• Consumer Protection Law and Advocacy — Chicago, IL

Auto Fraud

Another Scandal Over Excessive And Unnecessary Fees

Another grave scandal over excessive and unnecessary fees has erupted.  Wells Fargo now admits it wrongly charged auto insurance to its loan customers and at extremely high rates.  As reported last week in the New York Times:

More than 800,000 people who took out car loans from Wells Fargo were charged for auto insurance they did not need, and some of them are still paying for it, according to an internal report prepared for the bank’s executives.

The expense of the unneeded insurance, which covered collision damage, pushed roughly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions…

Read the full story, available at https://www.nytimes.com/2017/07/27/business/wells-fargo-unwanted-auto-insurance.html

Wells Fargo charged duplicate high auto insurance rates, even to its auto loan customers who already maintained and paid for their own insurance.  After the consumers’ accounts became delinquent because the wrongly assessed insurance fees weren’t paid, Wells Fargo ordered the repossessions of tens of thousands of vehicles.  According to the Times piece:

Here is how the process worked: When customers financed cars with Wells Fargo, the buyers’ information would go to National General, which was supposed to check a database to see if the owner had insurance coverage. If not, the insurer would automatically impose coverage on the customers’ accounts, adding an extra layer of premiums and interest to their loans.

When customers who checked their bills saw the charges and notified Wells Fargo that they already had car insurance, the bank was supposed to cancel the insurance and credit the borrower with the amount that had been charged.

This scandal highlights the need for consumers to check and double-check each monthly billing statement.  Even if you pay your bills online or by auto-deduct, you must review the bill itself to ensure you aren’t paying unnecessary fees.  It’s also important to make sure you respond to any letter you receive from your finance company which indicates it may not have a record of your insurance.  Either fax or send via certified mail (return receipt requested), proof of insurance to make your best case against the company.  Don’t ignore delinquency notices or rely on phone conversations with account representatives – make your complaints in writing and keep proof that you lodged your dispute or that your finance company agreed to credit your account.

Consumers need to step up and continue complaining, filing reports, and reporting misconduct.  Only with intense public pressure will finance companies be forced to remain accountable.

Practical Tips For Trading In Your Car

Trading in your car can be an issue if you don’t have great credit.  You need to be especially careful when trading in your car that still has an outstanding balance owed.

Why?  Because auto dealers often “spot deliver” cars.  That means the dealer gives you the keys to a new (or new used) car and lets you drive it home, but you haven’t been financed yet.  If your financing application ends up rejected, the dealer likely won’t pay off the balance on your trade-in.  So what should you do?

First, if you have an upcoming car payment due on your trade-in, pay it.  This will protect your credit rating if the new car loan falls through and you have to pay off the old car.  Just make sure you get credit for all the payments you make.  Don’t let the dealer finance you on a larger balance than what you actually owe.

Second, know what your car is worth before you consider trading it in.  Check out auto valuation reports and think twice before trading in a car that has “negative equity” (you owe more than it’s worth).  The dealer will end up adding those payments to your monthly obligations on the new car.  Check out https://www.consumer.ftc.gov/articles/0257-auto-trade-ins-and-negative-equity for more tips if you owe a significant balance on your trade-in.

Finally, keep your old car and don’t take the new car home.  Until you receive financing confirmation on the new loan, don’t leave your trade-in at the dealership.  Tell the dealer you want to wait until you have financing approval before taking delivery.  To do this, make sure you visit dealership’s early in the day – don’t arrive in the evening when most banks and lenders are closed and you won’t have confirmation of financing until the next day or even beyond.

But most importantly, don’t be rushed or intimidated by a dealer trying to make a fast sale.  You may be making payments for as long as 72 months and you should be sure you fully understand what you’re agreeing to.  Take your time.  Ask for copies of everything you sign.  And don’t listen to a dealer who tells you trading in your car is the best option, especially if you still owe on the loan.


Has A Car Dealer Rejected You For Financing?

Has a car dealer rejected you for financing?  If so, the Equal Credit Opportunity Act requires the dealer to provide you with a written statement explaining why it rejected your credit application.  The Act’s notice requirement can be satisfied in one of two ways:

  • A dealer can routinely provide written statements of reasons for credit denials to applicants; OR
  • A dealer can advise applicants they have been denied and then explain that such applicant has the right to request a specific written explanation.

Last week, the Sixth Circuit Court of Appeals ruled that a Michigan car dealer violated the ECOA by failing to provide this explanation.  The Court stated, “any ‘creditor’—middle-men included—that regularly participates in credit decisions and takes an adverse action with regard to a credit application bears the burden of providing notice under the ECOA.”  The full text of the opinion can be found at http://www.opn.ca6.uscourts.gov/opinions/opinions.php.

