Car buyers get stuck with two payments

"It's just a mess," said Rice, 61, a customer service representative who lives in Stone Mountain.

Rice is among a group of Georgia consumers left in the lurch when Kia of Chamblee closed last year, and she is among many more consumers across the nation who are getting squeezed as auto dealers shut their doors.

Joe Doyle, administrator of the Governor's Office of Consumer Affairs, said his agency has fielded complaints from consumers about the failure to pay off trade-ins involving at least nine dealerships.

Industry insiders say the vast majority of deals go off without a hitch. But because many dealerships are struggling, some advocates now advise consumers to avoid a popular practice in new car deals: trading in a car that isn't yet paid for.

"This is going on all over the country," said Gary Leshaw, a Decatur lawyer who is representing Rice and other Kia of Chamblee customers.

Some dealerships that close are not only failing to pay off debts on vehicles they have taken in as trades. They are also sometimes failing to forward payments for taxes, title and license fees, as well as customers' payments for service contracts in Georgia and across the nation, according to consumer advocates.

Bill Brauch, chairman of the National Association of Attorneys General's auto working group, said problems with dealerships making payments on behalf of consumers are "absolutely" on the rise nationally. "A consumer can be out many thousands of dollars," said Brauch, who is also director of the Iowa attorney general's consumer protection division.

The problem prompted California to establish a recovery fund to compensate consumers whose car dealers failed to make payments on their behalf. No such fund exists in Georgia.

Reorganizations at General Motors and Chrysler will increase the number of shuttered dealerships. But fewer consumers are expected to face problems with payoffs at dealerships for those manufacturers because those closures will be more orderly.

When consumers buy new vehicles, many trade in their old cars as part of the deal. If the old car is already paid for, the parties negotiate a price for the used vehicle. That price is deducted from the cost of the new car.

If the buyer still owes money on the trade, the dealer generally promises in the sales contract to pay off the loan. Most often, it works. But when a troubled dealer is deeply in debt, the promised payments aren't always made.

William F. "Bill" Morie, president of the Georgia Automobile Dealers Association, said consumers should feel confident about making a trade when buying a new car, because problems are rare. "You've got thousands and thousands of examples where there is no problem," he said.

Jimmy Ellis, vice president of Jim Ellis Automotive, said in the company's 12 dealerships across metro Atlanta, about half of new-car buyers trade in their old vehicles as part of the deal. Of those who trade, he said, about 60 percent to 70 percent still owe money on the old vehicle.

He said consumer problems with payoffs are rare. But he said these days, it makes sense for shoppers to be careful. "The key is, know who you're dealing with," Ellis said.

Consumers should not avoid making a trade, Ellis said. If a car buyer has any doubts about a dealership's stability then he or she should require evidence that the debt on the trade has been paid off before the deal on the new car is completed, Ellis said. If a dealer refuses, that should raise concerns.

Leshaw, the Decatur attorney, has been pursuing consumer claims against Kia of Chamblee for months. Meanwhile, the Governor's Office of Consumer Affairs is pushing Kia's financing arm, Hyundai Motor Finance, to make good on the deals signed by Kia of Chamblee. But the company so far has denied any responsibility, according to correspondence from an attorney representing the company.

Leshaw said the owners of the defunct dealership have not responded to letters. Kia Motors America said the closed dealership was owned by an individual named Vincent Sams.

The AJC was unable to reach Sams using personal and business contact information in public records. Messages left on a cellphone listed in his name were not returned.

Kia Motors America does not condone the dealership's behavior, company spokesman Alex Fedorak said in a prepared statement. But he said dealerships are "independent businesses and state laws limit the control that manufacturers and distributors have over them."

The Office of Consumer Affairs posted a page on its Web site last year advising consumers that relying on the dealer to pay off an existing loan is risky. If the dealer fails to pay off a loan, the consumer is still responsible for it, according the Web site.

Leshaw said the lender who financed the new Kia purchases —- Hyundai Motor Finance —- should be on the hook for the dealership's failure to pay off the trades. Hyundai Motor Group, the Korean car giant, has a controlling ownership stake in Kia, also a Korean brand.

