Before You Buy A Car…Dirty Dealer Finance Tricks

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1. Before You Buy A Car…Dirty Dealer Finance Tricks © 2002
   by
   Sean T.Taeschner

   ISBN 0970843364

   About The Author

   Sean T. Taeschner began his career in automotive lending (Dealer Finance in Bankspeak) in 1991. He worked in the capacity of collector and ended up as a collections manager before leaving banking in 1999 to change careers.
   Sean saw a trend develop during that time which greatly disturbed him. He had learned that customer service meant something and that those entrusted with the personal information and finances of the public had a sacred honor to uphold: to be honest at all costs.
   This trust relationship took years to develop and seconds to destroy.
   During this time credit lending took a nasty turn in the United States of America. The average loan had qualifiers (hurdles to overcome to get the loan); such as being in one’s present job for more than two years, being able to put several hundred or several thousand dollars down, having had no bankruptcies, etc.
   Sean saw corporate greed ruin this trust relationship as “Second-rate Financing” (Second-rate Paper in Bankspeak) took hold in credit card, home and auto finance lending.
   Bankruptcies skyrocketed in the USA leaving many marriages and families broken in the interest of greed and profit.
   Sean then decided to write this book to alert the public to the dirty tricks both banks and dealerships play/ed in this vicious process to erode consumer confidence and trust.

   Table Of Contents

   The Credit Application, Credit Scoring, And Ease Of Reading The Contract
   Dealers Make Money Off Of The Bank And The Customer
   Extras The Dealers Charge For That You Really Don’t Need
   Extra Account Charges
   Loan Packing
   Keeping You In The Dealership / Pressure To Sign Right Now!
   Do A State DMV Vehicle Id Number Search
   Two Dirty Salesmen That Caused A Lot Of Damage
   The Poor Dumb Retard
   Conclusion
   Disclaimer
   Questions?

   The Credit Application, Credit Scoring, And Ease Of Reading The Contract

   Credit applications are designed to gather as much information on the potential customer as possible. I say potential since credit applications are used to screen out customers who are not ‘credit-worthy’.
   Long before 1991 banks made loans based on the relationship between the lending officer and the customer and a trustful handshake….’his word is his bond’ and ‘what’s in a name?’ This was a true trust relationship.
   That relationship depended upon how well the lending officer knew the customers in the community. Such officers walked a foot beat like cops did and met and spoke with their customers. The lending officer could gauge the depth of the customer’s commitment to making his business run and the amount of physical assets he could place on the chopping block if the loan went bad. Such assets could be sold at auction in order to recover the bank’s potential loss(es). If the lending officer felt he could not trust the potential customer then he did not approve the loan. And, if the loan did go bad, the lending officer was the one repossessing the business equipment. This meant hours spent beyond bank time that the lending officer was not being paid for. The less repos there were, the less lost time and money to the lending officer as well. This was the incentive for the lending officer to make sound value judgments on a customer’s credit-worthiness.

   The credit application became more valuable to banks as the volume of customer loans increased and the amount of personal time for the lending officer decreased. As the volume increased the quality of credit screening dropped due to the lack of this personal foot-beat time that had played such a major role in the customer/lending officer relationship. Risk was suddenly devalued due to volume lending.

   Almost as shocking was the clause in the credit application. This clause allowed banks to share personal credit information and past credit behavior of a customer’s to any lending institution asking for it. In some cases the clause even allowed the information to be sold to telemarketers and private third parties who might use it to blackmail a customer.
   The print was small and hard to read and most customers did not bother to read it carefully before signing. If a customer was upset later by the discovery of this potential abuse it was often struck down in court due to the ‘buyer beware’ and ‘full disclosure’ requirements having been meet.

   This ease of reading the contract was kept in this fashion on purpose. The average customer would spend less than three minutes reading the fine print before deciding they just had to have the item that the loan was for.
   Banks relied on this impatience in the customer to make profitable mistakes.
   ONE SHOULD NEVER ALLOW A BANK OR DEALERSHIP PERMISSION TO SHARE THE PRIVATE INFORMATION ON THE CREDIT APPLICATION OR LOAN CONTRACT WITH ANYONE OTHER THAN THE DEALERSHIP AND THE BANK MAKING THE LOAN! THAT MEANS NO SHARING INFORMATION OR SELLING IT TO THIRD PARTIES IN THE FUTURE. THIS INCLUDES TO SKIPTRACERS, LOCATOR SERVICES, LANDLORDS, PRIVATE EYES, etc.

