AUTO FRAUD CASES
Dealer profits on sales of new cars are small. Dealers make their real profits from financing, insurance, service contracts, added charges and options, repairs, and the sale of used cars. There is enormous financial pressure to make profits on these items to offset small or non-existent profit margins on the sale of new cars.
Car dealer culture makes taking unfair and predatory advantage of consumers acceptable. As far as car dealers are concerned, the rules of the game are “buyer beware,” even though most states, like Arkansas, have abandoned “buyer beware” as the legal framework for car sales by passing laws like the Arkansas Deceptive Trade Practices Act. Commission structures, quotas, training, and supervision place relentless pressure on sales personnel and supervisors to deceive and take advantage of consumers in sophisticated and routine schemes.
Odometer Fraud
Odometer fraud continues to be widespread.
One type of odometer fraud involves tampering with an odometer so that it reads less than the car’s actual mileage. Another type of odometer fraud is failing to disclose that an odometer has exceeded its mechanical limits, for example, that the car has traveled 150,000 miles, not the 50,000 shown on the odometer. Odometer fraud also broadly covers related misrepresentations about a car’s mileage and any failure to correct mandated disclosures.
Odometer fraud can involve a number of legal remedies, including
- Violation of the Motor Vehicle Information and Cost Savings Act (MVICSA) which provides a federal cause of action for $10,000, or three times actual damages, whichever is greater, and attorney fees.
- Common law fraud, which may lead to punitive damages.
- Breach of implied or express warranties, which my lead to a consumer revoking acceptance of the car, withholding payments, a claim for additional damages, and an award of attorney fees under the Magnusson-Moss Warranty Act.
- Violation of the Arkansas Deceptive Trade Practices Act (ADTPA), which provides $1,500 in statutory damages or three times actual damages, whichever is greater, and attorney fees.
- Rescission of the contract due to a mistake, if the dealer pleads ignorance of the odometer issue.
Salvage Fraud
Salvage fraud involves cars which are described a total loss and thus salvage because of a car collision, flooding, fire, or other serious physical accident. Millions of cars declared as salvage are patched up and sold to unsuspecting consumers.
Salvage fraud includes:
- Violations of the MVICSA if a dealer misrepresents the car’s vehicle identification number (VIN), make, mileage, or year, providing minimum statutory damages or three times actual damages, and attorney fees for the consumer.
- Violations of MVICSA if a dealer does not provide title documentation for the buyer to sign, in an attempt to hide information on the existing title to the salvage history.
- Common law fraud, which may lead to punitive damages.
- Breach of implied or express warranties, which my lead to a consumer revoking acceptance of the car, withholding payments, a claim for additional damages, and an award of attorney fees under the Magnusson-Moss Warranty Act, even if the dealer had no knowledge of the car’s salvage history.
- Violation of the ADTPA, which provides for attorney fees and recovery of the consumer’s actual financial loss.
- Rescission of the contract on the grounds of mistake, if the seller claims ignorance of the prior damage.
Undisclosed Flood or Hurricane Damage
Often cars will undergo flood or hurricane damage, but the vehicle will not be declared a salvage vehicle, either because the damage is not quite a total loss, the vehicle is uninsured, or the state’s salvage law definitions are stricter than insurance company standards for a total loss.
Challenging misrepresentations and nondisclosure of serious flood or hurricane damage history involves:
- Common law fraud, which may lead to punitive damages.
- Breach of implied or express warranties, which my lead to a consumer revoking acceptance of the car, withholding payments, a claim for additional damages, and an award of attorney fees under the Magnusson-Moss Warranty Act, even if the dealer had no knowledge of the car’s flood or hurricane damage.
- Violation of the ADTPA, which provides for attorney fees and recovery of the consumer’s actual financial loss.
- Rescission of the contract on the grounds of mistake, if the seller claims ignorance of the prior damage.
