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Yahoo
07-07-2025
- Automotive
- Yahoo
How to spot auto loan fraud: 5 scams to watch out for
Scammers prey on innocent consumers who are in the market for a reliable, affordable used vehicle. After you purchase a car, you may become a target for car loan scams by the dealership or outside scammers. Always thoroughly read loan paperwork before signing off. Watch for fees and add-ons. If you're targeted, you can report the fraud, but reclaiming your money isn't guaranteed. Scammers often target car owners who need to catch up on their payments and want to avoid having their cars repossessed. Other types of scams happen at the dealership or when buying used through a private seller. Either way, these schemes can be costly, or even worse, leave you empty-handed. With a previous FTC rule designed to help consumers currently paused, it's worth familiarizing yourself with the red flags to minimize the chances of falling victim to a scam. With a yo-yo financing scam, a dealer will lead you to believe the financing is final. It may accept your trade-in and down payment before allowing you to leave the lot. Days or even weeks later, the dealer will call and say the financing fell through. To keep the vehicle, you must come back and sign a new contract, typically with less favorable terms. Sometimes, the dealership has already sold the traded-in vehicle, leaving you to choose between higher rates or no car. These scams often target consumers with fewer financing options because they have bad credit or no credit profile. Yo-yo financing is illegal in every state, says Paul D. Metrey, executive vice president for public policy with the National Automobile Dealers Association. But tactics like conditional sales and spot deliveries, in which you can take your car home before the loan is finalized, are perfectly legal. However, the CARS Rule includes language to protect consumers from yo-yo financing traps by forbidding dealers from misrepresenting transactions as final. How to avoid To avoid a yo-yo scam, you should get an auto loan before visiting the dealership. You may receive a better interest rate through a bank, credit union or online lender. Plus, walking in with financing already locked down gives you additional negotiation power. Car loan modification scams promise to lower your auto loan payments for a steep fee. Scammers typically ask to be paid upfront or request unusual forms of payment, such as a money transfer or gift card. Unlike a legitimate lender, these scammers often do not check your credit score. They may also pressure you to sign a contract. 'The scams are similar to mortgage loan modification scams, with the scammers telling customers that they could stop their car from being repossessed and that they could lower their payments,' says Gregory Ashe, senior staff attorney with the Bureau of Consumer Protection at the Federal Trade Commission. With a car loan modification scam, the scammer will 'negotiate' on your behalf to lower your rate — and may ask you to make car payments to them rather than your lender. However, you should only negotiate terms directly with your lender's customer service team. According to Ashe, a lender may extend your loan term or defer some payments, but they are unlikely to negotiate interest rates. Check out our best auto refinance loans if you're interested in changing your car loan interest rate. How to avoid The FTC recommends contacting your lender directly to discuss car loan modification options as soon as you realize you will have trouble making your car payment. Ignore any too-good-to-be-true promises of lowered car payments from suspicious companies. Negative equity, also known as being upside-down on your auto loan, occurs when you owe more on your car than it is worth. The FTC has taken administrative action against multiple dealers for Truth in Lending Act violations regarding how those dealers handled negative equity. The dealers did not clearly explain to consumers that though they offered to 'pay off' the balance due on a trade-in, they actually took the negative equity and applied it to the borrower's new car loan balance. Some customers complained that they didn't know this until after signing their new auto financing paperwork. 'Consumers need to carefully read the paperwork before they sign it, because it doesn't matter what's said. It matters what's in writing,' Ashe says. 'If you don't understand something, then don't sign it.' How to avoid When you review your loan documents, check to make sure the price is what you agreed to pay. If there are additional costs, ask the finance manager at the dealership to explain them to you. Your trade-in should be treated as a separate transaction. You can choose to roll over negative equity into a new loan, but the dealer needs to clarify how that will affect your loan. Dealers may pressure you to purchase additional products and services when you buy a car. These might include: An extended warranty. Gap insurance. Rustproofing. Tire rotation and service contracts. While some of these items can be useful, many are not. The dealer's primary goal is to get you to spend more. You are under no obligation to agree to add-ons. If an option interests you, try to negotiate the price and remember, if it's added to the loan, you're paying interest on it. The new CARS Rule should make this process easier. Dealers will be required to get your 'express, informed consent' before any additional charges for products or services are added to your bill. However, dealers may try to buck this rule, so stay wary. How to avoid Research what is being offered and see what you can do yourself or get done at a shop elsewhere. You can often get the services or options at a lower price and better quality without wrapping them into your loan. There are several tell-tale signs of a used car scam. For starters, if the price point of a vehicle is far below the market value, what seems like the deal of a lifetime is likely a play to steal your hard-earned money. Here are some other red flags to look out for. Pushy sellers They rush you to make a decision, supposedly because the seller is on a tight timeline. Payment needs to be quick, and in the form of cash, a gift card or other untraceable method of transferring money. Once you do so, contact stops, and there's no way to recoup your funds. Vehicle identification number (VIN) issues Scammers often attempt to sell vehicles with outstanding liens, indicating a balance