Auto Dealer Fraud

A vehicle, whether new or used, is a big purchase. Some dealers take advantage of consumers and cheat them out of money, for instance by inflating the price. This is known as auto dealer fraud, it is illegal, and you can take steps to get justice if it happens to you.

What is Auto Dealer Fraud?

Auto dealer fraud is any deceptive or illegal practice used by a dealership to sell vehicles, warranties, and options. Dealers do this to boost sales and profits. It’s important to understand what auto dealer fraud looks like so that you know if you have been a victim and can take legal action.

What Are the Types of Auto Dealer Fraud?

You may be unsure if a car dealer actually cheated you or if your suspicions are wrong. To recognize when a dealership has committed fraud, it helps to know all the ways they might do it. There are several ways a dealer may commit fraud:[1]

  1. Price inflation. Dealerships get invoices from the manufacturer representing the cost to them for the vehicle. A dealer may improperly inflate that price, adding extra fees actually included.
  2. “Required” options. Some deals falsely claim that options are required and cost extra. They may include the add-ons in the final price.
  3. Undervalued trade-in. It is considered fraud to undervalue your trade-in and underpay you for it.
  4. Odometer rollback. To make it seem as if it has been driven less, a dealer may roll back the miles on a vehicle’s odometer.
  5. Bait and switch. A dealer may try to get customers in the door with a great price on a specific car only to tell you it’s no longer available. They then try to sell you on a different vehicle.
  6. Concealing damage. Dealerships are required to disclose information about past damage to a car, such as flooding or body damage from an accident. It’s fraudulent not to share that information.
  7. Yo-yo financing. This is when the dealer sells a car to a buyer with a loan pending. The buyer then comes back to sign the loan document for a more expensive loan.
  8. Dealer returns. A dealer may sell a car as new when it was actually returned to the dealership.
  9. Misrepresenting credit. A type of financing fraud sometimes occurs when a dealership claims your credit is too low for a lower-interest loan, forcing you into a more expensive loan.
  10. Misleading lease. When you lease a car, you do not own it. It goes back to the dealership. Some dealers tell customers they will own the car at the end of the lease payments.

How to Avoid Fraud When Buying a Vehicle

You may not be able to prevent an instance of fraud, but you can take steps to be a better consumer and reduce the risk of being a victim:

  • Do your research before buying a car. Know the reasonable values and prices for the vehicles you’re interested in purchasing.
  • Walk away from any salesperson using aggressive tactics.
  • Always test drive a vehicle before purchasing it.
  • Insist on a full visual inspection before you buy and request a repair history for any used vehicles.

Laws That Protect Consumers from Auto Dealer Fraud

Both states and the federal government have laws and statutes that protect consumers from fraud. At the federal level, the Federal Trade Commission (FTC) enforces these laws, and the FTC’s Bureau of Consumer Protection investigates complaints.

An important law for anyone buying a vehicle is known as the Used Car Rule. The FTC requires that dealers display a Buyers Guide in all used cars. This includes several pieces of information about the vehicle:[2]

  • Mechanical and electrical systems
  • If a warranty is included
  • The percentage of repair costs the buyer is responsible for under the warranty
  • The dealership’s information and how to make a complaint
  • Advice to insist on promises in writing, a vehicle history report, a mechanic inspection, and a guide in Spanish if needed

States also have lemon laws to protect consumers from defective vehicles. The federal Magnuson-Moss Warranty Act requires sellers to clearly disclose information about a warranty and its terms and conditions. Sellers must attempt to repair or refund a defective vehicle.

State lemon laws vary. They address the types of vehicles covered, the types of transactions, how long protection lasts, typically 12 months, and how many attempts the seller must make to repair a defect. Four attempts are considered reasonable in most states.

What Should I Do if I am a Victim of Auto Dealer Fraud?

If you have been a victim of a car dealership’s fraudulent actions, you have a right to take actions to hold them accountable. It’s important to know the relevant state laws, which is why you should start with hiring a lawyer.

In some states, you must contact the dealership before taking any legal action. This gives them the chance to remedy the problem. You may also be able to file a complaint with a state agency that protects consumer rights.

After exhausting non-legal options, you may want to file a lawsuit against the dealership. A lawyer can help you file and recover damages. Be sure to keep important information for your lawyer, such as any relevant paperwork, receipts, bills, complaints, and communications you had with the dealership or a state agency.

Take care when purchasing a vehicle. Know your rights and the signs of fraud. Contact an auto dealer fraud lawyer if you have been a victim of fraud. They can help you understand your options under state and federal law and assist you in recovering damages.

  1. Davies, A. (2013, September 26). 21 Scams Used By Devious Car Dealers – And How to Avoid Them. Business Insider.
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  2. Federal Trade Commission. (2016, November). Buying a Used Car.
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