   With the advent of computers and their ability to process high volumes of loan documents, there came the need to invent ‘credit scoring’. Numbers were assigned to sections of the loan application. When added up there was a ‘beacon score’ tallied which told the bank whether the loan was approved, and if approved what the interest rate charged to the customer would be.

   For example, dealerships would call the bank and explain to the bank loan officer that Joe Smith was in the showroom. This was the same Joe who had gone through a divorce and lost his home. Up to the point of the divorce though, Joe had always paid his bills on time. The loan officer assigned a risk score to Joe’s situation and approved the loan at 18% interest instead of the standard market rate (for a customer with A-1 best credit) at 13%. The bank was financing the risk that Joe would continue paying his bills on time as he always had prior to the divorce. Therefore, the risk was slightly larger to the bank…but not terribly so. The 5% risk was based on Joe’s stupidity…. if he decided to go out and get married again right away to a gal who might turn around and divorce him right away for a second time. Joe’s dating behavior might be poor and his marriage-making decisions just as poor; however, his bill paying might be excellent.
   Then there is the chance that Joe’s new wife might be a spender and send him into financial hell by overusing credit cards. They might divorce since Joe can’t keep up with the bills due to the collectors always calling…and he might owe attorney fees of $20,000.00 for the divorce…. and decide to file a bankruptcy to keep all creditors at bay.
   Then, if he came into the dealership and the bank approved the loan, he would be charged 29% interest instead of the 18% he was charged before.
   This would be called ‘second-rate financing’ on ‘sub prime paper’. The difference between the 29 and 18% would be 11%…that is an assumable risk that the bank would take and still make profit on even if Joe filed banko at some time in the near future. The dealer would make money on every deal as well.

   Dealers Make Money Off Of The Bank And The Customer

   Dealers make money off of the bank by receiving small paybacks on each loan booked through the bank. It is received on every payment the customer makes on a loan and at the initial signing of the contract. This is incentive payment made by the bank to keep the dealer rolling the customers into the bank. It is also a good deal for the dealership since their volume of sales goes up and the factory rewards them with paybacks on their sales as well.

   Extras The Dealers Charge For That You Really Don’t Need

   Dealerships also make money off of customers by convincing them that they need to buy extras for their cars that they really do not need.
   For example, they will sell you the rustproofing undercoating and overcoat sealant for the paint. This is supposed to protect you from rust when driving on the roads. What they do not tell you is that the car has been undercoated with an anti-rust primer prior to leaving the factory. The undercoating they want to sell you is not needed!
   Another package being sold is Life/Accident/Health insurance and VSI (Limited Collateral Protection) Insurance and MBI (Mechanical Breakdown Insurance). This can add several thousand dollars to the cost of the loan as it is figured into the loan payments.
   LAH insurance is good if you are killed in a car accident or become disabled on the job or your health deteriorates so that you cannot work anymore. This insurance is supposed to make the payments on the rest of the car loan. What dealers will not tell you is that they sell the insurance…not the bank…. and that refunds have to be made through the dealership. The bank won’t help in any way. Some LAH providers also ask the customer to go to a doctor on a list they provide so they can find out that you had a ‘pre-existing condition’ so they can deny the claim. Others will write up the claim so that the injuries can be corrected by surgery or hope that a miracle takes place while they drag the claim out for years in court, if need be. They are betting on the customer getting frustrated and giving up. And, many do. Also, if the dealer gives the customer an LAH refund then they can’t purchase anymore LAH coverage on that loan for the remainder of the loan contract. Thus, if a customer gets in a wreck after receiving the refund, they are screwed.

   MBI insurance is good for only a certain amount of miles or number of months on the loan. And, if you take the vehicle in for maintenance or repair to any other ‘unauthorized dealer or mechanic’ during the life of the loan contract, then your MBI policy will be null and void. READ THE FINE PRINT!
   And, most dealerships charge 300% more for repairs than your neighborhood mechanic. And, you thought you were getting such a fine deal!

