Attorney General Derek Shmidt explains how to protect yourself against car scams

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Car scams are rampant with all the shortages going on. Buying a new or used vehicle has become more difficult in recent years. Whether it’s the limitations on in-person shopping brought on by the pandemic, supply chain disruptions that have limited the production of new vehicles, or the shortage of used vehicles available, Kansans have had to endure a lot. just to find reliable transportation.

Attorney General Derek Shmidt warns us about these classic dealership scams.

Yo-yo scams: A yo-yo scam occurs when a consumer is tricked into believing, by acts or omissions of a car dealership providing financing, that the loan financing is final when in fact the dealership has not finalized vehicle financing. The dealer allows the consumer to leave the lot with the car “on location”, which is called a “delivery on location” in the auto sales industry. The dealer knows the consumer is not eligible for financing, and sometimes the dealer knows the consumer will not be eligible. When the financing falls through, the dealer brings the consumer back to the dealer like a yo-yo on a string. Sometimes the dealer presents the consumer with a new offer to keep their car, an offer with a higher interest rate or a larger down payment. The common excuse is that “the lender” disapproved of the application or changed their mind. Consumers can protect themselves by comparing financing offers from multiple lenders before buying a vehicle and by obtaining financing before they buy. If consumers choose to finance with the dealership, ask if the deal is final and get that assurance in writing before taking the vehicle home.

Automatic add-ons: Add-ons are not free. These are additional things that consumers buy and finance with the vehicle. Common additions include deficiency insurance policies, extended warranties, and service contracts. It’s okay to say no to add-ons and ask what they cost. It is not acceptable for dealers to add add-ons to the transaction without the consent or knowledge of the consumer. Consumers need to know exactly what they are buying. We recommend that you ask the dealership for the price of any proposed add-ons before you arrive at the dealership, so you can see the total cost of the car. Consumers who finance should ask the lender to calculate the cost of additions over the life of the loan. Consumers should inquire about any limitations or conditions that warranties and service contracts may have. They do not always meet consumer expectations. Consumers need to feel comfortable saying no to add-ons they don’t want, need, or want to pay for. If you don’t want or need it, say no.

Excessive administrative costs: In addition to understanding add-ons, consumers need to be aware of what they are paying in administrative fees. There are three typical fees for new cars: vehicle registration fees, sales tax and documentation fees. The vehicle registration fee is the amount the state charges to register the vehicle, title a new vehicle, and cover the cost of license plates. If the dealer provides the service, it saves the consumer a trip to the county etiquette office. Sales tax on a vehicle includes tax at the state rate and tax at the county or even the municipality rate. Dealerships charge a documentation fee to cover the cost of preparing and filing the contract and other sales-related documents. Consumers should do their homework. Many counties publish entry fees on their websites. You can view your local sales tax rate on the Kansas Department of Revenue website at https://www.ksrevenue.gov/atrladdress.html. Using a local address and a purchase amount, a consumer can calculate the expected sales tax. Likewise, consumers can research the average documentation fee for their area and be prepared to discuss the fee amount with the dealership. Some dealerships write additional charges into the contract and give them official-sounding names, like “PDI” or “dealer prep.” Consumers should quickly inform themselves of the fees charged by the dealer and negotiate the price of the vehicle accordingly. Sometimes just telling the dealer that the consumer knows the charge is unusual will prompt the dealer to remove or reduce it.

Market Adjustment Fee: A common phenomenon in 2022 is a “market adjustment fee”. Dealerships charge this fee when they consider the type of vehicle to be in short supply, so the dealership raises the price to make more profit. Market adjustment fees can be $1,000 to $5,000 or more, depending on the make and model of the vehicle. The dealership should advertise these charges along with the price of the car to let consumers know how much the dealership expects to charge. Consumers do not have to pay this fee, but a dealer is also not obligated to sell a vehicle at the manufacturer’s suggested retail price. The amount of this fee will vary depending on the dealership, and there are a number of dealerships that do not charge this fee. Consumers should ask if a vehicle has been “branded” before visiting a dealership and be willing to broaden the search for a vehicle to get whatever offer they feel is reasonable.

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