Methodology

For this study, CarGurus analyzed the vehicle history reports on 2 million car listings that were advertised for sale by dealers and private sellers on the CarGurus website in 2012. Vehicle history data was acquired through a third-party provider that gathers data from sources including state DMVs, salvage yards, auction companies, police reports and other independent sources. The study did not distinguish between minor and major accidents on record, nor did it distinguish between fleet vehicles owned by rental companies and other business entities.

The article highlights many of the problems surrounding spot-delivery of cars to consumers (i.e. cars are delivered “on the spot” with a promise from the dealer to provide financing).

The article quotes Manner as saying: “Dealers want to get you emotionally invested and financially invested in the car.” Spot delivery helps prevent the consumer from leaving the dealership to shop around for another car, or a better financing offer. The deal becomes a yo-yo when the dealer contacts the buyer after they have already bought the car to say that the financing fell through, and they need to return the car, or sign another financing contract on less favorable terms.

Manner considers the decision by Judge Sharon Zeller to be a “significant victory for car buyers” because in many instances consumers find that the arbitration process limits the ability of consumers to prepare their claims; for example, it limits their ability to take depositions, request documents, etc.

FTC is seeking public comment on proposed changes to the Used Car Buyers Guide required by the agency’s Used Car Rule. The Commission is also issuing a final rule that makes technical corrections and revises the Spanish translation of the Buyers Guide. The Buyers Guide gives consumers critical information about who will pay for repairs if something goes wrong with the car they buy. The Commission last reviewed and amended the Used Car Rule in 1995.

• adding a statement to the Buyers Guide encouraging consumers to seek vehicle history information and directing consumers to an FTC website for more information about vehicle histories;
• adding a statement in Spanish to the Buyers Guide directing Spanish-speaking consumers to ask for a copy in Spanish, if they desire;
• adding catalytic converters and airbags to the List of Systems on the back of the Buyers Guide; and
• placing boxes on the back of the Buyers Guide where dealers will have the option to indicate whether (1) the manufacturer’s warranty still applies; (2) the manufacturer’s used vehicle warranty, such as a manufacturer’s certified used car warranty, applies; or (3) some other used vehicle warranty applies.

The pictures on the internet look good, and the dealer has a link on the auction page for an Autocheck vehicle history report, so it seems legit. Except that when you click on the link provided to the Autocheck report, it takes you to the dealer’s website and shows you a report for a different vehicle… a 2012 Nissan Altima S VIN: 1N4AL2AP3CC123450.

Well… this could just be an honest mistake linking to the wrong Autocheck report… but even so… the Nissan looks like a train wreck to me, even though it’s got a “Clean Carfax”

Here are the pictures “BEFORE” the 2010 GMC TERRAIN SL 3.0L 6 VIN: 2CTFLGEY6A6349475 was auctioned off after a “disabling” collision and the “AFTER” pictures when it has been repaired and is being offered for sale with a clean title, and an excerpt from its true Autocheck report.

You be the judge…

Click on image for larger view.

 Click on Image for larger view

Click on image for larger view.

Example: Car buyer purchases a vehicle from a motor vehicle dealer, and finances the purchase by entering into a retail installment contract with the dealer. The consumer may later find out that the car was unsatisfactory, or he or she was the victim of fraud, or the merchant failed to honor certain promises related to the sale, or some other wrongful conduct on the part of the car dealer.

Nevertheless, the lender will insist upon payment, and the lender will usually assert that it is not responsible for the dealer’s misconduct. Most consumers feel helpless in this situation because the lender tells them that they have to repay the loan regardless of what the dealer did, and that their obligation to repay the loan is independent of whatever claims or defenses he or she may have against the dealer.

“In essence, the consumer feels robbed of the only realistic leverage he or she has to force the dealer to provide satisfaction — the power to withhold payment.”

There is a great deal of misconception about whether lenders (including banks, credit unions, and finance companies) are subject to the claims and defenses that a consumer has against a car dealer when the lender provides the funds to finance a consumer transaction. There are various reasons why, in most cases, lenders are subject to the claims and defenses that a consumer has against the dealer, the principal reason is usually based in the “FTC Holder Rule.”

The purpose of the FTC Holder Rule was well explained by a Florida appellate court:

• Prior to the passage of the FTC Holder Rule, many consumers were caught in a “no win” situation when the seller failed to remedy the defect either because of its unwillingness or its disappearance from the market. The institutional lenders then took advantage of protections under the holder in due course doctrine when the consumer sought to assert seller misconduct as a defense to the predator’s suit for payment on the note. The rule is expressly designed to compel creditors to either absorb seller misconduct or seek reimbursement of those costs from sellers.

