November 12, 2007

Let’s Make a Deal – What the Deal Jacket Reveals

Car sales and leases are not sealed with a handshake these days. After hours of haggling, you’ll be told: “Sign here. And here. And here. And here.” Of course, you should get an exact copy of every document signed or initialed at the dealership before taking delivery of the vehicle. Too often, consumers are so excited to escape the high-pressure atmosphere, they hurriedly stuff their papers in the glove box and drive away. Meanwhile, the dealer is completing its own file.

Just what does the dealer keep for itself? Altogether, those items make up the Deal File, sometimes called the Deal Jacket. It contains internal documents that reflect the transaction, parts of which consumers never get to see. The file might include things like the credit application, a four-square page or other paper trail of promises, the ‘recap sheet’ or sales summary, vehicle invoice, finance papers, DMV information, repair history, inspections, trade-in calculations and separate agreements relating to after-market items. Even the front of this folder may have handwritten notes or other key information. Last but not least, the Deal File reveals how much profit was made on the transaction.

Fraud, if there is any, is likely to show up here. An experienced lawyer can peel back layers of deception by doing the math, applying intuition and noticing numbers that do not add up. It is sometimes shocking. Clearly car dealers are entitled to make a profit – that’s what they are in business to do. Yet, the Deal File can disclose profit centers that have nothing to do with the car it self, like a “theft protection” product that costs $37 and is rolled into the vehicle price at $1,400, or a service contract that costs the dealer $250 and is charged to the buyer at $2,500. At some point it becomes unconscionable. We even see instances where the Deal File shows a finance department is cheating its own sales personnel out of commissions just by moving extras from one line item to another.

When I started practicing consumer law in the 1980s, it was hard to get these internal documents. The defendants first denied they existed, and then cited bogus privacy concerns. Now we obtain this essential evidence routinely in the discovery process.

Last month, the California Court of Appeals issued a decision in a case called Lewis v Robinson Ford Sales, Inc. using evidence of the Deal Files to certify a class action for violation of the Rees Levering Act, an important California Truth-in-Lending law. At first the appellate court was going to leave the decision unpublished. We, and a number of other consumer advocates, urged the court to publish the case. The court agreed. Among other things, the case clarifies the evidentiary value of “Deal Files” as standard documents in the automotive industry and recognizes that vehicle transactions “can be evaluated through the deal jacket” for violation of consumer protection laws.