Auto fraud law covers everything related to sales of cars

Daily Record and the Kansas City Daily News-Press, Aug 9, 2005 by Amanda C. Tinnin

(This article originally ran in Missouri Lawyers Weekly, St. Louis, MO., another Dolan Media publication).

Chinese-American writer Lin Yutang said, When there are too many lawyers, there can be no justice. By that philosophy, justice should flourish in the rare practice of auto fraud.

About 16 million new cars were sold to consumers in the United States in 2004. The National Highway Traffic Safety Administration (NHTSA) estimates that within 11 years, about 3.5 percent of those cars will be used in a fraudulent transaction. Despite the number of vehicles on the road, auto fraud litigation is a scarcely practiced form of law.

As niches go, it's about as small as they come, said Kansas City auto fraud attorney Blaine Elliott. It's almost an accident to end up there. It's something that your average practitioner would only hear about as their client complaining of it.

Elliott recently spoke about his unusual practice as the Missouri Bar's Solo Small Firm Conference.

It's not as high dollar or glamorous as med-mal, Elliott said. But there are plenty of cases that get filed. There are more cases than you would need.

Auto fraud can involve anything related to the sale of an automobile be it failing to disclose mechanical problems, yo-yo sales or rolling back the odometer.

Spinning the mileage

Odometer fraud is an area that a lot of people think is shrinking, but it doesn't seem to be, Elliott said. Most people think with the electronic odometers it must be tougher to do, but when there's half a million cases a year, that's not insignificant.

Even though many cars have gone to digital odometers, Elliott said for those who want to reprogram the mileage, tools are available.

The chip that contains the odometer information can be reprogrammed with special equipment, he said. I knew the equipment was out there, but I didn't know how available it was. Such equipment is available over the internet at prices ranging from $600 to approximately $2,500.

The NHTSA conducted a study in 2002 to determine how often such fraud was occurring and its impact on the consumer.

Consider, for example, 3-year-old cars whose odometers were rolled back from 80,000 to 30,000 miles. Unwary consumers pay top dollar for such cars, believing that they are in prime condition, likely to give several years of nearly trouble-free service and still have some resale value.

This study estimates the difference between the inflated prices that consumers actually paid for the rolled-back vehicles and the prices they would have been willing to pay if they had known the true mileage. Those costs average $2,336 per case of odometer fraud. Given 452,000 cases per year in the United States, that amounts to $1,056 million per year.

While the study proves odometer fraud is still a concern, Elliott believes, however, that the NHTSA estimates are low because they gathered the data through car fax services which provide vehicle history reports. While these services provide some information, however, they may not provide all the details. Elliott added a lot of odometer fraud won't show up on a car fax.

The yo-yo sale

I get lots of complaints about that, Elliott said. And a lot of times the complaints come in too late to help.

In a yo-yo sale, a customer is seemily approved for financing and in many cases are told that they were approved and they take the car and leave the lot.

Taking a car immediately after negotiating a deal, but before final approval of financing arrangements, is called spot delivery. Getting called back in because of an alleged financing issue is commonly called a yo-yo sales tactic.

If you take a car off the dealer's lot before financing has been approved by the lender, you could get that very disturbing call. If you do, be careful. There's a good chance you're being set up for a scam.

This deal is not through. It's contingent upon your financing being approved, Elliott said. I've had people come in a couple months down the line and say my financing's not approved.

What happens is the customer signs a retail installment contract, which names the dealership as the lender. The dealership, in turn, tries to sell the contract to a lending institution. If the dealer can't sell the contract, he will call the customer back in and tell the customer the financing was not approved and they have a new contract to sign.

Essentially, the dealer is getting a second shot at negotiating a deal that the customer thought was already settled.

The problem, Elliott said is the person's trade-in might have already been sold or the dealership may not return the original down payment and the original contract names the dealer as the creditor.

It's a really crappy way to treat someone, Elliott said of this tactic. It's not that the financing didn't go through. The problem is what happens is the customer is placed with a choice of do I want to keep this vehicle or do I not. Most people will go back and sign a new contract.