In many cases, the lender’s attempt to divorce himself or herself from responsibility for the dealer’s wrongdoing is not only fundamentally unfair, but it is contrary to law. That is, despite the insistence of many lenders to the contrary, in most cases, lenders are subject to the claims and defenses that the buyer has against the seller in a consumer transaction.

Consumer Remedies - Assuming that the lender is subject to the claims and defenses that the consumer has against the dealer, what are the consumer’s remedies? In most cases, the consumer has the right not to pay the outstanding balance to the extent of the consumer’s damages. The consumer may assert those claims and defenses against the lender to reduce the amount the account debtor owes, or to a return of monies paid to the assignee, but the consumer usually does not have the right to an affirmative recovery from the assignee. In addition, Florida law explicitly provides that a buyer who has suffered damages as the result of a seller’s wrongful conduct may, upon notifying the seller, deduct his or her damages from the sales price still due under the contract.

Institutional banks and lenders often cite GMAC v. Laesser, 718 So. 2d 276 (Fla. 4th DCA 1998), for the proposition that lenders are not responsible for the misconduct of dealers. However, that case was based upon a finding by a jury that “GMAC deceptively helped the automobile dealer in question steal Laesser’s trade-in vehicle and ‘flip’ him from a car purchase into a lease.” That finding was reversed on appeal, and GMAC was awarded appellate attorneys’ fees. However, the verdict in that case was based upon a finding of independent fault on the part of GMAC, and was not based upon GMAC’s derivative liability as assignee for the acts of the dealer.

Conclusion - In most cases, despite common misconceptions, when a lender who provides financing for a consumer transaction seeks payment from the consumer, the lender is subject to the claims and defenses that the consumer has against the merchant.

Watch Earl’s YouTube Video from his radio show where he discusses Dealer Fees in Florida and his view of the law, and it’s impact on consumer car buyers.

Hurricane Katrina changed the laws when it comes to insurance companies reporting flood damage vehicles, and that “flood damage” should be branded on the vehicle’s title, and appear in a Vehicle History Report like Carfax and Autocheck. The same law applies to Sandy, and while the law helped to protect a lot of consumers from unknowingly buying a flood damaged car, it did not solve all problems, and many flood damaged cars will still “slip through the cracks” and end up with “clean” titles.

For example, consider these two situations, where flood damaged vehicle might slip through:

1. There are car owners who were transients  in the “Sandy Zone” and simply were in the wrong place at the wrong time, and because those cars are not registered in the Sandy Zone, those cars may never get the cautionary marks on their title from the insurance company.
2. Not everyone has collision and comprehensive insurance that would cover flood damage, and those cars that are flooded will likely be traded-in by the uninsured prior owner and resold without any flood damage notation on the title or vehicle history.

Florida law defines a “Flood Vehicle” as a motor vehicle or mobile home that has been declared to be a total loss pursuant to Fla. Stat. 319.30(3)(a) resulting from damage caused by water, and it is against the law in Florida to knowingly sell, exchange, or transfer a flood vehicle without prior to consummating the sale disclosing in writing to the purchaser the fact that the vehicle is a flood vehicle.

Sawyer test-drove a blue Chevrolet Traverse on May 7 but ultimately decided to buy a black one. He traded in his 2008 Saturn Vue, signed a promissory note and left in his new SUV, in what is known as a “spot delivery.” The next morning, Sawyer returned and asked to exchange the black Traverse for the blue one. However, staff at Priority Chevrolet had undercharged the buyer $5,600 in the spot-delivery, and when the customer refused to sign new documents for more money, they had him arrested. Commonwealth’s Attorney Nancy Parr said her office dropped all charges Aug. 23 after speaking with representatives of the dealership and determining there was insufficient evidence to pursue the case.

“I owe Mr. Sawyer a big apology,” said Dennis Ellmer , who manages the entire Priority Auto Group – which includes 11 dealerships in Virginia and North Carolina. He said Sawyer should not have been arrested and definitely should not have spent four hours in jail.

“An apology is not enough” said Rebecca Colaw, Sawyer’s attorney, and that Ellmer will have to do more than say he’s sorry and let Sawyer keep the SUV. Earlier this month, Sawyer filed two lawsuits against the dealership accusing it of malicious prosecution, slander, defamation and abuse of process, among other things. The lawsuits seek $2.2 million in damages, plus attorney fees.

Scroll the video forward to about 16:00 when the Carfax representative is put on the spot by the reporter:

• CBC Reporter: “…the whole point of Carfax was to let him know if the truck he has was buying had any problems.”
• Carfax Rep: “I’m sorry he was mistaken…”

This video also has a segment featuring Bernard Brown, a nationally recognized consumer advocate attorney from Kansas City who specializes in auto fraud cases.

Scroll  the video to about 4:00 to hear Bernard’s comments.