Owings Law Firm
Little Rock phone 501-661-9999
Benton phone 501-303-4577
fax 501-661-8393

Consumer Protection Lawyers

Auto Fraud

Buying a Car - “Let the Buyer Beware”

Purchasing a new or used automobile is a major investment for the average American today. Many of us depend on our cars to get to work, so that we can not only pay off the car loan, but also the car insurance, the mortgage, the credit card, and the household bills. Having a dependable vehicle is the key to the way most Americans earn their daily bread.

The last thing an auto buyer should expect after buying a new or used car are problems that result from sharp dealing or auto fraud.

Be careful when you agree to finance a car through the dealer. Many problems in financing can be avoided by simply showing up at the lot with an outside financing source such as a bank or a credit union. Car dealers may have hidden incentives to place your car loan with high interest lenders, who then kick back some of the interest to the car dealer, a practice known in the industry as a “dealer reserve”.

Most people shouldn’t buy credit protection insurance. All this is good for is protecting the finance company, and generating money for the car dealer when he sells it to you.

Be careful before you buy an extended warranty. Some extended warranties are no better than the manufacturer’s warranty. Car dealers try to sell extended warranties for the highest price they can get. An extended warranty that costs one buyer $500 might cost another $2,000. The excess profit goes to the dealer.

There is more money in used cars than in new cars. Watch out for fraud.

When buying from a private seller or small car lot, watch out for fraud that occurs when the seller of the vehicle either fails to disclose the complete history of the car you are buying, or alters or destroys evidence pertaining to any part of the vehicle's age, condition or inherent or acquired defects. Auto fraud can come in a variety of forms when purchasing a used car. Odometer rollbacks, salvage or flood vehicles, yo-yo sales, credit consolidation sales, and resale of damaged vehicles without full disclosure are all examples of auto fraud.

Ways To Avoid Being Taken To The Cleaners

Tip 1: Talk to your friendly neighborhood mechanic.
A mechanic can be your best friend when it comes time to purchase a car. More than anybody else, a good and experienced mechanic can tell you the specific problems to watch out for when buying a particular brand or model of a car, and can also tell you which cars are relatively hassle-free. Once you know the type of vehicle you want, twenty minutes talking to a friendly mechanic can help you determine the best manufacturer. Mechanics know which cars are in the shop a lot, and which cars routinely have the most expensive repairs.

Tip 2: Arrange for financing through your bank or credit union.
Whenever possible, you'll want to seek financing approval from your bank or credit union before shopping for your car. Banks almost always offer a substantially lower rate than a used car dealership will offer. If you have a prior lending history with your bank and are in good standing, you can usually receive up to 90 per cent financing. Car dealerships make huge profits by providing their own financing to auto buyers, so they want you to borrow from them. By securing an auto loan through your bank for an amount you can afford before purchasing a car, you'll find yourself in far more control when negotiating a final price.

Tip 3: Ask for a copy of the warranty, take it home and read it.
Many used car dealers are notorious for providing "dealer warranties." While the big print in these documents promises comprehensive coverage and prompt service for the vehicle you buy, it is the small print that dealers refer to when something actually does go wrong with your car. The phrase "wear and tear items not included" is a common one in dealer warranties, and one you will hear over and over again if your car begins to have problems.

Remember that car dealers are always trying to increase the final sales cost of your car through add-ons and features. A dealer warranty is often pitched as a vital add-on by the car salesperson, but unfortunately, when push comes to shove the true value of the warranty is sometimes questionable. Make sure you clarify exactly what is covered with the car salesman. If your concerns are not explicitly answered in the warranty, ask for a signed, authorized amendment from the dealer with the correct wording that you are seeking.

Tip 4: If necessary, amend the warranty to protect yourself from Lemon fraud.
After you have satisfied yourself that you are getting adequate repair and maintenance coverage for the price of your warranty, you'll want to make sure the following statements are somewhere on the warranty:

  • "THIS CAR HAS NOT BEEN RETURNED TO A DEALER OR MANUFACTURER BECAUSE OF LEMON LAW DEFECTS OR COMPLAINTS."
  • "THIS CAR HAS BEEN INSPECTED FOR COLLISION DAMAGE AND COLLISION REPAIRS AND HAS BEEN FOUND TO BE FREE OF COLLISION DAMAGE OR REPAIRS."

