Certified Pre-Owned Scam Alert: “Packing” in the Unneeded Extended Warranty

1. The ONLY reason a dealer sells an aftermarket service contract on top of a “Certified Pre-Owned” (CPO) warranty that comes with the certified vehicle is to make profit. The coverage is usually duplicative and mostly worthless;
2. When you see a service contract/extended warranty on top of a solid CPO Warranty, there is a high likelihood that the aftermarket product sold was part and parcel of a payment packing scheme (because consumers would normally not buy duplicate, worthless coverage if explained to them ethically and properly);
3. Here is how it typically works. The salesperson sits down with the consumer in the closing booth (office) or at a table out on the showroom floor. Instead of the dealer providing a printout of the complete terms of sale with the sale price, tax, license fees, all fees, Truth-in-Lending Act (TILA) disclosures, etc.; the salesperson starts the “would-ya-take” /” double-talk” process where the salesperson gets a commitment on how much down payment the consumer can put down, and how much a month he or she can pay. Then, the salesperson gets a commitment that “if we can get you the car for $700 per month with $5,000 down (for example), would you take it home today? (Consumer and salesperson land on a down payment and monthly payment that the consumer will commit to right now). Then the salesperson takes the commitment to the control tower (sales office). The typical dealer sales manager then plugs in the vehicle information into a software screen (work a quote software) at full retail price. Then, the sales manager typically adds the service contract and the alarm system, GAP and maybe more, to the screen, along with the down payment. Here is the key part that can be proven (especially if you can get the dealer to produce the proposal worksheet(s) from the negotiation). The sales manager will typically write back a counter offer in green or blue marker, or some other magic marker color (usually not red), offering a monthly payment and a down payment. This is the 4 SQUARE technique, also called “penciling the deal.” The 4 boxes (Price, trade value, down payment and monthly payment) are specifically designed to keep the focus on the bottom 2 boxes (down payment and monthly payment). The successful salesperson closes the deal with the consumer only focused on negotiating down payment and monthly payment. The result, The consumer is ground down to dust after several hours and ends up, after a long battle, getting the car for full price, and, THE SERVICE CONTRACT, GAP AND USUALLY THE ALARM SYSTEM are already “packed” into the quote;
4. The consumer goes into the finance manager’s office to sign the papers. The FI Manager’s job is to “un-pack” the payment pack without getting caught. This is done in a variety of ways. Some FI Managers will attempt to “sell” the products off a menu and quote a payment increase of only about $10-20 dollars per month. Most people think it’s a great deal and agree, thinking, OK, I get all of that coverage, GAP and an Alarm system for $18 per month? I’ll take it! It is the rare consumer that would sit there and do the math to realize that something is wrong when you can get $4,685 worth of products ($2,995 service contract, $795 GAP and $895 alarm) for $18 per month times 72 months ($1,296 including interest). Trust me, no one does the math, ever;
5. The harder one to spot is what I call the “partial payment pack” where the dealer only packs the monthly [payment quote by $10-15 per month to give the FI Manager what is known in the car business as a “leg” up on the deal (without actually putting any products on the work a quote screen. The FI Manager is expected to “hold the leg” and will get grief from the sales manager if he or she “blows the leg” and does not sell the consumer any of the goods;
6. All of this nonsense can be spotted through doing the math from the proposal worksheet to the Retail Installment Contract (RISC). If the payment did not go up between the proposal worksheet and the RISC, and there are aftermarkets, you have them cold. Or, if the payment went up like $10-15 bucks per months for $4-5,000 worth of stuff, you have them. If you do not have the proposal worksheet, you need to remember the lowest monthly payment you were ever quoted. It is crazy how many times it turns out to be the fully loaded final payment on the RISC. Do the math and find out what the lowest payment is that was ever quoted. Piece together the crime a step at a time;
7. Dealing with the payment pack in the face of a properly signed Before/After payment disclosure pursuant to CC section 2982.2: we have had clients tell us all sorts of things on how their signature got on this form in the face of a heavy payment pack. Most of the time the dealer employee just says, “sign here for the service contract and alarm,” or “sign here to activate the warranties on everything,” “just sign here” or something vague like that.
8. The more sophisticated dealers are now using what is called an “electronic pencil.” This is where the sales manager will generate a full printout and TILA disclosure for the “closer” to take into the consumer and get them to agree on the deal. The dealers are doing this to lend credibility to the negotiating process and to basically scrap the “old school” 4 square technique so they don’t get accused of fraud and payment packing. But, they pack the payments just the same using the e-pencil technique. The disclosure has the service contract, GAP, alarm, (all the back-end goodies) packed into it when the closer takes the printout into the closing booth. Then, the talented and experienced closer does a fast-talk dance, and before you know it, the consumer signs the e-pencil printout and agrees to the deal. It all comes off looking so clean and compliant. The dealer saves that signed e-pencil in the deal jacket to prove they never packed the payment and disclosed everything up front. (Funny in contrast to how many dealers would have a practice of shredding the 4 Square worksheets in the business office). The bottom line is the same: The consumer was never given a payment quote for just the automobile without the thousands of dollars of aftermarket goodies packed in. What is telling is that they usually will not have a printout in the deal jacket signed by the consumer without the aftermarket items packed into the quote—proving that they offered a payment quote for just the car, without the aftermarkets included.