 " Public Citizen 'Rip-Off Nation' Report Defames Auto Dealers"
By: Thomas Hudson and Emily Marlow Beck
An organization called "Public Citizen" has issued a report titled " Rip-Off Nation: Auto Dealers' Swindling of America ." (Subscribers, please look for the full report online at www.spotdelivery.com.). If the report were a product, it would be recalled immediately. And if any other organization had issued the report, Public Citizen would be screaming that it was a fraud.
Long on bald accusations, short on facts, based on misunderstandings of the auto finance business so profound that they leave you wondering whether the report was written by college students or first-year law students interning for the summer, the report is a criminally reckless indictment of the entire car industry based on the undeniable wrongdoing of some dealers and dealer personnel.
No Facts at All
First, consider the bald accusations:
"[T]he fraudulent practices in this report are likely to affect millions of . . . buyers." This statement is based on ... ?
"Duane Overholt … believes that fraud has now reached epic proportions."
This statement is based on … ? And by the way, Ole Duane makes his living as an expert witness for lawyers who sue dealers, a fact that Public Citizen doesn't point out, and that we have to learn from an article in Automotive News .
"The Minnesota Attorney General describes certain fraudulent practices as ‘industry-wide.'"
What proof do Public Citizen and the Minnesota AG offer for the assertion that practices are industry-wide? Public Citizen doesn't favor us with any proof.
"Firsthand whistleblower accounts reveal that a widespread industry practice is to pull credit reports on consumers without the customer's permission or knowledge … ."
This statement is based on? We aren't told who the whistleblowers are, how many there are, whether, like Ole Duane, they have their own agendas, or how it is that they know anything about practices other than those within their own organizations. Public Citizen also doesn't bother to point out that it does not violate the Fair Credit Reporting Act to pull a credit report without the customer's permission or knowledge, as long as the dealer has a reasonable expectation of entering into a credit transaction with the customer.
Apart from the purple prose, there isn't a fact in sight. Yo! Somebody call the Fact Store and have them send some over to Public Citizen.
‘Facts' That Don't Support Conclusions
Then consider the "short on fact" stuff –
"Our research, in Appendix A, indicates that auto dealer fraud is rampant both geographically and in the number of customers affected, and that these practices may be commonplace among many of the largest auto dealership conglomerates."
Sounds convincing, right? It is, unless you bother to actually look at Appendix A. That document lists 20 cases and investigations, at least one of which was dated 1998. Of the 20 cases, three do not involve fraud at all, but are credit discrimination cases alleging violations of the Equal Credit Opportunity Act.
With something north of 50,000 new and used car dealers around the country selling (a guess) more than 20 million cars a year on credit, does anyone really think 17 alleged instances of fraud is sufficient "research" on which to base a claim that fraud is "rampant." Also note the weasel-worded " may be commonplace." Shame on you, Public Citizen.
Just Plain Wrong
Now consider the plainly incorrect statements:
"It is important to remember that dealerships do not have the authority to offer loans or act as bank agents."
Apart from the fact that typical dealer financing does not involve loans at all, but involves retail installment sales agreements, dealers in every state are permitted by law, usually without licensing, to extend credit by entering into credit sales with credit buyers. And we know of no reason why a dealership may not act as a bank agent, if the dealer and the bank enter into an agency agreement.
"Arbitration can also be very costly to consumers, who must pay at least half the cost. Arbitration settlements are also secret, generating no public records of wrongdoing and no precedent for use by other wronged consumers."
These statements misinform consumers about an important topic. The costs for arbitration are a matter of contract between the consumer and the dealer. Because courts are reluctant to enforce arbitration agreements that require consumers to pay a lot to assert their rights, many arbitration agreements now shift most, and some shift all, of the costs of arbitration to the dealer or creditor. As for secrecy, arbitration settlements are not secret unless the consumer and the dealer agree that they are secret. We have seen few arbitration agreements that require secrecy and do not recommend that arbitration agreements contain such a provision. Absent such a provision, either party to arbitration can crow about the results to the rooftops.
