The New Breed of Shakedown Lawsuits

It seems like dealers just can’t catch a break when it comes to lawyers and lawsuits. Back in 2004, California businesses won a hard-fought battle against “shakedown” lawsuits with the passing of Proposition 64. Previously, the law had allowed any party to sue a company regardless of whether the plaintiff was directly affected. For example, lawyers were able to review car dealer ads in the newspaper, spot a violation of the Vehicle Code and file a lawsuit against the dealer, without any client who was misled. Proposition 64 restricts private lawsuits against a company only to those where an individual is actually injured by and suffers a financial loss due to an unfair, unlawful, or fraudulent business practice. It also provides that otherwise only public prosecutors may file lawsuits charging unfair business practices. Of course, this was a tremendous blow to greedy attorneys who specialized in these shakedown lawsuits.

Unfortunately, many dealers are still falling victim to other types of class action lawsuits that are no less mind-boggling. It should come as no surprise that these cases typically end up with the allegedly wronged consumers getting little or nothing while the attorneys collect a fortune.

Here are some recent examples of class action lawsuits in California:

• A Toyota Dealer failed to properly disclose an “Optional DMV Electronic Filing Fee” on leases that were assigned to Toyota Motor Credit Corporation and charged the fee without the customer’s knowledge or consent. It is believed the case affects over 50,000 persons who leased vehicles from over 60 Toyota dealerships in the last five years. (We’re talking about a $28 fee).
• A dealership settled a class action suit where a customer alleged that when she was called back to the dealership to sign a new contract to purchase the same vehicle, the dealership dated the subsequent contract the same date as the original contract, thereby causing undisclosed charges. Members of the class, believed to be up to 500 customers, will receive up to $1,400 for valid claims.
• A class action lawsuit that consisted of all persons who executed a Retail Installment Sale Contract with the dealership that included in the “Cash Price of Motor Vehicle,” on the contract the cost of insurance. The Court awarded members of the Class a refund of all of their payments, as well as having the option to rescind their contracts.
• A suit where the Class consisted of all persons who purchased a used vehicle from the dealership for personal use and were charged “California Tire Fees” even though the dealer had previously paid the tire fees to the seller of the tires at the time the dealer purchased the tires. (Tire fees are $1.75 per new tire).
• Another Class consisted of all persons who purchased a diesel vehicle from the dealership for personal use and were charged a smog fee and a smog certification fee.
• A lawsuit where the Class consisted of customers who made a deferred down payment, and whose RISC does not disclose that some portion of the down payment would be deferred until a later date.
• Another action naming all persons who purchased a used vehicle for personal use that was not equipped with new tires, but who were charged a California Tire Fee.
• A Class was defined as all persons who executed a Retail Installment Sale Contract for the purchase of a vehicle for personal use where registration and licensing fees were not properly disclosed.
• Another Class including all customers who were not properly notified within ten days of the execution of their purchase contract that the dealer was exercising its contractual right of rescission.
• Customers who signed a Retail Installment Sale Contract that failed to separately itemize the amounts paid for license fees and registration/ transfer /titling fees on the retail installment sale contract. (Are they kidding? The dealer did not overcharge the fees, but simply did not split them up!)
• A class action settlement was reached on behalf of all consumers who purchased undisclosed prior rentals, entitling class members to $1,000 refunds from the dealership.
• Another class action that involves the failure of the dealer to disclose the itemization of capitalized cost in the precise manner required by law.

You may be thinking that since you have your customers sign an arbitration agreement you don’t have to worry about class-action lawsuits, right? Well, in two recent cases, a law firm successfully defeated motions to compel arbitration in backdating and deferred down payment class actions. One of the Courts held that the customer could not waive her unwaivable rights under the Consumers Legal Remedies Act, which included the right to bring a class action lawsuit. The other Court held that the arbitration clause was procedurally and substantively unconscionable.

