Complaints On Extended Car Warranties

Don't Get Ripped On Your Next Car Deal

Most people are woefully unprepared when making a car deal. And considering the fact that for most consumers an auto is a purchase second only in size to buying a home, they unfortunately stand to lose thousands of dollars if they go into a car dealership without arming themselves with the facts.Even those who are savvy enough to inform themselves before buying an automobile almost always concentrate only on purchase price ' which is understandable, given that just about every book on buying a car currently on the market does the same thing. How To Buy A Car books almost always spend just one chapter ' and in many cases, just a page or two ' on the auto finance deal. And thats a shame, because thats exactly where most uninformed consumers pay thousands of dollars more than they have to.

"Now as through this world I ramble, I see lots of funny men. Some rob you with a six gun, and some with a fountain pen." ~ Woody Guthrie

Hey, Big Spender

Last time you bought a car, you probably left a $3, 000 tip on the table. And this was after you'd negotiated the best possible purchase price.

I'm guessing it wasn't generosity that prompted your extravagance. In fact, I'm willing to bet your largesse was unintentional. When buying and financing a car, what you don't know can definitely hurt you.

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The fact is, most people dread the new-car buying process. Many feel lost and even scared when it's time to buy a vehicle.

It's not that shopping for a car is so bad. The shopping process is generally viewed as fun, with an overall score of 8.5 to 9 on a 10-point scale, according to auto industry expert Art Spinella. Walking the lot looking at new vehicles rates above 8 in every study. Showroom walk-arounds are rated in the high 7 range. And the majority of survey respondents - 58 percent, according to Spinella -- even rank discussions with a sales person to be informative and helpful in making a vehicle selection, with a score of 7.3 on the 10-point scale.

It's the finance and insurance (F&I) process that is the source of dread for car shoppers. The F&I process scores a miserable 5.8 on a 10-point scale, according to Spinella.

There's a reason for that. When it comes to closing the deal in the finance office, most of us are woefully unprepared when it comes to possessing the kinds of knowledge needed in such a high-intensity, high-stakes negotiation. Sometimes it seems that dealers hold all the cards in a vehicle finance negotiation - and dealers are aware of this.

In addition to being, along with home-buying, one of the few remaining negotiated retail transactions, purchasing a vehicle presents the average customer with a daunting selection of model choices and optional equipment alternatives, combined with a seemingly endless and confusing array of vehicle funding and owner and vehicle indemnification options.

Car dealers are experts on selling and funding vehicles, but most of us as consumers are far from experts on buying them. This power imbalance wouldn't be such a problem if all dealers could be relied upon to keep the buyers' best interests in mind while making a deal - but don't count on that.

Rather than go into the deal blindly trusting or at least hoping that the dealer will look out for your interests as well as his own, it's a lot better idea to educate yourself before entering that crucial negotiation. Arm yourself with the facts and be your own advocate, so you don't have to depend on the dealer to do that for you.

Time after time, many dealers have proved themselves unworthy of your trust when it comes to looking out for your financial wellbeing. Does this mean they are actively dishonest? Not necessarily; it just means that dealers, as businesspeople, are way more interested in looking out for themselves than in looking out for you. Dealers are only human, after all.

With such a power imbalance seemingly inherent in the process, it's no wonder that on the Top Ten Consumer Complaints list compiled annually by the National Association of Attorneys General (NAAG), automobile complaints consistently rank number one, year after year after year.

Many complaints about car sales involve suspect finance deals where consumers are promised special financing rates or package deals only to be denied them later when they had taken the vehicle home.

According to Art Spinella's research, all it would take for car dealerships to greatly improve customer satisfaction with the F&I process is for finance managers to do a better job of explaining the finance contract. Good explanations equal good trust.

Enlightened self interest alone should be enough to convince car dealers to clean up their act in the finance office, but many seem to be willfully holding on to the bad old days of "getting a leg up" on customers.

It's no surprise that there is a clear correlation between F&I satisfaction and dealership recommendation. But interestingly, according to Spinella's research, it only takes a minor bump in F&I satisfaction to equal a bigger dealer-recommendation boost. For instance, Jeep's F&I satisfaction score improved almost 20 percent in 2004 versus 2003. And that turned into a 30 percent increase in dealer recommendations.

