How to Minimize the Risk for Fraud in Auto Lending

There is a stunning increase in the risk for fraudulent auto lending, as pointed out by a new San Diego startup that uses machine learning software and specifically designed algorithms to detect vehicle loan fraud.

Looking at the data, PointPredictive believes the level of annual fraud risk in auto lending will reach $4 billion to $6 billion this year – up from $2 billion to $3 billion in 2015.” (The San Diego Union Tribune).

This new company is hoping their technology will become the standard in detecting fraudulent auto loan practices.

What is Auto Dealer Fraud

Auto dealer fraud is a set of deceptive and unlawful practices used by automobile dealers during the vehicle purchase process. This can include false advertising, unlawfully negotiating vehicle prices and financing terms, adding hidden markups to the sale contract, and non-disclosure of prior damage to the vehicle to be purchased.

How to Identify Auto Dealer Fraud

There are many common types of dealership fraud. Knowing how to identify these will help the consumer avoid being scammed by an auto dealer.

Inflating a Vehicle’s Invoice Price

Increasing a vehicle’s invoice price can be done in a variety of ways. Auto dealers often advertise “special pricing” in newspapers or on their websites. When a buyer comes to the dealership and asks about the specific vehicle and its sale price, the initial advertised price ends up being dramatically increased, and the buyer is left feeling confused.

Dealerships may also increase the price of a vehicle illegally by adding “markups” to the original invoice. This allows auto dealers to begin the negotiations above the Manufacturer’s Suggested Retail Price (MSRP).

Bait & Switch

This also increases the vehicle’s invoice price using deceptive methods by the auto dealer. A vehicle may be advertised at a specific price, and when the buyer comes into the dealership, that vehicle is mysteriously no longer available, and the consumer is then pushed into purchasing a different vehicle at a higher price.

“Add-on” Concealment

During the negotiation process, specific options or the price of those options are not revealed to the buyer. Once the final paperwork is prepared they are then added to the closing sale price, thereby increasing the cost of the vehicle for the buyer. Examples of concealed options are warranties and maintenance programs.

Vehicle Trade-ins

An auto dealer will undervalue and underpay a consumer for the vehicle they wish to trade-in towards the cost of the newer vehicle.

New Dealer Returns

Sometimes new vehicles are returned to a dealership due to a defect, a mechanical problem that cannot be fixed, or some other reason. The auto dealer is now not allowed to sell this car as “new” but does so anyway in order to bring in a larger profit for the dealership.

Non-Disclosure of Prior Damage

Any damage done to a vehicle due to major accidents, involving frame or suspension work, floods, or any other like incidents, must be revealed to the potential buyer, whether or not the consumer has asked for them.

Odometer Rollback

This is an attempt by the auto dealer to deceive the consumer about the vehicle’s actual mileage by changing the odometer reading.

Ten (10) Specific Ways to Stop Auto Dealer Fraud

It is possible for buyers to protect themselves from auto dealer fraud.

Here are 10 methods that can be used to identify and lower the risk of auto dealership fraud.

  1. Always begin negotiations with the manufacturer’s suggested retail price (MSRP). Do not allow the bidding to begin with a price higher than the MSRP.
  2. Before signing the sale contract, check to see if the auto dealer has added any extras or options into the sale price or monthly payments, that were not agreed upon during negotiations. If the auto dealer insists that these specific options are free, have them confirm these free extras in writing.
  3. Simply refuse to purchase the vehicle. If a buyer believes they are a victim of the bait and switch tactic or the auto dealer is not forthcoming with the history of the vehicle to be purchased, there is no obligation to buy that vehicle.
  4. Call the dealership just prior to arriving to ensure the vehicle is in stock. Asking for a signed statement that the vehicle in question is in stock along with the price quoted is also a good idea.
  5. Check the contract of the sale vehicle for any hidden or extra charges that were not included in the original agreed upon price. Check to make sure the numbers and figures in the contract are what was agreed upon during negotiations.
  6. Use websites like CarFax and AutoCheck to check on the history of the vehicle to be purchased. The vehicle’s identification number (VIN) will be needed in order to do this. The car dealership has to give out the number if requested by the buyer.
  7. When trading in a vehicle, shop several different auto dealerships to find out what the average value is of the trade-in vehicle.
  8. Never negotiate the price of a vehicle based on monthly payments. This is one way auto dealers add hidden fees and costs, such as warranties, GAP insurance, and service contracts, to the price of the vehicle.
  9. Check the accuracy of the vehicle’s odometer reading against the vehicle’s maintenance records.
  10. Have the vehicle inspected by an individual mechanic, not one of the dealership’s employees.

The Best Method to Avoiding Auto Dealership Fraud

Hiring auto fraud lawyers is the best option for protection against auto dealer fraud. Individuals who suspect they have been victims of auto fraud can speak with an experienced auto fraud lawyer who will know if there is a valid cause for a claim to be filed.

Auto fraud lawyers have the expertise needed to conduct extensive research before filing a claim and/or a lawsuit on behalf of the buyer. They can help the consumer win their case against the auto dealership and may also be able to get the maximum compensation for the fraud incurred. An experienced auto fraud lawyer can also help with the cancellation of the sales contract, refunds of down payments, monthly payments, and full sale price of the vehicle, reimbursement for expenses, and possibly a new vehicle.

When confronted with the possibility of auto dealer fraud, some dealerships may be unwilling to correct their actions and behavior. A team of experienced auto fraud lawyers can guarantee a much better outcome in the case of auto dealer fraud.

For more information on auto fraud and how to file a claim, visit consumeractionlawgroup.com.

Sources used to research for this article:

How to Minimize the Risk for Fraud in Auto Lending
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