March 30, 2010

Motorcycle Financing – A Bumpy Ride on the Open Road

Motorcyles are all about freedom and fun and wind in your face. But that "open road" fantasy fades fast when the bills pile up in a frightening heap.

For 50 years, Californians have enjoyed protections provided by the Rees Levering Act. This law applies to most street-legal motorbikes when sold with closed-end financing. The buyer may drive the motorcycle off the lot, but the lender holds title until the loan is repaid. The Rees Levering Act requires specific information telling consumers not just the cost of the vehicle, but also the cost of credit, so borrowers can shop for the best finance terms. The law further regulates repossession practices.
656046_red_bike.jpg The traditional credit transaction for a vehicle purchase involves closed end financing. That means you know the term, or length, of the loan, and the monthly payment doesn't change. Credit cards, on the other hand, are open-ended, with no fixed term and fluctuating payments. It is a riskier purchase from the consumer's perspective.

A couple of years ago, we began to see a troubling trend. Motorcycle companies looking for loopholes in the Rees Levering Act started selling street bikes with open-ended credit through what looks like a factory-branded credit card. Despite the outward appearance, these operate differently than the usual co-branded card, such as an airline VISA card that can be used at any retailer that takes VISA. These, on the other hand, can be used only to buy the motorcycle and perhaps some accessories or maintenance services. In many cases this is an abuse of truth in lending rules.

So what's going on here? The ready use of credit helps manufacturers move product in a tight market. A low initial monthly payment gets the buyer past sticker shock.Yet, consumers have no idea they may be giving up important fraud protections when they buy a bike with a factory-branded credit card. The devil is in the details, there in the form of small print legalese. That $99/month offer is likely to be a teaser rate. We have even seen deals like $49 for 24 months. But what happens after that? The bike is not paid off. All of a sudden the monthly charges increase and the consumer has no idea why, or how to challenge the bump. In some cases, this is just a bait and switch with a new plastic lure.

These factory-branded cards are so profitable, that manufacturers have poured money into catchy ad campaigns. The images play to the dream of "Easy Rider," but easy credit can turn the dream into a nightmare of uneasy debt. If you are the victim of this kind of bait and switch, give us a call.

March 29, 2010

CERTIFIED USED CARS – Is “Certified” the new “Organic?”

“Certified” is one of those ambiguous marketing words like “fresh” or “natural” or “organic.” These adjectives have different meanings for different people, but they all send the same message: “Buy me - I’m better.”

What about “certified” used cars? Who certifies them, and how, and what does that mean? Before we get to the heart of the matter, consumers should know that dealers don’t even call these cars “used” anymore. That would make them “used car dealers,” a phrase that makes some people cringe to begin with. These cars are called “certified pre-owned vehicles” or “CPO’s” in the acronym world of dealer slang.

It turns out that “certified” is about as fluid as “organic” was in the 1990’s. At some point, the term “organic” morphed from being a relic of the hippie sixties, to a label for healthy choices at a higher price. As best-selling food industry author Michael Pollan notes, “The word 'organic' has proved to be one of the most powerful words in the supermarket” generating “an $11 billion industry that is now the fastest growing sector of the food economy.” CCOF4color.gifSince 2002, the FDA has restricted use of the term “certified organic” and the "certified" label requires strict independent inspection procedures.

Not so the “certified” used car. While it too is a growing market sector, there is no government agency or independent body certifying cars. Manufacturers set the rules for their own CPO programs. These are really a hidden method of selling extended warranties or service contracts. Edmunds takes a stab at explaining the CPO business here and its collected links to the various manufacturer programs are very helpful. But the lesson to take away is that there is no single definition that supports the uniformly demanded higher price for these cars.

In our law practice at Kemnitzer, Barron & Krieg, we see an enormous number of complaints about certified used cars. While the word “certified” is confusing enough, the real harm comes when the “certification” actually conceals the fact of a pre-sale accident, sometimes as egregious as a salvage or wreck. Even the CARFAX report they give the buyer upon sale may not be a complete history as one would expect.Then the issue is not just the difference in shades of meaning, but outright fraud. The dealer and manufacturer cannot claim ignorance of the previous damage, because they have affirmatively stated they did certain inspections. Jaguar, for example promises a 140-point pre-sale inspection; Honda promises a150-point inspection of their CPO cars. Be sure to get a written copy of the inspection results.

What, then, is the meaning of the mouthful, “certified pre-owned vehicle?” It is not like comparing Macintosh and Granny Smith apples; it’s like comparing a Macintosh apple and a Valencia orange. Or a Meyer lemon. All “organic,” of course.

