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We handle cases across the United States. Allen Stewart is licensed to practice law in Texas, California, New York, Pennsylvania, Missouri, North Carolina, Ohio and Arizona.

What is “Payment Packing” Fraud

Dallas Auto Fraud Attorneys

car buying contract

Payment packing, or packing the contract, is when auto dealerships inflate the monthly payments owed by a perspective customer. National Automobile Dealers Association statistics show the problem growing recently, as the vehicle’s gross price comprises less of the average vehicle’s selling price year after year.

Payment packing can range between questionably unethical to downright illegal. It starts innocuously enough: the vehicle salesperson gives the customer a price quote that includes extra products. These products can include gap insurance, credit life insurance, undercoating, VIN etching and more. Some add-on items offer the consumer real value but others can deny the consumer the right to turn them down when pre-loaded onto a vehicle.

If you think you have been a victim of auto fraud, contact Allen Stewart. The consultation is free.

Other potentially deceptive actions include falsely increasing your interest rate, artificially increasing the new car’s price, or decreasing your down payment without your knowledge. Once the dealer reviews your credit report and discloses the sale price, term loan and finance rate, further payment packing actions cross into illegality.

Legally the dealership’s finance manager must disclose the vehicle’s base payment before offering additional back end products; otherwise they are illegally packing the payment. If you decline these back end products, the finance manager should lower the monthly payment to the original, true amount. However, more unscrupulous dealers can add that money back into the car’s price or reduce your trade-in amount to make up the difference.

Payment packing costs consumers big money in the long run. An extra $50 added to monthly payments can cost a consumer $3,000 throughout a 60 month loan.

While some products, including GAP insurance or an extended warranty, can greatly benefit the consumer, they are not required purchases and consumers must be allowed a choice in whether they buy them or not.

Consumers can avoid payment packing by following these simple suggestions.

  • Shop online and get multiple price quotes. Dealers compete against each other for sales; use this to your advantage.
  • Check with your bank or credit union for auto financing options. Only use the dealership’s financing option as a last resort.
  • Knowing your interest rate and the price of the vehicle you want will help you calculate an estimated payment before you even contact the dealership.
  • Research the vehicle you want and find the dealer’s true new car cost. This can help you when making the dealership an offer.
  • Carefully read any paperwork before signing, and make sure you are only paying for the products and services you want.
  • Always make the dealer disclose the vehicle’s sales price, total amount financed, a trade-in vehicle’s cash value, the loan term and interest rate.

Payment packing may violate consumer law when they coerce consumers into buying unwanted extras as a condition of buying the car at all, or without telling the consumer what all they are paying for on the car buying contract. The deception is key: if the dealer lies to you about what is all in the car buying contract or says he cannot make the sale without the add-ons, you could have a claim for deceptive trade practices.

Terry O’Loughlin, the director of compliance for Reynolds & Reynolds and previously of the Florida Attorney General’s office, said in a 2015 article payment packing remains a widespread problem in the finance and insurance component of auto sales. He said in that year alone 15,000 New York state consumers were affected in a payment packing case settled for $13.5 million against a large dealership group. In some cases, consumers paid an extra $2,000 in their car buying contracts that they did not have to pay in the first place.

O’Loughlin calls the amount of money higher than the actual monthly payment based on the vehicle’s price the “leg.” Unscrupulous dealers will use the leg to add aftermarket products they stand to make money on while offering them as “free” to the consumer. These products and services are often called “preloads” when they are added to the cost of the vehicle at the outset before a consumer even arrives and begins the car buying contract process. These preloads can be “hard adds” such as a truck bedliner or upgraded sound system or a “soft add” such as a service contract or key replacement services. The difference between the two is hard adds add to the vehicle’s total value while soft adds do not.

One way dealers can add to the car buying contract is “rate packing,” in which the dealer quotes an interest rate far higher than what the consumer’s credit rating would demand. The dealer then negotiates the interest rate down to something slightly more reasonable, but still high enough for the dealer to profit unfairly from the sale.

Some dealers will also try “term packing,” in which they quote a consumer a payment without specifying the length of the loan. For example, a consumer might make payments for a total of 40 months even though the actual term was 36, the additional 12 months pay for ancillary products the consumer may have neither wanted nor needed the entire time.

O’Loughlin advised dealers to offer their services via a “service menu” that lays out what a vehicle’s cost without any additional services, and how much each individual service costs and how that will add to the final purchase price. That way dealers can inform consumers upfront how much they will spend on the car buying contract while staying on the right side of the law. They should also add a disclosure stating that these items are optional and subject to negotiation, relying on the qualities of the services themselves to build value and not turn them into a sales pressure point.

Penalties for unfair, deceptive trade practices vary by state and failing to abide by deceptive trade practice laws can cost dealers thousands of dollars in fines and legal damages.

If you believe you paid for products or services you never wanted when buying your vehicle, you may have been defrauded. Don’t wait: contact the fraud attorneys of Allen Stewart, P.C. for a free evaluation of the merits of your potential fraud claim.

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