Released: August 13, 2009
Groups seek crackdown on Cash for Clunkers scams
Car buyers subject to bait and switch and higher-than-usual prices
Consumers for Auto Reliability and Safety and Consumer Action today urged the U.S. Department of Transportation to act to protect car buyers from Cash for Clunkers scams involving “bait and switch” tactics. In some cases, auto dealers have been pressuring car buyers into paying thousands more to purchase a new car under the Car Allowance Rebate System - or “Cash for Clunkers” - program than they had bargained for, or were led to expect.
Some dealers insist that car buyers sign one-sided contingency contracts that state if the dealer does not receive an incentive payment from the government, the car buyer must “immediately” pay the dealer $3,500 or $4,500 “in cash” or lose their new car. The dealers’ form states that the dealer can deduct a charge for use of the car, potentially allowing deductions for depreciation—which can be thousands of dollars.
The groups released a letter that was faxed to U.S. Secretary of Transportation Ray LaHood earlier today, urging the DOT to prohibit dealers from pressuring or luring car buyers into signing the contingency contracts. The groups also seek to have the DOT investigate and penalize dealers that engage in bait and switch practices, survey car buyers to identify those who were already pressured into making additional payments, and assist them in obtaining refunds and restoring their credit if their vehicles were repossessed. Click here for a copy of the letter.
“Taxpayers should not be subsidizing a new opportunity for auto dealers to engage in bait-and-switch tactics, ” said Rosemary Shahan, President of Consumers for Auto Reliability and Safety.
“Despite the fact that the Cash for Clunkers program has provided a financial lifeline to car dealerships, some dealers are trying to bend the program’s rules and take advantage of car buyers,” said Joe Ridout, a spokesman for Consumer Action. “The DOT should prohibit dealers from using contracts that impose liability on car buyers in the event that a dealer mishandles the voucher transactions. They have reaped the benefits of this program, and should be required without exception to play by its rules.”
Individual car buyers described their nightmarish experiences with the Cash for Clunkers program. James Wang in Orlando, Florida said that after he purchased a new Honda on July 18, before the rules for the program were issued by the DOT, he was contacted by the dealer who told him that his traded-in Camry had been disqualified from the program because the EPA had changed the rating from 18 mpg to 19 mpg. He was pressured to pay the dealer an additional $4,500 or risk having his new Honda reported as stolen. Subsequently, the DOT issued a new rule that allowed his trade-in to qualify for the $4,500 incentive.
Anna Causey from South Carolina said that she and her husband traded in their 1986 Buick Century and purchased a new Dodge Ram truck from a local dealership. They were credited $3,500 under the Cash for Clunkers program. They had equipment installed on their new truck, then about a week after they drove it home they got a call from the dealership demanding that they sign new papers. They were told that their Buick didn’t qualify for the $3,500 incentive after all. Instead, the dealer said they would get only $1,000 off and would have to pay the $2,500 difference. They resisted entering into a new contract, and were then told if they did not sign a new contract or return the truck the dealer would sue them for breach of trust.
A Minnesota car buyer said that when she traded in her clunker and bought a new car from a nearby dealership, she also signed a form stating she agreed to pay the dealer the amount of the CARS incentive if the incentive was not approved by the government. She later received a call from the dealer stating the government had rejected the incentive, and demanding payment of $4,500—or else she would lose her newly purchased vehicle.
Peter Giacalone from New Jersey related his experience attempting to purchase a new Volvo. The dealer told him that he qualified for a loan, but he would have to give the dealer $3,500 out of pocket in order to buy the new car, which would be refunded to him if and when the dealer received that amount from the federal government.
In response to complaints from car buyers about such pressure tactics, the DOT has issued new advice to car buyers informing them that if they are presented with a contingency contract, they are not obliged to sign it. However, the groups noted that many car buyers will inevitably be unaware they do not have to sign the contracts, making it essential for the DOT to prohibit them.
More information is available for car buyers at: www.cars.gov, see FAQs for “contingent deals.”