Rescinding Contracts Based on False Down Payment Disclosures
One of the most common forms of Auto Fraud reported to our firm is car dealerships falsifying down payment amounts. The purpose of this illegal scam is to get consumers qualified for vehicle purchases or leases that they cannot afford, and which no lender would agree to finance.
Falsified down payment transactions typically start with a California consumer going to a car dealership looking for a vehicle, and the dealer’s salesperson enticing him or her into buying or leasing a car or truck that is more expensive than what the consumer can afford. When the dealership runs the consumer’s credit, it finds out that based on the vehicle’s price, the down payment that the consumer can afford, and the consumer’s credit history and score, no bank is willing to finance the vehicle sale or lease. If the dealership wanted to act legally, that would be the end of the matter, and it would try to sell the consumer a less expensive car. Unfortunately however, some California car dealerships only want to maximize their profits, and don’t care how they do it.
Dealers Hide Deferred Down Payments in Order to Gets Car Buyer’s Financed
Car dealerships know from experience that banks and other lenders are more willing to finance vehicle sales and leases in which the buyer (or lessee) has made a significant down payment. Accordingly, in order to make the sale (or lease), the dealership tells the consumer that he or she will have to make an immediate down payment in whatever amount he or she can afford, and then make additional down payments at specified times in the future.
These types of down payments which are made after the consumer takes possession of the vehicle are referred to as “deferred down payments.” When dealerships enter into deferred down payment deals, they usually ask the consumer to leave one or more checks with the dealership in the amount of the deferred down payments, and have the consumer sign a “Hold Check” agreement (or similar document) specifying when the dealership can cash the checks.
Deferred Down Payments Are Legal ONLY If They Are Included in the Contract
In California, car dealerships are allowed to sell and lease vehicles in transactions that involved deferred down payments, as long as the dealer discloses the amount of the deferred down payment on the purchase or lease contract. Indeed, if you look on the standard purchase and lease contracts used by California car dealerships, you will find that there is a line item on the contract called “Deferred Down Payment” where the dealer is obligated to state the amount of any deferred down payments.
Even though deferred down payment transactions are legal in California (if properly documented), dealerships know that if they put the amount of the deferred down payment into a vehicle purchase or lease contract (as they are legally required to do), then the banks and other lenders who were considering financing the vehicle sale or lease will find out that the consumer’s down payment is actually little or nothing at all, and that the consumer is borrowing the rest of the money. This is not what banks want to see when approving a vehicle loan or lease, and they are therefore more likely to refuse to finance these transactions.
Accordingly, the whole point of a dealership falsifying the down payment amounts in vehicle purchase and lease contracts (so as to hide deferred down payments) is to trick banks and other lenders into financing vehicle sales and leases that they otherwise would not.
Failing to Include the Deferred Down Payments in the Vehicle Purchase or Lease Contract Violates California Law
Failing to list deferred down payments in vehicle sales and lease contracts is a form of predatory lending that tricks banks and other lenders into financing transactions that they otherwise would not. Consumers are ensnared in loans and leases that they would not have qualified for, but for the Dealership’s falsification of the vehicle purchase or lease contract amounts.
As explained in greater detail below, failing to list the deferred down payments violates the two California statutes that govern vehicle sales and vehicle leases.
Vehicle Leases – Failing to Disclose Deferred Down Payments in Vehicle Lease Contracts is Prohibited by California’s VLA
In 1976, the California legislature in Sacramento enacted the Vehicle Leasing Act (California Civil Code Section 2985.7 et seq.), which was intended to ensure that consumers entering into vehicle leases receive information about the terms of the lease in a form that they can understand. California’s Vehicle Leasing Act is sometimes referred to as the “VLA.”
California’s VLA (at California Civil Code Section 2985.8(c)(1)) requires that car dealers specifically list in vehicle lease contracts the amount of any deferred down payments (California Civil Code Section 2985.8(c)(1) does this in an indirect way, by incorporating the requirements imposed by Regulation M of the federal Truth in Lending Act, which [at 12 C.F.R. Section 213.4(c) and (d)] requires that all lease contracts include the amount and timing of all payments due under the lease). In addition, California’s VLA (at California Civil Code Section 2985.8(a)) imposes a “Single Document Rule,” which requires that all agreements between the car dealership and the consumer relating to the lease be contained in a single document.
