DMV Shuts Down Alleged Vehicle Subleasing Scam

A Laguna Niguel man was arrested and eight vehicles were seized Tuesday night in a raid of an illegal auto subleasing business, said a state Department of Motor Vehicles investigator.

Scott Koehler, 37, of Laguna Niguel was being held in Orange County Jail on $10,000 bail, charged with one count of committing an illegal subleasing transaction, said senior DMV investigator Rande King. King’s department also seized records, shutting down First Western Finance of Mission Viejo, and he said more charges may come after a review of the documents.

King said seven of the 15 cars in First Western’s lot were returned to their owners.

King said the Koehler operation is worrisome because it is unconnected to a string of subleasing operations the DMV shut down last June. “We thought we got rid of it back in June, but this is a new batch,” King said.

King said an anonymous caller tipped his department to the First Western Finance operation. The company, which opened in January, had placed a newspaper advertisement in the Los Angeles Times offering to lease cars even if the customer had bad credit and to help the buyer restore his credit rating. During an undercover interview, King’s department learned that First Western planned to have the buyer assume car payments without notifying the original lender, which is illegal.

King and other investigators have been probing the auto subleasing business since 1986. In 1988, a state law made some subleasing activities criminal offenses. Specifically, the original lender must be notified whenever the payments are taken over by another person.

DMV officials say scores of victims have lost tens of thousands of dollars to unscrupulous subleasing firms.

Subleasing businesses operate by matching people with low incomes or poor credit records with other people trying to sell vehicles. The companies generally promise to secure credit for would-be buyers while offering to sublease them the seller’s car for six months. The prospective buyer is charged for the company’s services and the seller is told he is freed of his obligation to make car payments.

The businesses generally close down after collecting fees, usually between $1,500 and $6,000, from dozens of prospective buyers. Buyers are told the money is partly a fee and partly a down payment on the car, King said. He said victims of the scams include sellers who have had cars repossessed because the sub-lessee quit making payments.

In one case, a seller said the sub-lessee made only one payment and abandoned the car after blowing up the engine.

Four defendants arrested in a roundup last June on subleasing charges are awaiting trial in Orange County Superior Court in Santa Ana in two months. King said attorneys for Thomas Charles Carter of El Toro, Orlando Pangilinan of El Toro, Steve Drapeau of La Mirada and William Tieman of Garden Grove each filed motions to have the new subleasing statutes declared unconstitutional, but superior court judges denied the motions. Koehler was due in court this morning on an unrelated charge of driving with a suspended license, a jail officer confirmed.

Each man faces fines of up to $10,000 and up to a year in jail for each count.