The information below is list of some of the more common tricks that car dealers use with regards to California car transactions. If you have questions or concerns that require further information, please contact our law firm.
- Negative Equity/Over-Allowance
- Packing
- Rewritten Contract/Backdating
- Single Document Rule
- Hold Check Agreement/Deferred Down Payment
- Sticker Price
- Spanish Language
- New/Used/Demo/Unwind
- Certified Used Vehicles
- Forgery
- Lemon Law
- Buyer’s Guide/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.
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.
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 qualify 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 “Acknowledgement of the Rewritten Contract,” has the actual date when the contract was signed. In addition, many customer 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.
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.
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.
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 MSRP, while also affecting the amount charged for taxes, licensing & registration and finance charges.
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.
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
New/Use/Demo/Unwind:he 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, in violation of ASFA.
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.
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).
Lemon Law: The Song-Beverly Consumer Warranty Act (Lemon Law) provides protection for consumers who lease or buy new motor vehicles. The law requires that if the manufacturer or its representative in this state, such as an authorized dealer, is unable to service or repair a new motor vehicle to meet the terms of an express written warranty after a reasonable number of repair attempts, the manufacturer is required promptly to replace the vehicle or return the purchase price to the lessee or buyer. The purchase price that must be returned includes the price paid for manufacturer-installed items and transportation but does not include the price paid for non-manufacturer items installed by the dealer. The lessee or buyer is completely free to choose whether to accept a replacement or a refund. Whatever the choice, the manufacturer is also responsible to pay for sales or use tax; license, registration, and other financial fees; and incidental damages that the lessee or buyer may have incurred such as finances charges, repair, towing, and rental car costs. Lemon laws may cover situations even when the vehicle is not under warranty, especially if the seller failed to disclose critical information such as previous damage to the buyer. Knowingly purchasing a car in “as is” condition does not void the buyer’s rights under applicable lemon laws. Lemon laws are not limited to cars. There are RV, boat, motorcycle, and wheelchair lemon laws.
Buyer’s Guide/Used Vehicles: You have a right to review, sign and receive a copy of a “Buyer’s Guide” on all used cars. The Buyer’s Guide must be affixed to the vehicle at the time of the sale.