FTC Goes After Car Dealers For Lying To Customers About Trade-Ins

Have you ever seen a car dealership ad that promises to pay off the loan balance of your trade-in, even if you owe more than the value of the trade-in? Well, the Federal Trade Commission has stopped a handful of dealers from continuing to deceive buyers with this too-good-to-be-true offer.

See, what was happening, says the FTC, is that the dealers would just take that negative equity and roll it over into the loan for the new car. One dealer even required customers to go out of pocket for the difference.

“Buying a new car or truck is a major financial commitment, and the last thing consumers need is to be tricked into thinking that a dealer will ‘pay off’ what they owe on their current vehicle, when they really won’t,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “The Federal Trade Commission is constantly on the lookout for potentially deceptive ads, and brings actions to stop them when appropriate.”

The specific dealers named in the FTC complaints are: 1) Billion Auto, Inc., in Sioux Falls, South Dakota; 2) Frank Myers AutoMaxx, LLC, in Winston-Salem, North Carolina; 3) Key Hyundai of Manchester, LLC and Hyundai of Milford LLC, in Vernon and Milford, Connecticut, respectively, and which advertise jointly; 4) and Ramey Motors, Inc., in Princeton, West Virginia.

An ad for Key Hyundai contained the following statement: “I want your trade no matter how much you owe or what you’re driving. In fact I’ll pay off your trade when you upgrade to a nicer, newer vehicle.” And Ramey Motors promised to “pay off your trade no matter what you owe . . . even if you’re upside down, Ramey will pay off your trade.”

The FTC has ordered these businesses to stop misrepresenting that they will pay the remaining loan balance on a consumer’s trade-in.

The Commission says it began looking into these deceptive practices as a result of one of last year’s public roundtables regarding consumer protection issues that may arise in the sale, financing or lease of motor vehicles.

FTC Takes Action To Stop Deceptive Car Dealership Ads [FTC.gov]

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  1. Buckus says:

    While they’re at it, maybe they can look into the “Trade-in” offer Fulton Homes is offering?

    http://www.fultonhomes.com/trade-in-program

    • terrillja says:

      They will explore all possibilities. No promises. Where these dealers apparently said they would pay it off no matter what

  2. Cat says:

    “The dealers would just take that negative equity and roll it over into the loan for the new car. “

    I thought everyone knew this. Or could figure it out for themselves.
    But again, I have underestimated the ignorance of the masses.

    • Buckus says:

      If they don’t tell you that’s what they’re doing, then it’s deceptive advertising.

    • Dover says:

      I came here to say this. What did people think was happening to their old loan?

      • Cleo256 says:

        They probably didn’t tell you about it until you were sitting down to sign the paperwork for the new car, and suddenly there’s this extra fee in there. Yeah, you could still walk away (assuming they hadn’t crushed your car into a cube in the intervening time, which I vaguely recall was a thing). But at best the practice is bait-and-switch.

    • Kate says:

      That doesn’t make it any the less illegal to advertise one thing and do another.

    • Blueskylaw says:

      What they try to do is get you to take out a 7 or longer year loan so that they could include the payoff of the other car while saying look at how low the payments are.

    • SeattleSeven says:

      This is very common and not always a bad thing. I mean, it isn’t ideal to be underwater on your car but it happens and rolling over a couple grand is fine. Especially when moving to a zero percent loan or something similar.

      That said, if you qualify for a zero percent loan, you likely know what you are doing and this isn’t a big surprise.

      • Velvet Jones says:

        I did that on my last vehicle. I was about $1000 underwater based on what it was worth, but I was going from a 7.9% loan to a 0.0% loan. The truck I was trading in was already starting to have tranny problems and had just passed it’s warranty, so I figure it was more than worth it. The truck I traded it for just passed 11 years and is still going strong.

    • BurtReynolds says:

      Keep in mind that many car buyers have no freaking idea what they are actually paying for the car or getting for their trade. They just spit out a monthly payment, which a skilled salesman then immediately bumps up $20.

      I only sold cars for a short time, but it was amazing how many people could care less if they were paying sticker price, getting under book value on their trade, and were paying 8% for 72 months (when they could get lower) as long as we hit the monthly payment they had in mind. Most customers I had who had negative equity thought it was a gift that we could roll it into a new loan and “get them out of” their old car.

      • Dallas_shopper says:

        Heh…no wonder car dealers get so pissy with me when I tell them to throw out their little ‘foursquare’ box thingy and to not say the words ‘monthly payment’ one more goddamn time.

        All I’m ever interested in is bottom-line price.

    • skakh says:

      Ignorance is rampant, how else can one explain the GOP?

    • Clyde Barrow says:

      @cat; same here. I never thought that they dealer ate the loss because that would not make any business sense. The point of this deal is to get a customer into a new car and add the existing balance to the new loan. Why? To get a new car and then pay a montly payment without paying for fixes. Pay a loan and fixing a car can be very demanding against your disposable cash for people with limited incomes.

