The Federal Trade Commission filed charges and requested that a U.S. district court put a stop to the allegedly deceptive tactics of two California-based auto loan modification operations. The FTC asserted that the two separate operations charged hundreds of dollars in up-front fees, based on bogus promises that they could reduce consumers’ monthly car loan payments and help avoid repossession of their vehicles.
Consumers were instructed to pay fees to the companies, and to stop paying their auto lenders. Subsequently, at least one consumer’s car was repossessed, and one set of defendants told other consumers to “hide [their] car[s] to avoid repossession.”
“Now that the FTC and its partners have stopped hundreds of mortgage loan modification scams, fraud artists are moving to another loan modification scam, preying on consumers who are behind on their auto loan payments and facing repossession,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection. “Despite promising to substantially lower consumers’ monthly payments, these schemes charge hundreds of dollars in up-front fees, leaving financially distressed consumers in worse shape than when they began.”
These are the FTC’s first cases against companies offering auto loan modifications. They come at a time when the volume of auto repossessions remains high. Recognizing that a car is second only to a home as the most expensive purchase many consumers make, the FTC has been highly involved in auto-related consumer issues. The agency recently held a recent series of roundtable workshops to gather information on possible consumer protection issues that may arise during the sale, financing, or lease of motor vehicles.
The FTC charged that Hope for Car Owners, LLC, NAFSO VLM, Inc. and Kore Services LLC (doing business as Auto Debt Consulting), and several individual defendants deceived consumers with false promises, and then did not provide promised refunds when they failed to obtain car loan modifications. The FTC has asked the court to order the defendants to stop the allegedly illegal conduct while the FTC moves forward with the cases.
The FTC alleged that the Hope for Car Owners defendants typically promised to reduce consumers’ monthly auto loan payments by 30 to 50 percent, for fees ranging from $200 to $500. One supposed consumer testimonial represented: “I was 4 months late and on the verge of losing my car to the repo man. Hope 4 Car Owners stepped in and not only stopped the repossession, but they negotiated to reduce my payments from $1200 a month to $548!!”
The FTC alleged that the Auto Debt Consulting defendants typically promised to reduce consumers’ monthly auto loan payments by 25 to 40 percent, for fees ranging from $350 to $799. According to one of the defendants’ websites, “If you have engaged the services of Auto Debt Consulting for negotiating with your lender or bank on your behalf, and if for any reason you are dissatisfied with our services or we are unsuccessful in the negotiation process we will provide a 100 percent money back guarantee.”
The complaints are part of the FTC’s ongoing effort to protect consumers in financial distress. They allege that both operations’ deceptive business practices violated the FTC Act.
According to the FTC’s complaints, both groups of defendants marketed their services on company websites, with statements like: “Join the thousands who have already SAVED! (Hope for Car Owners) and “Lower your monthly vehicle payments by as much as 40% regardless of your credit score!” (Auto Debt Consulting).
The FTC alleged that the defendants provided toll-free numbers for consumers to call so that telemarketers could sign them up. Many consumers were told to stop making payments on their auto loans, which increased the risk that their vehicles would be repossessed. But the FTC asserts that once the up-front fees were collected, neither operation did anything to obtain the promised loan modifications, consumers who tried to get refunds were denied, and one consumer’s vehicle was repossessed by the finance company.
Hope for Car Owners allegedly took $400 from one consumer and told her not to make any more payments on her vehicle. The consumer did not send her next payment to her auto lender, and the lender soon informed her that her vehicle was going to be repossessed.
FTC Puts Out This Educational Advice
Ads for Auto Loan Modifications: You May Be Able to Drive a Better Deal with Your Lender
Chances are you rely on your car or truck to get you where you need to go. But if you’re late with your car payments, your vehicle could be taken away from you.
If you’re having trouble paying your car loan and you’re worried about having your vehicle repossessed, you may think that doing business with companies that claim they can reduce your monthly car loan or lease payment can help you avoid repossession. These companies might charge fees of several hundred dollars up front, tout their relationships with consumers’ lenders, and bolster their claims to be able to significantly lower your monthly payments with glowing testimonials from “satisfied” customers. Some say that if they can’t make a deal with your lender, they’ll refund your money.
The promises may sound like a way to get out from under. But the Federal Trade Commission (FTC), the nation’s consumer protection agency, says it’s smooth talk by scam artists who are out to take your money and provide nothing in return. In fact, the FTC recently sued companies that made claims like these, but failed to deliver the auto loan modifications they promised or honor the refund policies they “guaranteed.” What’s more, in many instances, the companies never even contacted any lenders.
The victims of these auto loan modification scams tell the same story: After paying a fee for the promise of a loan modification, nothing was done to secure the results that were promised. The scam artists often compounded the problem by telling their clients to stop making their car payments while the companies claimed to be in negotiations with lenders. Some victims learned that the companies hadn’t done anything only after their lender contacted them about repossessing their vehicle. In some instances, the scam artists demanded additional fees to continue working on their client’s cases.
The FTC says these scams may sound familiar. Some scam artists have taken a page from the mortgage loan modification fraud playbook, moving from trying to dupe homeowners in distress to preying on drivers who can’t make their car payments. The fraud is the same: people pay in advance for a service that is either never performed, or not performed as promised.
If You’re Behind On Your Car Payments
If you are having trouble making your car payments, contact your lender directly to discuss your options as early as you can. The longer you wait to call, the fewer options you will have. Typical auto loan modifications involve either deferring missed payments to the end of the loan or extending the loan term to reduce monthly payments. That choice actually increases the total amount you pay in interest, even with a lower interest rate. Creditors rarely reduce the amount of the principal or the interest rate in an auto loan modification.
If Your Vehicle Is Repossessed
If you don’t – or can’t – make timely payments on your vehicle, your creditor may have the right to repossess your car without going to court or telling you in advance. Your creditor also may be able to sell your contract to a third party, called an assignee, who may have the same right to seize your car as the original creditor. To learn more about a creditor’s rights in seizing and reselling your car for nonpayment, see Vehicle Repossession: Understanding the Rules of the Road at ftc.gov.