Dec. 8, 2003
Massive Consumer Rip-Offs in Automobile Sales Industry, Public Citizen Calls for Investigation by Law Enforcement
Report Documents How Consumers Are Defrauded When They Purchase Vehicles; Whistleblower Tells Firsthand of Industry Methods
WASHINGTON, D.C. – Every day, consumers across the country who buy automobiles are bilked of hundreds and sometimes thousands of dollars apiece by fraudulent auto sales representatives perpetuating one of the most pervasive scams in this country, according to a new report by Public Citizen.
The report, Rip-Off Nation: Auto Dealers’ Swindling of America, outlines the way auto dealerships rip off customers and is supported by documents obtained by auto sales industry whistleblower Duane Overholt, who worked in Florida auto sales for 20 years. Industry-wide practices range from inflating the cost of warranties and reporting one set of numbers to the customers and another set to the bank, to stuffing the contract with extras that the customer never agreed to pay for. The size of the purchase, the flurry of paperwork and the complicated financial deals make consumers particularly vulnerable to the schemes developed by dealerships to squeeze the highest possible profit from each sale.
The fraud is rampant. Customers in California, Florida and at least 37 other states have been robbed, according to a recent "Dateline" report. Further evidence is provided in a host of lawsuits documenting patterns similar to those explained in the report in at least nine states.
"The scams are not restricted to a few areas or dealerships. Customers are being cheated on both coasts and everywhere in between," said Public Citizen President Joan Claybrook at a press conference. "The tactics used are so sly that informed customers, customers who have done their homework and exhausted every measure to ensure they don’t get ripped off, are taken just as easily as anyone else."
"I was not a nice guy," said Overholt, who came clean in 1999. "Back-of-the-envelope calculations show that I ripped off consumers for about $33 million over my career — and that’s a conservative estimate. While you’re working in the auto sales business, you get the feeling that you are invincible. You think you can do anything and get away with it. And you often do."
As outlined in the report, auto buyers are cheated in many ways:
- The dealer boosts the manufacturer’s suggested retail price with extras, some of which may already come with the vehicle.
- Sales managers run credit reports on potential buyers without their permission, using the driver’s license the customer provides before going for a test drive. With this information, the dealer can learn how much credit the customer has and even what the customer’s last car payments were, for use in price negotiations.
- Banks that have good relationships with dealers may insist on a higher interest rate in order to kick back to the dealer the dollar value of a few percentage points of the loan, without the buyer’s knowledge.
- Customers are manipulated during the sales process to pay more than the agreed-upon price. This is often done with the use of worksheets listing add-ons, although few of the items are associated with a specific price.
- If the sale is made after hours, customers are asked to sign blank bank forms that the dealer offers to fill in later, ostensibly after talking to a bank during business hours. The numbers reported to the bank may not reflect what the customer agreed to.
- The dealer may add products to the sales contract after the customer leaves. And because customers don’t know they paid for a warranty or service contract, for instance, they never make any claims using it.
In addition to calling for state attorney general investigations by letter today, Public Citizen called on state and local law enforcement authorities to enforce consumer protection laws, and on state and federal lawmakers to require that financial and dealership documents be contained in a single file available to the consumer on request. Public Citizen also called for changes to the law to require disclosure of the interest rates that the lender agrees to provide and disclosure of any kickback to the dealer, to require dealer employees to tell consumers that they represent dealers and not the consumer, and to forbid mandatory arbitration clauses in sales contracts. Public Citizen has set up a Web site, www.autodealerscam.org, to provide consumers with more information.
Meanwhile, consumers should: 1) Obtain financing independently of the dealer; 2) Refuse to sign any arbitration clause; 3) Never sign blank financial forms; 4) Remember that dealers make money from extras and add-ons; and 5) If financing is unavailable except from the dealership, never drive a car off the lot before all financial transactions have been agreed upon by the lending institution.
"Given the range of cases that have been filed in a variety of states nationwide, it appears that what we now know is only the tip of the iceberg," Claybrook said. "It is imperative that law enforcement authorities take swift action to protect consumers and seek civil redress and criminal convictions before the evidence of wrongdoing is destroyed."