  3. Kaleey says:

    I can think of one local group of dealers who advertises this, in the Louisville/Southern Indiana area. Was this just to get the ones with the most BBB complaints?

    • Misha says:

      I’ve heard Indianapolis-area dealers doing this too. And the phrasing “nicer, newer vehicle” from the Key Hyundai ad reminds me strongly of the Hare Chevrolet radio ads.

  4. valthun says:

    When I traded in my Focus for a MINI lease I was upside down on the Focus. They were straight up that they would transfer the remaining balance of the loan into the total of the lease. They also increased the trade-in value to closer to retail instead of trade-in to help reduce the amount I was upside down by.

    But yeah, if these people are going in and picking a car and not asking why the car they are buying is 5 to 10k or more over the price of the car, the consumer isn’t paying attention.

    • johnyg30518 says:

      They didn’t increase the amount of your trade in at all. What they did was “give you more for the trade in” but not telling you the amount of the car increase by the same. (Whether it was by a half point on the interest rate or by adding on an optional extra you’d need to pay for, it still adds up to roughly the same).

  5. Loias supports harsher punishments against corporations says:

    Well, technically they ARE paying off your trade-in, but they’re just billing you dollar for dollar the priviledge of such an action.

  6. KingPsyz says:

    About time…

    And I work for a dealer! We’re just as tired of these ads as consumers are. Nobody listens to the micromachines speed disclaimer at the end of those ads so we’re constantly describing just how these programs work when they call and argue “but dealer _____ said they’d pay off my 2009 Hummer I owe $40k on… why won’t you?”

    I would also like for car dealers to stop claiming national incentives are being offered by them only, or claiming the discounts come from them and not the factory.

    • Nigerian prince looking for business partner says:

      “…or claiming the discounts come from them and not the factory.”

      I think that one irritates me the most. Car salesman always pretend that factory incentives come out of their pocket. MSRP – factory incentive is not a good deal, it is the starting out point for negotiations.

      • castlecraver says:

        Ha! MSRP! Try invoice price minus factory incentives, and make them negotiate up from there.

  7. Cat says:

    Worse yet, we had a local used car dealer that “said” they would pay off the old loan, and never did. People wound up getting calls from collections, and some people they even left with a car that nobody could produce a title for after they were busted for it.

    • Buckus says:

      Had that happen to me once. Car I traded in wasn’t worth the amount i still owed on it. Dealer sat on it for a month until my bank called asking where my payment was. I described the situation to them, gave the phone number of the dealer. About ten minutes later I get a call from the dealer asking where the nearest branch of the bank is so they can courier a check over there ASAP.

      Funny thing is, they never transferred the title to themselves, and about two years later I get certified mail from two states away saying the car had been impounded and if I didn’t retrieve it within X number of days it would be sold at auction. Since I didn’t care about that POS anymore, I let it be.

      Nowadays, I doubt a bank would go to bat for you like that, they’d just say “You need to make your payment or work it out with the dealer” and I’d have to threaten the dealer myself by using my own money to hire a lawyer.

    • tehbob says:

      This is actually illegal. The dealerships are required by law to pay off the lein directly with the lein holder if they are accepting a trade-in with a lein against it. They are also required to do it in a certain amount of time.

  8. Costner says:

    Billion Auto is the same company that also thinks the 1980s marketing campaigns still work. They mail cheesy sweepstakes fliers, they have those annoying “SUNDAY SUNDAY SUNDAY” television commercials, and their announcers are always yelling at you via television or radio commercials.

    They actually drive a few thousand cars to the local fairgrounds half a dozen times every summer to have a “fairgrounds sale”. I’m always amused because they are suggesting just because you drive the cars to the other side of town that they must be cheaper. Idiotic.

    Plus their pricing isn’t even remotely competitive and their salespeople are pushy and greasy to the point you feel like you need a shower after speaking with them. The fact they stay in business is amazing to me, but I guess they have a captive audience since you would need to drive 100-200 miles away to get legitimate competition.

    • A.Mercer says:

      Guys like this stay in business because they target people who have poor credit or no money. The salesmen will find “creative” ways to get those people in cars. I wish it were law car loans came with a success number. Basically, if you were offered a car loan the company had to tell you what was the average number of car loans they offered that went into default and then a comparison number like a national average or something. Maybe, just maybe, some people would see below average success numbers and rethink their business decision. I know some of those tote the note type lots would have an almost 100% default number.

      • Rachacha says:

        knowing the default rate will have no impact. People who are financially in dire straights feel that they can “beat the odds” because they get lured into the excitement of a new car.

    • kosmo @ The Soap Boxers says:

      Billion recently bought up a bunch of dealerships in my town (two of them within an easy walk from my house). The commercials are annoying, so we’ll continue to buy cars at the less-annoying dealer a half hour away.