If these statements aren't on the warranty, insist that they be added, acknowledged and signed by an authorized representative of the dealership.

Tip 5: Take it for a long spin.
Leave a copy of your driver's license with the dealer and take the car out for a while. Drive the car in multiple road conditions: city streets with heavy traffic, highways with open spaces, straight and curvy roads, and hills. Test the brakes, steering, features, air conditioning and gauges. If you can arrange it, pick up your new friend the mechanic and bring his highly trained ear along for the ride. Let him take a look under the hood. If he likes what he sees, and you have faith in his judgment, then you are probably in good shape.

Tip 6: Don't be in a rush.
Above all else, don't let a car salesman rush or cajole you into a one-day, stop and shop sale. Avoid impulse buying. It is to the salesman's benefit, and only his benefit, if the sale happens quickly. It is to your benefit to do as much research as possible to insure you purchase a safe and reliable vehicle. You should be prepared to spend at least two weeks doing adequate research before making a used car purchase.

Predatory Lending Practices

Short Term Predatory Lending

Payday Lending (sometimes called cash advance): is the practice of using a post-dated check or electronic checking account information as collateral for a short-term loan. To qualify, borrowers need only personal identification, a checking account, and an income from a job or government benefits, like Social Security or disability payments.

Tax Refund Anticipation Loans (RALs): are short-term cash advances against a customer's anticipated income tax refund. But the loans are offered at high interest rates, ranging from about 40% to over 700% APR. Also, they speed up the refund process by as little as one week, compared to what consumers can expect by filing online and having their refunds deposited directly into their banking accounts.

There are a number of different forms that predatory lending takes. In each instance, however, a financial institution takes unfair advantage of a consumer’s financial needs by charging usurious interest rates and other unconscionable fees and charges.

Predatory Mortgage Lending

Predatory Mortgage Lending: drains wealth from families, destroys the benefits of homeownership, and often leads to foreclosure. It is estimated that predatory mortgage lending costs Americans more than $9.1 billion each year.

Predatory mortgage lending involves a wide array of abusive practices. Some of the key features of predatory mortgage lending are these:

  • Excessive fees: Points and fees are costs not directly reflected in interest rates. On standard (competitive) loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common.
  • Abusive prepayment penalties: Borrowers with higher-interest subprime loans have a strong incentive to refinance as soon as their credit improves. However, up to 80% of all subprime mortgages carry a prepayment penalty – a fee for paying off a loan early. An abusive prepayment penalty typically is effective more than three years and/or costs more than six months’ interest.
  • Kickbacks to brokers (yield spread premiums): When brokers deliver a loan with an inflated interest rate (i.e., higher than the rate acceptable to the lender), the lender often pays a “yield spread premium" – a kickback for making the loan more costly to the borrower.
  • Loan flipping: A lender "flips" a borrower by refinancing a loan to generate fee income without providing any net tangible benefit to the borrower. Flipping can quickly drain borrower equity and increase monthly payments – sometimes on homes that had previously been owned free of debt.
  • Unnecessary products: Sometimes borrowers may pay more than necessary because lenders sell and finance unnecessary insurance or other products along with the loan.
  • Mandatory arbitration: Some loan contracts require "mandatory arbitration," meaning that the borrowers are not allowed to seek legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms. Mandatory arbitration makes it much less likely that borrowers will receive fair and appropriate remedies in cases of wrongdoing.
  • Steering & Targeting: Predatory lenders may steer borrowers into subprime mortgages, even when the borrowers could qualify for a mainstream loan. Vulnerable borrowers may be subjected to aggressive sales tactics and sometimes outright fraud. Fannie Mae has estimated that up to half of borrowers with subprime mortgages could have qualified for loans with better terms. According to a government study, over half (51%) of refinance mortgages in predominantly African-American neighborhoods are subprime loans, compared to only 9% of refinances in predominantly white neighborhoods.

Credit Cards

Things you should know

The leading cause of bankruptcy in the United States is credit card defaults. Many advertisements and sales pitches encourage customers to run up big balances. Big credit card balances mean huge profits for the credit card companies.

Using Credit Cards Wisely:

1. Avoid Too Many Cards. Most experts advise that two credit cards are enough. Too much credit can be a bad thing. When choosing credit cards, select only the ones that best meet your own needs. Do some research. There is a lot of information on the Internet that will help you avoid the worst credit card companies and the worst deals.

