New Jersey AG Files Suit Against 2 BHPH Companies
NEWARK – Attorney General Gurbir S. Grewal and the Division of Consumer Affairs today announced that the state has filed a lawsuit against two South Jersey “Buy Here-Pay Here” auto dealerships and their owner for alleging targeting financially vulnerable consumers in predatory sales and loan tactics.
Defendants Nu 2 U Auto World (“Nu 2 U”) in Clementon; Pine Valley Motors Incorporated of New Jersey (“Pine Valley”) in Berlin, and Kenneth R. Cohen of Magnolia, allegedly preyed on consumers unable to acquire credit at more traditional car dealerships by selling them high-mileage, used autos at grossly inflated prices; financing the sales through in-house loans with high interest rates and draconian terms that created a high risk of default; and then reclaiming and reselling the vehicles over and over again to different consumers in a practice known as “churning.”
The suit, filed in Superior Court in Camden County, reflects the Division’s ongoing efforts to take on a more robust role in protecting consumers of financial services and products at a time when federal enforcement is on the decline.
“Governor Murphy promised New Jersey consumers increased protections against financial exploitation and we’re making good on that promise,” said Attorney General Grewal. “As this lawsuit demonstrates, we are prepared to use the broad enforcement powers of New Jersey’s Consumer Fraud Act, and other laws and regulations at our disposal, to protect New Jersey consumers from unconscionable and deceptive lending practices.”
Consumer advocates are increasingly expressing concern about predatory lending practices at “Buy Here-Pay Here” auto dealerships, which have been accused saddling low-income consumers with loans they cannot afford, then repossessing the cars and reselling them over and over again.
According to a report issued last month by the U.S. PIRG Education Fund and the Frontier Group, about a quarter of Buy Here-Pay Here customers default on their payments.
In a Complaint filed yesterday, the State alleges that the defendants sold and financed older, over-priced used motor vehicles with high mileage to financially vulnerable consumers who often could not make the requisite payments, thereby allowing defendants to reclaim the vehicles and start the same “sell, finance, and repossess” cycle over again.
The vehicles were sold for well in excess of their value. In some cases the down payment alone nearly paid off the value of the vehicle. Yet the financing terms would have locked buyers into making weekly payments totaling three to seven times the value of the vehicle.
For example, the defendants sold a 2004 Nissan Maxima valued at $1,789 to a consumer making $16 an hour. Despite requiring an upfront payment of $1,148, which represented more than 60% of the value of the vehicle, the defendants required the consumer to make 148 weekly payments of $75 at an APR of 23.99%, which would have resulted in a total payment of $13,087 – more than seven times the value of the vehicle. The defendants never provided the vehicle registration to the consumer.
In another instance, the defendants sold a 2007 Nissan Maxima valued at $2,825 to a twenty-two-year-old consumer making $10 an hour. The defendants required an upfront payment of $848, followed by 120 weekly payments of $75 at an APR of 23.99%, which would have resulted in a total payment of $9,848 – more than three times the value of the vehicle. The defendants never provided the vehicle registration to the consumer, who possessed the vehicle for less than four months.
As evidence that their business model was predicated on an expectation that consumers would not be able to make their payments, the dealerships required buyers to sign documents agreeing to not keep any personal possessions in their vehicles and to rekey the vehicles, often at great expense, and provide the dealer with a copy of the keys within seven days of purchase. Under the terms of the agreement, failure to make a copy of the key was yet another ground for repossession.
And predictably, buyers did repeatedly lose possession of the vehicles, allowing the dealerships in some cases to resell the same vehicles multiple times a year. For example, one 2002 Acura TL was sold five times in the course of a year, one 2009 Chevy Malibu was sold six times over the course of three years, and one 2006 Dodge Charger was sold eight times over the course of five years, according to the State’s Complaint.
“We allege these defendants targeted low-income individuals, luring them into dealerships with misleading advertising, and locking them into burdensome financial arrangements,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “Buyers who could least afford it were paying exorbitant prices for road-worn vehicles and financing them under terms so oppressive, it all but guaranteed they would default on the loans. To add insult to injury, too many consumers were left without a vehicle to take them home or to work, letting the dealership quickly resell the car to another unsuspecting customer. We are sending a clear message that New Jersey will stand up for its most vulnerable consumers and not allow them to be abused in this fashion.”
The State alleges that the defendants violated the New Jersey Consumer Fraud Act, the Used Car Lemon Law, and the state’s motor vehicle advertising regulations, by engaging in unconscionable commercial practices, deception, misrepresentations, and/or the knowing omissions of material fact, including:
- operating dealerships providing financing to borrowers with no or poor credit histories for purchases of used motor vehicles at rates and in an manner meant to capitalize on those consumers’ vulnerable position and limited options;
- selling and financing used motor vehicles at prices that were far in excess of the vehicle’s estimated value (e.g. 2006 Mazda valued at $1,867 was sold for $8,995); and compounding these grossly inflated prices by offering financing at double-digit interest rates (e.g. 24.19 percent) far in excess of interest rates offered by banks and credit unions;
- despite advertising that all vehicles only required a down payment of $488, requiring consumers to make excessively high up-front payments for the used motor vehicles they purchased and financed from the defendants (e.g. down payment of $3,771 required as part of total purchase price of $27,434 for 2008 Chevy Suburban with an estimated value of $5,636);
- advertising and offering for sale used motor vehicles without disclosing that they were previously damaged and/or required substantial repair and body work, including motor vehicles branded as “salvage;”
- inflating the advertised price of a used motor vehicle by charging consumers a “reconditioning fee” (e.g. $99), which was of no apparent value, and/or by charging consumers a “safety check fee” (e.g. $99), when no such inspection was performed;
- requiring consumers who financed their purchase of used motor vehicles through NU 2 U or Pine Valley to sign a “Right of Repossession” form which, among other things, prohibited consumers from keeping any personal property in the motor vehicle during the duration of the financing provided by defendants and permitted defendants to repossess such vehicles for late payment without providing consumers with any advance notice;
- failing to provide consumers with complete copies of signed sales documents, including financing agreements;
- failing to refund monies paid by consumers after consumers cancelled the motor vehicle sales transaction;
- repossessing used motor vehicles after consumers defaulted on defendants’ loans without providing any advance notice to the consumers; and
- denying consumers access to their personal property after the consumers’ motor vehicles had been repossessed.
The State, through its Complaint, has asked the Court to permanently close Nu 2 U and Pine Valley, and forever ban Cohen from owning, managing and/or operating any business that advertises, and/or sells new or used motor vehicles in New Jersey.
The State has also asked the Court to direct the defendants, jointly and severally, to pay the maximum statutory civil penalties for each and every violation of the CFA; and to restore to any affected person, whether or not named in the complaint, any money or real or personal property acquired by means of any unlawful practice.
Investigator Kelly Fennell of the Office of Consumer Protection conducted the investigation.
Deputy Attorney General Jeffrey Koziar, of the Consumer Fraud Prosecution Section within the Division of Law, is representing the Division in this action.