Conversely, it only takes a small fall-off in F&I satisfaction to equal a big drop in dealership recommendation. Isuzu's F&I satisfaction dropped only 0.24 percent from 2003 to 2004, but that turned into an almost 11 percent drop in dealership recommendation, according to Spinella.

Not surprisingly, as customers feel more comfortable with the explanation of what basically amounts to a verbal nightmare, they begin to trust the F&I manager much more. And with that trust comes the willingness to listen to the finance manager's descriptions of F&I products and services, and also to ask questions. Those questions indicate interest in the products being offered, and often result in a sale.

Dealerships must be aware of this. There's a simple way to make customers happier and to engender trust and good will. So they all do it now, right? Wrong. There are other forces at work in the world of F&I, among them an overwhelming pressure for profits and the fact that finance managers receive a sales commission. Much of it is simple old-fashioned greed and avarice, supercharged with the corruption of power that all too easily sets in when the F&I manager is, in relation to you, almost always in a position of superior knowledge.

Pressure For Profits

Car dealers are focused, more than ever before, on profit per sale. And in an era of razor-thin margins on purchase price (and consumer pressure on "point spread" - see Chapter 3), increasing profit per sale means increasing F&I income. When either car sales or per-unit profits are less than robust - and especially when both are low - there is extreme pressure on the F&I department to improve profitability. That means F&I managers have to sell more "products" - service contracts, GAP insurance, credit life, appearance protectants, and security devices - and it also means they are under lots of pressure to sell those products for as high a price as possible.

According to automotive data experts CNW Marketing/Research, F&I accounts for as much as 40 percent of dealership profit. And for the last 15 years, the average dealership would be operating at a net loss without the profits generated by the F&I department.

That's a lot of pressure on the finance department and its personnel. Dealerships literally sink or swim based on the performance of their F&I personnel. And this kind of pressure, too often, leads to abuses of the consumer's trust.

In fact, things have gotten so cutthroat, so out of hand, in the business office at dealerships that the wave of complaints from consumers about unordered F&I services and products being added to their vehicle payments, or promised (and charged-for) items not included, has prompted some dealers to go beyond simply training and trusting their F&I personnel. They've actually installed surveillance cameras in the finance office, both to cover the dealership legally and to rein in unethical practices by F&I personnel.

At least one state - Alabama - has mandated the video camera filming of F&I transactions due to the high volume of consumer complaints.

There are plenty of F&I managers who go from dealership to dealership, never staying anywhere very long, whose practice is to gouge every customer for the maximum on every deal. Then, when customer complaints start coming in, they leave and go to another dealership.

Things are bad enough that at least one law firm in New York has solicited vehicle-financing litigation on what they called "deceptive vehicle financing practices." Many industry analysts believe this scenario will be repeated over and over as more law firms see the potentially lucrative specialty of representing customers against deceptive car dealerships.

Victimizing Senior Citizens

In Clearwater, Fla., F&I manager Frank Engels of Lokey Oldsmobile arbitrarily began switching terms of hundreds of vehicle loan agreements arranged with senior citizens. Higher-interest rates normally written for subprime contracts were substituted for the lower, prime rates for which the vehicle buyers qualified. Balloon notes, with their notorious "50 percent down/50 percent later" terms, were drafted in place of conventional loans.

Attorney Terence O'Laughlin, chief financial investigator for the Florida Attorney General's economic crimes department, said General Motors Acceptance Corporation (GMAC) was cooperative in the investigation that resulted in a federal prosecution of the dealership and the F&I manager. Engels - who had two previous fraud convictions(!) - was sentenced to eight years in prison, of which he served two. A total of $1.4 million in illicitly obtained payment funds was returned to vehicle owners.

"That crime against retirees stirred a lot of sentiment in Florida for licensing of F&I managers, " Laughlin said. "We do get constant complaints. A few years back, a major lender admitted overcharging lease payments throughout Florida. And just recently, we were sent documents that showed that an F&I manager sold a Toyota 4Runner purchaser a $300 hitch and added $3, 000 for the item to the loan contract, " Laughlin said. "Maybe licensing's time has come for F&I."

