Thanks to Consumers for Auto Reliability and Safety for keeping us up-to-date on provisions of the proposed Consumer Financial Protection Agency (part of the financial regulatory overhaul) that would protect American servicemen and servicewomen from unscrupulous automobile sales and financing practices.

Unfortunately, those who are serving our country are all too often the victims of scams like yo-yo financing, falsified credit applications, failure to pay off liens on trade-in vehicles, and excessive dealer markups. The Department of Defense has recognized this problem, and has encouraged the Treasury Department to advocate for the inclusion of oversight of auto financing and sales in the Consumer Financial Protection Agency.

As might be expected, lobbyists for car dealers have been pushing back hard, and convinced Senator Sam Brownback (R-KS) to introduce an amendment to exempt auto dealers and their lending practices from the financial reform bill. The Military Coalition, comprised of groups ranging from the Veterans of Foreign Wars to the Iraq & Afghanistan Veterans of America to the Military Officers Association of America wrote to Senate Banking Committee ranking members Chris Dodd (D-CT) and Richard Shelby (R-AL) in opposition of the amendment.

The latest news is that the full Senate may vote on this important issue today. If you agree that our men and women in uniform shouldn’t get scammed, call your U.S. Senator today. You can find his or her phone number by clicking here.

If you are a service member (or are a family member) and have been scammed by auto dealers, you can also let Consumers for Auto Reliability and Safety know by clicking here. They’re collecting anecdotal information to help ensure that our troops receive the protections they deserve.

West Virginia Public Broadcasting recently covered a story about a local man who claims that a Nissan dealership ripped him off via the Cash for Clunkers program. The consumer wanted to trade in his Ford Explorer for an Altima hybrid, but says that the dealership didn’t play by the rules. Specifically, he claims that the dealership forced him to sign a $4,500 promissory note in the event that the dealer didn’t get the rebate from the government – something that Cash for Clunkers specifically prohibited. The program also required that the dealer disclose the salvage value of the vehicle, and that the amount be included in the negotiations; the consumer says the dealer told him he wasn’t entitled to the salvage value. Finally, they asked him to part with his clunker and wait for his new car until the dealer received the government rebate.

A recent article in Automotive News highlighted the efforts of Earl Stewart, a West Palm Beach, Fla., car dealer who is not only shining the light on an unscrupulous practice, but is walking the talk as well.

We’ve all heard about those “dealer preparation and document fees” that are tacked on to the price of a new car. Stewart has been vocal that those fees, which can amount to as much as $1,000, are a consumer rip-off. In fact, he stopped charging those fees in 2005, and has tried to shame his fellow car dealers into doing the same. They haven’t budged, but consumers have used the most powerful weapon at their disposal – their pocketbooks – to support Stewart’s stance. According to the Automotive News article, Stewart doubled the number of cars he sold once he dropped the fees.

In the meantime, Stewart is advocating on behalf of Florida legislation that would outlaw dealer fees. In his blog, he makes valid points about why a compromise bill that would mandate disclosure still wouldn’t give consumers a fair shake:

Think about it. (1) Car dealers admit that the dealer fee is pure profit [they also refer to it as recapture of costs but that is synonymous with profit]. (2) All the rest of the dealers’ profit is included in the price he quotes you on the car. (3) Common sense and “Accounting 101″ says that businesses should include all of their costs/profits in the price of their product or service. (4) What reason can there be for a car dealer electing to remove a portion of his profit from the price he quotes you on a car, renaming it “dealer fee” [or one of at least 22 other nebulous names according to the Florida Senate Investigation of the Dealer Fee] and then adding that profit back in when you sign your paperwork upon the delivery of your car? I submit that there can be only one answer to that question. That answer is that the car dealer wants you to think that the price he quoted you includes all of his profit and is the complete out-the-door price of the car.

We agree with Stewart. Tacking on dealer prep fees amounts to unfair lending practices, and should be stopped. There’s an interesting class action lawsuit brewing in Missouri about just this issue, which we’ll discuss in a future post.