When a car dealership falsifies a vehicle lease contract by failing to include the deferred down payments, it violates California Civil Code Section 2985.8(c)(1) (which, by its incorporation of Regulation M, requires that deferred down payments be included in lease contracts) and the Single Document Rule (because the agreement to pay the deferred down payments is not included anywhere in the lease contract).
See this page’s section below for a discussion of a consumer’s Remedies When a Dealership Falsifies Down Payment Amounts.
Vehicle Sales – Failing to Disclose Deferred Down Payments in Vehicle Purchase Contracts is Prohibited by California’s ASFA
The statute applicable to California vehicle sales that are financed on an installment basis is the Automobile Sales Finance Act (California Civil Code Section 2981 et seq.), which is sometimes referred to as the “ASFA.”
California’s ASFA (at California Civil Code Section 2982(a)(6)) specifically requires that all vehicle purchase contract expressly disclose the amount of any deferred down payments that the car buyer has agreed to make. Further, the ASFA (at California Civil Code Section 2981.9) also includes a “Single Document Rule.” California’s Single Document Rule requires that all of the agreements between the car buyer and the dealer be set forth in a single document. The California legislature in Sacramento included the Single Document Rule in the ASFA so that consumers could more easily understand the terms of the (often complicated) deals that car dealerships try to get car buyers to sign. The idea is that it is supposed to be easier for consumers to understand a transaction if all of the terms are contained in a single document, as opposed to being spread throughout many complex, fine-print-filled contracts).
When California dealerships falsify down payment amounts by not listing the deferred down payments, they violate California Civil Code Section 2982(a)(6) (which specifically requires the disclosure of deferred down payments) and Civil Code Section 2981.9’s Single Document Rule (because the due dates and amounts of the deferred down payments are not listed in the purchase contract.
Remedies For Dealership’s Failure to Include Deferred Down Payments in Vehicle Purchase and Lease Contracts
If a car dealership falsified the down payment amount in your vehicle purchase or lease contract, then you are probably entitled to “rescind” your contract. Rescinding is a legal term that essentially means that you have to give the vehicle back to the dealership, and the dealership has to return all of the money that you paid for it. However, the remedy is slightly different depending on whether the vehicle was sold or leased.
Remedies in Vehicle Lease Cases
Under California’s Vehicle Leasing Act (at California Civil Code Section 2988.7), if a consumer can prove that the dealership’s failure to include the deferred down payments in the lease contract was intentional, then the consumer is entitled to rescind the transaction and get his or her money back.
If the consumer is unable to prove that the dealership’s conduct was intentional, then under California’s VLA (at California Civil Code Section 2988.5) he or she is entitled to collect from the dealership: (1) any actual monetary damages caused by the dealership’s falsification of the down payment amounts; and (2) statutory damage equal to 25% of the total payments due under the lease, up to a maximum of $1,000.
Remedies in Vehicle Purchase Cases
California’s ASFA (at California Civil Code Section 2983 and California Civil Code Section 2983.1) states that a consumer is entitled to rescind the vehicle purchase contract for any violation of the ASFA’s financial disclosure requirements. However, in order to obtain rescission under the ASFA a car buyer should act promptly and seek rescission as soon as the find out about the illegal failure to include the deferred down payment in the purchase contract.
Call an Auto Fraud Attorney if a Dealership Failed to Disclose a Deferred Down Payment in Your Vehicle Sale or Lease Contract!
As set forth above, you have powerful legal remedies if a California car dealership falsified the down payment amounts in your purchase or lease contract in order to hide a deferred down payment. Call an experienced California lemon law attorney if you would like to find out how much money you are entitled to as a result of the dealership’s falsification of down payment amounts in your purchase or lease contract.
The Vachon Law Firm offers FREE consultations to discuss your California lemon law or “deferred down payment” legal rights. Call (858) 674-4100. Consultations are always FREE!