Attorney General of Washington: State Takes Action to Stop Deception in Auto Industry
18 September 1997
Attorney General of Washington: State Takes Action to Stop Deception in Auto Industry
SEATTLE, Sept. 18 -- The Office of the Insurance Commissioner
and the Office of the Attorney General today announced major action has been
taken to improve the way auto-related products including credit insurance and
service contracts are sold to consumers.
Lawsuits were filed under the Consumer Protection Act against two major
service contract and credit insurance sales consulting companies. Agreements
were reached with four dealers and two other insurance consulting firms to
promote the use of fair and non-misleading tactics in the sale of automobile
related products.
According to Attorney General Christine Gregoire, an investigation was
launched after it was alleged that various sales tactics were being used
during negotiations to buy a car as a way to conceal that the payment quoted
contained more money than needed to actually purchase the vehicle. The extra
money was then used to cover the costs of additional products and services
such as auto-related credit insurance and service contracts.
Insurance Commissioner Deborah Senn and the Attorney General resolved the
investigations when the six companies signed settlement agreements which
include claims process and payment of insurance fines, attorney fees and costs
and to promote fair and non-deceptive selling practices in quoting payments to
consumers.
"These companies fully cooperated with the State's investigation," said
Gregoire. "As a result they have agreed to make sure consumers are fully
informed about the products they buy and their costs."
Those businesses are:
Red Ralls dealerships in Aberdeen and Port Angeles, without admitting any
wrongdoing under their settlement will pay $50,000 insurance fine and $50,000
in costs and fees.
Hannah Motor Group of Vancouver, has agreed to pay $50,000 in costs and
fees under an agreed order, while acknowledging a variety of practices which
have the capacity to mislead a substantial number of consumers.
Agent Based Services, Inc. of Washougal, Washington has agreed to pay
$50,000 in insurance fines under an agreed order, while acknowledging a
variety of practices which have the capacity to mislead a substantial number
of consumers
Larson Automotive Group of Pierce County, reportedly the largest dealer
group in the state, without admitting any wrongdoing will pay $125,000 in
insurance fines, $50,000 in costs and fees, and a civil penalty of $250,000
(with $75,000 suspended conditioned upon compliance with the Consent Decree).
The Larson Consent Decree prohibits other alleged deceptive sales and leasing
practices.
Simpson dealerships in the Tri-Cities without admitting any wrongdoing
have agreed to pay $100,000 in insurance fines, $75,000 in costs and fees, and
$50,000 in suspended civil penalties.
American Financial and Automotive Services, Inc. of League City, Texas,
without admitting any wrongdoing has agreed to pay $50,000 in fines, $50,000
in fees, and contribute $100,000 to the Legal Aid for Washington (the "LAW"
Fund) and Consumer Credit Counseling of Washington to benefit low income
consumers/debtors.
The lawsuits were filed in King County against Associate Dealers Group
(ADG) of Bellevue, Washington, Inc. and Resource Dealer Group (RDG) of
Illinois (Cause No. 97-2-15754-4 SEA) and Universal Underwriters Life
Insurance Company and Universal Underwriters Service Corporation (both of
Missouri) (Cause No. 97-2-15752-8 SEA).
The practices which are the subject of the RDG/ADG lawsuit are known in
the automobile industry as "packing" or "loading" the payments. Under the
alleged tactics, the defendants encouraged auto dealers' staff to use certain
sales techniques in combination with the "packed" payment to reduce the
likelihood consumers would object to the inclusion of extra products based on
cost. Words such as "protected" payment; or "it's included"; or "it's
provided"; were allegedly used to imply that the product was included free or
at a reduced cost. Universal allegedly advocated for the use of packed
payments by some of its dealers in Washington.
Consumers coming out of hours of lengthy negotiations may have failed to
focus on the additional cost for the optional products, even when disclosed in
writing, because the payments they were quoted throughout the negotiations
never changed.