Go For Door Number 3

Consumers generally make one of two mistakes when entering the finance and insurance (F&I) office at a car dealership. One is to let their guard down, having already negotiated a fair purchase price on the vehicle; the other is to enter the office with dread, fearing being taken advantage of. Neither approach really serves your interests very well.

Informing yourself beforehand is the third way, but all too few car buyers take the time to do this. Those who don't prepare themselves for the F&I negotiation pay thousands of dollars too much for their mistake.

The Function of the F&I Office

The F&I process is usually the most critical part of the entire transaction for a car dealership; it is where profit, lost to today's razor-thin margins, is built back into the deal.

While on the surface a car dealership's F&I office might seem to be an operation providing needed services and staffed by qualified personnel, too often it is polluted and perverted by sham products, deceptive solicitation, and shoddy disclosure practices.

F&I is also usually the part of a car sale most subject to corruption by unscrupulous finance managers who engage in unethical and even unlawful practices to line their own pockets.

Now, it would seem to be just good business to create happy, satisfied customers; this would engender customer loyalty. If a dealer gives you the impression that he's treated you honestly and fairly, you are much more likely to go back to that dealership. And while some dealers have started down this happy road, many of them seem to be singularly clueless about building good customer relationships. They seem to be unable to see beyond the short-sighted goal of making as much money as possible on THIS deal, right NOW, rather than being willing to settle for making a fair profit on this deal and then on the next couple of times you need to buy a vehicle.

Successful dealerships are built on customer service index (CSI), so establishing and maintaining excellent customer relations should be their top priority. Satisfied customers come back, refer friends and use the dealership for all of their automotive needs.

Many dealerships pay lip service to the personal relationship between the customer and the F&I manager, seemingly without being willing to engage in the amount of honesty and candor it would take for that relationship to improve. The CSI score for the purchasing part of the transaction really depends on this relationship. If there is rapport and real communication, then the customer is probably going to give the dealership a high rating on the CSI survey. But if there is angst and suspicion - and too often, downright deception - the customer leaves the dealership with unanswered questions and unresolved anger, and you can be that will show up in the form of lowered CSI scores.

It is too often overlooked - by both consumers and dealerships - that the F&I manager is the last person of authority with whom the customer interacts. The customer's lasting impression of the dealership is, therefore, often either greatly enhanced or greatly diminished in the finance office. A good finance manager should explain and disclose the entire finance contract as well as the features and benefits of the other products (such as service contracts) designed to protect the customer's investment.

Increasing customer satisfaction with the F&I office is an ongoing concern for smart dealers. Very often the most vociferous customer complaints are not about the car or the showroom sales process, but are about what happens in F&I. Part of this may be unavoidable; the customer just wants to get his car and go, yet in the finance office he has to get down to the brass tacks of being able to afford the vehicle and be reminded that someday it may require expensive repairs. Then if the F&I manager brings up accidents and sickness and death, not to mention bird droppings and car thieves, all that excitement around the smell of a new car can vanish pretty fast.

Protect Yourself

The vast majority of us here in America don't have $500 in a savings account. We are two paychecks away from bankruptcy, and are living month to month. We don't have a financial advisor or personal accountant to offer input on major purchases. And without some sort of guidance or knowledge, it is quite easy to make the wrong financial decisions in your own best interest and thus fail to protect yourself.

Few car buyers know much about the real costs of repairing a car, replacing a vehicle if it's stolen, or the importance of their credit rating. And in an ideal world and an honest dealership, the F&I manager can be a valuable asset to these customers. This kind of F&I manager can help protect customers from circumstances that could devastate their credit, cause them to lose their financial well-being, their transportation (and thus, often their livelihood), their down payment and their vehicle equity.

But here in the real world, it is all too often necessary to do these things for ourselves.

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According to dealer magazine F&I Management & Technology, a series of mystery shopper investigations showed that it was, in fact, unusual for an F&I staffer not to lie to the customer.

One of the most common - and patently illegal in the state in question - ploys was to tell a customer that he could get a great rate on his loan, but only if he also bought a service contract. Tying the loan rate and the service contract together is, in fact, against the law in most states. F&I managers have gone to jail for this - yet the practice persists.

