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The Truth About Leasing - Part 2

Part 1              Part 2            Part 3            Part 4

Crossing the Line
Really easy money have lead many dealers to cross the line and commit outright fraud (see Top Ten Leasing Scams). Because leasing adds a layer of complexity to the deal that allows the salesman to hide or misrepresent the true purchase price, dishonest dealers can easily build-in a nice fat bonus for themselves and the customer may never be the wiser. This fraudulent practice, of course is illegal and carries severe civil penalties, and, in theory criminal penalties. Even still, it's a pretty safe bet for the dealer. First, chances are the dealer won't get caught. After all, the victim may not even know he's been victimized. Second, if the victim does catch on, it's usually after the fact when a remedy is difficult and even embarrassing (no one likes to be known as a sucker). Most do nothing and chalk it up to experience. Those that seek restitution usually end up involving attorneys, lawsuits, and a great deal of hassle. In the cases that do result in lawsuits, few make it to court. The dealer simply settles for a tidy sum, which is quickly liquidated by the next months leasing "customers".

The problem of leasing fraud is widespread and has been going on for a long time. In a 1996 a Wall Street Journal article reported that the Florida Attorney General's office examined 23,000 leases and sent undercover investigators posed as sales trainees to stop leasing abuses. At the time of the article, over $4 million had been recovered by the state on behalf of 2700 leasing fraud victims, an average of $1480 each.

The problem seems to be getting worse. In 1996 the Washington AG ran an undercover sting operation and found fraud in 7 out of 11 dealerships. This suggests that 64% of the dealerships are dishonest. Widespread. In November 1998, the Florida Attorney General announced a 22-state investigation of Ford Motor Credit and Ford dealerships for fraudulent lease activities. The investigation is targeting a range of illegal practices from secret price hikes to "payoff packing" schemes where Ford Motor Credit and Ford dealers allegedly conspired to overcharge customers on early termination of their leases.

Why Haven't We Heard More About This?
One theory goes that auto makers and auto dealers spend billions of dollars every year in advertising and aren't afraid to use this purchasing clout as a means of influencing the press in its coverage of these issues. There may be truth to this. Aside from some magazine articles and a hand-full of car buying books, very little has been written or said on this widespread problem. Particularly in newspapers who are especially dependent on car dealer advertising. (Next time you are in Chicago, pick up a copy of the Sunday local edition of the Chicago Tribune. Most of it's enormous 6" thick, 9 lb bulk is car ads.) The 1994 case involving a major newspaper in the San Francisco area illustrates car dealer's influence over newspapers. On May 22, 1994 the San Jose Mercury News ran a story titled, "A Car Buyer's Guide to Sanity." The article gave negotiating tips and information on how to obtain the dealer's cost on the vehicle. After the article ran, the paper received numerous complaints from area dealerships objecting to the article. Ultimately, over 40 dealers pulled their advertising from the paper at an estimated cost of over $1 million dollars to the Mercury News. The newspaper got the message and quickly patched things up by printing follow-up stories implying the article was not well-written. They also ran a full-page ad promoting area dealers. Eventually the dealers returned the ad business to the paper.

TV has not been completely silent on the issue of leasing fraud. In February 1995, ABC's PrimeTime Live did a show on leasing where a female reporter visited 10 dealerships undercover with hidden camera. The results were eye-opening. Five of the dealers tried to talk her into leases with seemingly low interest rates, and low monthly payments. When analyzed by experts, overcharges totaling $26,400 were discovered in the five lease deals. Promises of low 3% interest rates from two dealers turned out to be 8.4% and 7.4% for overcharges of $2100 and $2600, respectively. PrimeTime also caught one dealer with a "secret price hike" of $3000 and two dealers with the "disappearing trade-in/down payments" for overcharges of $7500 and $7000, respectively.



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