The Straw Buyer

Here is a Franchise BMW Dealership in the Bay Area pulling an old scam and then attempting to throw the consumer to the wolves.

A potential client went with a friend who wanted to buy a new BMW about a year ago.

The friend negotiated a monthly payment that she could afford only through a lease – as opposed to a purchase. Even with this lowered payment, she did not “qualify for financing”.

According to this potential client, she was told by the salesperson if she agreed to sign the lease in her name, she would be able to transfer the lease to her friend within a year. Of course, this little twist is nowhere on the lease agreement.

The Rule: Once you leave a dealership having signed a contract for sale or lease, it is nearly impossible to change the terms.

She went back to the dealer several times in the past 6 weeks to speak with someone in charge – of course there was no one who would help.

The salesperson gave her advice to contact “Swap a Lease”. Swap a Lease is where you give up your car to a company who finds a replacement lessee. See any problems with this “solution”?

Once you turn over your car and it comes up missing, and that replacement lessee stops making payments, you cannot report it as stolen, since you voluntarily gave up possession. The police will not provide any help and will tell you it is a civil matter.

The potential client came to our office with her problem and we emailed the dealer and BMW Financial with this scheme. To its credit, BMW Financial put pressure on the dealer to repurchase the lease contract and take back the vehicle. This process took a little over a week, and we provided our services with no charge.

The lesson: a straw purchase (lease) violates the terms of the contract BY YOU. And if you find yourself in a similar predicament, NEVER give up possession to a third party. Get yourself a good lawyer.


Louis A. Liberty

Your Consumer Rights

This is a short legal overview of some of the consumer protection laws that are there to protect you.


Your sales agreement is a Retail Installment Sale Contract (“RISC” or “CONTRACT”) between you and the dealer. You have agreed to buy your vehicle and make payments to the dealer. The dealer may sell that contract to a finance company in order to “cash” the RISC. You will be notified by that finance company to make payments to it. The finance company will typically tell you something like “You have been approved”. This is a lie. The finance company merely purchased the RISC from the dealer and is now enforcing the terms against you. The also refer to the financing as a loan. This is also a lie.

A RISC is a conditional sale contract or a credit sale, NOT A LOAN OF MONEY. California law has long distinguished between credit sales and loans. Loans are subject to constitutional and statutory provisions on usury; a bona fide credit sale is not subject to the usury law, because a credit sale does not involve a loan or forbearance of money. (Boerner v. Colwell Co. (1978) 21 Cal.3d 37, 45).

This is why we see interest rates of 11% – 20% – 30% on car contracts when usury laws would limit interest rates to 10% on a loan.

In 1974, the Federal Trade Commission mandated that the following language (known as the “FTC Notice” or the “FTC Legend”) appear in all Retail Installment Sale Contracts in the United States:


This language appears on the back of the RISC near the bottom.

In California, courts have held the FTC Legend is a material term of the contract. The phrases “ALL CLAIMS AND DEFENSES” in this contract provision and “all equities and defenses” in the statutory provision (ASFA) mean all claims and defenses, including those arising from contractual, statutory and common law.  In the leading case of Music Acceptance Corp. v. Lofing (1995) 32 Cal.App.4th 610, which interpreted identical contract language, the court, in upholding the Buyer’s right to assert claims for consequential and other damages against the holder, stated:

“The import of the cited contract clause [is] clear: [the holder] stands in the shoes of [the seller] and is subject to the same claims and defenses.”

THIS MEANS IF THE DEALER DEFRAUDED YOU, SO DID THE BANK. If the dealer is out of business, you still are able to get your damages from the bank.

BUT I WANT TO PAY CASH? OK, let the dealer provide financing and when you get your first payment notice from the finance company, pay them off in full. YOU STILL HAVE ALL OF YOUR RIGHTS AGAINST THAT FINANCE COMPANY and if there is a problem later, you can sue the finance company for the dealer’s fraud.

The Consumers Legal Remedies Act (“CLRA”), Civil Code Section 1750 et seq., the Automobile Sales Finance Act (“ASFA”), Civil Code Section 2981, et seq., the California Unfair Competition Law (“Unfair Competition Law” or “UCL”), Business and Professions Code Section 17200, et seq., and various provisions of the California Vehicle Code.

THE CLRA – The Consumers Legal Remedies Act, Civil Code Section 1750 et seq., promotes honesty in consumer transactions by precluding SELLERS of goods and/or services from engaging in various enumerated unfair or deceptive acts or practices, including misrepresentations, which are intended to result, or which do result, in a transaction with a consumer.  The legislative intent of the CLRA is to alleviate social and economic injustice stemming from the use of sharp business practices.

THE ASFA Since 1961, the Automobile Sales Finance Act, Civil Code §2981, et seq., has required transparency in consumer transactions by requiring DEALERS to truthfully disclose and separately itemize each of the enumerated charges comprising the amount financed.