While some of the misinformation provided to customers by F&I managers may have been the result of ignorance, much of it seems to have been due to F&I staffers trying to squeeze every last penny out of the deal. Was this simple greed on the part of individuals, or is it due to pressure from dealership management to show more profit per deal, or get shown the door?

In some cases, according to the magazine, pressure from management did play a role. Not that management at some dealerships told F&I staffers to lie - it was more a sin of omission than of commission. What happened was that management didn't ask what their F&I managers were doing - as long as the "numbers were good."

A lot of the lying and cheating going on in F&I offices comes about as a result of mirroring practices at the top dealership level. Sadly, it's a part of the culture at many car dealerships - and don't expect to hear this from the dealers themselves, or from anyone else in the industry beholden to them. If dealership personnel see the boss cheating on warranty claims and dismissing customers with legitimate complaints, they - of course! - are going to go and do likewise, especially since it is profitable (in the short term) to do so.

The level of cynicism present in the auto finance industry can be gauged by one truism batted about behind close doors (you won't hear it if they know you're listening): "It is impossible to make a living in F&I by following all the rules."

Add to the profit motive what is, for some, the exhilaration of rule-breaking and risk-taking. Customer encounters within the rules can become boring, repetitive, and challenging - more so than exchanges where straying beyond the bounds of ethical business practices or regulations resulted in additional profit.

And unfortunately, what start as infrequent exceptions can become a way of doing business when the ill-gotten gains from shady transgressions show up as a fatter paycheck.

Of course, when these kinds of practices are common, it's probably only a matter of time until the DMV or the state attorney general's office shows up. Smart dealers know this; greedy, short-sighted dealers seem willing to take the risk. What the heck - if they maintain "plausible deniability" by just not asking what's going on in the F&I department, then the F&I manager will likely be the fall guy when law enforcement comes calling.

C.D. Bohon, my predecessor as editor of F&I magazine, decided in 1999 to do a little mystery shopping for himself to see if it was really as bad out there for customers as he'd heard. Guess what? He was lied to.

Bohon was told things like "This dealership doesn't charge for excess wear and tear at the end of a lease. I know it's in the contract, but we just don't do it." That was a lie. Bohon called the general manager of the dealership and asked him, and was assured that none of the dealership's personnel would ever say such a thing, because of course the dealership would charge for excess wear and tear.

In another instance, Bohon was told that the aftermarket service contract on a used car was actually a manufacturer's warranty. The service contract was included in the price of the car, the F&I staffer claimed. Bohon was told he couldn't buy the car without buying the service contract. A call to this dealership's general manager once again got Bohon the reassurance that the sale of the used car and the service contract were separate transactions.

As Bohon noted at the time, it only takes one customer raising hell not with the dealership, but with law enforcement officials, to get a dealership in serious trouble. So why do these practices continue? Sadly, the answer appears to be simple greed and avarice, in most cases. F&I managers - and often their bosses at the dealership management level - seem willing to play the numbers, by assuming that the customer is too ignorant of his or her own rights in the vehicle finance transaction, and the laws regulating the same.

A lot of F&I managers jump from dealership to dealership, taking their shady practices and deceptive sales tactics with them. And if an F&I manager doesn't expect to be working at the dealership when the lease he puts a customer into expires, he will, as Bohon noted, "slam and jam, lie and misrepresent to squeeze as much money out of that customer as he can." And then if and when these slimy tactics come to light later, the state attorney general usually will go after the dealer, not the F&I manager.

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Consumers Unprotected

Consumers aren't being adequately protected from financial scams and pitfalls. While dangerous products are pulled from shelves for consumer safety, and foods are recalled when found to be dangerous, nobody's really looking out for consumer safety when it comes to financial products, especially car loans.

In a 2007 article, "Democracy: A Journal of Ideas, " Elizabeth Warren, a professor at Harvard Law School, proposed a Financial Product Safety Commission. Warren, an expert on consumer finance issues, called for a new regulatory organization to review car loans and many other financial products (including credit card offers and home mortgages) for consumer safety purposes.