March 24, 2010

Lemon Law Coverage for Wheel Chairs and Adapted Vehicles

This week, we received notification from NHTSA's Office of Defects and Investigation concerning Ricon wheelchair lifts used in Diamond Coaches. These vehicles are small buses used to transport senior citizens and others who are unable to drive. The defect notices involve nonconformities in the restraint belt and lift software which could result in possible injury to wheelchair occupants. The manufacturer offers a warning label and a user DVD while Ricon attempts to fix the problem. You can find out more about these recall and investigation notices by checking out NHTSA Campaign ID Number 10V106 and 10V109.If, in fact, the occupant in the wheelchair is not secure when lifted into the vehicle, clearly more than a warning is needed. 1211448_wheelchair.jpg

The market for medical equipment, vehicle modifications and assistive devices, is big business. Health care patients are consumers of medical equipment. The California Lemon Law applies to such goods when purchased for consumers and small businesses. Other California consumer protection laws, such as the Consumer Legal Remedies Act, even offer additional penalties if false advertising or other sales practices target senior citizens or disabled persons who suffer substantial physical, emotional or economic damage thereby. Other statutes protecting against financial abuse of the infirm or elderly can also apply.

The California Lemon Law (the “Song Beverly Consumer Warranty Act”) even has a separate section devoted to wheelchairs, requiring that they “shall be accompanied by the manufacturer’s or lessor’s written express warranty that the wheelchair is free of defects.” In addition, the Act states that every sale of “assistive devices” in California carries an implied warranty that the “device is specifically fit for the particular needs of the buyer.” The definition of “assistive device” excludes eyeglasses, but is otherwise extremely broad.

At the same time, not every manufacturer is liable for vehicle modifications that it does not authorize. So-called “after market” adaptations, if unauthorized, may void the original manufacturer’s new vehicle warranty. The dealer or installer may be the party who is liable if the aftermarket alteration fails.

Seniors, health care patients and disabled persons are especially vulnerable to fraud and abuse. California lawmakers have enacted strong laws to protect this population from deceptive practices and defective products.

March 23, 2010

Daimler AG Settles Case Alleging Massive Bribery Scheme

74895_luxurary.jpg Ever wonder why foreign dictators are so often depicted in black Mercedes Benz sedans? The answer might lie buried in court documents filed by the U.S. Justice Department today. The result of several years of criminal investigation, this case charges Daimler A.G. and three of its subsidiaries with violating the Foreign Corrupt Practices Act, which prohibits bribing officials of other countries. Among the 22 countries involved are Russia, Iraq, Latvia, Vietnam, China, Nigeria, Serbia, Croatia, Montenegro, Thailand, Turkmenistan, Uzbekistan, and Ivory Coast. It is not hard to imagine a veritable rogues' gallery of officials from these and other governments on the receiving end of the fleet. If Daimler's payment of the $185 million settlement reported by the Associated Press succeeds in shutting down the alleged operation, Hollywood might have to find another icon of international intrigue. Or, maybe this is just part of a creative new ad campaign.

March 16, 2010

Kemnitzer, Barron & Krieg Launches New Website

Kemnitzer, Barron & Krieg LLP, the host of this California Lemon Law Blog, has just launched a new website with a Q&A section on a variety of consumer protection areas, ongoing consumer alerts, attorney biographies, internet resources, a bibliography and contact links. Check it out here

The firm represents consumers throughout California and has, to date, filed cases in 34 separate California counties. Bryan Kemnitzer, Nancy Barron and Bill Krieg have a combined 99 years experience as trial attorneys fighting to protect consumer rights.

Supported by a dedicated staff, attorneys in the firm have taken individual and class action cases to trial, obtaining verdicts and judgments that include punitive damages and civil penalties. On the other hand, the vast majority of cases settle prior to trial. In settlement, Kemnitzer, Barron & Krieg have obtained debt relief exceeding $300 million, as well as thousands of new car replacements and refunds.

As California consumer lawyers, the members of the firm believe that every consumer is entitled to safe and reliable transportation, fair credit, truth in lending, access to the courts and freedom from fraud. All clients have the opportunity to learn more about consumer protection in ways that increase consumer literacy and save money, as well as resolve the particular case at hand.

March 16, 2010

Tire Recalls Remind Us All to Check the Tread

prospector%20tires.JPGSeveral tire recalls went unnoticed last month, with media attention focused on Toyota recalls regarding sudden acceleration. National Highway Traffic Safety Administration notices, regularly delivered to my "lemon law" inbox, included manufacturer's voluntary recalls of SUV tires having a tendency to shred or exhibit “chunking,” with potential crash consequences. If you get a tire recall notice, be sure to arrange for your replacement tires without delay. Faulty tires can result in a serious loss of driver control, cause a crash, or leave you stranded. Recalls are expensive for manufacturers, which generally do not offer free parts – including free tires – without good reason.

Tires are like the fingers and toes of the vehicle. You take them for granted until they get injured or broken, and then you realize you can’t do without them. Tire checks are just not high on my personal "to do" list. But last weekend, my 17-year-old son noticed a loss of air in the left rear tire of the family station wagon. In a hurry, I thought of simply filling it with air at the gas station, but closer inspection found a nail embedded in the tread. We all need an occasional reminder to check the tires regularly, not just for nails and shredding, but overall condition and especially the traction surface.