"If it cost $270 a month to buy a car, dealer personnel might quote $300
and use the difference to hide the actual cost of extra products making the
customer believe it was all part of the deal," said Gregoire.
"The practice of 'packing' in the car industry must be eliminated and
resolving these cases will be a major step toward making sure that happens,"
said Gregoire. "Consumers have the right to expect and dealers have the
responsibility to accurately quote monthly payments."
Insurance Commissioner Senn expressed concern about the widespread
misquoting of payments in the automotive industry and their capacity to
mislead so many consumers.
"Consumers should always question the cost and benefit of all products,
but be very cautious when buying credit insurance," said Senn. "If you don't
know the details of the coverage and the price, then don't buy it."
All of the auto dealerships signing consent decrees and settlements have
agreed to establish complaint handling procedures. Consumers who want more
information or who would like to file a complaint should call the Attorney
General's office at 800-551-4636 or visit the AG homepage at http://www.wa.gov/ago or
call the Insurance Commissioner's Office at 800-562-6900.
Washington State Attorney General's Office
Packing or Loading Automobile Payments
Packing or loading payments... is a slang term used to describe a practice
promoted by the credit insurance business and used by the auto industry to get
customers to agree to purchase additional products, such as credit insurance,
service contracts, chemical protectants, and security devices, without
revealing their true impact on their monthly payments.
Packing is played out when ... a customer finances their vehicle through
the dealer. It goes like this ... a customer agrees to a purchase price and
the dealer quotes a monthly payment approximately $20 to $40 higher than what
is needed to cover the price of the vehicle. That creates a "pack" or room in
the payment to add in the optional products. Dealership personnel are trained
to suggest to customers during the negotiations that the optional products are
included "free" or at reduced cost.
Because the monthly payment doesn't increase and because the customer
believes the products are "free" or discounted, most people don't object when
the products are included in the final contract.
BE AWARE
Automobile dealers who use "packed" or "loaded" payment quotes try to
conceal their actions, so you may not realize immediately that you are being
misled. REMEMBER, PACKING OCCURS WHEN YOU FINANCE THROUGH THE DEALER.
* WATCH OUT if a dealer seems overly concerned with keeping your focus on
the size of the payment, which doesn't seem to change during your
negotiations.
* LISTEN FOR KEY WORDS including "Protected payment" or "It's included!"
or "It's provided -- no extra charge!" or "Your payment is insured, it won't
change!"
* BEWARE when additional products or services are added at "no extra
cost."
* COMPARISON SHOP for interest rates and financing terms.
* CHECK FINANCE TERMS with your own bank or credit union before signing up
for dealer financing. Dealer financing may be more convenient, but interest
rates may also be higher than those charged directly by banks.
* CONSULT AN AMORTIZATION SCHEDULE. Make sure payments quoted aren't
higher than what is needed to cover the purchase price of the vehicle and
products you have agreed to buy.
* NEGOTIATE ON PRICE, TRADE-IN VALUE and INTEREST RATE... Don't let
the negotiations focus solely on the monthly payment.
* REQUEST THAT ALL PAYMENT QUOTES BE DISCLOSED with interest rate and term
(number of months) and the specific products and services that payment covers.
* CHECK PURCHASE AGREEMENT AND LOAN DOCUMENTS carefully to make sure only
the products you have agreed to are included.
* CONFIRM THE PRICE OF ALL PRODUCTS included in your sales contract and
loan agreements.
* ASK WHAT YOUR MONTHLY PAYMENT WOULD BE if optional products are removed
from the contract.
* REMEMBER EVERYTHING IS NEGOTIABLE in a vehicle deal and nothing is
"free."
* THERE IS NO THREE DAY RIGHT TO CANCEL A CAR PURCHASE OR LEASE. If you
sign the contract, you are legally bound by its terms.
CONTACT THE ATTORNEY GENERAL'S OFFICE
800-551-4636
http://www.wa.gov/ago
SOURCE Attorney General of Washington