The legislative intent of the ASFA is to enable consumers to guard against the imposition of false, hidden, excessive or otherwise improper charges.  The required itemizations enable consumers to know all charges included in the purchase price, the cost of financing, all amounts owed for the vehicle and the dates when payments are due.  The required itemizations also enable financial institutions to fully evaluate the risk of purchasing the contract from the SELLER.

Legislative studies reveal that seller fraud in consumer transactions is accomplished by a wide variety of methods and most often involves only modest amounts of money in any given transaction.  The studies go on to conclude that simply requiring that the seller reimburse that modest amount of money to the consumer and otherwise enforcing the transaction is ineffective at promoting the legislature’s interest in preventing future unfair and deceptive business acts and practices by the seller.  Therefore, the legislature provided that, in addition to traditional damages, seller fraud in consumer transactions, no matter how small, shall be subject to full and complete rescission and restitution.  The harshness of the remedies provided, each of which are intentionally calculated to deter careless violations by otherwise honest DEALERS, and, to chase unscrupulous DEALERS from the marketplace altogether (See Assembly Final History, 1970 Regular Session.), underscores the high degree of importance assigned by the legislature to establishing a marketplace free of unfair and deceptive business acts and practices.

Enforcement of the remedies provided is critical to implementing the legislature’s interest in establishing an environment of honesty and transparency in consumer transactions.  Individual consumers themselves, rather than governmental agencies, are entrusted and empowered with the critical task of enforcing the legislature’s esteemed social policies.  However, the Legislature discovered that many wronged consumers had been dissuaded from prosecuting meritorious actions because the modest amount of money at issue presented difficulties in obtaining and paying for legal representation.  That circumstance worked to frustrate enforcement by emboldening DEALERS to disregard consumer protection statutes, secure in the knowledge that the risk of financial loss arising from their disregard of these laws was small.

Rather than create state and/or local bureaucracies to enforce the state’s interests, the expense of which would be borne by taxpayers, the legislature sought to remove the obstacles to enforcement while holding wayward DEALERS themselves responsible for the cost of prosecuting their transgressions.  Therefore, to ensure the uniform implementation of its policies, especially in cases involving relatively modest amounts of money, the Legislature substantially increased the risk of financial loss to DEALERS who fail to strictly adhere to the mandatory requirements of these consumer protection laws by eliminating the seller’s historical right of offset, and, by requiring DEALERS to pay the reasonable attorneys fees incurred by a prevailing consumer in the prosecution of a legal action pursuant to those laws.  (See, e.g., Final Report, Assembly Interim Committee on Finance and Insurance, December 1960, pp. 29-34).

By all of its actions, the Legislature has gone beyond merely making the courts available to wronged consumers and actually intendedthem to participate in the implementation of the state’s interest in establishing an environment of honesty and transparency in consumer transactions by taking action in the courts.
THE UNFAIR COMPETITION LAW (“UCL”), Business and Professions Code Section 17200, et seq., promotes fair competition among SELLERS of similar products.  The legislative intent is to prevent unscrupulous DEALERS from driving honest DEALERS out of the marketplace through the use of prohibited business acts and practices.

The UCL prohibits “unlawful, unfair or fraudulent business practice and unfair, deceptive, untrue or misleading advertising . . . .” (Bus. & Prof. Code, § 17200.) Section 17200 is not confined to anticompetitive business practices, but is also directed toward the public’s right to protection from fraud, deceit, and unlawful conduct. Thus, California courts have consistently interpreted the language of section 17200 broadly. The statute imposes strict liability. It is not necessary to show that the defendant intended to injure anyone.” (South Bay Chevrolet v. General Motors Acceptance Corp. (1999) 72 Cal.App.4th 861, 877.) “[T]o state a claim under the [UCL] one need not plead and prove the elements of a tort. Instead, one need only show that ‘members of the public are likely to be deceived.” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267.) A UCL cause of action “‘may be based on representations to the public which are untrue, and “‘also those which may be accurate on some level, but will nonetheless tend to mislead or deceive. . . . A perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under the UCL. (Linear Technology Corp. v. Applied Materials, Inc., (2007) 152 Cal.App.4th 115, 134). “Whether a practice is deceptive, fraudulent, or unfair is generally a question of fact which requires ‘consideration and weighing of evidence from both sides . . . .”    (Id. At pp. 134-135).
The VEHICLE CODE. Many times a SELLER’S conduct also violates various provisions of the California Vehicle Code relating to the propriety of certain charges in a consumer transaction for a motor vehicle.

Many dealers negotiate payments in the Sales Department. You haggle for hours and finally agree to a down payment and a monthly payment. You have a deal, right? NO! The payment you have negotiated contains enough additional monthly payment so the dealer can add many thousands of dollars of high profit items and your monthly payment will not change.

This Payment Packing violates the VEHICLE CODE.

