A bill to permit e-contracts in auto financing in California has alarmed consumer advocates and attorneys representing victims of unethical auto sales.
“E-contracts allow fraud on a scale I’ve never seen,” says San Diego attorney Hal Rosner, who represents hundreds of car buyers who have run into legal trouble with e-contracts. “There is massive fraud going on here.”
Promoted by auto dealers as a convenience, e-contracts make it easier to cheat buyers, according to attorneys. Rosner says unscrupulous dealers have changed e-contracts to slip in fees and add-ons for extras his clients never agreed to, as well as higher purchase prices and down payments than they were promised. Some dealers even manipulate the promised trade-in value on old cars, he said.
Forgery is a common problem. “How easy is it to forge an e-signature?” Rosner says. In other states, dealers have signed contracts for the clients, and at least one fraudulent e-contract has saddled a car buyer with an auto loan for a car she never bought.
Among Rosner’s clients is Emmanuel Evans, who bought a used car that turned into a legal nightmare.
Evans had signed a digital form agreeing to an e-contract when buying a used car. When a dispute came up, Evans discovered his e-contract included a clause that any dispute needed to be settled by arbitration – something consumer advocates say favors dealers. In fact, consumers lose 96 percent of forced arbitrations involving car dealers, says Rosner. Often, the arbitrator is hand-picked by the car dealer or lender, he says, so the deck is stacked from the start.
The lender, Credit Acceptance Corp., tried to force Evans into arbitration, but Rosner was able to block that move in court because his e-contract itself was illegal.
Since auto loan e-contracts are prohibited in California, why are they being used at all? Car dealers and consumers point to confusion over the law. A federal law permitting e-contracts -- the Electronic Signatures in Global and National Commerce Act (ESIGN) – has been in effect since 2000, and many California car dealers are unaware that the state has exempted e-contracting in auto loans.
The California New Car Dealers Association wants the state legislature to pass Assembly Bill 380, which would allow e-contracts in auto sales.
Brian Maas, the president of the New Car Dealers Association, says his members just want a level playing field with the rest of the country.
“The reason we’re supporting the bill is because we’re the only state in the country that prohibits e-contract use,” he says. “Every other state allows e-contracting. Federal law allows it.”
The association maintains that many consumers do a lot of research on aspects of identifying a car, figuring out what financing is available and review other purchase issues online or on their phone. Not being able to complete a contract online is an impediment, Maas says.
Rosemary Shahan is fighting to stop it.
“Agreeing to an e-contract is not like swiping a credit card at the grocery store,” says Shahan, president and founder of Consumers for Auto Reliability and Safety (CARS), a Sacramento, Calif.-based non-profit. “There’s a lot more money on the line, and you don’t have the same protections. They (car dealers) argue it will expedite the transaction, though that’s not necessarily a good thing for consumers. You want time to review a contract and whatever it is you’re agreeing to.”
Shahan said she asked for an e-contract demonstration by the California New Car Dealers Association. “They showed me a screen on a desk,” she says. “At no time could I pick up [the contract] and walk out. It’s totally under their control. Under federal truth in lending, you’re supposed to get certain disclosures if you’re taking out a loan – the terms, amount, interest rate – and get it in a form that’s portable. You’re supposed to be able to shop around.”
Rosner says that in e-contracting, a salesman often slides a tablet across the desk or turns around a computer monitor. In many cases, all the buyer has to do is touch the screen here, here and there – and the contract is done. Surprisingly few people demand a paper contract to review or insist on signing a printed document in ink, attorneys say.
If changes in the contract occur, it’s not clear when they creep in. Rosner thinks some buyers are simply feeling too pressured to close a sale to read the fine print.
“You’re tired, you’ve been test-driving cars all afternoon and you’re being rushed,” says Rosner. “You’re so worn out, you’ll sign anything.”
“The reality is consumers barely read regular contracts for protection; they’re not going to read e-contracts,” Rosner adds. “I’ve been doing this 35 years, and it’s getting worse, not better.”
The California New Car Dealers Association counters that consumers who read and understand contracts have little to fear. “Nobody can change a contract after it’s executed, so consumers can feel safe,” says Maas. “As a trade association representing new car dealers, our members endeavor to comply with the law.”
“If somebody is changing the terms of a contract,” Mass added, “they shouldn’t do so. And in any event that’s already illegal.”
But Rosner says if California approves an e-contract law for auto financing, the playing field will just get worse for car buyers.
If a dealer asks for an electronic signature, “I would at the very least say, ‘I want you to print me a copy of everything you want me to sign electronically,’” Rosner says. “And insist on doing it in writing. You have feet. You have choice. They wear you down, but get up and walk out if you’re not happy. I would not buy a car from anyone using an electronic signature.”
His bottom line? “Get a written contract on paper that reflects what you’re actually getting.”
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