Undisclosed Wreck Damage
Often cars will undergo severe wreck damage, though short of enough damage to be declared salvage vehicles, either because the damage is not quite a total loss, or because a state’s salvage law definitions are stricter than insurance company standards for a total loss.
Challenging misrepresentations and nondisclosure of wreck damage involves:
- Common law fraud, which may lead to punitive damages.
- Breach of implied or express warranties, which my lead to a consumer revoking acceptance of the car, withholding payments, a claim for additional damages, and an award of attorney fees under the Magnusson-Moss Warranty Act, even if the dealer had no knowledge of the car’s flood or hurricane damage.
- Violation of the ADTPA, which provides for attorney fees and recovery of the consumer’s actual financial loss.
- Rescission of the contract on the grounds of mistake, if the seller claims ignorance of the prior damage.
Lemon Laundering
“Lemon laundering” involves a manufacturer buying back a lemon car from a consumer, then passing on that same car to another consumer without disclosing its lemon history.
Challenging lemon laundering transactions involves:
- Violations of MVICSA if a dealer does not provide title documentation for the buyer to sign, in an attempt to hide information on the existing title relating to the lemon history.
- Common law fraud, which may lead to punitive damages.
- Breach of implied or express warranties, which my lead to a consumer revoking acceptance of the car, withholding payments, a claim for additional damages, and an award of attorney fees under the Magnusson-Moss Warranty Act, even if the dealer had no knowledge of the car’s salvage history.
- Violation of the ADTPA, which provides for attorney fees and recovery of the consumer’s actual financial loss.
- Rescission of the contract on the grounds of mistake, if the seller claims ignorance of the prior damage.
Stolen Vehicles and Defective Titles
A car sold to a consumer can have a defective title for any number of reasons. One is that the car is stolen or the VIN is fictitious. Another is that pre-existing liens are not satisfied or the title was never transferred to the consumer.
Sale of a car with defective title involves:
- Breaches of the Uniform Commercial Code’s warranty of title.
- Breach of implied or express warranties, which my lead to a consumer revoking acceptance of the car, withholding payments, a claim for additional damages, and an award of attorney fees under the Magnusson-Moss Warranty Act, even if the dealer had no knowledge of the car’s salvage history.
- Violation of the ADTPA, which provides for attorney fees and recovery of the consumer’s actual financial loss.
- Common law fraud, which may lead to punitive damages.
- Violation of Arkansas’ law on titling requirements, which may void of the car sale.
- Rescission of the contract on the grounds of mistake, if the seller claims ignorance of the prior damage.
Missing Airbags
Airbags are a costly item to replace when a bag has been deployed, is defective, or has been stolen, and the typical consumer may not be able to tell whether an airbag has in fact been replaced. Car dealers are tempted to sell these vehicles without disclosing the airbag is missing.
A car sold with a missing airbag involves:
- Common law fraud, which may lead to punitive damages.
- Breach of warranty.
- Violation of the ADTPA, which provides for attorney fees and recovery of the consumer’s actual financial loss.
Yo-Yo Transactions
A common dealer practice is to complete a sale and send the consumer home with the vehicle then demand the vehicle back if the dealer cannot sell the installment sales agreement on terms it considers sufficiently advantageous.
Yo-Yo transactions involve:
- Determining if conditions triggering a contingency clause have actually taken place, and if the dealer knew in advance the contingency would not be met.
- Misrepresentations the violate the ADTPA, which provides for attorney fees and recovery of the consumer’s actual financial loss.
- Violations of the Truth in Lending Act’s disclosure requirements that the transaction is contingent.
- Violations of the Equal Credit Opportunity Act and the Fair Credit Reporting Act notice requirements that are triggered by an adverse action regarding the consumer’s credit application.
- Illegality of the car dealer failing to return a consumer’s trade-in or down payment.
- Malicious prosecution depending on how the car dealer responds to a consumer keeping the car.
- Deceptive practices if the car dealer demands the consumer sign a second set of paperwork for a second sale of the same car.
