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Bill taps dealers to endow trust fund to settle trade-in payoffs

March 17, 2011
New Illinois legislation would add a $500 charge to the annual license fee of each new- and used-vehicle dealer and each motorcycle dealer, to create a fund to right consumers wronged by dealerships that close without paying off trade-in liens.
The Dealer Recovery Trust Fund is sought by the Illinois attorney general’s office, to which such consumers have turned for recourse. The office estimates unpaid liens of $5 million statewide and is suing seven closed dealers to recoup some of that.
Assistant Illinois Attorney General Greg Grzeskiewicz described consumers who subsequently saw their credit scores damaged while they were saddled with two vehicle loan payments. He said Illinois is the only state without a recovery fund or a bonding mechanism to help consumers.
Annual dealer licenses would increase $500 for a dealer’s established place of business and $50 for each additional place of business. The secretary of state’s office currently counts 895 new-vehicle dealers, 2,831 used-car dealers, and 771 motorcycle dealers, meaning the fund would collect more than $2.2 million in its first year.
The legislation provides that when the fund balance reaches $3.5 million as of Aug. 31, collection of the fee would be suspended the following year for dealers who did not have a claim paid from the fund; or a suspended or revoked license; or have any civil penalties assessed against them during the previous three years.
Consumers and dealers would be eligible to file a claim against the fund if they purchase a vehicle on or after Oct. 1, 2011, from a dealer who goes out of business without satisfying a trade-in lien. A claim could not exceed $35,000.
But at that limit, dealers still could be exposed to loss in a dealer trade gone bad.