Car Scam Is Driving Both Sides of Street

Strident television commercials, aside, how do you spell “relief”?

In matters financial, unfortunately, walking away from an indebtedness is the all-too-popular option, and it has opened the doors, locally, to a slick rip-off in the automobile market that has law enforcement agencies, financial institutions and leasing companies as infuriated as they are frustrated.

At the heart of it are double-barreled ads in Southern California advertisement-tabloids blatantly appealing to the debt-strapped. Sample: “Protect your credit! Owe more than your car is worth??? We will assume your lease or contract payment at no cost to you.”

And, playing the other side of the same street: “Drive the car of your choice! Only in America! No qualifying, no credit financing, nooo problem! Many fine autos and trucks to choose from!” Or: “No credit check! Take over payments plus equity!”

Two apparently satisfied customers: a car buyer, hopelessly over his head in debt, is suddenly relieved of the major drain on his pocketbook; and a new buyer who, in the words of one bank loan officer, “wouldn’t qualify for a bag of popcorn on the strength of a standard credit check,” drives off in a late-model car.

The big winner: the “financial service” company putting the deal together. The big losers: the same buyer and seller mentioned above and the leasing company or legitimate financial institution that bankrolled the car purchase or lease in the first place.

While bankers are traditionally loathe to admit being victimized, the size of the scheme--which began surfacing here last summer--is suggested by the same loan officer, who requests that his name not be used: “We’ve lost at least a dozen late-model cars to these ‘financial service’ companies from just the bank branch where I work. Statewide, our losses may be many times higher.” And, he adds, a friend in a similar position with the branch of another bank reports about “30 to 40 losses” from his branch.

Among auto leasing companies, however, there’s no such reticence. “Our members are out between 200 and 300 cars so far,” according to Bill Nerenberg, executive director here for the National Vehicle Leasing Assn. (NVLA), a trade group with more than 700 member companies in 37 states and having $30 billion in assets.

“And I’m just talking about Southern California--primarily the Los Angeles area. So far, it’s the only place in the nation where the scam is being used.”

Here, the bank loan officer says, is what happens when a buyer yields to the “financial service company” ad to “take over payments and equity” on a late-model car without having to undergo what would otherwise be a disqualifying credit check.

“He pays $2,000 or $3,000 for the ‘equity’ that the financial service company simply pockets--the seller never sees a dime of it.” The banker adds: “And then the company jacks up the monthly payments that the buyer is taking over. If the payments are supposed to be $200, it will raise them to $275.”

The procedure is the same for leased cars, Nerenberg adds, “and the financial company may actually make the payments for a few months, pocketing the $75 difference--as long as the sub-lessee makes payments, that is--but always by cashier’s check or money order so that the lessor has no way of knowing whether the payments are being made by the true lessee, or not.”

Sooner or later, however--given his past credit history--the new buyer or lessee fails to make his payments to the financial service company, which in turn stops making payments to the leasing company or the bank holding the note.

Suddenly, the original owner who has thought himself safely off the hook when the financial service company obligingly “took over his payments” is being dunned by the bank, credit union, finance company or lessor for its money. And then a notice of repossession goes out for a car that he hasn’t had for months.

“This scam came to our attention last November,” according to Guy Wirsig, director of consumer services for the local Better Business Bureau, which has been acting as the coordinator between the various Los Angeles and Orange County law enforcement agencies working on these cases.

“I’ve had 13 or 14 victims come to me about this,” Wirsig says, “but what can I say? I tell them: ‘Well, you violated your sales contract, or lease, by turning the car over to these people. You’ll have to see a lawyer.’ ”

Completely ignored by the car buyers falling for the “we’ll take over your payments” scheme, the local bank-loan officer says, is a standard paragraph in all sales and leasing contracts.

“And what it says, quite clearly is: ‘You agree to keep the vehicle free of all taxes and liens except in favor of the seller and not to use the vehicle illegally, improperly, or for hire or military use. Not to make any material change in the vehicle or remove it from the state of California in excess of 30 days or transfer any interest in the vehicle.’ The lender can repossess the car for any breach of this contract.

“About the time the original buyer/lessee is contacted by the bank or leasing company regarding his past-due installment payments,” he adds, “he realizes that he has a problem. The legal owner has a delinquent account and demands to be paid or they threaten repossession. If they can’t find the vehicle, they’ll bring suit against their customer. The customer’s credit is ruined either way.”

And the problems may not end there. He continues: “Any parking citations unpaid by the new buyer will be a liability for the original buyer, and if the new buyer is at fault in a traffic accident, the original registered owner may bear joint liability for damages because he willingly delivered possession of the vehicle to the new buyer.”

“These people,” the NVLA’s Nerenberg says, “are easily frightened and intimidated anyway, especially since they’re probably in financial peril to begin with. And so they take the easiest way out. When the leasing company goes to repossess, what’s there to repossess? These financial service companies won’t tell the lessor where the car is, and the lessor’s insurance company really goes berserk in a situation like that. The cars just disappear.

“And the financial service companies,” he adds, “move around and change names so fast that they’re almost impossible to track.”

But, if the owner pays a stiff price for turning his car over on the mistaken notion that he is “getting out from under” a financial burden, the new buyer/lessee is equally skewered.

“He’s got possession of a car,” the bank loan officer says, “that he will never own. No matter how faithfully he sends payments to the financial service company, he can’t register the vehicle to himself without the cooperation of the legal owner who won’t relinquish interest in the title until his account is fully paid. He can’t obtain insurance for it because he can’t prove insurable interest in it, and, in fact, if the original owner may, by chance, see the car on the street, he can repossess it with impunity because he’s still the registered owner.”

Or, as Martin Green, senior special investigator for the Department of Motor Vehicles in Sacramento points out: “A whole lot of things come into play very quickly once a transaction like this takes place--there are misdemeanors involved in all of it: a scheme to defraud someone of his car and, quite possibly, grand theft.”

But confusion still exists over how to pursue the financial service companies--criminally or civilly. All too often, according to the NVLA’s Nerenberg (who first drew the activities of the companies to the attention of the Orange County district attorney’s office), law enforcement agencies tend to lump cases involving breach of contract under civil law. “Even though there is a section of the Business Code that would supposedly put this sort of activity into the category of criminal misdemeanor.”

But as Diane Stavenhagen, a deputy district attorney for Orange County emphasizes: “We’re trying to get the police to approach it as a criminal matter. As far as I’m concerned it’s really theft by false pretenses--that security deposit in the case of leases can be as much as $3,000 to $5,000. But it can be any number of things, as well, such as false advertising.”

At least three illegitimate financial service companies are currently operating in Orange County, Stavenhagen says, and--at last count--a like number have set up shop in Los Angeles County.

But all of the figures are suspect, the banker adds, “because when things get too hot they simply clear out their mail box, cash the checks on hand, and go out of business to pop up a week or two later under a new name, a new address and a new mail drop.”

“And the newer ones,” Stavenhagen continues, “aren’t even bothering to make any payments to the original lessor or note holder.”

Unfortunately too, Nerenberg says, time works to the advantage of the financial service companies.

“It’s usually two or three months before the lessor or the bank gets wind that something’s wrong, and the trail’s pretty cold by then.”