The commission, as proposed by Warren, would establish guidelines for consumer disclosures, collect and report data about the uses of various financial products, evaluate new products, and require modification of faulty products before they can be marketed to the public.

While financial services companies are already regulated by the Federal Reserve (which sets banks' reserve requirements) and the Federal Deposit Insurance Corporation (FDIC, which insures bank deposits), Warren said that the reviewing of actual consumer financial products is done haphazardly, if at all.

Predictably, the banking industry protested that it is adequately regulated, saying that adding another layer of regulation would be redundant.

But at least one 2008 candidate for the Democratic nomination for president, John Edwards, worked Warren's plan into his platform, tapping into the powerlessness and frustration many consumers feel when dealing with lenders and the credit-reporting industry.

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Franchise Within A Franchise

The F&I department has evolved from simply providing a loan for the purchase to a virtual franchise within a franchise. This process has grown to include a system to "personalize" the vehicle with after-sale items as well as related financial and insurance offerings. This opportunity has not been lost on dealers; they are keenly aware that the F&I department has become key to dealership profitability, and in fact a majority of dealerships would be operating in the red without it.

F&I income is absolutely critical to the success of an auto dealership. The cutthroat competition among dealers, combined with the manufacturers continuing to narrow the dealer profit margin on the vehicle itself, heavily impacts the bottom line for dealerships. They have to maximize their F&I income if they are going to stay in business.

The large profit opportunities represented by F&I products have proved to be too much of a temptation for some dealerships, whose finance departments perceive low hanging fruit due to under-informed customers. Today's consumers need help navigating the complex and perilous world of auto finance. Good F&I managers serve that need, and bad ones prey upon it. The bad ones are the reason the F&I process has become a target-rich environment for regulators, and a customer satisfaction challenge for many dealers.

Too often, the F&I department is torn between two worlds: on the one hand, adding value and helping the customer; and on the other, replacing razor-thin profit margins elsewhere in the dealership. In this environment, customers are presented products with big profit margins for the dealership, but of questionable value for the customer. The "big deal" mentality weakens the integrity of the dealership, and certain outside F&I vendors "kidnap" the value delivery system to further their agenda, which is, of course, selling their products.

If the finance manager isn't himself managed, he may sell an inferior, higher-profit product or accessory at the price of a superior product or accessory. He may manipulate the customer to add more money to his own bottom line. And he may become overly aggressive. As longtime dealer and former National Automobile Dealers Association president James Willingham of Boulevard Buick-Pontiac-GMC in Long Beach, Calif., told me back in 2000, "There's a fine line between greed and good judgment. Are you providing a benefit for him? Or are you gouging him for more money?"

Like other good dealers, Willingham knew that the solution, on the dealership end of the equation, lies in dealers taking back control by reining in and monitoring their finance departments and F&I managers. One good way to take positive steps in this direction is with quality training and ethics awareness. Clearly delineating what products should be presented to customers, and at what pricing levels, would go a long way toward removing the temptation of unethical profiteering in the F&I department. Every F&I manager should be provided with the skills training, the ethical awareness, and the product knowledge to truly serve the customer's needs.

But unless and until that happens, you're on your own when you enter the F&I office.

Oops!

Four of 10 advertising "mistakes" commonly made by dealers involve F&I activities, in a list compiled from complaints to the North Carolina Attorney General's office. The office warned dealers that while they are primarily liable for illegal ads, a media outlet running the ad or the advertising agency preparing the ad may also be liable.

The come-on terms that are F&I-related include "Bad Credit - No Problem, " "Pre-Approved Credit, " "You Are Approved For $XX, XXX, " "Lease A Vehicle For $XXX per month, and "$49 Down Acquisition Fee."

Federal laws require that the real cost of financing a purchase must be disclosed. Dealers are barred from advertising "pre-approved credit" without actual approval of the customer by a lending institution - meaning every customer reading the ad.

Stating a monthly lease payment is a violation of the federal Truth In Leasing Act (TILA), because it fails to disclose other expenses that may be due at signing.

Similarly, the "$49 Down Acquisition Fee" promise constitutes a "trigger" term that fails to disclose the true cost of the deal at signing, a specific violation of Regulation Z.

