Watchdog groups want 'clunkers' dealers to stop requiring payback agreements

Consumer advocates want federal officials to crack down on auto dealers that they contend are taking advantage of car buyers participating in the government's "cash for clunkers" program.

In some cases, the groups said, dealers are requiring buyers to sign contracts obligating them to repay the program's $3,500 or $4,500 rebate if the government denies the claim -- despite a federal advisory stating that customers are not required to sign such agreements. Dealer associations in some states, although not in California, are providing the agreements on their websites for their members to use in clunker transactions.

"Despite the fact that the cash for clunkers program has provided a financial lifeline to car dealerships, some dealers are trying to bend the program's rules and take advantage of car buyers," said Joe Ridout, a spokesman for Consumer Action in San Francisco.

The dealers are apparently using such stipulations to guarantee that they will receive the rebates promised. Cash for clunkers has been plagued by uncertainty over funding and late payments to dealers, who are required to give customers the rebate upfront and wait for reimbursement by the government.

In addition, some clunker deals are being rejected by the government because they don't meet all of the program's myriad specifications. Those include the requirement that vehicle trade-ins must have been continuously insured for 12 months before the clunker transaction.

The Department of Transportation is overseeing the program, which provides rebates to customers who trade in an older car for a new vehicle that gets better gas mileage. The official website,, states that "consumers are not required to sign contingency agreements to pay back the dealer should the CARS [Car Allowance Rebate System] credit be rejected."

"We are warning consumers not to sign any contingency agreements offered by dealers," the department said in a statement.

Rosemary Shahan, head of Consumers for Auto Reliability and Safety in Sacramento, said consumer groups don't know how widespread the problem is. Consumer Action's Ridout said the groups had received 20 to 30 complaints. There have been more than 300,000 clunker transactions since the program began July 24.

At a news conference Thursday, one South Carolina woman said she was asked to sign a "rebate reimbursement agreement" when she was credited with a $3,500 rebate while buying a new Dodge pickup truck under the clunker program. When it later turned out that her trade-in didn't qualify, the dealer demanded that she pay back $2,500 or be sued for breach of contract.

The consumers complained that they had little luck getting answers from the government, leaving messages on the official clunkers hotline that were not returned.

Auto dealers, meanwhile, have complained that the reimbursement agreements are an outgrowth of government delays in reimbursing dealers, some of whom are waiting for hundreds of thousands of dollars in rebates.

Under the current rules, if the program runs out of money, dealers will not be reimbursed for pending clunker deals. The program ran through its initial $1-billion allocation in less than a week. The additional $2 billion appropriated by Congress last week is expected to last through Labor Day.

David Wilson, who owns 13 car lots in Southern California, including Ford of Orange and Toyota of Huntington Beach, said his dealerships have more than $4 million in clunker reimbursements pending, based on the 1,022 clunker deals they had done through Wednesday. Reimbursement claims have been submitted on 476 of those sales, Wilson said. So far, only six have been approved, of which five have been paid.

Wilson said he was "100% positive" that he eventually would get his money from the government. His business is large enough to make do while it waits for the payments, he added.

"But a small dealership that may be struggling anyway -- where do they get the cash to hang on while they're waiting on the government to pay?" he asked. Wilson said he wasn't requiring customers to sign rebate reimbursement agreements.

The Department of Transportation doesn't have the legal authority to prohibit reimbursement agreements, said Bailey Wood, legislative director for the National Automobile Dealers Assn. He said payment delays and the program's complex rules had created "a bureaucratic nightmare."

"We need something that prevents fraud but is flexible enough to allow dealers to participate in the program," Wood said. "We're getting to the point where we're hearing dealers say, 'No more cash for clunkers.' "

The dealers and consumer groups are calling on the Department of Transportation to develop rules to ensure an orderly wind-down to the program so that neither dealers nor customers are left holding the bag for rebates that are applied for after the money runs out.


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