WASHINGTON - Dealers' finance and insurance departments are expected to face intense legal scrutiny because of well-publicized crackdowns on illegal payment packing in Washington state and California.
State attorneys general are so fired up about illegal payment packing - quoting inflated monthly payments to unknowing finance customers - at car dealerships that the National Association of Attorneys General issued a resolution against it.
Dealers could be in for some trouble. The statement, signed by attorneys general in every state, goes beyond attacking illegal payment packing and questions the value of legal products such as extended service plans and credit insurance.
'The back-end now accounts for a significant percentage of profits at dealerships. However, F&I managers need help selling their products. Credit insurance, service contracts and chemical protection packages are generally perceived as a poor value by the public,' the statement says. 'Consumers who have just agreed to spend thousands of dollars on a vehicle are understandably reluctant to purchase additional products which can add substantially to the amount financed.'
The resolution says payment packing is widespread, and it invites the Federal Trade Commission to cooperate with state justice departments to crack down on finance and insurance departments.
The FTC could take a hard look at dealerships on this issue, since it already has gone after home mortgage lenders on payment packing, said FTC attorney Ron Isaac.
The most recent case of payment packing involves Gunderson Chevrolet in El Monte, Calif., the state's largest Chevrolet dealership. Gunderson has attracted media attention because the dealership is a wholly owned subsidiary of AutoNation Inc., the nation's largest car dealership group, and it is one of the biggest California fraud cases of its kind in recent years.
The California Department of Motor Vehicles has charged Gunderson with fraud, deceit and misrepresentation in selling new and used cars to more than 1,500 customers. The case has been referred to the district attorney's office in Los Angeles, where an investigation is pending.
The Department of Motor Vehicles has the power to revoke or suspend Gunderson Chevrolet's dealer license.
AutoNation spokesman Jim Donohue said the general manager and finance manager were asked to resign last year when the allegations were raised, and new management is in place. Gunderson was an isolated case, Donohue said.
In recent years, Washington state regulators also have taken action against car dealers, finance consultants, training companies and computer vendors, collecting $2.5 million in fines.