Tire labeling regulations require that a lot of important information appear on the tire itself. tire-drawing-all-labels.jpg This and more information on tire safety is found on the NHTSA website.

In addition to having the tires rotated according to the schedule set out in the owner’s manual, you should periodically check for routine wear and tear. The “life” of a tire varies greatly with the kind of car or truck you drive. While a lightweight compact might enjoy 60,000 miles before needing new tires, a luxury sports car may need new rubber at 30,000 mile intervals.

Whether exercising routine maintenance or shopping for a used car, it is not enough to check for overall tire condition – pay particular attention to uneven wear. The technician will lapse into jargon like “camber” and “toe-in,” but if a simple visual inspection shows any kind of irregular wear pattern, it could be a symptom of more serious issues: alignment problems, steering defects or even frame damage from a prior accident. When buying a used car, the tires can thus be a potent indicator of whether the vehicle has seen previous abuse.

From a lemon law perspective, we look at tire issues as an important part of the vehicle history. Experts find that tire wear can reveal whether other defects have actually been fixed, as the service manager may insist, or are likely to recur over the life of the car.

March 9, 2010

Used Car History At Your Fingertips

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Car buyers in the market for a used car now have a powerful tool to protect against dealer fraud, title washing, sale of rebuilt wrecks and other deceptive practices. The National Motor Vehicle Titling Information System (NMVTIS), a nation-wide database of used vehicle history is up and running. Consumer advocates have fought for many years to establish such a national public database for used cars and trucks. The car industry fought back and successfully stalled the implementation of this important mandate for a long time. But the waiting is over.

Rosemary Shahan, the executive director of Consumers for Auto Reliability and Safety and a tireless advocate for California drivers, emphasizes, "For used car buyers, this is the most valuable information, at the lowest price. Consumers should check this database first, then if they want more info, check Carfax and Experian. And of course ALWAYS get a vehicle thoroughly inspected by a trusted auto tech / body shop BEFORE agreeing to buy it."

Beginning in January 2010, every state now contributes to this valuable internet resource. Shahan is optimistic when she says, "Keep in mind that the national database has been receiving reports from over 8,000 insurers and junkyards, from all 50 states, and the data has to be updated every 30 days." The NMVTIS website itself cautions that it is only as good as its various sources, warning that there may be some variation in state reporting requirements. Although not foolproof, NMVTIS is an important step toward highway safety.

March 6, 2010

Repossessions Have Serious Effect on Credit Score

Your credit score affects not only your ability to get a loan, but the interest rate you pay and many other aspects of personal finance. A car repossession is a big black blotch on your credit score. Contrary to popular belief, a voluntary surrender has the same negative impact on your credit report as a repo does. After all, as credit blogger John Ulzheimer reports, “Credit scores aren’t meant to evaluate the ethics involved with lending.” It’s simply a cold, hard calculation of the likelihood you will pay future bills. A negative trade line reporting repossession may stay on your credit report for up to 7 years. That is a long time to be in financial purgatory.

For this reason, in actions Kemnitzer Barron & Krieg bring to challenge unlawful repossession notices, deletion of the negative trade line from the credit report is on the list of remedies we seek. In the last few years, we have succeeded in requiring lenders to make efforts to halt reporting of more than $250,000,000 concerning repossession accounts. Some recent class actions involving this remedy are reported here.

Why does it matter? Beginning in the late 1980’s, FICO (Fair Isaac Corporation) and other credit scoring sources developed algorithms (mathematical formulas) and software that generate consumer credit scores from data collected by credit bureaus like TransUnion, Experian and Equifax. Some credit bureaus in turn license FICO’s credit-scoring systems to provide credit scores to lenders, insurance companies and consumers themselves.

Designed to predict consumer behavior, credit scores determine who gets approved or rejected for car loans, insurance, mortgage and credit cards, with the lowest rates going to consumers with the highest scores. Since the people least able to pay end up spending more in higher interest, this system locks in a vicious cycle of credit and debt.

Credit bureaus and FICO itself keep the formulas secret, labeling them “proprietary information.” Consumer advocates have long been troubled by this secrecy. It is one thing to keep the recipe for Coca Cola or KFC out of the public eye, but it is another to bar transparency of a system that can wreak havoc on millions of Americans’ financial lives. While the precise algorithms remain unpublished or under protective orders, you can get a sense of how the formula works here and here.

Regardless of the precise equation, it is clear that a repossession, which impacts both “amounts owed” and “payment history”, has a huge negative impact on the overall score. Of course, the best thing to do is avoid having your car or truck repossessed in the first place. If you are having trouble making car payments on time and risk a repossession, check out the advice from the Federal Trade Commission here. The FTC explains, “Once you are in default, the laws of most states permit the creditor to repossess your car at any time, without notice, and to come onto your property to do so.” Sometimes there are defenses to these repossessions or collection of the deficiency charges that follow. If your car has been recently repossessed, contact us.