Arbitration settlements are not a part of a public record unless the agreement provides that the judgment may be enforced through a court (as most arbitration agreements do) and one of the parties elects to do so. And in any event, the 95% (or whatever the current figure is) of lawsuits that are settled don't result in records of the settlement terms, nor do those settlements have any precedential value. But Public Citizen doesn't bother to mention any of these pesky details. And we won't even start on one of our favorite topics – the use by consumer advocates of the word "secret" when what they actually mean is "private" or "not public."
"In the trade, this is often called a ‘right of rescission.' Abusive terms written in the fine print
permit dealers to alter the terms of the contract, including the number of payments and interest rate, without the customer's further consent, if the customer receives "spot delivery" of the vehicle by driving it off the lot prior to receiving final approval from the bank."
What claptrap! First, a "right of rescission" is just that – a right to rescind the deal. We have never seen spot delivery documentation that permits the dealer to unilaterally change the terms of a customer's agreement. Typically, the dealer, acting in accordance with an agreement with the customer, rescinds a contract that cannot be sold to a bank or finance company, then negotiates with the customer the terms for a new contract that can be sold.
Here's What Facts
Look Like, Public Citizen
There are certainly dealers that engage in fraudulent practices and who otherwise fail to make their customers happy. Indeed, a recent press release by the Consumer Federation of America and the National Association of Consumer Agency Administrators detailed consumer problems with auto sales issues.
These consumer advocacy organizations polled 43 consumer protection agencies, and found that complaints of all kinds, not just auto sales complaints, increased 23% in 2002 to a total of 300,000 (Gee, Public Citizen, imagine that! Actually doing some research before issuing a report!). Complaints relating to auto sales ranked first, followed by complaints about home improvements, auto repairs, credit, advertising/telemarketing, collections/billing practices, then in a four-way tie for seventh place, complaints about household goods, Internet/E-commerce, telecommunications and real estate/landlord-tenant issues.
The consumer groups reported that 70% (yes, Public Citizen, that's 70%, as in seventy percent , as in 210,000 of the complaints) were resolved to the consumers' satisfaction . That leaves 90,000 unhappy campers for all 10 categories.
We read the CFA/NACAA survey, looking for the actual number of car sales complaints, but only the rankings appeared. If we make a guess that car sales complaints, as the #1 category, constitute 20% of the complaints in their survey, then we get 18,000 unhappy car buyers. If our 20,000,000 guess for financed car deals is even remotely close to accurate, that means that unhappy buyers, or at least buyers unhappy enough to complain to the authorities, constitute less than 1/10 th of one percent of all buyers. Our arithmetic here is suspect. In the first place, the survey polled 43 agencies, so it probably isn't a nationwide number. On the other hand, we aren't told how many of the unhappy car buyers encountered fraud in the transaction, as opposed to, say, a malfunctioning cruise control.
The Federal Trade Commission also issued a press release on January 22 reporting the "Top 10 Consumer Complaint Categories in 2003." Auto sales, financing and leasing didn't make the FTC's Top 10 list, which sort of makes you wonder what the folks at Public Citizen were smoking.
And USA Today reported on the front page of its February 2 issue that of 516,740 consumer complaints reported to law enforcement agencies last year, the top five complaints were identity theft, Internet auctions, shop-at-home/catalog sales, Internet services/computer complaints and prizes and lotteries. If there's an epidemic of auto dealer fraud, as Public Citizen claims, you'd figure that it might show up on this radar screen, too.
Our point here is not that dealer fraud is not a problem. Our point is that Public Citizen's wild rants and incorrect descriptions of the car sales business are irresponsible. "Fraud affecting ‘millions' of car buyers?" "Industry-wide" fraudulent practices? Fraud in "epic proportions"?
Where is the data to back up these claims? It certainly isn't in the "Rip-Off Nation Report."
* Emily Marlow Beck is an Associate Attorney in the Linthicum, Maryland office of Hudson Cook, LLP . Contact Emily at ebeck@hudco.com.
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