Before You Buy a Car Dirty Dealer Finance Tricks 2002

Before You Buy A Car…Dirty Dealer Finance Tricks © 2002

by

Sean T.Taeschner

ISBN 0970843364

About The Author

Sean T. Taeschner began his career in automotive lending (Dealer Finance in Bankspeak) in 1991. He worked in the capacity of collector and ended up as a collections manager before leaving banking in 1999 to change careers.

Sean saw a trend develop during that time which greatly disturbed him. He had learned that customer service meant something and that those entrusted with the personal information and finances of the public had a sacred honor to uphold: to be honest at all costs.

This trust relationship took years to develop and seconds to destroy.

During this time credit lending took a nasty turn in the United States of America. The average loan had qualifiers (hurdles to overcome to get the loan); such as being in one’s present job for more than two years, being able to put several hundred or several thousand dollars down, having had no bankruptcies, etc.

Sean saw corporate greed ruin this trust relationship as “Second-rate Financing” (Second-rate Paper in Bankspeak) took hold in credit card, home and auto finance lending.

Bankruptcies skyrocketed in the USA leaving many marriages and families broken in the interest of greed and profit.

Sean then decided to write this book to alert the public to the dirty tricks both banks and dealerships play/ed in this vicious process to erode consumer confidence and trust.

Table Of Contents

The Credit Application, Credit Scoring, And Ease Of Reading The Contract

Dealers Make Money Off Of The Bank And The Customer

Extras The Dealers Charge For That You Really Don’t Need

Extra Account Charges

Loan Packing

Keeping You In The Dealership / Pressure To Sign Right Now!

Do A State DMV Vehicle Id Number Search

Two Dirty Salesmen That Caused A Lot Of Damage

The Poor Dumb Retard

Conclusion

Disclaimer

Questions?

The Credit Application, Credit Scoring, And Ease Of Reading The Contract

Credit applications are designed to gather as much information on the potential customer as possible. I say potential since credit applications are used to screen out customers who are not ‘credit-worthy’.

Long before 1991 banks made loans based on the relationship between the lending officer and the customer and a trustful handshake….’his word is his bond’ and ‘what’s in a name?’ This was a true trust relationship.

That relationship depended upon how well the lending officer knew the customers in the community. Such officers walked a foot beat like cops did and met and spoke with their customers. The lending officer could gauge the depth of the customer’s commitment to making his business run and the amount of physical assets he could place on the chopping block if the loan went bad. Such assets could be sold at auction in order to recover the bank’s potential loss(es). If the lending officer felt he could not trust the potential customer then he did not approve the loan. And, if the loan did go bad, the lending officer was the one repossessing the business equipment. This meant hours spent beyond bank time that the lending officer was not being paid for. The less repos there were, the less lost time and money to the lending officer as well. This was the incentive for the lending officer to make sound value judgments on a customer’s credit-worthiness.

The credit application became more valuable to banks as the volume of customer loans increased and the amount of personal time for the lending officer decreased. As the volume increased the quality of credit screening dropped due to the lack of this personal foot-beat time that had played such a major role in the customer/lending officer relationship. Risk was suddenly devalued due to volume lending.

Almost as shocking was the clause in the credit application. This clause allowed banks to share personal credit information and past credit behavior of a customer’s to any lending institution asking for it. In some cases the clause even allowed the information to be sold to telemarketers and private third parties who might use it to blackmail a customer.

The print was small and hard to read and most customers did not bother to read it carefully before signing. If a customer was upset later by the discovery of this potential abuse it was often struck down in court due to the ‘buyer beware’ and ‘full disclosure’ requirements having been meet.

This ease of reading the contract was kept in this fashion on purpose. The average customer would spend less than three minutes reading the fine print before deciding they just had to have the item that the loan was for.

Banks relied on this impatience in the customer to make profitable mistakes.

ONE SHOULD NEVER ALLOW A BANK OR DEALERSHIP PERMISSION TO SHARE THE PRIVATE INFORMATION ON THE CREDIT APPLICATION OR LOAN CONTRACT WITH ANYONE OTHER THAN THE DEALERSHIP AND THE BANK MAKING THE LOAN! THAT MEANS NO SHARING INFORMATION OR SELLING IT TO THIRD PARTIES IN THE FUTURE. THIS INCLUDES TO SKIPTRACERS, LOCATOR SERVICES, LANDLORDS, PRIVATE EYES, etc.

With the advent of computers and their ability to process high volumes of loan documents, there came the need to invent ‘credit scoring’. Numbers were assigned to sections of the loan application. When added up there was a ‘beacon score’ tallied which told the bank whether the loan was approved, and if approved what the interest rate charged to the customer would be.

For example, dealerships would call the bank and explain to the bank loan officer that Joe Smith was in the showroom. This was the same Joe who had gone through a divorce and lost his home. Up to the point of the divorce though, Joe had always paid his bills on time. The loan officer assigned a risk score to Joe’s situation and approved the loan at 18% interest instead of the standard market rate (for a customer with A-1 best credit) at 13%. The bank was financing the risk that Joe would continue paying his bills on time as he always had prior to the divorce. Therefore, the risk was slightly larger to the bank…but not terribly so. The 5% risk was based on Joe’s stupidity…. if he decided to go out and get married again right away to a gal who might turn around and divorce him right away for a second time. Joe’s dating behavior might be poor and his marriage-making decisions just as poor; however, his bill paying might be excellent.

Then there is the chance that Joe’s new wife might be a spender and send him into financial hell by overusing credit cards. They might divorce since Joe can’t keep up with the bills due to the collectors always calling…and he might owe attorney fees of $20,000.00 for the divorce…. and decide to file a bankruptcy to keep all creditors at bay.

