WEST PALM BEACH, Fla. – Think you're a savvy car buyer and done all your research before hitting the auto dealership to make sure you're not taken for a ride? Better think again. Regulators in several states have filed lawsuits against some of the leading auto dealerships alleging the dealership chains added hidden fees to auto loans and charged customers for add-ons they either didn't know they were buying or had indicated said they didn't want. The deceptive practices apparently aren't new. Tony Boutelle, president of Credit Union Direct Lending said he's heard from several credit unions "over the years" about complaints they've received from members concerning dealers trying to charge them for features they didn't get on their vehicles. According to a recent The Wall Street Journal article, "Did You Overpay for Your Car? States Sue Dealers Over Fees," the suits brought against the dealerships focus on loan rates, extended warranties and theft-protection plans, among other things. "Dealerships are accused of trying to jack up interest rates – even with customers who have perfectly good credit records – and `packing payments,' or tacking extra costs onto monthly car payments behind the customer's back," the newspaper wrote. Dealerships cited in the article include Sonic Automotive in Florida; Walser Automotive in Minnesota; and Gunderson Chevrolet in California. Gunderson is one of the largest Chevrolet dealerships in the country. According to the article, Sonic is being investigated by two state agencies and faces six civil suits. The newspaper said the dealership's "deceptive practices are motivated by the pressure on their salespeople to keep profits up." Boutelle said that's probably a fair assessment. The typical gross profit on a new or used vehicle is about $1,500, he said, and about 40% of that goes to finance and insurance. "Is there fraud in the auto dealer world, definitely yes," says Boutelle, and it's been going on for awhile. Chris Oldag, Senior VP of Lending at Patelco Credit Union, San Francisco, agreed that auto dealer pricing abuse "is nothing new, it's just that now it's being brought to light." Oldag said Patelco bases its loan decisions purely on the applicant's credit score. Not so, though, with all financials, he said. Some, said Oldag, operate in what's is referred to as a "buy rate environment" – the financial tells the dealer the interest rate the financial will charge the borrower and how much the dealer can mark the rate up. The financial then shares in a cut of the mark up with the dealer. "It's a time proven method for financials who do auto lending business with dealers," said Oldag. He added that evidence shows that the prevalence of the practice depends on the ethnicity of the borrowers. "If a financial is purposely participating in this practice, then shame on them," said Oldag. He said it's "hard for him to imagine" that a financial that regularly review its loan documents wouldn't notice a pattern in this practice. Oldag went so far as to call auto dealers' pricing abuses "a damned, pervasive infection. It's a scandalous shame. It leaves the door open for discriminating, manipulative conduct." Boutelle said consumers have to share some of the responsibility for the abuses. "Consumers looking to purchase a vehicle know about the invoice price, but not the add on or GAP products." In addition, he said, there are so many papers for a car buyer to sign when they purchase the vehicle – "more than when you purchase a house" – that members get caught up in not reviewing all the documents thoroughly. "The information about add-ons may be there, but the member doesn't see it," said Boutelle. To make the situation worse – and members more vulnerable to auto dealership fraud – Boutelle said many credit unions don't monitor what a member's auto loan is going towards as well as they should. "Credit unions that have loan policies that allow members to finance X-percent of the price of a vehicle, need to be careful and more diligent with what the money is going towards. They need to make sure the loan application falls within their loan policies," Boutelle offered. Auto dealerships have done very well complying with Reg Z requirements, he said, but they probably haven't done as good a job with disclosing add-ons or GAP features. Boutelle advises, "Any credit union involved in indirect lending should review the dealers' paperwork carefully to make sure it matches the credit union's lending guidelines. They should also visit the dealership sites regularly to make sure they're being honest." -


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