact the administrator of the GAP program and confirm that they received your paperwork, and that you have coverage. If you discover that you do not have coverage even though it’s bought and paid for, you need to talk to a lawyer immediately.
The worst dealerships purposefully play games with the costs and amounts on their contracts. Plain-old bad dealerships are sloppy with the numbers, and accidentally change previously agreed to amounts in the final version of the contract. We have seen otherwise reputable dealerships change the amount of negative equity, or change the amount of the vehicle price or trade-in value, by thousands of dollars, resulting in additional cost to the consumer above and beyond what was negotiated or represented. The dealership then pockets the extra money until the customer notices the problem (at which time the dealership offers to return it, but only after making interest on it and charging interest on it, for years) or they ignore the consumer.
In order to protect yourself from last minute changes to the contract amounts, you need to carefully read the contract, and double check all amounts with the representations the dealership made to you, and with your notes about the previous negotiation or discussion. If something looks wrong, the time to address it is before you sign the contract, not after. A $2,000 typo (a 4,000 figure instead of a 2,000 one) could cost way more than $2,000. It might cost $2,000 that day, but over the life of a three year loan, at 5% or 24.99% interest, it could cost much more. See something, say something, before you sign it.
Without fail, almost every used car dealership we sue uses the same playbook case after case. First, they usually try to go behind the consumer’s lawyer’s back. They try to talk directly to the customer, even though they know the customer has an attorney, because they think they can talk the customer into a dealership-friendly, customer-hostile deal by leaving the professional negotiator in the dark. Second, they say how sorry they are about the customer’s experience, and how whoever did the bad thing was fired, or it was the only time they ever made this mistake in their thousands of transactions every year. Then, without fail, they offer to “make it right” by selling the consumer a different vehicle. I don’t know why, but almost every single dealership we sue follows these same three steps. They do it because it often works–they get the client to ignore the lawyer and talk the client into another deal that actually makes the dealership more money and costs the consumer dearly. It works because they are professional salesmen or saleswomen, and they think that if they fooled you once, they can fool you again.
Don’t let them fool you. If you are contacted by a dealership or its attorney after you have hired a lawyer, you should tell them “I have a lawyer, my lawyer is _______. His/her phone number is ___________. You need to talk to the lawyer, not me.” You can then hang up on them. Don’t let them bully you, confuse you, talk you into a bad deal, or make you question your attorney. That only benefits the dealership, they know it, and that’s why they are doing it. Unless you truly trust the dealership after everything they did to you (why would you trust them at that point?) you shouldn’t let them talk you into buying another car with them. If it’s truly a good deal, you should still run it by your attorney before accepting it. If you accept it behind your attorney’s back, you may owe your attorney substantial fees at that point, and won’t be able to get the dealership to pay them.
Let your attorney handle the negotiation, handle the litigation, and advocate for you. If you reach a place where the attorney-negotiated deal sounds good to you, you can accept it. But never accept a settlement or deal that would waive your claims or settle your dispute without first talking to an attorney about it.
My hope is that by knowing more about the tactics and deceit used by bad used car dealerships, you can make the right decisions, you can talk to the right lawyer, and you can protect yourself better from the common issues we run across, or at least identify them earlier, before you are in a terrible place.