Wednesday, May 12, 2010

The Cavalry is Coming to the Aid of the Consumer Protection Agency

Well, kind of. The Pentagon has taken interest in the Consumer Financial Protection legislation that is working its way through Congress. Lobbyists have been doing their best to water down the bill. One area that consumer activists thought was threatened was the inclusion of automobile financing in the bill. Even though after your house, your car is your biggest purchase; and for young people most at risk of a financial downturn, it is perhaps their biggest investment, and even though various automobile related frauds, scams and sharp dealing makes the industry right at the top of the complaint lists of the Federal Trade Commission, and attorneys general offices; the auto industry trade associate has been doing its utmost to get car dealers and auto financiers excluded from the jurisdiction of the new Consumer Financial Protection Agency.

Now the dealers will have to fight the United States Military. It has come to the attention of the Pentagon brass that a soldier give his/her all in Afghanistan or Iraq if he's worried about a crappy car deal in Fort Benning. Here's how the New York Times puts it in an article in the online edition of today's paper:

In February, Clifford L. Stanley, the under secretary of defense responsible for troop readiness, wrote in a letter addressed to a Treasury official that the Pentagon would “welcome and encourage” increased protections against “unscrupulous automobile sales and financing practices.”

Mr. Stanley reached that conclusion, he wrote, after an internal survey of domestic military bases revealed cases of “ ‘bait and switch’ financing, falsification of loan applications or other documents, failure to pay off liens on trade-in vehicles, ‘packing’ loans with items whose price tag bears little or no relationship to their actual cost or value, and discriminatory lending.”

For Matthew Garcia, a 25-year-old Army specialist stationed at Fort Hood in Texas, a car deal gone sour has been “one more giant thing to worry about” as he prepares for a deployment to Afghanistan as early as June.

Consumer advocates call it the “yo-yo deal.” In September, Mr. Garcia found a 2005 Dodge Neon he liked at a used car lot near the barbershops, tattoo parlors and check cashing stores that invariably line the main roads just outside any military base.

He agreed to a deal in which he would pay 19.9 percent interest on a $12,000 loan and signed what he believed was a binding contract. He drove off. But several days later the salesman summoned him back to the lot, Mr. Garcia said, to tell him the financing had fallen through.

He had signed only a conditional contract, he was told. If he wanted to keep the car, he would need to put up an additional $2,500 in cash. Mr. Garcia refused, but by that time someone had blocked his car so he could not leave. He said the dealership would not return his $1,500 down payment.

“I was tricked, manipulated and lied to,” said Mr. Garcia, who earns about $20,000 a year. “And I feel like it was intentional.”

Ross G. Lavin, a lawyer for the dealership, Payless Car Sales, said a change of heart by the company putting up the financing for the car was to blame, and not his client. “Nobody lied to anybody,” he said, but he also acknowledged the dealership had made a mistake by not immediately giving Mr. Garcia his money back. The case was settled last week for an undisclosed amount.

(By the way, the car deal in this article is a typical "puppy dog", "yo yo" or "gimme back" car scam. The lawyer for the dealer is right that that dealer should have given the money back immediately. If the deal didn't go through, the soldier had an unconditional right to a refund. In most cases, the car buyer leaves the dealership with an installment sales contract that is binding, and it is the car dealer's problem if it can't find a finance company to take the contract off the dealer's hand. If you find yourself the victim of a similar yo-yo car deal, you should immediately consult an attorney who is a member of the National Association of Consumer Advocates.)

Image, Charles Schreyvogel's "Saving the Dispatch" info here used without permission under claim of fair use.

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