2. Credit Card Solicitations. It is amazing how many credit card solicitations come in the mail. Some industry figures place the cost of getting a new credit card customer as high as $200 per customer. The credit card companies spend millions of dollars on researching consumers, analyzing personal information that you would think they don’t have access to, but they do.

Receiving numerous credit card solicitations in the mail each month does not mean that you can actually afford more credit. Some credit card companies are looking for customers who will run up big balances, because big spenders pay more interest. The sales material may make you think you were singled out because of your excellent credit rating, but it is more likely that you have been selected because the credit card company thinks, due to your past spending habits, it can make more money off you. Many lenders solicit credit card applications based not on your income or your credit record, but instead on marketing profiles, such as the amount of credit balances you carry, how often you use your card, your zip code, and other personal information.

3. Consider the Credit Terms Carefully. The interest rate is important and you should always try to keep that as low as possible, but it is not the only consideration. If you read the fine print, you will see that Credit Card companies can easily change the rate on your cards, with or without a reason. If you pay off your balance regularly at the end of the each month, other credit terms that add to the cost of the card may actually be more important than the rate, such as annual fees, late charges, membership fees, payment protection coverage, or complicated methods of calculating the balance.

4. Read the Sales Material Carefully. You will not be able to fully understand the terms that control the use of the credit card. The actual terms of the credit card are often written in small print. If you can’t understand the fine print, welcome to the club. You may not be able to understand the terms even if you call the credit card company and ask for an explanation.

5. Reject "Teaser" Rates. Many lenders offer artificially low "teaser" rates that last only for a few months, after which the rate can greatly increase. The "teaser" rate may look good, but the real question is often what happens when that "teaser" rate expires.

6. Watch Out for Late Payment Charges and Penalty Rates. Even a card with an excellent rate of interest can turn into a nightmare when you miss a payment. Late charges can be significant. Even more significant than late charges is the fact that many lenders reserve the right to dramatically raise your rate of interest if you miss even a single payment. If you are having financial problems, these terms can have a significant effect on your ability to work your way out of debt.

7. Do You Have a Grace Period? Some credit cards have a grace period, usually 25 days, running from the date of the monthly billing statement, during which you can pay off the balance in full and avoid further finance charges. Not all cards have grace periods, and not all cards have the same grace period. Also, keep in mind that just because you mail in your credit card payment today, does not mean it will be received and credited tomorrow.

8. Make More Than Minimum Payments. Consumers, sometimes as a result of lack of income, sometimes because of neglect and inadvertence, frequently make only the minimum payments. Sometimes minimum payments are not enough to keep the debt from increasing. In addition, credit card companies usually have the option to increase minimum payments.

9. Beware of Additional Offers. Once you receive your card, the lender or its affiliates are likely to send you all manner of solicitations for extra services, such as life and disability insurance, credit card protection, travel clubs, and similar offers. They are almost always bad deals.

Take card protection for example. Federal law limits your liability for unauthorized use of card to $50. Do you really need to spend $40 to $60 a year for protection already afforded by law? Life and disability insurance can be purchased from mainstream insurers, often at a better price.

10. Avoid Jumping From Card to Card for Teaser Rates. Many people are under the impression that they can save money by simply skipping from card to card to take advantage of teaser rates. However, if your timing is off, you can wind up buried in financial mud. Remember, lenders don't make their money on teaser rates, they make their money when the borrower loses track of rate changes, lets the teaser rate expire, and gets locked into a higher rate.

11. Consider Cancellation. There is no law that says you have to keep using a card that you don't like. You may cancel a credit card at any time (although you are still liable for the unpaid balance of the card). You may find when you call to cancel that the credit card company is eager to lower your interest rate or make other concessions to keep your business. They spend hundreds of dollars soliciting customers; they may give you a better deal just to keep you.

12. Be suspicious of unsolicited offers to increase your credit limit.

13. Know Your Rights. Laws that might help you include:

  • The Federal Truth-In-Lending Act. This Act provides a mechanism for disputing incorrect credit card bills. Instructions usually appear on the back of each monthly billing statement. Failure by the lender to comply with these procedures may result in stiff penalties. Upon receipt of your notice of dispute, the lender must investigate the charge and report back to you. If the merchant cannot or does not substantiate the claim, it will be removed from your bill, along with associated interest.
  • The Fair Debt Collection Practices Act.
  • State Deceptive Trade Practices Acts.
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