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Cash for Clunkers Wind-Down: Taxpayers, Car Buyers Should Not Have to Pay Twice, Consumer Groups Warn

August 21, 2009

Cash for Clunkers Wind-Down: Taxpayers, Car Buyers Should Not Have to Pay Twice, Consumer Groups Warn

Consumers for Auto Reliability and Safety (CARS), Consumer Action and Public Citizen today called upon the U.S. Department of Transportation (DOT) to ensure, as the agency winds down the Cash for Clunkers program, that dealers are not “double-dipping” and getting paid twice – once by their customers and again by the government.

During the past several weeks, the rejection rate for Cash for Clunkers transactions has hovered around 80 percent. Many dealers jumped the gun and entered into a high volume of contracts in July, before the rules governing the program were issued and before any deals were approved. Since then, the program has been overwhelmed, causing delays in payments to dealers. As a result, many dealers are on the hook for tens of thousands of dollars. Experiencing cash flow problems and under pressure from lenders, some dealers have resorted to pressuring their customers to make up the difference. The program is now scheduled to end Aug. 24.

Some dealer associations even provide standardized “contingency agreements” for their dealer members that shift all the risks for rejected deals from the dealers to car buyers. Whether they signed the agreements or not, car buyers across the country are complaining that they are being pressured to give the dealers $3,500 or $4,500 extra in cash or sign a new contract agreeing to pay more, typically under threat of losing their new car or having the dealer report it stolen.

Acknowledging the complaints, the DOT posted information on its Web site, at www.cars.gov, to advise car buyers that they do not need to sign the contingency agreements. However, many car buyers are unaware of that information. Having surrendered their “clunker” and dependent on their new car for transportation, they are vulnerable to being pressured, even if they did not sign the agreement.

Car buyers have no way to know if the dealer is being paid by the government, making it easy for auto dealers to game the system by collecting the $3,500 or $4,500 from the car buyers and collecting that amount from the government.

To protect taxpayers and reduce the risk of fraud and abuse, the groups are calling upon the DOT to take the following step prior to issuing any more Cash for Clunkers incentive checks to auto dealers:

• Require auto dealers to certify in writing that they have not already collected the amount of the incentive from the car buyer or reconfigured the deal in a subsequent contract.

The DOT also should take the following step to provide a check and balance to the reporting by the dealers:

●  Send a notice to the car buyer informing them that the deal was approved and the dealer was paid either $3,500 or $4.500. Provide a simple pre-addressed form with prepaid postage for the car buyer to mail to the National Highway Traffic Safety Administration if they have paid that amount to the dealer themselves, or if they entered into an amended contract to buy the same vehicle.

“Unless the DOT takes these simple steps, it will have no way to know whether the dealers are gaming the system,” said Rosemary Shahan, president of Consumers for Auto Reliability and Safety.

“By including these simple safeguards, the Department of Transportation can both protect consumers and verify that the taxpayers’ investment in this program has not been misused,” said Joe Ridout, consumer services manager of Consumer Action.

“The DOT has focused on car dealers’ concerns with the program,” said Lena Pons, policy analyst for Public Citizen’s Congress Watch division. “It’s time to protect consumers who could be abused by unscrupulous dealers.”

Last week, CARS and Consumer Action wrote to Secretary LaHood urging DOT to prohibit dealers from luring or pressuring car buyers into signing the contingency agreements and to survey car buyers to find out the full extent of the problem.

Read the letter HERE.

For more information, see: Groups seek crackdown on Cash for Clunkers Scams.