Then, if he came into the dealership and the bank approved the loan, he would be charged 29% interest instead of the 18% he was charged before.

This would be called ‘second-rate financing’ on ‘sub prime paper’. The difference between the 29 and 18% would be 11%…that is an assumable risk that the bank would take and still make profit on even if Joe filed banko at some time in the near future. The dealer would make money on every deal as well.

Dealers Make Money Off Of The Bank And The Customer

Dealers make money off of the bank by receiving small paybacks on each loan booked through the bank. It is received on every payment the customer makes on a loan and at the initial signing of the contract. This is incentive payment made by the bank to keep the dealer rolling the customers into the bank. It is also a good deal for the dealership since their volume of sales goes up and the factory rewards them with paybacks on their sales as well.

Extras The Dealers Charge For That You Really Don’t Need

Dealerships also make money off of customers by convincing them that they need to buy extras for their cars that they really do not need.

For example, they will sell you the rustproofing undercoating and overcoat sealant for the paint. This is supposed to protect you from rust when driving on the roads. What they do not tell you is that the car has been undercoated with an anti-rust primer prior to leaving the factory. The undercoating they want to sell you is not needed!

Another package being sold is Life/Accident/Health insurance and VSI (Limited Collateral Protection) Insurance and MBI (Mechanical Breakdown Insurance). This can add several thousand dollars to the cost of the loan as it is figured into the loan payments.

LAH insurance is good if you are killed in a car accident or become disabled on the job or your health deteriorates so that you cannot work anymore. This insurance is supposed to make the payments on the rest of the car loan. What dealers will not tell you is that they sell the insurance…not the bank…. and that refunds have to be made through the dealership. The bank won’t help in any way. Some LAH providers also ask the customer to go to a doctor on a list they provide so they can find out that you had a ‘pre-existing condition’ so they can deny the claim. Others will write up the claim so that the injuries can be corrected by surgery or hope that a miracle takes place while they drag the claim out for years in court, if need be. They are betting on the customer getting frustrated and giving up. And, many do. Also, if the dealer gives the customer an LAH refund then they can’t purchase anymore LAH coverage on that loan for the remainder of the loan contract. Thus, if a customer gets in a wreck after receiving the refund, they are screwed.

MBI insurance is good for only a certain amount of miles or number of months on the loan. And, if you take the vehicle in for maintenance or repair to any other ‘unauthorized dealer or mechanic’ during the life of the loan contract, then your MBI policy will be null and void. READ THE FINE PRINT!

And, most dealerships charge 300% more for repairs than your neighborhood mechanic. And, you thought you were getting such a fine deal!

VSI (LCP-Limited Collateral Insurance Protection) was sold by many banks in the 1980s and 1990s as an extra package. This was to protect the customer from the bank asking them to payoff or keep making payments on a car loan after it was totaled.

I remember one such loan where a radio station disc jockey had purchased a Volkswagen for $9,000.00. The contract he signed for the car loan had fine print in it for VSI protection. This promise was to protect the bank and ‘supposedly protect the customer’ if the car was totaled. During the 5 year term of the loan (60 payments) the customer had agreed in the contract to provide proof of full coverage insurance on his new car that the bank held title to. He would have his insurance agent mail proof of coverage (binder) to the bank once per year to show that he had insurance on the car if it were totaled. If he did not provide proof every year, then the bank would buy insurance on the car (collision only…not liability) to pay off their interest and value of the car if it were totaled. What was not explained in the fine print was the cost of the VSI premiums (usually 300% more than normal market-rate auto insurance premiums). This was definitely price gouging…or a customer rip-off. The man whose VW was totaled had over $9,000.00 in VSI charges to his loan over that 5 year period. When he came to get the title to his car once he had reached his 60th payment, we told him to give us the $9,000.00 for the VSI charges that the bank had already paid for. He said no way and the bank repoed his car.

He joined a class action lawsuit and won the car back and some serious cash. I just smiled. IT WAS ABOUT TIME THE BANK GOT CAUGHT!

Extra Account Charges

Extra account charges became a new scam in banking in the 1990s as well.

I use this case as an example since it truly happened to me as a customer and as an employee of the bank I worked for.

Every year a friend of mine named Chris, a commercial fisherman from Alaska, used to show up at my front door. He would stay for a few days and over the years it became weeks. My wife had had enough and told him to get his own place. I agreed. I marched him down to the bank branch where I worked and we opened a savings account for him in his name. I put in the $50.00 to open it (minimum balance required to open it) and off he went to fish in Alaska again. I felt relieved. Now he would have money to find a motel to stay in next time he came back to Seattle.

A year later Chris came back and knocked on my front door. He told me he had gone to the bank and the money was not there. I said I did not believe him. After all, I worked there!

We marched over to the bank and sure enough the money was gone. It had been eaten up over 12 months by ‘finance charges’ of $4.50 per month since the balance was under $300.00 in the savings account.

I could not believe it. IT WAS THEN THAT I LOST FAITH IN THE BANKING SYSTEM IN THE USA and I continued to work for them for another 7 years!

Loan Packing

Another scam finally uncovered by the Attorney General’s Office in the State of Washington was called ‘loan packing’.

Loan packing involved the dealership charging more for extras in the loan without telling the customer about it. Once example was a lady who was charged $18,000.00 for a $13,000.00 car. The extra five thousand was in LAH coverage she had not signed up for. She had not even known she was being charged the extra 5 grand until a bank audit caught the error. She not only won title to the car but all her money back. The bank then sued the dealership for loan fraud. The dealer snaked his way out of it by promising never to do it again. Another internal audit caught more than five hundred loans with that particular dealership that had done the same or worse to customers. The dealership was closed and the dealer went to prison.