   VSI (LCP-Limited Collateral Insurance Protection) was sold by many banks in the 1980s and 1990s as an extra package. This was to protect the customer from the bank asking them to payoff or keep making payments on a car loan after it was totaled.
   I remember one such loan where a radio station disc jockey had purchased a Volkswagen for $9,000.00. The contract he signed for the car loan had fine print in it for VSI protection. This promise was to protect the bank and ‘supposedly protect the customer’ if the car was totaled. During the 5 year term of the loan (60 payments) the customer had agreed in the contract to provide proof of full coverage insurance on his new car that the bank held title to. He would have his insurance agent mail proof of coverage (binder) to the bank once per year to show that he had insurance on the car if it were totaled. If he did not provide proof every year, then the bank would buy insurance on the car (collision only…not liability) to pay off their interest and value of the car if it were totaled. What was not explained in the fine print was the cost of the VSI premiums (usually 300% more than normal market-rate auto insurance premiums). This was definitely price gouging…or a customer rip-off. The man whose VW was totaled had over $9,000.00 in VSI charges to his loan over that 5 year period. When he came to get the title to his car once he had reached his 60th payment, we told him to give us the $9,000.00 for the VSI charges that the bank had already paid for. He said no way and the bank repoed his car.
   He joined a class action lawsuit and won the car back and some serious cash. I just smiled. IT WAS ABOUT TIME THE BANK GOT CAUGHT!

   Extra Account Charges

   Extra account charges became a new scam in banking in the 1990s as well.
   I use this case as an example since it truly happened to me as a customer and as an employee of the bank I worked for.
   Every year a friend of mine named Chris, a commercial fisherman from Alaska, used to show up at my front door. He would stay for a few days and over the years it became weeks. My wife had had enough and told him to get his own place. I agreed. I marched him down to the bank branch where I worked and we opened a savings account for him in his name. I put in the $50.00 to open it (minimum balance required to open it) and off he went to fish in Alaska again. I felt relieved. Now he would have money to find a motel to stay in next time he came back to Seattle.

   A year later Chris came back and knocked on my front door. He told me he had gone to the bank and the money was not there. I said I did not believe him. After all, I worked there!
   We marched over to the bank and sure enough the money was gone. It had been eaten up over 12 months by ‘finance charges’ of $4.50 per month since the balance was under $300.00 in the savings account.
   I could not believe it. IT WAS THEN THAT I LOST FAITH IN THE BANKING SYSTEM IN THE USA and I continued to work for them for another 7 years!

   Loan Packing

   Another scam finally uncovered by the Attorney General’s Office in the State of Washington was called ‘loan packing’.
   Loan packing involved the dealership charging more for extras in the loan without telling the customer about it. Once example was a lady who was charged $18,000.00 for a $13,000.00 car. The extra five thousand was in LAH coverage she had not signed up for. She had not even known she was being charged the extra 5 grand until a bank audit caught the error. She not only won title to the car but all her money back. The bank then sued the dealership for loan fraud. The dealer snaked his way out of it by promising never to do it again. Another internal audit caught more than five hundred loans with that particular dealership that had done the same or worse to customers. The dealership was closed and the dealer went to prison.
   If the customers had questioned why the advertised price was $13,000.00 for such a car and they ended up with higher monthly payments…and why…. then much of this could have been caught early on. Doesn’t that make sense? If the advertised car payment was $210.00 per month and then the coupon book showed up in the mail and the payments were $375.00 per month…. isn’t there a discrepancy? Believe it or not this dealership relied on the stupidity of the Indians at the local reservation in order to benefit from this scam. They figured the Indians were loaded with tribal casino cash and fishing cash and were too dumb to know how to read a loan contract, etc.

   Keeping You In The Dealership / Pressure To Sign Right Now!

   Keeping you in the dealership so that you sign right now is a tactic that many dealers utilize effectively.
   What got you into the dealership to begin with? Was it the shouting in the car ad or the flash of the paint on the car? Was it no money down or we’ll make you a deal even if you have had a divorce or a bankruptcy? No credit? No problem, right? WRONG.
   Dealers rely on glitzy advertising and shouting in their ads like circus announcers. If the show is not dazzling or exciting enough or someone is not standing on their head to make you a deal, you most likely won’t pay any attention.
   More than 70% of new car purchases are made on impulse, not on need.
   If you do not believe me, then ask yourself why you just bought yourself a new car instead of a reliable used one?
   Most car deals are made on the same day that you sign for and drive the car off of the dealership lot. If the dealer can capture your attention by handing you the keys and telling you to sit in and smell and touch the car while he just goes in the back office to swing a deal for you with his boss…watch out.
   This is a typical hook and you are the fish swallowing the bait.
   Behind closed doors they are having coffee, smoking, swearing, looking at girly magazines and laughing about charging you 2 grand in extras while making you wish they’d hurry up and come out.
   IT IS ALL AN ACT! Most of the time the sales person walks out and says that they can’t get a lower price for you because someone else wants that car…it is the last one on the showroom floor, or it only comes with a mechanical breakdown contract, or the paint is a special factory-order color and the price is an extra grand.
   At this point the customer SHOULD LEAVE. They are dictating the terms of the sale…not you. You can remind the salesperson at this point that your time is valuable and he is working for you…. you want a payment of $200.00 per month, no extras, no MBI, LAH, etc. You will shop at the other dealer down the street. MAKE THEM SWEAT…not you!
   And, the golden key here is to say you will think about it and get back to them.
   Then, walk back in 48 hours to do the deal all over again. The price of the car will have miraculously dropped by several hundred dollars!

