State warns car buyers to beware of add-on fees

June 09, 1991|By Ted Shelsby

It may be a buyer's market, but the Maryland attorney general's office has a warning for consumers: Pay less attention to that shiny new car and concentrate more on the purchase order fees included in your drive-home price.

Some dealers in recent years have charged add-on fees that can boost the cost of a new car and complicate the whole purchasing process, the AG's office says.

Such fees range from $10 to as much as an extra $1,295, according to records compiled by the AG's office. The average charge was about $100.

To add to the confusion, add-on costs show up on the purchase order under a wide variety of titles. Some examples: customer service fee, documentation fee, title service fee, administration fee, closing cost, settlement fee, dealer handling fee, additional dealer markup, additional dealer profit and administration fee.

One fee particularly disturbing to the lawyers at the AG's office is the "MVA" fee.

Some dealers say that stands for Market Value Adjustment, but unsuspecting consumers might think the charge has something to do with the state Motor Vehicle Administration.

"Car buyers should ask a lot of questions about the fees they are being charged," advises Evelyn O. Cannon, chief of litigation at the AG's office. "If the salesperson says, 'We have a fee here,' ask what is it all about."

According to Ms. Cannon, some dealers have told customers that manufacturers require the fees. Others have said that all dealers charge them. "Neither is true," she says.

Still, there are some dealer fees that the state has no problem with, says Steve Lovejoy, an assistant attorney general assigned to the state Consumer Credit Commission.

One example is the destination or freight charge, which usually ranges between $250 and $500. "The best information that we have," he says, "is that the dealer pays this charge to the manufacturer for delivery of the vehicle."

In some cases, says Mr. Lovejoy, there will be a line on the contract reading "additional dealer profit." "We have no problem with this," he says. "We're talking about nothing more than the purchase price of the car."

But a problem may arise, he says, if a dealer advertises the car at one price and then tacks on fees after you come into the showroom. "That would be false advertising, as far as I'm concerned."

In a legal opinion signed in August 1988, Attorney General J. Joseph Curran Jr. said that the dealers' fees represented a violation of the state's Retail Installment Sales Act. The violation, according to Mr. Curran, applied only to cars on which the dealer arranged financing.

The AG's office has estimated that car buyers paid out more than $4 million in such fees between 1985 and 1988.

The office took legal action against about half of the more than 400 dealers in Maryland.

Car dealers, through their trade association, the Maryland New Car and Truck Dealers Association, challenged the AG's decision in court.

Last week, Harford County Circuit Judge Cypert O. Whitfill handed down a ruling that amounted to a two-edged sword. The judge ruled against Mr. Curran's opinion that the fees violated the state's retail installment laws -- but also warned the car dealers that the practice "may in fact be fraudulent."

He added: "However, it is fraud practiced in the negotiation of the cash price and not fraud in the execution of the installment sales agreement. The fraud has nothing to do with the extension of credit."

In summing up his decision, Judge Whitfill wrote: "The addition of overhead or profit is not an evil. The disguising of such overhead or profit may well be an evil that warrants attention by law enforcement officials."

Ms. Cannon, who served as counsel for Maryland in the case, says the AG's office is still discussing its course of action. She said the state may appeal Judge Whitfill's decision, look for other ways to address the dealers' practice, or do both.

Joseph P. Carroll, executive vice president of the auto trade association, acknowledges that dealers have been charging the fee.

But he says buying a car is more like purchasing a house than any other consumer product because of the paperwork involved. As examples, he listed processing of the auto to be traded in, paying off the lien on the trade, title work and truth in mileage documentation.

Mr. Carroll advises car shoppers to consider the fee as part of the total purchase price. If one dealer's price is too high, go to another dealer.

But Peter V. Berns, deputy chief of the Consumer Protection Division of the AG's office, warns that some dealers use the fee in a confusing numbers game. They might inflate the price of a car and then discount it, leaving you to believe you got a much better deal you really did.

Mr. Berns says consumers are entitled to know "in clear and truthful terms what they are being charged for."

Mr. Berns says the Consumer Production Division's complaint-handling unit can assist you in trying to mediate disputes with dealers. You can call the complaint unit at 528-8660 for a complaint form. Or write to the Consumer Protection Division, Attorney General's Office, 200 St. Paul Place, 16th floor, Baltimore 21202.

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