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Car Dealer Fraud

The common deceptive practices in buying a car - spot delivery, hidden damage, odometer rollback, packed add-ons and financing markups - and the federal and state laws that give buyers claims against the dealer and the lender.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of Consumer Protection law firms.

What it means

Most car purchases are lawful, but a few practices produce most of the complaints. In spot delivery (often called a "yo-yo" sale), the dealer lets the buyer drive away before financing is final, then calls the buyer back to say the loan fell through and demands a larger down payment or a higher rate. Other common problems are failing to disclose prior accident, flood or frame damage or a salvage title; rolling back or misstating the odometer; adding service contracts, GAP coverage and other products the buyer did not agree to, or saying they are required; and quoting one price or rate and writing another into the contract.

Several laws apply. The federal Odometer Act requires a written mileage disclosure on transfer and gives a buyer defrauded about mileage a claim for multiplied damages or a statutory minimum, plus attorney's fees. The Truth in Lending Act requires accurate disclosure of the finance charge, annual percentage rate and amount financed in a credit sale. The FTC's Used Car Rule requires a Buyers Guide on used cars stating whether there is a warranty. Every state has an unfair and deceptive practices statute, and many have specific rules on dealer advertising, documentation fees and spot delivery, enforced by the attorney general and the motor vehicle department.

Because most dealer financing is assigned to a bank or finance company, the FTC Holder Rule matters: a consumer credit contract arranged by the seller must include a notice that lets the buyer raise claims and defenses against the dealer against whoever holds the contract, up to the amount paid. Many purchase contracts also contain an arbitration clause. A buyer who suspects fraud should keep every document and advertisement, avoid signing a new contract on a spot-delivery call-back without advice, and act quickly, since some claims and rescission rights are lost by delay or by continued use.

Where this comes from

Federal odometer law, 49 U.S.C. §§ 32703 (tampering), 32705 (disclosure on transfer), 32710 (civil actions; damages and fees); 49 C.F.R. Part 580. Truth in Lending Act, 15 U.S.C. § 1638; Regulation Z, 12 C.F.R. § 1026.18. FTC Used Motor Vehicle Trade Regulation Rule, 16 C.F.R. Part 455. FTC Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses (Holder Rule), 16 C.F.R. § 433.2. Federal Arbitration Act, 9 U.S.C. §§ 1-16. State unfair and deceptive acts and practices statutes and dealer licensing laws apply in addition.

When people hire a lawyer for this

A consumer protection lawyer who handles auto fraud can tell you which claims fit and against whom, including the lender under the Holder Rule. Several of these laws make the dealer pay the buyer's attorney's fees if the buyer wins, so many such lawyers take strong cases at little or no upfront cost. You can also complain to your state attorney general and the agency that licenses dealers; their records help other buyers and sometimes lead to restitution.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

Find Consumer Protection law firms in your state

Choose your state to see Consumer Protection law firms in the city where we list the most; your city may be under “other cities”, A to Z. A state marked “Consumer Rights” has no Consumer Protection listing yet and opens the broader page.

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Wyoming (Cheyenne)

Related terms

Entries on the same subject:

Other entries in the same area of law, each written from the same primary sources.

Class ActionOne lawsuit brought by named plaintiffs on behalf of a larger group with the same injury.
Credit Freeze and Fraud AlertTwo free federal tools for stopping identity thieves from opening accounts in your name - one that locks your credit file, one that warns lenders to check who they are dealing with.
Credit Report DisputeThe federal process for forcing a credit bureau and the company that reported an item to investigate information you say is wrong.
Data Breach Notification RightsWhat a business must tell you when your personal information is exposed, which laws require it, what the notice must say, and what a person whose data was breached can actually claim.
Debt Validation Notice and Disputing a DebtThe written notice a debt collector must send when it first contacts you, what it must contain, and the dispute right it opens - during which the collector must stop until it verifies the debt.
Fair Debt Collection (Collector Conduct Rules)Federal limits on what a third-party debt collector may say and do - including a written demand that stops contact, and a 30-day right to make them verify the debt.
Identity Theft Recovery RightsThe federal rights a victim of identity theft can use to remove fraudulent accounts from a credit report, obtain the records of what the thief did, stop the debts being collected, and limit liability for the charges.
Implied Warranty and the Magnuson-Moss ActThe promises the law reads into a sale whether or not anyone wrote them down, and the federal act that limits how a seller can take them away.
Investment Fraud and Broker Misconduct ClaimsAn investor's remedies when a broker, adviser or issuer misrepresented an investment, churned an account, recommended unsuitable products or stole, and why most broker claims go to FINRA arbitration rather than court.
Legal Malpractice (Suing Your Lawyer)A claim that a lawyer's negligence or breach of duty cost the client money, which usually requires proving the client would have done better in the original matter.
Mandatory Arbitration ClauseA term in a consumer contract that sends any dispute to a private arbitrator instead of a court, usually alone rather than as part of a class - and federal law makes most of them enforceable.
Professional Malpractice (Accountants, Architects, Engineers, Brokers and Other Professionals)A claim that a licensed professional other than a doctor or lawyer fell below the standard of care of their profession and caused a financial or physical loss.
Right of Rescission (Home Loans)A federal right to cancel certain loans secured by your home during a short window after signing - and for much longer if the lender failed to give the required disclosures.
Time-Barred DebtA debt so old that the statute of limitations bars a lawsuit to collect it - what a collector may and may not do about it, how a payment can revive it, and why the credit-reporting clock is a different clock.
Unauthorized Debit Card and Electronic Transfers (Regulation E)The federal rules that limit a consumer's loss from an unauthorized debit card, ATM, ACH or payment-app transfer, require the bank to investigate an error, and decide who bears a loss the consumer was tricked into sending themselves.
Vehicle RepossessionA lender's right to take back a financed car after default without going to court - subject to rules about how it is taken, how it is sold, and what you can still be made to pay afterwards.
Wage GarnishmentA legal order requiring an employer to withhold part of someone's pay and send it to a creditor.

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Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

If you cannot afford a lawyer, civil legal aid programs provide free help with many of these problems: civil legal aid programs by state.

Related free reference tools: statute of limitations for a personal-injury claim, by state, quoted from each state's official text - part of LawyerLand's legal reference tools.