SCI issues follow-up report on abuses in the used car industry

BY Michael Hill, Correspondent |

There’s a type of used car dealership in New Jersey that the State Commission of Investigations three years ago said were “gaming the system.” And it’s just issued a follow-up to that bombshell report, finding “unscrupulous activity,” and “downright dangerous” rip-offs occurring at some used-car dealerships across the state. The SCI’s Director of Communications Kathy Riley recently sat down with Michael Hill.

Hill: Kathy Riley, welcome to the broadcast. You’re with the State Commission of Investigation. What did you find about the used car industry and about, as some people call them, “junker” cars?

Riley: Yeah, we looked at a niche within the used car industry that has become, essentially, a haven for illicit dealer activity. In some cases, activity that harms consumers. We found that these complexes are a refuge for these dealers. And we’re talking — they’re called, multi-dealer locations, and what they are is large buildings, typically, that can house up to, some times, hundreds of dealers.

Hill: On paper, though? Not physically in the building.

Riley: Well, they actually have offices, and there are cubicles, and they have a desk and a landline. But that’s the dealership — that’s it. For all intents and purposes, this is not a dealership that any kind of business is going on there, but that’s their licensed location. And what we found is that there’s all kinds of inappropriate activity occurring by these dealerships. And we’re talking things like tax fraud; we’re talking consumer fraud, specifically.

Hill: There’s actual violations of the law?

Riley: In some cases we found some unlawful activity, including insurance fraud and things like this. But the thing that was the most compelling issue was the consumer fraud. We found examples of folks who really spent thousands of dollars for vehicles that were really nothing more than junk.

Hill: And they found that out once they bought them because they fell to pieces.

Riley: Absolutely. We had one story of a person who drove off the lot, and as soon as they drove off the lot, the car started making noises. Within a week, the engine fell out on Rt. I-95.

Hill: What kind of recourse do those consumers have?

Riley: Well, that’s one of the problems here. They don’t have a lot of recourse. Most of the sales that occur at these places are as-is sales. Under New Jersey law, that means any defects or problems are the buyer’s responsibility. So, the buyers really have no recourse.

Hill: But, Kathy, aren’t the dealers required to tell the buyers — potential buyers — what the deal is with the car, in terms of what’s wrong with it?

Riley: Well, under as-is sales, it’s really — “Hey, this is an as-is sale, and that’s it.” New Jersey protections only apply to vehicles that cost more money than that, and these fall under that.

Hill: So when consumers go to someone and they say, “Look, the steering wheel locked up,” or some other major issue with this, they virtually have no recourse? Do they have a hard time finding these dealers?

Riley: Well, these dealers are not so hard to find because often they’re — rather, I’m sorry. They’re hard to find because they’re not at their offices. They don’t operate, really, out of these offices. When you would go do a traditional dealership, and you could go return to the dealer, there is no one to return to.

Hill: So what recourse is there, then, for a consumer?

Riley: Not a lot, at the moment. And that was one of the things that we’re recommending. We’re recommending that New Jersey improve it’s consumer protection laws, so that buyers who are subject to these type of sales may have some type of recourse. We looked at — the state of Massachusetts has a pretty good law, that has protections that are much more expansive than New Jersey’s law.

Hill: One of the things I’m finding here — your recommendations, “Enact stronger protections for consumers. Require in-state inspection of rebuilt salvage titles. Enforce abuse-of-license violations. Create a wholesale license.” Who’s doing this? The reason I ask is because this is your follow-up report. You did this in 2015.

Riley: Yes, and that’s an important thing to mention. This is a follow-up investigation. We initially looked into these multi-dealer complexes in 2015. And what we found this time around is a lot of the same things continue. One of the reasons we got into this was that there’s also legislation pending. As a direct result of our first investigation, the Motor Vehicle Commission did implement some reforms, some of which were quite helpful. But the problem with this pending legislation is it would undo a lot of those reforms, so we were really concerned that this legislation could move forward and undo some of the good things that have been done. We also heard allegations that some of this illicit-type activity by dealers was continuing.

Hill: Who’s protecting consumers in this process?

Riley: Well, under the law, the Motor Vehicle Commission really doesn’t have a whole lot of — has no responsibility for consumers. They’re simply looking at the dealer — the regulation of the dealers. It’s the Division of Consumer Affairs that deals with consumer protections. And as we stated earlier, we think that the law maybe should be expanded so that people who buy vehicles that cost less than $1,000, have more than 100,000 miles have a little bit more wiggle-room in getting help for these kind of sales gone wrong.

Hill: And the bill in the Legislature, where is that going right now? What kind of protections? What can people hope for, in terms of the Legislature, with some of this?

Riley: Well, the bill that I refer to is simply related to regulations governing the multi-dealer locations. So that’s dealing with one issue — that’s the conduct of the dealers and the operation of these entities. We’re talking here in our recommendations about expanding the consumer protection laws, and that would be something that would have to be new legislation, just to expand our current limits on that.

Hill: And is there support for the kind of legislation you’re talking about?

Riley: Well we just put our report out this week, so we’re hoping someone from the Legislature reads this report and thinks that’s a good idea and decides to sponsor legislation.

Hill: It should be require reading, perhaps, over Thanksgiving holiday?

Riley: Sounds good.

Hill: Alright, Kathy Riley, there with the State Commission of Investigation. Thank you, Kathy.

Riley: Thank you.