Other ad headlines which authorities describe as potentially misleading and even unlawful include "Under Invoice, " "Under Dealer's Cost, " "Public Liquidation Sale, " "Program Cars, " "Off List Price, " "Repo Sale, " "Bank Repossession Sale, " and "Guaranteed Trade-In $XXX."

If you feel any of these come-ons have been used on you in a misleading way, report your concerns to your state attorney general's office. (If you don't know how to contact your AG's office, type in "state attorneys general" in a web search.)

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"Upcharges" is legal jargon referring to the profit or commission a car dealer makes on the sale of products like service contracts. A number of class action lawsuits around the United States have challenged dealers' practices involving upcharges.

Confusingly enough, not all courts that have faced the issue of dealer upcharges have reached the same conclusions. As a result, dealers in most cases don't have a clear indication of where the line lies - whether a particular business practice, a particular upcharge, is permissible under the law.

When you leave any business segment free to, in effect, police itself, with no clear legal guidance as to what can and can't be done to consumers, then perhaps we shouldn't be shocked when some dealerships go a lot farther than others into their customers' pocketbooks.

And even if a particular practice, such as retaining a commission on sales of warranty or insurance products, is allowed under one law, it may not be acceptable under another law. Against this morass of uncertainty and undefined expectations, dealerships often find themselves free to interpret for themselves what, exactly, constitutes "acceptable practices" and what is or is not "ethical."

And even when legal decisions are made, it is far from a given that courts will make them in favor of the consumer.

In a 1998 case from the U.S. District Court for the District of Minnesota, a consumer complained that if he had known the dealership was going to get a commission on the extended warranty and credit life insurance he bought when he purchased a Chevy Blazer, he would have not gone through with the deal. In the Truth in Lending disclosures to the consumer, under "amount financed, " the dealer itemized as "amounts paid to others" $373 for life insurance and $1, 499 for an extended service warranty. Of these amounts, the dealer pocketed $189 on the credit insurance premium and $890 on the warranty, according to the court.

The consumer said the dealer falsely represented that these amounts were paid to others when, in fact, a portion of the fees for these products was kept by the dealer as a commission. The consumer sued the dealer for violations of the federal Truth in Lending Act (TILA), the Minnesota Consumer Fraud Act, and the Motor Vehicle Retail Installment Sales Act.

Only the TILA claim was addressed by the court's decision. The court did recognize that there has been some debate over whether or not TILA requires a dealership to disclose that it is keeping a portion of the fees paid to others on the customer's behalf. The U.S. Court of Appeals for the Seventh Circuit, which was the highest court to address this question, said in 1998 that if the dealer retains a portion of fees paid to others as a commission, he must disclose that to the consumer. According to that court, the dealer does not have to tell the consumer the exact amount of the commission, just that "a portion of the fee may be retained by the dealer."

While agreeing with much of the Seventh Circuit's conclusion, the District Court for Minnesota took it a little further. The court said that the only evidence supporting the consumer's claim for damages was his affidavit, in which he stated: "Had I know that [the dealer] was retaining a commission for the premium for the credit life insurance, I would not have bought it."

In what was hailed by dealer magazines as "a victory for the industry, " the court asked whether what it called a "reasonable consumer" would have known that the dealer was receiving a commission on the sale, and ruled that the answer was "clearly yes." "Seldom, if ever, could any but the most nave consumer expect to purchase any insurance policy on a vehicle which would not include some sort of commission for the agent, " the court said. "To allow a class of plaintiffs to collect damages merely because they were not told that an insurance agent would be receiving a commission for the sale of a policy would be unjust."

Now, if that sounds as if you are almost entirely responsible for protecting your own interests in this negotiation - with little legal recourse available to you, if you don't - then you're reading the court's decision the same way I am.

While acknowledging that the dealer's failure to tell the consumer that it kept a commission on the charge for an extended warranty and the premium for a credit life insurance policy was a violation of TILA, it nevertheless concluded that the consumer did not show any evidence of damage attributed to the violation. So there you have it, folks: even if the dealer dips into your pocket for the purpose of filling his own, it doesn't cause you any damage. Hmmm and even if he tells you he's dipping into your pocket, he's not legally required to tell you how much he's getting.