      • Costner says:

        Just wait… if history is any indicator Billion will buy them in a few years. I’m guessing you are in Iowa, but in South Dakota they had two competitors to their Chevrolet dealership both within 25 miles… they ended up buying them both, so now if you want a Chevy the three closest Chevy dealers are all owned by Billion.

        Sort of makes it hard to comparison shop, but it gives me just one more reason to NOT buy a Chevrolet (as if I needed another reason).

        • kosmo @ The Soap Boxers says:

          Yes, in Iowa. I’m guessing that they’d buy the dealerships to the north first (larger metro area there), and we use the one to the south. Or we’ll just drive 50 miles instead of 25.

          They aren’t just Chevy around here.

    • BurtReynolds says:

      Annoying? You’ve never encountered Billy Fuccillo.

  9. mattyb says:

    I hear that line just about every day on radio advertisements in the Tampa Bay area.

  10. Bob says:

    What people fail to realize is that they’re in essence just borrowing money from dealership B to pay off a car bought at dealership A so that they’re free and clear to buy a car at dealership B with no other outstanding loans. What I would really like to see done away with are those “$2000 MINIMUM FOR YOUR TRADE! Push, pull, or drag it in!” Most of those ads yell out that tag line as many times as they can, with NO fine print, NO “see dealer for details” or no other exclusions. It’s only when you get to the dealership you find out that oh yeah, they’ll give you 2 grand on your trade only if it’s a 2001 model or newer, running, and has been in your name for a year. If the ads on TV said “see dealer for details” then yeah, I know there’s a catch. But to just yell out 2 grand minimum trade, with nothing else in the ad… that’s downright deceitful.

  11. gman863 says:

    My favorite deceptive ad was a letter from Clear Lake (TX) Honda a few weeks ago.

    “WE’LL PAY YOU 100% OF ORIGINAL M.S.R.P. FOR YOUR 2002 ACCORD!”

    Down in the two-point size fine print of the letter: “less .36 per mile and any reconditioning costs.”

    New MSRP on my car was about $22,500 in 2002. It now has 125,000 miles.

    .36 x 125000 = $45,000 deduction off the 100% trade-in value. Based on this offer, I would have to give Honda of Clear Lake my old car for free, plus the cost of the new car plus an additional $22,500 based on its mileage for them to take it off my hands.

  12. Trojan69 says:

    The best line is “All credit applications accepted!”

    And they get dozens of folks who think that means their credit score/history is good enough.

  13. tbax929 says:

    I got a letter from my dealer informing me that the 2012 Altima is now in. Gee, that’s really helpful to me 10 months after I bought my 2011 Altima. What exactly do they expect me to do?

    • pythonspam says:

      Trade it in for the new model?
      They will gladly roll your depreciated underwater balance into your new loan.

      Also: *clears throat*
      Rabble Rabble Rabble. Nanny State. Big Government. Rabble Rabble.

      • Southern says:

        There are some people that lease a new car every year. It’s more expensive, but it’s like a status symbol to them.

        I just chalk it up to having more money than sense. :)

    • KingPsyz says:

      nothing… It’s all automated now… I’ll be a relic in a few years and I’ve only been doing this for 7 years…

  14. MECmouse says:

    They are paying off your trade-in by taking the money they add to your loan and then basically selling the car you just refinanced! Great deal for the dealer. Then again, anyone who trusts anything a car dealership tells them…

  15. Robert Nagel says:

    They are making a significant offer. If they don’t pay off the old note and add the difference to the price of the new one, many people couldn’t get a new car. They are in effect making an upside down loan from the beginning. They have X amount of security in the sold car, but the loan is for X plus the deficiency which is a greater amount.

    • Conformist138 says:

      If you’re upside down to start with, why would someone want to go for a larger upside down loan? I mean, if you have a car and it runs, and the loan is upside down and you can’t pay it off… why should you buy a new car? Seems like it just digs the hole even deeper. However many years later you’ll want another new car, but what if the loan is even more underwater by then? It’s just gambling the future for immediate reward. Bad plan.

  16. BurtReynolds says:

    IMO this isn’t as bad as a local dealer here that would include “down payment” like a discount for lowering the bold, in large font “price” on their ad. Examples:
    2012 Honda Accord:
    MSRP: $24000
    Shady Dealer Discount: $1400
    Honda Bonus Cash: $500
    Down payment: $2000

    YOUR PRICE: $20,100 (in big bold font)

    I wonder how many customers don’t bother to read the list of “discounts”.

  17. do-it-myself says:

    Technically the dealership is “paying it off” for you, but what they don’t tell you is that you have to pay them back! They are essentially just buying the loan from the original lender. It’s more of a “refinance” or “consolidation” of the remaining balance of the loan into the new one.

    These half-truths are horrible and need to dissapear…

  18. La Flama Blanca says:

    I bet Ashley Schaeffer does this