Lawsuit: Dealer sold “fake” warranties on used cars

Ever wonder what happens when you buy a warranty or service contract from a car dealer?  Unfortunately, some dealers just pocket the money.  Then if your car needs repairs, you are left with no coverage.  Some dealers have faced criminal penalties for engaging in this scam, but often it goes undetected.

A lawsuit filed on behalf of consumers in New Jersey alleges that a dealer in that state repeatedly sold so-called “warranties” or service contracts on expensive used cars, but failed to activate the policies.

See news report:

ABC 7 New York: Dealer of high-end used cars sold “fake” warranties

Don’t fall victim to car dealer scams.  CARS tips for how to get a good deal on a nice, safe, reliable used car — without having to set foot on a car dealer’s lot

 

CarMax sells unsafe, recalled cars

CarMax, the nation’s largest retailer of used cars, claims all its vehicles must pass a rigorous “125 point inspection.” It also advertises that all its cars are so-called “CarMax Quality Certified.”

But instead of living up to its hype, CarMax is selling LOTS of recalled cars with lethal safety defects. CarMax has a gambling addiction. It continues to play “recalled car roulette” with its customers’ lives.

Among the defects on cars waiting for sale on CarMax’s lots:

  • sticking accelerator pedals
  • catching on fire
  • hoods that fly up in traffic
  • faulty brakes
  • steering loss
  • stalling in traffic
  •  seat belts that fall apart in a crash
  • air bags that explode with excessive force and cause blindness or death

An ABC 20/20 undercover investigation found unrepaired recalled vehicles for sale on CarMax’s lot in Hartford, Connecticut. CarMax’s excuse? It can’t be bothered waiting for the FREE repairs.

FTC takes action against 9 car dealers over “deceptive” ads

In a rare move, the Federal Trade Commission (FTC) recently zeroed in on how auto dealers sell, finance, and lease both new and used motor vehicles. The agency called their nationwide sweep “Operation Steer Clear.”

As a result of the FTC’s taking action, nine auto dealers agreed to settle deceptive advertising charges.  The agency alleged that the dealers made a variety of false claims in print, Internet, and video advertisements that violated the FTC Act, deceiving the public about the actual costs of purchasing, leasing, or financing vehicles. One dealer even advertised that consumers had won prizes they could collect at the dealership — only to find, when they arrived on the lot, they had not won.

“Buying or leasing a car is a big deal, and car ads are an important source of information for serious shoppers,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Dealers’ ads need to spell out costs and other important terms customers can count on. If they don’t, dealers can count on the FTC to take action.”

According to the FTC, the agency’s ‘Operation Steer Clear’ led to settlements with these dealerships in California:

Casino Auto Sales of La Puente, CA and Rainbow Auto Sales of South Gate, CA. Both allegedly violated the FTC Act by “deceptively advertising that consumers could purchase vehicles at specific low prices when, in fact, the price was $5,000 higher. Both dealers’ ads involved a mix of English and Spanish.

Honda of Hollywood in Los Angeles, CA, and Norm Reeves Honda of Cerritos, CA, violated the FTC Act by deceptively advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts. The ads also allegedly violated the Consumer Leasing Act (CLA) and Regulation M, by failing to disclose certain lease related terms. Norm Reeves Honda’s ads also allegedly violated the Truth in Lending Act (TILA) and Regulation Z, by failing to disclose certain credit related terms.

The FTC also settled similar cases with dealerships in Georgia, Illinois, North Carolina, Michigan, and Texas. The Los Angeles Department of Consumer Affairs and the Michigan Department of Attorney General assisted the agency by investigating dealers in those states.

The FTC deserves credit for focusing on harmful auto dealer practices, including at politically potent new car dealerships.  However, no dealer agreed to pay a fine or any restitution to victims. Instead, the dealers agreed to behave better in the future.

The public is invited to comment to the FTC about the settlements, until Feb. 10.

Read more:  FTC Announces settlements with auto dealers