The consumer did not succeed with his claim under TILA, because, according to the court, he could not show "any damage" caused by the dealer's violation. In legalese, the type of claim advanced by the consumer in this case - a disclosure violation within the TILA "Itemization of Amount Financed" - requires the consumer to show "actual damages, " and the consumer could not, so the claim failed. Had the court recognized any "actual damages" from the dealer's violation, the consumer would have won this case.

The news isn't quite as bad on all fronts of the TILA. Other types of TILA claims, such as the allegation that a dealer is charging "hidden finance charges" by inflating the sales price of cars, qualify for statutory damages under TILA, and don't require a showing of actual damages.

The TILA claim is just one of many claims a consumer can bring when alleging that a dealer is upcharging on insurance or warranty products. State laws can differ from state to state in a bewildering fashion, though there are similarities among most of them.

While consumers have experienced very limited success with TILA claims against dealerships when complaining about upcharges, they may experience greater success under their particular state's laws. In any event, the victories experienced by the car dealers have not stemmed what has been, for several years now, a veritable tide of litigation pursued by consumer attorneys.

If you're thinking "Wouldn't it be a lot easier and a heck of lot less expensive and time consuming to get a fair deal in the first place, without having to go to court afterwards?", then you're exactly right. Know what you're facing on the front end, and you won't have to hire an attorney to cover your back end later.

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It's A Raid!

Including unordered F&I products in your contract is an unlawful practice known as "payment packing." The practice is, unfortunately, a very common one in dealership finance offices nationwide. The F&I term is "leg" when a payment quoted to the customer includes money that can be used to cover the cost of aftermarket products.

The funds give the finance manager a "leg up" on the customer in making the sale of add-ons such as GAP insurance or a vehicle service contract, because a portion of the price of such products is already "packed" in the payment.

In 2000, when DMV investigators raided Gunderson Chevrolet, the biggest Chevrolet dealership in California, you can bet it was only the tip of the iceberg.

The dealership, based in El Monte, a suburb of Los Angeles, was charged with adding unordered extended service contracts, credit insurance and optional accessories to purchase agreements.

The case involved as many as 6, 000 contracts at the Gunderson dealership, part of the AutoNation chain, according to Department of Motor Vehicles (DMV) investigator Vito Scattaglia. According to the DMV, which seized 19 file cabinets at Gunderson containing F&I contracts, the practice of padding contracts with unordered F&I products and services began in May 1999. Scattaglia said random checks of F&I agreements at other dealerships were planned.

A tip to a Los Angeles TV reporter from a former manager at Gunderson led to the raid.

The dealership, which sells about 4, 000 new and 1, 200 used vehicles annually, fired both its F&I directors, and says it sent refunds or reimbursements to a number of victims.

Gunderson Chevrolet reported 1999 F&I revenue of $4.4 million and gross sales of $140.5 million. The dealership, owned by the nation's Number 1 consolidator of dealerships, AutoNation, Inc., of Ford Lauderdale, Fla., "cooperated fully" with California authorities, according to dealership spokesman Jim Donahue.

AutoNation paid $2.8 million in penalties and fines as part of the settlement.

In 2002, four Minnesota dealerships and two in Florida were charged with payment packing. In Minneapolis, import dealer Paul Walser reached an out-of-court settlement with the state attorney general over charges of deceptive practices in service contract sales. Four of Walser's 12 stores were cited for padding F&I profits with unordered service contracts.

The settlement required Walser's stores to record or photograph all F&I sales for a four-month period, with copies of the tapes sent to the Minnesota attorney general's office in St. Paul. Consumers could also make copies of the tapes of their own deals, and the AG reserved the right to request tapes after the four-month period.

In Florida, Sonic Automotive's Clearwater Toyota and Clearwater Mitsubishi dealerships faced six consumer suits over unordered F&I sales bundled into vehicle purchase prices or excessive prices for service and GAP contracts. The Florida attorney general's office in nearby Tampa investigated.

Sonic, based in Charlotte, N.C., said it "cooperated fully" with the investigators. Clearwater was also the site several years before of an F&I payment packinhg case against Lokey Oldsmobile, which also led to an F&I manager's being sentenced to prison.