UNITED STATES MARINE CORPS OFFICE OF THE STAFF JUDGE ADVOCATE MARINE CORPS INSTALLATIONS EAST PSC BOX 20005 CAMP LEJEUNE, NORTH CAROLINA 28542-0005 5800 22 Nov 09 MEMORANDUM From: Regional Legal Assistance Officer, Marine Corps Installations East Subj: MOTOR VEHICLE FINANCE SCAMS CONCERNING U.S. SERVICE MEMBERS 1. Legislation has been proposed to establish a new Federal agency with broad authority to regulate lending practices. As I understand it, motor vehicle dealers are lobbying for an exemption to such regulation. While I take no position at this time concerning any bills that may be before Congress to regulate lending, I believe that I am in a position to shed some light on the sorts of practices that car dealers have perpetrated against military service members, principally Marines in eastern North Carolina. 2. I am currently the Regional Legal Assistance Officer, Marine Corps Installations East, a supervisory position over military legal assistance operations along the U.S. east coast south of the national capital region. Legal assistance officers, pursuant to Title 10, United States Code, section 1044 and implementing military regulations, assist eligible clients concerning civil law issues, including consumer law problems. I also served as the Officer in Charge of Legal Assistance, Marine Corps Base, Camp Lejeune, from October 2004-June 2009. I am retired Marine Judge Advocate, having retired in February 2003. While on active duty, I served in numerous positions, including Officer in Charge of legal assistance at Yuma, Arizona; Camp Lejeune, North Carolina; and Okinawa, Japan. 3. I have summarized auto finance cases using relatively recent cases at Camp Lejeune, NC as examples: GETTING "HOOKED UP" ON DAY ONE AT CAMP LEJEUNE Summary. Upon arrival at Camp Lejeune, junior troops are assigned to the Joint Reception Center (JRC), where they receive orientation, conduct personal administration, and await orders to their specific unit. They reside in the second floor of the JRC until these matters are completed. Local car salesman trespasses onto the installation, and violate Base anti-solicitation regulations, by conducting an impromptu class to our most junior Marines on how car dealers will rip them off. Yet the salesman describes how he can "hook them up" with a reputable dealer to avoid scams. One of the "classes" is held 1 just outside the JRC. At least one other "class" is held when the salesman sneaks into the auditorium during a break between legitimate orientation classes. HOLDING TRADE IN VEHICLE FOR RANSOM, DAMAGING TRADE IN, DEMAND FOR RENTAL FEES. Summary. Marine corporal is considering purchasing a 2005 vehicle for $14K. He is reluctant to take a test drive because he has no insurance and financing had not yet been approved. Nonetheless, at the dealer's urging, he is told to leave his current car with the dealer and drive the 2005 vehicle for a day. He does so, decides the car has too many problems and he doesn't like it. Besides, he learns that he can purchase a brand new car for only slightly more. The dealer refuses to return the Marine's car, says the keys are locked in the desk and he won't give them back. The dealer tells the Marine to go stop complaining and not to return until he has a loan to pay for the car, even though the Marine has never signed anything obligating him to make any purchase. The Marine calls the credit union and tells them to cancel the loan. The dealer then tries, unsuccessfully, to make the Marine pay for "renting" the vehicle. After much travail, the Marine gets his own car back, but the front end is now dented. THE TEST DRIVE THAT OBLIGATES PURCHASER TO FORFEIT HIS TRADE IN AND BUY A TRUCK THAT CAN'T GO IN REVERSE Summary. Marine private first class is told to leave his current vehicle at the dealership and test drive an F150 truck over the weekend. He gets loan approval but never signs any documents agreeing to purchase. He quickly learns that the vehicle can not go in reverse. He advises the dealer, who says that he knew about that problem and that they will fix it. The Marine brings the truck in the following Monday and says he doesn't want it. The dealer initially refuses to give the Marine his vehicle back, arguing that he agreed to purchase the truck. When it is clear that the loan application does not obligate the Marine to buy anything, the dealer says that the Marine is bound by a verbal agreement to buy the truck. Ultimately, after much arguing, the dealer agrees to return the Marine's car. However, the dealer has taken the keys to his house, so the Marine has to wait until the dealer can go home to fetch them. THE COMBINATION "FREE" TRAVEL INCENTIVE PLAN AND PHONY LOAN APPLICATION Summary. Just prior to the Thanksgiving holiday, a Marine lance corporal goes out with his friends to look