Drivers Left on the Hook After Car Dealers Fail to Pay Off Trade-Ins
SACRAMENTO, CA - Most car dealers are decent and honest, but warnings abound about those who are less than honorable.
California has laws in place to protect consumers from getting taken, except in one especially critical area.
In a typical transaction, the consumer trades in a car, the dealer pays off the loan on the trade-in, sells the trade-in to someone else and the consumer gets a new loan for another car. Done deal.
But what happens if the dealer, who might be in a financial pinch in this economy, doesn't immediately pay-off that trade-in loan, or worse, goes bankrupt. There is no law that says the dealer must pay off your car loan right away - not within a week, a month, not even six months.
Guess who gets stuck? The person who thought they had sold their car.
It surprised Inga Randle. She purchased a Mercedes from now-defunct W&G Auto in Sacramento. Even though she and her husband are paying $467 per month for the Mercedes, the Randles will never own the car. They can't even get it titled and registered.
That's because W&G Auto never paid off the loan on the Mercedes when it was traded in. Yet it cashed the check Randle's bank sent to pay for the car. Since the old loan had never been paid, the previous owner is still getting a bill every month for a car she no longer owns.
"That is what the bank hung over my head. "It's your responsibility. It's not ours. You have a responsibility. Your name is on the note. You have a responsibility to pay,'" said a bitter Dee Dominguez, who thought she had sold the car.
"I will be stuck with a car that I can never sell, because no one wants to buy a car that they can't get title to," said Randle.
The Randles, along with Dominguez, filed complaints with the Department of Motor Vehicles, which is the consumer protection agency for vehicle transactions. Both parties say that so far, little has been done.
Rosemary Shahan runs the Center for Auto Reliability and Safety (CARS) and says the Randles' and Dominguez' case is far from isolated. And the problem is not just with used car dealers, Shahan added. New car dealers like Vacaville Ford and Suzuki of Sacramento are also implicated.
In the case of Suzuki of Sacramento, bankruptcy documents show they took in millions of dollars of vehicles from auction and trade-in and did not pay off the loans, even though the vehicles were turned around and sold.
"They are licensed by the DMV and the DMV, from what I can tell, hasn't been doing anything to alert the public to this problem," said Shahan.
Mike Marando with the DMV says protections are in place. "The governor signed last year SB 729 which creates, effective July 1 of this year, a special fund whereby consumers can petition for financial recovery," he said.
Dealers are also now required to carry a $50,000 bond, according to Marando.
Shahan countered, "Why should consumers get ripped off and then have to apply to a fund instead of just not getting ripped off in the first place?"
Kenyatte Williams agreed. He traded his car into Suzuki of Sacramento and two weeks later the dealership filed bankruptcy without paying off his loan.
"Once every two weeks I'm getting a phone call," said Williams. "'Where's our money? Are you going to start making payments? Where's the car?' The story doesn't change, I don't have the car. I traded it in. I'm not going to pay off the loan on a car that I don't have."
Perhaps some of the money that should have been used to pay off Williams' loan appears on a search warrant issued on Shayan, Paiman and Mike Rahbarian, owners of Suzuki of Sacramento. In a raid earlier this month on one of the family's homes, investigators claimed to have found $85,000 in cash.
Another home targeted in the raid sits on a ridge in a community of El Dorado hills with panoramic views and where homes sell in the millions. It's frustrating to Williams because he now realizes he will likely never see any of the money returned to him for paying on a car he no longer has. He says what's even worse is that it could happen again to him or any consumer, for that matter.
There is no law in California that requires a car dealer to pay off the loan on a trade-in within a specific amount of time. Diana Taira, a Solano County deputy district attorney, says a time requirement would have made prosecuting her case against Vacaville Ford much simpler. She has a list of hundreds of potential victims.
"It did surprise me that there was no clear-cut law," Taira said. "There is no clear cut-time limit on when they need to make those payoffs."
She believes there should be a law to protect consumers. "I would hope, you know, that maybe this case is going to be used as an example to have DMV use their authority a little more and not so hesitantly to stop the dealership from doing what their doing," Taira said.
Neighboring states like Nevada, Washington, Nevada, Idaho and Oregon all have time limits for paying off loans on trade-ins.
Consumers like Dominguez and Randle don't understand the reluctance of car dealers and the DMV to do what so many other states have already done. Dominguez said, "There is no agency that will step in and say hey, enough is enough. This is what you do in these situations, there is just nothing out there to help."
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