Although the cases above are all from California for illustration, be assured that there are attorneys in every state finding ways to exploit dealers. In many states, a plaintiff suing under the state consumer protection laws does not need to prove that the dealer intended to defraud the consumer in order to make out a case. The lack of any element of intent on the part of the dealer not only lowers the bar for proving liability, but also makes the case more susceptible to treatment as a class action.

What’s really sad about all of this is that most of these lawsuits have nothing to do with unfair or deceptive practices on the dealer’s part. The lawyers are simply taking advantage of mistakes and oversights. Take tire fees for example. These fees are often mistakenly charged because the dealer’s DMS isn’t programmed to differentiate between new and used tires. If an employee inadvertently overcharges the fee, it is not retained by the dealer, but sent to the state. So, does that mean that California and the dealer are in cahoots in defrauding the poor consumer? And how about the need to separately itemize the amounts paid for license fees and registration/transfer/titling fees? C’mon, that’s just ridiculous.

The good news is that exposure to these types of lawsuits is avoidable. It is important for dealers to review their company policies and practices and ensure that all employees are properly trained. It may also be a good idea to have a highly-qualified second set of eyes on every deal. Personnel can get very busy and may overlook important details when trying to move customers through the sales process in a timely fashion.

It’s a shame that dealers have to contend with these issues. It’s tough enough trying to stay afloat without the sharks circling.

Views: 27

Comment

You need to be a member of DealerELITE.net to add comments!

Join DealerELITE.net

Latest Activity

Rob Gehring posted a blog post
1 hour ago
Jim Flint posted a blog post
3 hours ago
Black Book posted a blog post

Mainstream Sedans and Vans Show a Lift in Values

Welcome to this week's edition of Black Book Market Insights, with in-depth analysis of used car…See More
3 hours ago
Damian Boudreaux posted a blog post
4 hours ago
Sally Whitesell's blog post was featured
20 hours ago
Brett Sutherlin posted a video
yesterday
Reynalda Lor posted a discussion

TriboTEX Oil Additive is right to increase engine life?

Greetings!I recently bought a few vehicles from the dealer-only car auction and flipping them to…See More
yesterday
Walter McNulty posted a status
"Wow what a week we did so well in Hickory they extended our contract for additional time. We still have Charlotte starting tomorrow."
Sunday
Sally Whitesell posted a blog post
Friday
Eric Damiani posted a blog post

CarGurus

Cargurus, I have notice that because Carvana will provide free delivery to many area, they now show…See More
Friday
Bill Wittenmyer posted a video

Freebie Friday: How Do You Stay Motivated?

Bill Wittenmyer shares tips on how dealership personnel can stay motivated in this edition of Freebie Friday.
Friday
Andy Church posted a video

Profit By Action Quick Tip: Importance of Up To Date Warranties & Recalls

Andy Church shares why keeping up with warranties and recalls can increase profitability in this Quick Tip.
Friday
Scot Eisenfelder posted a video

Razor & Razor Blade Models for Dealerships: Part 1

Affinitiv CEO & Executive Chairman Scot Eisenfelder shares why dealerships should pay attention to the razor and razor blade models for their stores.
Friday
Jim Flint posted a blog post
Friday
Yogesh Sashi posted blog posts
Friday
Asad Shoaib posted a blog post

The Importance of Vehicle Electrical System Repair

The severity of the issue with your vehicle electrical system is dependent on the root causes and…See More
Friday
Ryan Holman posted a blog post

Let’s Know The Benefit Of Window Tint Films For Cars

Global warming has become a matter of concern nowadays. It has been showing its impact on the…See More
Friday
Profile Icon via Twitter
RT @womendrivers: Wow! 76% of women nationally rated their dealership's website '3 out of 5' stars. How can your website be improved to rep…
TwitterFriday · Reply · Retweet
Walter McNulty posted a video

March15

Big Event North Carolina
Friday
Walter McNulty posted a status
"Having a great event in North Carolina."
Friday

Get Newsletter

© 2019   Created by DealerELITE.   Powered by

Badges  |  Report an Issue  |  Terms of Service