Trading in your car and you owe money on it? Be prepared to get ripped off.

The typical dealer will add a 10-day payoff meaning he will add ten days of interest to your payoff thereby charging you for his carrying costs.

Let’s look at your trade in lien payoff:

On must distinguish between a consumer asking for a payoff and a dealer asking for a payoff. A consumer who is quoted a payoff has the luxury to decide if she wishes to pay this amount immediately, or allow interest charges to accrue. In that instance, a 10 day payoff quote, while technically unfair as some would interpret that as a grace period, without a contemporaneous disclosure that interest or finance charges would continue to accumulate during this ten day period. A decision to pay immediately, even if the quote was a 10 day payoff, would result in a refund of excess finance charges. The scenario is completely different when one puts an automobile dealer in the middle.

When a dealer takes a vehicle in on trade (Trade-in), as part of the down payment, the dealer is purchasing the trade-in that day. Historically and without even asking the consumer, the dealer calls a trade-in lien holder and ask for a 10 day payoff and inserts that amount on the RISC as the “prior credit or lease balance”. This means even though finance charges are beginning to accrue on Day 1 for Vehicle 1 ( the newly acquired vehicle) finance charges are continuing to accrue on the Trade-in for 10 days. This is hardly fair for the consumer.

The NEW 15-20 day payoff.

What is most egregious is the hidden reason for the 15 and 20 day payoffs that have become pervasive in the last 3 years. As a result of the financial crisis of 2008, many dealers went out of business. On their way out, many took trade-in vehicles and failed to pay off the trade-in lien leaving thousands of Californians with two car payments despite having sold their trade-ins to the dealers.

In 2008, the California legislature created the Consumer Motor Vehicle Recovery Corporation to compensate these consumers funded by a $1.00 DMV fee for every car sold in California. In 2010 added Vehicle Code §11709.4. requiring dealers to pay off the trade-in lien within 21 days from the date the vehicle is traded in and prohibit the dealer from selling, or transferring ownership until the trade in is paid off.

Instead of asking for the common, yet illegal 10 day payoff, some unscrupulous and inefficient dealers began asking trade-in lien holders for 15 and 20 day payoffs as they misread the new law to allow for charging consumers for finance charges on trade-in liens for up to 20 days. Did the finance companies comply? Of course, they readily quoted 10, 15, and 20 day payoffs to these dealers and in order to make it even easier, changed their own policies of quoting 10 day payoffs to 15 day payoffs as standard. Some, like Westlake Financial and Wells Fargo Bank refuse to quote a same day payoff with a per diem amount for a consumer to decide when and how much to pay, and will only quote a 15 day payoff.

Your protection is to demand a same day payoff for your trade-in lien – and if they refuse – sue them. By the way, this fraud allows you to sue the dealer and the banks and you may be able to cancel your contract, return the car, get a full refund and all of your attorney’s fees.