Leshaw said that under a Federal Trade Commission rule, most consumer contracts contain language that makes the holder of a finance contract potentially responsible for the actions of the party who arranged the deal. While Rice signed a contract with Kia of Chamblee, it was sold to Hyundai Motor Finance.

Depending on the circumstances, a dealership's failure to pay off a trade could become a criminal matter. The DeKalb County Police Department's fraud unit is investigating the Kia dealership, said Mekka S. Parish, the department's public information officer.

The Office of Consumer Affairs warned Hyundai Motor Finance Co. in March that it is considering legal action against the company related to the treatment of at least five Georgia consumers who signed contracts with Kia of Chamblee.

Doyle said a failure to comply with the FTC rule is an "unfair and deceptive practice." He said his office intends to "take all steps available to it to enforce the law."

Rice had been driving her new car for several weeks when she received a notice from the lender on her old car note saying she was late with her payment.

"I gave them a call and found out they had never received the payoff for the car," she said. "I was pretty upset. That's what the deal was. That's what they were supposed to do."

She called the dealership and was told they would take care of it. But the debt was never paid. When Rice went to confront someone at the dealership, she said, it was closed.

Rice said the Office of Consumer Affairs told her that another dealership had purchased the Neon. Rice said it's unclear who would be the rightful owner of the car if she pays off her loan.

"I'm paying two car notes, I'm paying an attorney, and I'm not sure what the outcome is going to be," she said. "It's like somebody breaking into your house and stealing everything you've worked for."

Consumers face a tough road trying to resolve problems with auto dealerships that abruptly close. Customers of the defunct Metro Dodge dealership have been pursuing legal claims for years, but have had little success in collecting money, said Leshaw, who represented consumers in that case as well.

Jessica Rinker said her lender claims she owes about $14,000 on a Dodge Durango she traded in when she bought a Sportage from Kia of Chamblee. Rinker and her husband haven't seen the Durango since they made the deal. Rinker, 25, said she isn't making the payments on the Durango, even though the lender says she owes the money and the Office of Consumer Affairs says she should.

A recent nursing school graduate and mother of a 3-year-old, Rinker said her family can't afford the loan payments —- especially for a car they don't have. But she has paid a steep price nonetheless.

"My credit has just been trashed," Rinker said.

Rinker said before she bought the new car, she had worked hard to improve her credit and that her score had jumped by about 100 points. Now, she said, it's taken a nosedive.

"I tried to get basic cable for my family and they were going to require me to make a huge deposit," she said.

In a May letter to the Office of Consumer Affairs, an attorney representing Hyundai Motor Finance said the company is not responsible for the dealership's failure to pay the loans. The company offered a compromise: to pay the consumers fair market value of their trades at the time of the transactions.

That offer would cover only a part of what consumers owe and less than what Kia of Chamblee promised to pay, Leshaw said. The offer has not been accepted.

The Rice and Rinker cases are now before the American Arbitration Association. The best advice to avoid such a fate is caution, consumer advocates say.

"Every consumer should be hesitant to trade in a vehicle right now if you owe money on it," said Brauch, with the national group looking into the problem. "Sell it outright and get the cash, and then pay off that loan."

Protect yourself

If you owe money on the car you are trading in, think twice about buying a new car, advises the Governor's Office of Consumer Affairs. Even if a dealership agrees in writing to pay off your existing loan, the lender can hold you responsible if it doesn't. If you don't pay off the loan, your credit rating will suffer.

Be wary of trading in a car if you owe more than the car is worth. If you must buy a new vehicle, check out the dealership with the Better Business Bureau to see if the dealer has a good reputation.

After making a deal, confirm with the lender that the debt on your trade was paid.

Or, sell your car privately or to another dealer instead of making the sale part of the new car deal.

Resources for buying a car or checking out a dealership:

Governor's Office of Consumer Affairs at www.consumer.georgia .gov; Better Business Bureau at atlanta.bbb.org

Where to complain

Governor's Office of Consumer Affairs, 404-651-8600, or the Better Business Bureau