A fraudulent dealership practice has become more frequent in recent years, resulting in significant hits to car buyers’ credit scores and even, in some cases, lawsuits.
When a consumer can no longer afford the payment on their current vehicle, they often return to the dealership to trade it in and get a more affordable vehicle. The equity in the first vehicle functions as a down payment, but it is often not enough to sufficiently offset the new loan. To convince the consumer to purchase the new car anyway, the dealership tells the consumer not to trade it in. Instead, they can simply stop making payments on their current vehicle in order to have it repossessed by the lender.
The lender will repossess the vehicle and resell it, but the consumer will most likely still owe the lender because the lender won’t get enough in the auction to cover the full amount of the original loan. The dealership, however, does not mention this fact to the consumer.
As a result, the consumer takes out another loan for a new car without knowing that they will still owe thousands to the lender of the original auto loan. The lender then sues the consumer and, if successful, garnishes their wages and assets.
This dealership scam is referred to as “kicking the trade.” Dealerships will even inflate their customers’ incomes in order to convince banks to give out additional loans for more expensive cars.
Some consumers are filing lawsuits to hold dealers accountable for this fraudulent business practice. Although the National Automobile Dealers Association claims this isn’t a prevalent issue, data from TransUnion suggests otherwise. Repossession within a year of acquiring vehicle loans has significantly increased since 2014, and approximately 20% of people who experience repossession acquire another vehicle loan within a year.
Are You Struggling with High Levels of Debt?
If your credit score has plummeted, your loan payments are too high, or your creditors are engaging in relentless collection tactics, our team at The Southard Law Firm, L.L.C. can help you find a solution. We can work on your behalf to end creditor harassment, and, if you need to file bankruptcy, we can help you do so in a way that sets you up for long-term success.