at cars. He's not very interested in buying a car, but is convinced to do so when the salesman tells him that he will reduce the price by $400, make the first car payment, and purchase round trip air fare at no cost to the Marine so that the Marine can visit his parents living across the country. The lance corporal calls the credit union to obtain a loan and is told by the salesman to tell the loan officer that the car has four doors when it only has two. He is also urged to tell the loan officer that they haven't picked out a car yet, when actually they have. There are other curious items; the dates on all the paperwork as to the date of sale, and issuance of temporary insurance are all inaccurate. While the loan is pending, the Marine talks to his buddies, who tell him that he is being vastly overcharged. Marine returns the vehicle and is told that it's too late, he bought it. Further, there is "trash" in the vehicle [three empty packs of cigarettes.] The dealer 2 repeatedly yells at the Marine, telling him "Get my fucking money right now." Seeing no alternative, the Marine goes to the credit union and has his loan approved. The Marine then learns that there is no gift of airline tickets, its cost is folded into the loan at 13% interest. Further, the financing includes monthly insurance for double the amount the Marine could get elsewhere. He never gets the $400 mark down he was promised and his parents wind up buying the airline tickets. "DEALER FREIGHT AND PREP FEES" WIPING OUT TRADE IN VALUE. Summary. Marine corporal trades in his current motorcycle to purchase a new motorcycle, getting a credit on the trade in of about $8K, leaving a balance of $9K. Instead, dealer throws in a ridiculous "dealer freight and prep fee" exactly equal to the trade in credit, completely wiping it out. The same dealership attempts this scam on another Marine as well. The errors are corrected once a legal assistance attorney and the DMV theft and licensing inspectors get involved. How many others are out there? SELLING MOTORCYCLES TO PEOPLE WHO CAN'T DRIVE THEM, DESTROYING THE VEHICLE, AND GOUGING THE CONSUMER WITH STORAGE AND REPAIR FEES Summary. Navy Hospitalman Recruit is so eager to buy a motorcycle that he does so, even though he has no license or insurance. As instructed by the dealer, he leaves the motorcycle at the dealer's lot, outside the fenced area, while he attempts to get license and insurance. The next day, he is told that another driver crashed into the motorcycle while it was at the lot. Of course, the other driver is uninsured. The dealer takes the motorcycle to a repair shop drags its feet on any estimates or repairs, tells the Marine that there will not be any storage fees, then gouges him for $2,500 in repairs and $280 in storage fees. "FREE" TRANSPORTATION TO THE BEACH, BUT INABILITY MAKE TIMELY RETURN TO THE BASE WITHOUT BUYING A CAR. Summary. Car dealer from Virginia Beach comes to Camp Lejeune / Jacksonville offering free round trip transportation to the beach on weekend. Numerous Marines are virtually stranded in Virginia, with no means of returning to the Base in a timely manner, unless they purchase a car. The state of Virginia ultimately revokes the dealer's license to sell cars; but little over a year later, he is found to be selling cars again, this time without a license. DEFRAUDING THE LENDER WITH PHONY LOAN DOCUMENTS Summary. Marine with expired, out of state learner's permit and no driver's license goes to local dealer to purchase a car. Since it will be difficult for the Marine to obtain a loan and insurance under those conditions, the dealer takes a bottle of white out and a typewriter and, voila, the Marine now has a current driver's license, which the dealer FAXes to the lender along with other loan documents. The staff noncommissioned officer supervising the Marine is curious about how a person with no driver's license can buy a car and inquires. As advised by the staff sergeant, the Marine goes to take the car back and the dealer initially refuses, accusing the Marine of a felony for altering the learner's 3 permit. The staff NCO assists the Marine to go to the credit union to get the smoking gun, the altered documents they received via FAX, and then they point out to the dealer that it was their own employee that altered the card and sent a forged document to the lender. The dealer agrees to rescind the contract and return the $500 down payment. SURPRISE FINANCING Summary. Marine private first class is urged to, and does, sign sales / purchase agreement to buy a vehicle for $17,900. He drives away with no financing. When he returns, he is surprised (based on earlier conversation with the dealer) to learn that he will be financed at 15%, and that additional fees hike up the price of the car up another $2K. REFUSAL TO RETURN