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AG chasing closed dealers who didn't settle customer trade-ins

November 17, 2010

An assistant Illinois attorney general reported a growing problem of new-car dealerships that close before they pay off the loan balances on their customers’ trade-ins, and he indicated his office might resort to warning consumers of the "dangers" of trading in a car.

Greg Grzeskiewicz led the Sept. 23 meeting of the Illinois Attorney General’s Advisory Committee, which meets occasionally to discuss dealer-related issues and includes representatives of the CATA, the IADA, and the Better Business Bureau of Chicago.

"I’ve worked on four or five of these (cases) this year," Grzeskiewicz said. "It’s a big drag on the resources of our office."

When a dealership is sold, the attorney general can make sure that trade-in pay-offs appear as a line item on the sales contract. But Grzeskiewicz said that oversight is harder when the dealership closes.

"With the economy the way it is, it’s not going away, and probably will get worse," he said.

If the problem persists, Grzeskiewicz suggested that a dealer fund might have to be created to retire the loans, and his office might turn to a program to educate consumers "on the dangers of trading in a car."

The Advisory Committee agreed two years ago that dealers should pay off any loan balances on their customers’ traded-in vehicles within 21 days. Although not a statutory time limit, the 21-day recommendation came after Illinois Attorney General Lisa Madigan sued two Chicago dealerships for taking from 45 days to 167 days to settle their customers’ loan balances, creating late-payment remarks on the credit reports of 17 customers.

In other discussions at the meeting:

• Miles-per-gallon claims in an ad must apply to a representative model of the vehicle, BBB attorney Patricia Kelly reminded the committee, and "not of a stripped-down four-cylinder with a manual transmission." The BBB monitors the area dealers’ advertising.

Kelly also spoke about Federal Trade Commission restrictions which mandate that if both city and highway miles-per-gallon fuel economy are referred to in an ad, both the Environmental Protection Agency’s "Estimated City mpg" and the EPA’s "Estimated Highway mpg" must be disclosed.

In all fuel economy ads, the EPA must be identified as the source of the information, and all numbers must be referred to as "estimates."

"We are starting to see mileage claims without any basis," said Kelly.

Kelly also said that ads for used cars cannot make mpg claims because the conditions of used vehicles are not consistent.

• Some dealers are offering $20 gas cards to shoppers who test-drive a vehicle—not a problem. But the customer must first buy $100 worth of gasoline at the same station, and of the same octane, before qualifying for the complimentary fuel.

"If it’s free, it must be without condition," said Grzeskiewicz, who noted the company that generates the cards hails from Florida.

• Grzeskiewicz recounted a lawsuit filed Aug. 27 against two Orland Park dealerships for using deceptive envelopes in 2007 direct-mail campaign. The envelopes reportedly were stamped "Important Vehicle Recall Information" and "Do Not Destroy." But the contents of the envelope had nothing to do with a recall. They instead promoted an "exclusive credit amnesty event."

"If you give someone a false premise to open the envelope, you’re on notice that we are looking at it," said Jim Kole, an assistant attorney general.

• How is the area’s No. 1 dealer computed? Steve Bernas, president of the BBB, questioned the top-selling claim of a dealer who combines his retail and fleet sales to reach the plateau. Dealer Mike McGrath Jr. said such a claim is hard to defend because manufacturers report fleet sales differently.

But CATA President Jerry Cizek dismissed the issue, remembering one bygone dealer who based his "largest dealer" claim on his store’s acreage, and another who said he was the "biggest" because he weighed  430 pounds.

Illinois Assistant AG Gil Fergus said the claim is not an advertising regulations infraction, and "It is not in the public interest to use AG resources to investigate an issue that doesn’t harm consumers."