11 Common Auto Fraud Issues You Should Know
Do any of these ‘tricks of the trade’ sound familiar?

Negative Equity/Over-Allowance
Packing
Rewritten Contract/Backdating
Single Document Rule
Hold Check Agreement/Deferred Down Payment
Sticker Price
Spanish Language
Used Vehicle Disclosures/Misrepresentation
New/Used/Demo/Unwind
Forgery
Certified Used Vehicles

Negative Equity/Over-Allowance: Arises in a transaction that includes a trade-in vehicle. Generally, the customer is led to believe that the dealership is valuing the trade-in vehicle at the same amount that’s owed (so that the customer doesn’t appear to owe anything on the trade-in). In reality, however, the actual cash value given by the dealership is less than the amount owed, and the difference is added to the cash price of the vehicle being purchased. If this is done it is illegal, even if the customer knows and agrees to it. The extra amount cannot be added to the vehicle line 1(a)1 per our precedent-setting case of Thompson v. 10,000 RV’s.

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Packing: In a “packing” case the customer is quoted an inflated monthly payment. If he or she accepts this amount, the dealership adds accessories (alarms, service contracts, GAP insurance, paint/fabric protection, etc.) to the purchase contract to reach the inflated quoted price. The customer doesn’t realize that the accessories are optional nor that they’re paying extra for the accessories, which are often represented as “included” with the vehicle.

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Rewritten Contract/Backdating: Often a customer won’t qualify for financing under the terms of the first purchase contract and may be required to increase a down payment, APR, etc. to quality for a loan. The dealership then has the customer sign a second contract with the new terms but backdates it with the date of the first contract, sticking the customer with financing charges for a period during which the contract wasn’t yet in effect. In addition to making a material misrepresentation of when the customer takes the obligation of the new contract, a backdated contract often violates the single document rule (see below) because another form, usually called “Acknowledgment of the Rewritten Contract,” has the actual date when the contract was signed. In addition, many customers aren’t informed that they can opt to cancel the contract and return the new vehicle and have the down payment and trade-in vehicle refunded, rather than signing a second contract with less favorable financing terms.

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Single Document Rule: The Automobile Sales Finance Act (AFSA) provides that all obligations of both parties in a transaction must be contained in a single document (which explains why purchase agreements are so long in the auto industry). Often, however, dealerships will have customers sign additional documents, such as trade-in forms stating that the customer agrees to pay any difference between the value of their trade-in vehicle and the amount owed on that vehicle. Or, the dealership will agree to make payments on a trade-in vehicle but not include the trade-in vehicle in the purchase agreement. Another example is a “hold check agreement” (see below) whereby the customer agrees to pay additional money towards the down payment on a later date. Each of these documents violates the one document rule.

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Hold Check Agreement/Deferred Down Payment: Many dealership customers are unable to pay the entire down payment at the time the purchase contract is signed. Often dealerships will allow the customer to make a down payment in payments (called deferred down payments). Although the vehicle code recognizes these deferred down payments, they must be itemized in the purchase contract, including the amounts and due dates for the deferred payments. Some dealerships, however, will have customers write checks for the deferred down payments and then agree not to deposit the checks until an agreed upon date. The customer is then made to sign a separate agreement that lays out the dates on which the checks will be cashed and additional provisions regarding any returned checks – thus creating additional obligations that are not included in the purchase agreement.

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Sticker Price: The vehicle code states that a dealership cannot sell a new vehicle for more than sticker price (a.k.a. the manufacturer’s suggested retail price, or MSRP) unless there is a dealer addendum sticker disclosing itemized costs above MSRP physically affixed to the car. Inflating the cash price of a vehicle – as in the case of a negative equity deal (see above) often results in selling a vehicle for higher than the MSRP, while also affecting the amount charged for taxes, licensing & registration and finance charges.

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Spanish Language: Civil Code § 1632 provides that if certain transactions, including lease/purchase of a vehicle, is primarily negotiated in Spanish, then a Spanish translation of the contract must be provided to the customer prior to signing the English language contract. This law was recently expanded to include Chinese, Vietnamese, Tagalog and Korean. Failure to comply gives the customer the right to rescind the transaction.

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Used Vehicle Disclosures/Misrepresentation: Dealerships are required to disclose material known facts about a used vehicle, such as if it was

	• involved in a prior accident (that caused substantial damages)
	• a prior rental vehicle
	• a lemon law ‘buy back,’ meaning the vehicle was repurchased by either the manufacturer or dealer under the lemon law because of a defect
	• subject to odometer tampering/malfunction

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New/Used/Demo/Unwind: The AFSA requires that a dealership describe the vehicle being purchased as either “new” or “used.” Although the “used” designation applies to demonstrator vehicles (a.k.a. “demos,” vehicles used by manufacturer or dealership representatives) and “unwinds” (vehicles previously sold, then returned, usually because of financing problems), these vehicles are often represented as “new” to customers.

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Forgery: Dealerships sometimes forge the signature of customers on subsequent contracts that change the terms of the original signed contract (especially if the customer refuses to sign the new contract). Other commonly forged documents include: credit applications (with fraudulent representations about income, etc.), as well as buyer’s guides and disclosure forms (to prevent buyers from reading their buyers’ rights and/or information that may cause them to reconsider their purchase decisions).

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Certified Used Vehicles: Many manufacturers and dealerships advertise used vehicles as “certified pre-owned,” supposedly guaranteeing to the customer that the vehicle is in good working order and free from major structural damage, including previous accidents. Often times, however, dealerships misrepresent used vehicles that have suffered previous accidents, structural damage (or other conditions that would preclude certification under the dealership’s advertised standards) as “certified” vehicles – misleading customers into paying a premium price for a damaged product.

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