owed. They may also swap the VIN plate on the dashboard after a major incident, like a flood, theft or total loss, to mask the true history of the vehicle. Either way, you end up without an actual vehicle or a headache once you pay. Fake photos Duplicate listings are also common when dealing with scammers. A quick online search could easily reveal several listings of the car you're considering, each with varying price points and points of contact. How to avoid used car scams Perform a VIN search and an online reverse image search, then test drive the vehicle and confirm the seller's identity. Steer clear if the seller is in a rush and claims they plan to relocate soon, requests upfront payment or demands payment quickly. When buying a car, review your loan contract and ask the sales representative to clarify any questions you may have. But if you feel like you're being taken advantage of, you have options. Move on. There are plenty of dealers, both online and in-person, that offer similar vehicles. Back out if the dealer won't answer your question or pressures you to sign. File a grievance. You can also report a complaint to the Consumer Financial Protection Bureau (CFPB) if you believe the dealer is engaged in shady practices. If you've already made what you believe is a fraudulent purchase, the FTC outlines steps you can take depending on the information the scammer has. Be sure to: Report the incident. Use the guidance found on the FTC's website to report the fraud and determine your next steps from there. Seek legal counsel. After filing a report with the FTC, contact your state attorney general to notify them of the scam and learn more about your options. Unfortunately, it may be challenging to recover your money after paying for a loan modification. But you may have some recourse if you were the victim of a predatory dealership. When shopping for a car, ask clarifying questions and review every document you are asked to sign. The best defense against red flags is taking your business elsewhere. If you're having trouble paying your loan, the best thing to do is talk to your lender directly. Car loan modification scammers target vulnerable buyers who have poor credit or who are late on their payments. If it sounds too good to be true, then it probably is. Lenders will often be willing to work with you if you show that you're making an honest effort to continue making payments.
Yahoo
26-02-2025
- Automotive
- Yahoo
Court Overturns Biden's Car Dealer Scam Protections — 3 Red Flags To Watch For
Buying a car can be a hassle. Not only do you have to spend time shopping around for the best deal within your budget, but you also have to ensure you're not being swindled in the process. Until recently, a proposed rule aimed to shield consumers from car-buying scams and deceptive practices by car dealers. Learn More: Try This: Under President Joe Biden's administration, the Federal Trade Commission (FTC) introduced the Combating Auto Retail Scams (CARS) rule. It was designed to protect consumers from deceptive car dealer practices and junk fees while benefiting honest dealers. Here are the rule's four basic principles, according to the FTC: Prohibits misrepresentations about material information: Deceptive claims about financing, pricing or add-ons are not allowed. Requires car dealers to disclose the actual offering price: Consumers have a right to know the drive-off-the-lot price before visiting the dealership and throughout the buying process, excluding any required government charges. Makes it illegal for car dealerships to charge consumers for unnecessary add-ons: Dealers cannot charge extra for add-ons that do not benefit the consumer. Requires car dealers to obtain consumers' explicit, informed consent before charging them: This provision ensures there are no surprise fees or hidden charges. Dealers must receive a clear 'yes' from the buyer before applying any charges. However, a recent court ruling overturned CARS, which will impact the way we purchase cars. According to Troutman Pepper Locke, on Jan. 27, 2025, the U.S. Court of Appeals for the Fifth Circuit issued an opinion vacating the FTC's CARS Rule after two major automobile trade associations, the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA), filed petitions. Discover More: NADA and TADA challenged the rule's legality, arguing that the FTC violated its regulations by failing to issue an advance notice of proposed rulemaking (ANPRM) before introducing the rule. An ANPRM is a preliminary notice stating that a government agency is considering regulatory action. Generally, agencies must issue an ANPRM before developing a new rule. The trade associations also argued that the FTC conducted a rushed and inadequate cost-benefit analysis before finalizing the rule. 'Monday's (Jan. 27, 2025) decision by the 5th Circuit Court of Appeals on NADA's and TADA's legal challenge is a victory for the rule of law and a great outcome for consumers,' stated a recent NADA press release. NADA and TADA celebrated the court's decision, claiming the rule would have added significant time and undue burden to both consumers and dealers. However, without the rule, consumers may continue to face deceptive practices and junk fees from dishonest dealers. Here's what to watch for. Now that this key consumer protection rule has been struck down, here are three red flags to be aware of when shopping for your next car: If you're in the car-buying process, question every fee listed. An honest dealership should be able to clearly explain all charges and why they are required. If they can't, consider taking your business elsewhere to avoid overpaying. If you see an advertisement for a vehicle at a significantly lower price than the market rate, be cautious. For example, if a car typically sells for $35,000 but is advertised for $25,000, there may be hidden fees or conditions. Shop around at multiple dealerships to ensure you're getting a fair and honest deal. If a dealer promotes financing terms with interest rates significantly lower than the average car loan, proceed with caution. They may not be disclosing all the terms upfront. Consider securing financing through your bank or credit union instead of relying on dealership offers. With the CARS Rule overturned, it's more important than ever for consumers to stay informed and vigilant during the car-buying process. More From GOBankingRates This article originally appeared on Court Overturns Biden's Car Dealer Scam Protections — 3 Red Flags To Watch For