Payment packing has long been illegal in the State of California.  It is a form of fraud that is subject to both civil and criminal sanctions. The leading case on payment packing describes the practice as follows:

[T]he . . .dealerships were engaged in a practice of misrepresenting to the customer the calculated monthly payment that he or she would pay in a deal. The customer would be quoted an inflated monthly payment amount which would assist the finance and insurance managers in presenting and selling aftermarket products based on artificially low, false numbers.

Casella v. Southwest Dealer Services, Inc. (2007) 157 Cal.App.4th 1127, 1138.  The inflated price quoted in the sales department includes what is known in the trade as “leg,” that is, deliberate overcharges, to make room for sale of the extra goods and services in the finance department without raising the monthly payment beyond the initial inflated amount. “This conduct certainly falls within the prohibition of Penal Code section 487 which proscribes making false or fraudulent representation or pretense to defraud another of money.” Casella, 157 Cal.App.4th at 1138.   Payment packing also violates the California Vehicle Code.  See V.C. § 11713.19(a)(1).
THE CODE OF REGULATIONS – a Dealer must sell you the car at the advertised price- whether you know of the advertisement or not and may not be a “Cash Only” price – nor can a Dealer charge you more for an advertised car because you have poor credit.

13 California Code of Regulations §260.04(b): “A specific vehicle advertised by a dealer or lessor-retailer shall be in condition to demonstrate and shall be willingly shown and sold at the advertised price and terms while such vehicle remains unsold or unleased.  Advertised vehicles must be sold at or below the advertised price irrespective of whether or not the advertised price had been communicated to the purchaser.”

The failure to sell to you at the advertised price also violates the VEHICLE CODE. Vehicle Code §11713.1(e): … Advertised vehicles shall be sold at or below the advertised total price, with statutorily permitted exclusions, regardless of whether the purchaser has knowledge of the advertised total price”.

California Vehicle Code §11713.1(k): It is unlawful to “Require a person to pay a higher price for a vehicle and related goods or services for receiving advertised credit terms than the cash price the same person would have to pay to purchase the same vehicle and related goods or services. For the purpose of this subdivision, “cash price” has the meaning as defined in subdivision (e) of Section 2981 of the Civil Code.


The CLRA prohibits the use of “unfair methods of competition and unfair or deceptive acts or practices” in sale or lease transactions. (Civ. Code, § 1770, subd. (a)). The underlying purpose of the CLRA is “to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.” (Civ. Code, § 1760.) Any consumer who suffers any damage as a result of the use or employment by any person of a method, act or practice declared to be unlawful by section 1770 may bring an action against that person for actual damages, injunctive relief, restitution of property, punitive damages, and any other relief the court deems proper. (Civ. Code, § 1780, subd. (a)).

Automobile Dealer Fraud

Did you know Automobile Dealer Fraud is ranked as the number one consumer complaint throughout the nation? Dishonest car dealers are deceitfully swindling average consumers of thousands of dollars.

Here is a partial list of Dealer Fraud:

From my perspective, having sued hundreds of car dealers and the banks that allow the fraud to continue, the system is out of whack. Everyone at the dealership is working on commission. The more the dealer charges you, the more profit he makes and the more the bank makes. Your finance company works for the dealer – not you. So the bank is not there to help you – it is there to help itself – and the dealer.

Frame Damage

This scam is very easy to catch – If there were a government agency watching. The problem is the DMV is sound asleep.

There are dealer auctions where the public is not allowed. The frame damaged cars are advertised to dealers along with undamaged cars mixed in. The dealer is able to run a CarFax to determine if CarFax has caught the structural damage information. If not, the dealer puts it on the “buy” list.

On the day of the auction, the auction announces Frame Damage and usually sells the car under a Red Light (Red Yellow and Green lights are turned on according to condition). The dealers bid accordingly.

The successful bidder takes the car back to the dealership and prints out a CarFax. He then advertises the car as coming with a “clean” CarFax. Later, when caught, he pulls out the CarFax and professes he relied on CarFax and had no idea the car had frame damage.

The more professional thief has you sign a “disclosure” he has slipped into the pile of documents you sign at purchase. It can be a Buyers Guide – you sign on the back side – and he gives you a copy of the back side only – and when you complain, he produces the Buyers Guide with a fresh disclosure on the front – the part he did not give you.
The other is to have you sign a DMV document entitled “Statement of Facts”. It is a 4 page document that you sign on page 4. Of course it is blank, and he tells you it is a DMV required document if you even ask. He then fills in the “disclosure” – sitting waiting to be used against you.

Your only hope is the car was sold through Manheim Auction as Manheim gives the auction announcements to AutoCheck. So, if the car was sold to the dealer at Manheim, you may be able to show dealer knowledge by getting the AutoCheck. However, no other auction has this relationship with AutoCheck.

Adesa is the second largest auto auction in the country. Adesa and the other independent auctions do not report condition announcements to AutoCheck so there is no way to fully protect yourself against a dealer buying frame damaged cars from these auctions.