   Do A State DMV Vehicle ID Number Search

   One of the biggest, dirtiest tricks in the book is when dealerships sell previously totaled vehicles that have been ‘repaired or reconditioned or sold as is’ to customers.
   The easiest way to avoid dangerous vehicles and to gain recourse on lemon deals is to search your state DMV database. Some states charge a small fee and there is a wait for the information. However, if you want it right away, take the vehicle to the State Police and ask them to check it out for you. They will inspect the vehicle using mirrors and trained experts and conduct a Vehicle ID Number (VIN#) search through the state’s DMV computer to see if the car was ever involved in a previous wreck.
   Remember, ALL DISHONESTY IS FRAUD AND VOIDS ALL CONTRACTS. Never let a dealer tell you that they can’t or won’t take a vehicle back that you believe has been in a major accident.
   Under most state laws, the dealership has to provide both you and the bank with factual, truthful information for the deal to stand up in court. This is called FULL DISCLOSURE and your rights are protected under the state’s CONSUMER PROTECTION ACT.
   The Internet is a valuable tool for searching out these types of laws for your state. Just go into a search engine like http://www.Metacrawler.com or http://www.Google.com and type in your state’s name followed by CONSUMER PROTECTION LAWS. A wealth of information will pop up which you can print out and use when you go back to scold the big bad dealership.

   I can tell you from firsthand experience that when I discovered such deals I encouraged customers to supply me with all the facts in writing and all loan documents. I would then write a letter on bank stationary to the dealership advising them of their responsibilities with the bank under the DEALER/BANK AGREEMENT form they had signed. I would remind them of the Washington State laws in regards to consumer rights, full disclosure, AG (Attorney General) complaints, etc. I would also remind them that the consumer mentioned the word ‘attorney’ and I would await their response back to me in 24 hours in writing. ALWAYS GIVE THEM A DEADLINE AND MENTION PRIVATE ATTORNEY and THE MEDIA if need be.
   I got 100% of my dealerships to pay the bank off and take the car back or outright give it to the customer.

   Two Dirty Salesmen That Caused A Lot Of Damage

   The story I am about to tell you actually happened. However, to keep from being sued by one of the major banks I worked for (for disclosing internal information), I have decided to change the dates and names and places to protect all parties involved.

   In the late 1990s I was in charge of a major portfolio of automotive loans and leases stretching across the USA from Canada to Mexico. This was a multimillion-dollar portfolio of car loans made by dealerships near Indian reservations.
   It was a common joke around the office that most of the cars we’d financed were burned out hulks or flower pots on most of the reservations and that trying to send a repo crew to one would be like stepping on a land mine in Vietnam.

   I made a call to a lady named Rachel Blackfeather who was about 90 years old. She had several delinquent car loans with us. And, being poor with English (a tribal elder) and my Arapahoe being quite poor, I soon discovered that she had been ripped off and so had the bank.
   I launched my investigation into the dealership making the loans and discovered that the old grandmother’s credit and social security number had been used to make over 50 car loans to different tribal members on the reservation.
   The dealership’s owner had discovered that two of his best salesmen had forged her signature on the credit applications to make the loans with our bank and that they had pulled credit on her many times over. We could not access the reservation to repo any of the cars since they were considered a separate nation with their own police force. The reservation police explicitly told us that they would not allow our repo crews onto the reservation without a tribal court judgment. We knew that would take weeks and hundreds of dollars and most likely would result in our repossessing burned out hulks instead of cars. And, the risk of being killed was not worth the money being paid to repo the cars off of the reservation.

