Beware double dipping on ‘clunkers’
Posted
Aug 24 2009, 03:49 PM
by
Karen Datko
Rating:
This post comes from James Limbach at partner site ConsumerAffairs.com.
A coalition of consumer groups has called on the U.S. Department of Transportation to ensure -- as the agency winds down the "cash for clunkers" program -- that dealers are not double dipping and getting paid twice -- once by their customers and again by the government.
During the past several weeks, the rejection rate for cash for clunkers transactions has hovered around 80%. Many dealers jumped the gun and entered into a high volume of contracts in July, before the rules governing the program were issued and before any deals were approved. Since then, the program has been overwhelmed, causing delays in the payment of $3,500 or $4,500 per clunker to dealers.
As a result, many dealers are on the hook for tens of thousands of dollars or more. Experiencing cash-flow problems and under pressure from lenders, some dealers have resorted to pressuring their customers to make up the difference. Cash for clunkers sales end today, Aug. 24, at 8 p.m. ET. Dealers have until Tuesday, Aug. 25, at noon to file the required paperwork with the government.
Some dealer associations even provide standardized "contingency agreements" for their dealer members that shift all the risks for rejected deals from the dealers to car buyers. Whether they signed the agreements or not, car buyers across the country have complained of being pressured to give the dealers $3,500 or $4,500 extra in cash or sign a new contract agreeing to pay more, typically under threat of losing their new car or having the dealer report it stolen.
Acknowledging the consumer groups' complaints, DOT posted information on its Web site to advise car buyers that they do not need to sign the contingency agreements. However, many car buyers are unaware of that information. Having surrendered their clunker and dependent on their new car for transportation, they are vulnerable to being pressured, even if they did not sign.
Car buyers have no way to know if the dealer is being paid by the government, making it easy for auto dealers to game the system by collecting the $3,500 or $4,500 from the car buyers and collecting that amount from the government.
To protect taxpayers and reduce the risk of fraud and abuse, the groups are calling upon the DOT to require auto dealers to certify in writing that they have not already collected the amount of the incentive from the car buyer or reconfigured the deal in a subsequent contract.
They also say DOT should send a notice to the car buyers informing them that the deal was approved and the dealer was paid either $3,500 or $4.500. DOT is also urged to provide a simple pre-addressed form with prepaid postage for the car buyers to mail to the National Highway Traffic Safety Administration if they have paid that amount to the dealer themselves, or if they entered into an amended contract to buy the same vehicle.
Joe Ridout, consumer services manager of Consumer Action, said, "By including these simple safeguards, the Department of Transportation can both protect consumers and verify that the taxpayers' investment in this program has not been misused."
DOT spokesman Bill Adams told ConsumerAffairs.com that as the program winds down, the department has three shifts working across the country to make sure dealers get their reimbursements. Adams added that DOT "will continue to be diligent about the potential of fraudulent activity by all who are involved in the transactions."
He said, "Consumers are not required to sign contingency agreements to pay back the dealer should the cars credit be rejected."
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