Interviewer: What kind of problems do your clients run into when dealing with buying cars? Is it normally with new cars or used cars? Where does this happen?
Andrew Campbell: Unfair practices occur with great frequency in a used car purchases.
People come to me and sometimes they’ve been de-horsed, which means that they’ve gone to an auto dealer, they’ve traded in a vehicle that they owned and they purchased a different vehicle.
Suddenly, a few weeks later, the dealer calls them up and says, “Your financing fell through. You have to come back in and we got to try to get some financing for you.” Or they’ll say, “You have to come back in and return the car.”
When the consumer returns the car, they suddenly realize that their trade-in has already been sold at auction or to a private party.
So they are in an impossible situation because they can’t get it back at the same time that the dealer is telling them that the deal is now off. At the same time, they are now denied the deal that they had previously entered. This is de-horsing.
They relied upon the new deal to be able to get a car but now have no car to use at all. This is de-horsing.
If this situation occurred in Michigan this would be blatantly illegal.
Why the strange phrase de-horsing? Prior to cars, the standard transportation was horse and buggy. So a lot of the terms used in the auto industry come from the era when horses dominated transportation.
Interviewer: Why would a dealer do that? They should be able to look up a person’s available credit because it’s all electronic to see if a person was qualified or not to buy a car?
Andrew Campbell: Sometimes they want to steal your car, or they want to just defraud you. Yet, what you say is exactly right.
Michigan is the only state in this entire country that prohibits a dealer from telling someone that financing fell through and not mandating that the dealer take payments on the vehicle.
Used car dealers are still obligated to finance the deal. But that’s not the rule in a lot of other states. In Michigan, the reason why we made it a rule was because so many dealers were cheating customers.
You can imagine what a yo-yo looks like. You take a yo-yo, you let it go – what happens? The yo-yo drops down, fully extends, and then pops back up.
Well, that’s what this practice is similar to. You go in, you buy a financed vehicle and drive off the lot. Then two months later the dealer calls you up and says, “Oh, the financing fell through.”
This forces you to come back into the dealership, just like a yo-yo.
That’s a scam. The financing never fell through; it’s simply that the dealer didn’t like offer made by the financing company or perhaps the finance company refused to buy the paper.
The car financing people are trying to sell the contract you signed. When you signed the Retail Sale Installment Contract (RISC) it is normally immediately assigned to a third-party.
Don’t forget the dealer’s motivations. They want lump sum payments from the sale of the vehicle. The only way to get a lump sum is directly from the customer or from a third-party lending company.
They’re trying to sell the promissory note that you signed. These dealers work with a group of lenders and they know the lender’s policies. They know the credit scores, income levels and documentation necessary to sell a deal.
So because they know the lender’s policies they should not try to sell deals that they know a lender will not accept.
Michigan law shifts the risk of the purchase of the paper from the customer and lender back to the dealer. This is great for banks and consumers.
The dealer has control or should have control over their sales people. They need to make sure their sales people have checklists to follow in reviewing documentation from their customers.
If they don’t then sales people will try and put through risky deals. If a customer buys a financed car and drives off the lot, the dealer is committed to financing that vehicle.
The dealer must guarantee to finance the deal.
A dealer must tell the customer that it will accept payments if a third-party refuses to finance the contract.
Some dealers will lie to customers about this. They will try and cheat the customer instead of doing the right thing and training their people properly.
They try to rush the process and choose not to follow a systematic process to verify diligence has been conducted prior to the sale. This is the most common error I see corporations committing.
A Car Dealer May Attempt to Pass on Extra Costs to Consumers through Higher Interest Rates
So the dealer might tell a customer, bring the car back in and we will re-do the deal. The dealer might also simply repossess the vehicle. In the former case, if a customer goes back in they often are re-sold a different deal at far worse terms.
This means the customer is being deprived of the original bargain without just cause. This also raises another issue. At every financed sale of a vehicle, there are disclosures made about the rate of interest and costs or fees associated with an auto loan.
These are called Truth in Lending Act disclosures.
If in fact, the dealer is taking the position that the deal is conditional upon financing then, in reality, this should be disclosed to the customer prior to purchase.
After all, it is only fair that such a representation is material to a contract and should be put in writing for that reason.
Doing so, however, would also violate Michigan law.
You are either being lent money or you not being lent money. You can’t make it conditional.
So if a dealer does end up coming back to the customer and trying to undo the deal, there is a Truth in Lending Act violation as well.
That is why it is so important to keep all of your original sale paperwork and make a copy of it. This is your proof of the sale having occurred.
If the dealer repossesses the vehicle and sells it auction they will likely end up suing the customer. A customer who has been cheated in this manner ultimately has the best type of claim because they have been permanently deprived of a vehicle they rightfully owned.
Interviewer: What is their ultimate goal with this practice? They try to get you to come back in then and say, “Well, we can still do the deal, but you’re going to have to pay like this much more or this much higher interest?
Andrew Campbell: Their ultimate goal is to make as much money on the deals as possible. So they either try to make more on a new deal or repossess the vehicle.
They’re going to try to rework the deal and the deal’s always reworked in their favor.
Sometimes they don’t even tell them that.
Sometimes they’ll say, “Nope. Sorry. We got to repossess the vehicle.” They’ve taken your down payment, your trade-in, and now your car.
Many People Mistakenly Feel They Are at Fault When This Practice Takes Place
Interviewer: How do they expect to get away with that? Don’t people say anything?
Andrew Campbell: People don’t know this is an unfair practice. They don’t know their legal rights. The worse thing a consumer can do in these instances is to put their head in the sand.
Many have never been involved in the legal system and it is natural to fear something you are not familiar with.
People are busy trying to pay their bills, feed their families and live their lives so it is understandable that many won’t immediately be able to take action.
People also think that attorneys are going to charge them money up front to help them with these kinds of case.
This is actually true. Many attorneys will not have experience with these types of cases or might have experience but still require money always be paid up front.
Some attorneys, especially those that really know how to bring claims, will not demand money up front and instead take a risk in getting paid in return for a reasonable fee.
People don’t know the law. People believe what the dealers are saying.
The dealer may be even be laughing at people, especially the poor, telling them that no attorney will assist them because they don’t have enough money.
People believe what the dealers tell them.
On the other hand, they might need a car and now they have several credit inquiries on their credit report that might limit their ability to get credit from another dealer.
Car dealers know this as well. They know a consumer might be forced to do business only with them for that precise reason. The dealer really can put consumers in a no-win situation.
It is these types of dealers that need to be put out of business permanently.
If you have been de-horsed or had your trade-in stolen from you by a dealer you should look into filing a complaint with the State of Michigan and contact an experienced consumer attorney.