   We wrote off the 50 cars and licked our wounds. Trying to avoid embarrassment the dealership quietly settled with us on the loans and fired the two rogue salesmen.
   Six months later I had a similar set of loans come across my desk from another reservation in another state. This time it was the cousins of the people on the other reservation up north. Again, it was a case of forgery and loan fraud and the dealership decided to fight back. Soon, after signing an affidavit of forgery, the Indian lady’s attorney called me. It turns out he was running a multi-state investigation into the loan scam and was suing our bank and two other major US banks as co-conspirators in the fraud perpetrated on these Federally protected lands and peoples. Being that these loans were also federally insured did not help as well.
   Soon the attorney’s generals in over 6 states were handing down indictments against 4 dealerships and warrants for arrest were issued for the sales staff. Guess who the salesmen were? They were the same two that had been fired 6 months earlier instead of being indicted and sent to prison. This time it was over 1500 car loans and losses stretched into the hundreds of thousands of dollars. Our bank quietly settled and the Indians got 1500 free cars with back payments from the 4 major banks. Our stock took a major hit and I decided I had just about had enough with dealer banking.

   The Poor Dumb Retard

   This story is also a true one and is the reason I left banking in disgust.
   One day I got a call from the state police asking if our car was going to be picked up from impound yet? I checked our files after doing a vin number search and discovered that the loan had been covered by the dealership. This was called a recourse loan. If the loan went bad for any reason and we could repo the car within 90 days and return it to the dealership, then they would pay the bank off in full.
   However, at that point the dealership would sue the customer for the full value of the car loan plus attorney fees, court costs, and interest.
   It was also my duty to contact the customer and find out why the state police had the unit in impound. This was to be done before contacting the dealership.
   A man answered the phone and said that his son could not speak…he had been in a terrible rollover accident with our truck a week ago and was indeed under 18 years of age. That gave me the green light to talk with the father and discover more details.
   As I furiously typed and talked on the phone I discovered that the young man had been out with another 17-year-old high school buddy. The father related that his son was mentally handicapped (retarded) and that he had allowed his friend to take him to a car dealership where the dealer had had his son cosign on the loan contract. Why? The ‘friend’ had been in and out of juvenile hall for auto theft many times, had 2 DWIs and had screwed credit. He convinced the retarded youth to cosign since he needed a truck. The ‘friend’ then went to a grocery store, purchased a case of beer, and proceeded to hold a beach party out of the backend of the bank’s new truck.

   On the way home the ‘friend’ rolled the pickup on a curve and into a tree. He ran off and left the retarded boy to face an ambulance, the state police, and an $8,000.00 hospital bill…all, which he could not pay. The cops were still looking for the ‘friend’.
   Then, we called!
   I noticed that the loan contract was not a dealer recourse loan so the boy was basically screwed. The dad knew it, the ‘friend’ knew it, the dealership knew it, and now I knew it.
   I then decided to draft a letter to the dealership suggesting that we were aware of their having done a bum deal on this kid. They threatened to sue. Then, I read them a section of the Americans With Disabilities Act and the Washington State law regarding taking advantage of a handicapped individual ‘not in complete control of their faculties’. Then I threatened to call the media.
   I got a check for the entire payoff of the totaled truck and a written promise not to pursue the retarded kid about a week later from the dealership.

   Conclusion

   I conclude my book stating that I am thoroughly pissed off. How such a great country with such great promise could allow such rip off schemes to perpetuate is beyond me. I remember as a child being taught that it was always best to tell the truth and be honest. I began a career in banking with this in mind and watched it erode before my eyes due to corporate greed. Banks started doing what they felt was good ‘business sense’ instead of human sense. Terms like ‘repo’ and ‘willful disregard’ were a new language I called “Bankspeak’. Why was it so difficult for the common man to get a fair shake? Then, I got angry and decided to write this book in the hopes of giving the common customer enough information to empower him/herself and keep from getting screwed in the process.
   I hope it has been of help.

   Disclaimer

   This book is for informational purposes only. I suggest you speak with legal counsel before trying any ideas in this book. This e-book has been purchased by you virus free and the author, his publisher, or agents is not responsible for any damage it may cause to you, your computer, or anyone else you choose to give it to. It is without warranty and offers no guarantee whatsoever.

   MADE IN THE UNITED STATES OF AMERICA! ALL RIGHTS RESERVED.

   Questions?

   Sean T.Taeschner
   (425) 247-8827
   10607 57th Ave. So.; Seattle, WA 98178
   USA E-mail: Trashner@Hotmail.com

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