This ruling is important.  First, it confirms that car dealers are active participants in setting credit terms because they prepare the contracts, select the interest rate, and discuss payment terms.  Second, it lets consumers know specifically why their credit is denied so any credit errors can be fixed and follow-up applications can be made.

The Federal Trade Commission provides additional information about your rights under the Equal Credit Opportunity Act at https://www.consumer.ftc.gov/articles/0347-your-equal-credit-opportunity-rights.  Credit decisions cannot be based on your race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.  Requiring credit denials to be explained in writing helps ensure decisions are not made for these prohibited reasons.

Tricked Into An Auto Warranty?

It’s easy to be tricked into an auto warranty.  Keep in mind that these are really not warranties but extended service contracts.  It’s often better to avoid buying extended service contracts.  In some limited instances, extended auto service contracts may be worth purchasing if:

(1) You are buying a used car that is otherwise “as is”

(2) The service contract does not specifically limit engine, transmission or other high cost repairs

(3) You’ve done your research and the company offering the contract has a solid reputation online and with the Better Business Bureau

Also, make sure you’re not buying duplicate coverage.  For example, if the manufacturer’s auto warranty is still in effect, some service contracts won’t be valid.  Don’t waste your money on a contract that won’t apply for some time in the future.  It’s an old trick to add on service contracts to increase a dealer’s profits so be especially careful if you’re offered an extended service contract on a new car that already has a manufacturer’s warranty.

Pay close attention to the warranty’s terms.  It may require you to obtain pre-authorization for any repairs and may require you to go to specific service centers.  Be sure those are terms you can live with.  And while you can normally cancel these contracts, double check the cancellation terms.

Finally, watch out for telemarketers selling auto service contracts.  Today, the Federal Trade Commission announced $4 million in refunds for one such scam – https://www.ftc.gov/news-events/press-releases/2016/07/ftc-providing-4-million-full-refunds-people-tricked-buying-bogus.

Don’t be pressured into auto add-ons – take your time, shop around, and know what you’re getting.  Even if the dealer says otherwise, that car will likely be on the lot tomorrow.


Protections for Auto Loan Co-Signers

Protections for auto loan co-signers do exist but it’s more important to consider whether co-signing is the right decision BEFORE you sign.  Young adults, students, and consumers with lower credit ratings will often ask for help, especially when purchasing a vehicle, but you have to remember that you are responsible for paying that loan back if there is a default.  The Consumer Financial Protection Bureau has a helpful resource, “Take Control of Your Auto Loan” — http://www.consumerfinance.gov/consumer-tools/auto-loans/.  The Bureau also published an auto loan “shopping sheet” to help you make sure you’re getting the best loan possible, available at http://www.consumerfinance.gov/about-us/blog/arm-yourself-knowledge-when-shopping-auto-loan/.

Remember, as auto loan co-signers:

  1. You are responsible for repaying the loan; and
  2. Co-signing can impact your own credit report

Because you are ultimately responsible, you should ask the finance company to send you monthly statements.  This will help you keep track of whether your co-signer is making regular payments. Also, if the vehicle is eventually repossessed because the payments aren’t being made, be certain that you obtain the “Notice of Repossession” paperwork from the finance company and keep track of any sale dates or opportunities to reinstate the loan.

You should also always have current contact information for your co-signer.  Make sure you can locate him or her and don’t let months go by without checking on the status of their loan payments.

Don’t let your good deed be punished and really consider whether you have faith in your co-signer.  Also, seek legal advice as soon as you know a default may be coming to help minimize your losses.

Avoiding Automotive Repair Shop Fraud and Excessive Charges

Automotive repair shop fraud is a consistent consumer protection concern. Many repair shops continue to ignore key protections here in Illinois. The Automotive Repair Act requires repair facilities to make specific disclosures to consumers before repair work begins.  When you bring your car in, you must be given a written estimate that explains:

  • the amount to be charged for parts, labor, and diagnostic tests
  • a parts description and disclosure of whether the parts will be new or used
  • a disclosure as to whether repairs are required or suggested
  • the date, odometer reading, and length of time needed to repair the vehicle (if it will take more than one day)
  • an explanation of how labor costs will be calculated

The written repair estimate may be provided in 1 of 2 forms:

  • An itemized estimate for parts and labor, which cannot be exceeded by more than 10%; or
  • A non-itemized estimate of total price, which cannot be exceeded at all.

If you don’t authorize the repair, the shop can’t charge you for it.  If a repair is taking too long, you can take your vehicle back so long as:

  • You pay for labor that was actually performed
  • You pay for parts that were actually installed
  • You pay for parts that were ordered specifically for you if they can’t be returned
  • You pay for any storage charges disclosed to you before repairs commenced

All these consumer rights must be posted in a visible location.

Use your best judgment in selecting a repair facility. Check online reviews prior to leaving your vehicle anywhere and verify the type and number of complaints against the facility with your local Better Business Bureau at https://www.bbb.org/.