Submission Number: 00062
Received: 12/29/2011 5:02:01 PM
Commenter: Jeff Crabtree
Organization: Law Offices of Jeff Crabtree
Agency: Federal Trade Commission
Initiative: Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles; Project No. P104811
Attachments: No Attachments
I am one of the few attorneys in Hawaii representing consumers in disputes with auto dealerships. The two most common cases I see are yo-yo sales, and failure to deliver title. There are far more of these cases than I can handle alone.
Regarding yo-yo sales, after the lenders' underwriting requirements got more conservative following the economic downturn, I am seeing dealerships shopping for loans for WEEKS, and sometimes more than a MONTH, before notifying the consumer the car they have been driving has to be brought back. I have seen these "returns" handled as "voluntary repossessions," sometimes affecting a consumer's credit history. I am seeing LARGE increases in the new interest rates or additional down payments requested in order for the consumer to keep the car they thought was already theirs. Given the sophistication of the financing departments at the dealerships, these large increases indicate to me that the dealership knew up front there was no way the consumer would qualify for the initial loan. Few if any clients of mine understand that the car was not yet theirs or that they might have to pay more than they already agreed to pay when they signed their sales documents. It is true there may be small print on the back of the contract that the sale is "contingent on financing," but that's not reality. Virtually no consumer reads this fine print or understands it. The "contigent on financing" is not clearly explained as part of the aggressive sales process. If it is explained at all (I've seen it explained once in dozens of cases), it can be misleading--as in "You agreed to buy a car and get a loan, so you need to sign this new loan agreement." The "contingent on financing" small print is nothing more than an attempt to protect the dealer -- it has nothing to do with adequately informing the consumer what is going on. All the consumer knows is that the dealer bought their trade-in, the sale of their new car is "approved," and the dealership gives them the keys to the car (and usually sells the trade-in, so if the financing does not go through and the consumer has to bring the car back, they now have no car, which certainly increases the dealership's leverage getting them into a higher interest loan).
On the lack of title problem, there are two basic scenarios. First, the unscrupulous dealer who is just taking money/cars in without making sure the prior liens are paid off. If it spins out of control the dealer goes bankrupt and many consumers are left holding the bag. I see no effective enforcement or deterrent for actions which should be criminal/fraudulent. The small ($25,000 in Hawaii) bond or credit line the dealer is required to have is not enough to protect people.
The second "late title" problem is lengthy delay in receiving title. This happens all the time. It is not just a few days. 30 and 60 days is not uncommon. For our active duty military, it's a huge problem--they cannot drive their vehicles to work because they cannot get the vehicle on their military base without all their paperwork being in order. For civilians, they have to risk getting pulled over by police (they cannot get an updated safety certificate if they don't have a Certificate of Registration). Again, the consumer almost never understands that the used car they just bought still legally belongs to a bank in some other state. They think it's their car and assume that getting the title is just a matter of a few days of paperwork with the DMV. In Hawaii, DMV records are not open, so there is no way for a consumer to know who the legal owner is.
These yo-yo sales and late title sales are not just isolated problems or a mere inconvenience. They happen frequently, causing serious financial and emotional distress to vulnerable people. These problems cause real conflict between spouses, and trouble between consumers and their banks, credit unions and employers. There is little effective protection for consumers.