Lease your car? Beware of undisclosed dealer fees
As used car prices have skyrocketed in recent years, people who rented their vehicles before the pandemic find themselves in a unique situation:
At the end of their lease, their leases give them the option to buy their cars. They discover that these buyout prices are thousands of dollars cheaper than what they would have to spend to buy the same vehicle from a dealership.
Many lease customers exercise the option with little or no problem by dealing directly with the finance companies that hold title to their cars.
But others are not so lucky. Some lenders refer customers to the dealerships that leased them the cars, where they are told they must spend hundreds or even thousands of dollars in undisclosed fees if they want to exercise their buyout options, lawsuits allege filed this year against Florida Dealers and Financial Companies.
The Florida Attorney General’s office has received about 120 complaints since last year, including 75 in 2022, about undisclosed fees “charged by different entities across the state,” spokesperson Gerald Whitney Ray said in a statement. an email.
“We have forwarded many of these complaints to state and federal agencies for further investigation,” the statement said. “Our office is also reviewing complaints as part of our active consumer protection investigation into this practice.” He did not provide any further details about the state’s investigation.
It’s not just happening in Florida, said Zander Cook, co-founder and chief operating officer of Lease End.com, an online company that handles lease buyouts on behalf of consumers. Dealerships and the finance companies they work with “make it as hard as possible for people to buy out their leases,” Cook said. “They see the equity in leased cars and they want them back.”
Joshua Feygin, a Hollywood-based attorney who represents consumers in disputes with car sellers, says car dealerships suffering from severe inventory shortages are trying to make up for lost business by illegally charging undisclosed buy-back fees in their customers’ rental contracts.
“They find ways to squeeze consumers as much as possible,” Feygin said.
But when sued or threatened with lawsuits over the extra charge, most dealerships choose to settle the cases and reimburse customers for the undisclosed charges, Feygin said.
The problem arises because the shutdowns of Chinese microchip factories triggered by COVID-19 have slowed production of new cars around the world, leaving dealers with fewer cars to sell and driving up used car prices.
Customers who entered into four-year leases in 2018 are looking at their contracts and finding that residual values — what dealers and finance companies estimate the cars are worth at the end of the lease term — are significantly lower than the current market value of their cars. Yet their leases give them the option of buying the cars outright for residual values.
According to Zander, leasing customers have the right to finance buyouts with the lender of their choice, as long as they pay the residual value plus any fees clearly stipulated in the contracts.
Yet when some consumers contact their lenders about buying their cars, their finance companies tell them they need to return to the dealership to complete the buy-back.
And that’s when dealerships tell customers they have to pay additional fees not disclosed in rental agreements, Feygin said.
In a lawsuit filed by Feygin in May, a customer said he leased a Kia Optima from a South Florida dealership in 2018 with a residual value of $12,571. The lease agreement states that the customer can purchase the vehicle at the end of the lease term by paying a $300 “option to buy fee”.
When the customer went to the dealership in July to purchase the vehicle, he was charged a $995 “pre-delivery service fee” and an “e-registration filing fee” of $499 – totaling $1,141 more than the purchase option price in the lease, the suit says. Charging the undisclosed fee violated federal consumer rental law, which requires disclosure of the full buyout price, the suit says.
The dealership agreed to settle the claim less than two months after Feygin filed the lawsuit, according to court records.
In a separate lawsuit filed in July, a woman leased a Nissan Rogue from a South Florida dealership in 2018 with an option to buy for a residual value of $18,248 plus an option to buy fee of $300. $. Not only was she charged $19,381 for the vehicle, but she had to pay a pre-delivery purchase fee of $799 and an “e-registration filing fee” of $399, according to her lawsuit.
That dealer agreed to settle the case within a month after Feygin filed it, according to court records.
The dealers named in both lawsuits did not immediately respond to requests for comment on this story.
Other cases filed by Feygin remain in litigation. Often, dealerships require disputes to be submitted to arbitration, as most contracts require. Feygin says they tend to change their minds and settle when he informs them that he has claims from other clients that he plans to take to arbitration. Settlement is usually cheaper for the dealer than paying an arbitrator $3,000 per case, he says.
Feygin says he’s seen the list of additional charges expand to include charges for extended service contracts as well as mandatory buy-back vehicle inspections and certifications “to see if it qualifies for an extended warranty.” No service is needed if customers buy the car as-is and will depend on the original manufacturer’s warranty or their own ability to pay for repairs, he says.
LeaseEnd.com was founded in February 2021, before the explosion in used car prices made lease buyouts so attractive, Zander said. Since then, the Burley, Idaho business has “gone crazy,” he says. With their cars worth far more than their option to buy back, “everyone is now in an equity position.”
Lease End’s business model is based on managing all aspects of a lease buyout without requiring the lessee to return to the dealership, he said.
Customers enter their information on the company’s web portal, and the company processes the application, finds a lender, and sends a check to the funder for the residual price, plus any fees listed in the lease agreement.
Zander says it works seamlessly most of the time. Lease End takes a commission on the financing part, in addition to selling optional warranties and other services, such as tag and title transfers. But those additional fees are all optional, he says.
Clients “can do the process at home without having to talk to anyone,” he says.
Lease End, as the name suggests, only deals with lease buyouts, says Zander. Another online company, MyAutoLoan.com, connects customers with lenders for all kinds of auto purchase transactions, including lease buyouts.
Start your day with the best stories in South Florida.
Greg Thibodeau, CEO of Irving, Texas-based MyAutoLoan.com, agrees that rental customers don’t have to return to their dealership to exercise buy-back options. Once a lease is finalized, the lessor owns the vehicle, not the dealership. “My advice is don’t go back to the dealership, go to the finance bank,” he says. A lease buyout “is a very simple operation”.
The lenders – often owned by the automakers themselves – who require their customers to return to the dealership to exercise buy-back options might have made arrangements to sell the leased vehicle to the dealership, and then the dealership sells to the customer as if it was a direct purchase, with all the additional fees that a customer will accept, Thibodeau said.
Dealers add exorbitant fees because customers often don’t know their rights under the terms of their leases and “often don’t know what options are available,” he said.
Ed McFadden, spokesman for the American Financial Services Association, a trade organization of vehicle finance and leasing companies, said by email that auto finance companies should honor the terms of customer leases.
Association members “adhere to the terms of contracts and expect dealers to do the same”, he said. But he added: ‘It is standard practice to take a vehicle to a dealer at the end of a lease.
Regarding the allegations in Feygin’s lawsuits, McFadden said he could not comment without reviewing the specific claims. Still, he said, “some dealers in bad faith may violate their contracts with customers and finance companies.”
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].