DOWN PAYMENT WHEN THE FINANCING FALLS THROUGH Summary. Marine puts down $2K on new vehicle and is advised that he can drive it away even though there's been no purchase or finance agreement completed. He has trouble getting a loan because he's got too much debt; the vehicle his mother drives is financed in his name. He wants mom to sell the car or refinance it in her own name so that he can get the new car. Neither of these things happens and the dealer says they want the car back. They initially refuse to return the down payment until more senior Marine leaders get involved. RIPPING OFF THE WIFE WHILE THE HUSBAND IS DEPLOYED; EXCESSIVE FEES AND REFUSAL TO RETURN DOWN PAYMENT WHEN THE FINANCING FALLS THROUGH Summary. Wife of deployed lance corporal goes to Wilmington to purchase a vehicle. She gives them a $1,000 down payment and drives the vehicle off the lot, with the understanding that if the dealer can't get her financing and she returns the vehicle without "excessive mileage" the contract will be rescinded. The dealer is unable to obtain a loan and directs her to return the car, which she does. The dealer refuses to return the deposit and sticks her with additional fees, including auto insurance. SELLING CARS TO PEOPLE WHO CAN'T AFFORD THEM. Summary. Marine lance corporal assigned to Marine Corps Logistics Base, Albany, Georgia, obtains a loan from the dealer to purchase two brand new cars, giving the young man a whopping $60,000 indebtedness. Together with other bills, his total indebtedness exceeds $70,000 and his monthly expenses now greatly exceed his income. TRADING IN AN OLD BUT OPERABLE VEHICLE FOR A PIECE OF JUNK Summary. Marine lance corporal falls in love with 2002 Mercury Cougar, takes it for a test drive and decides to purchase. He trades in his Honda Accord for $3K. After less than 24 hours, the car breaks down and becomes inoperable. The Marine brings the vehicle back and is accused of racing the car, thereby causing the damage. He did not race the car. The Marine gets the damage fixed and something else breaks down. In fact, there are a series of various car problems which Marine repeatedly must pay to fix. 4 REDUCING YOUR CARBON FOOTPRINT BY GIVING AWAY YOUR CAR. Summary. Marine decides to trade in his old gas guzzler truck, on which he still owes several thousand dollars, for a new, fuel efficient vehicle. The car dealer takes the truck and rolls the deficiency balance on the loan into the price of the new car. Thus, the dealer fails to pay off the loan on the trade in and fails to credit the customer for any value of the trade in. The customer still has to pay for two vehicles, but has only one in his possession. SELLING CARS YOU DON'T OWN. Summary. Some years ago, a local Jacksonville, North Carolina dealership made a practice of selling cars that it did not own. People would trade in vehicles to the dealership and purchase a new vehicle. The dealer would then sell the trade in vehicles without paying off the loan deficiencies as promised. The customers that turned in the trade in vehicles would be surprised by calls from creditors and debt collectors demanding payment. The customers who purchased the vehicles would be unable to obtain title to them due to the existing lien. The NC Department of Motor Vehicles became involved, as well as the office of the District Attorney. After almost a year, the DMV was able to straighten out the vehicle title problems through a special compensation fund. 4. Statistical Information. Invariably, when legislation or military regulation is contemplated to resolve some societal ill, there is a desire to determine the extent of the problem. How many people are ripped off in auto finance scams? How many of these problems are resolved quickly and effectively under current regulatory scheme? What is the dollar loss to the consumer? And so on. Military legal assistance offices do not collect statistical information concerning motor vehicle sales. Thus, calls for data rely on the memories of current legal assistance attorneys, who may have been in their positions for only a short time and will, if active duty, generally transfer to another assignment within a year or less. Moreover, the majority of service members who have been ripped off in motor vehicle sales will probably never see a military legal assistance attorney; some may not even know they have been ripped off. Accordingly, numerical data from legal assistance offices, and by extension from the armed forces, are highly likely to understate any problems concerning automobile sales. It is my personal opinion that the above mentioned anecdotes are hardly isolated incidents; rather, they are the natural result of a sales force earning its compensation on commission and a large concentration of young, unsophisticated consumers. M. S. ARCHER 5