SEATTLE - May 22, 1998 - The State of Washington today settled three lawsuits against two credit insurance sales consulting companies for allegedly encouraging auto dealers to hide the costs of extra products in the payment quotes they made to customers.
Associates Dealers Group of Bellevue, Washington and Resource Dealer Group of Illinois will pay $900,000 to the state and non-profit organizations. Another $150,000 fine was levied by Insurance Commissioner Deborah Senn in lieu of action against their insurance licenses and will be deposited in the state general fund. To settle a separate lawsuit filed against Attorney General Christine Gregoire in Federal Court, the two companies will pay $350,000 to the state.
The companies also agreed to make a good faith settlement offer to consumers, including refunds and or cancellations of the particular products or policies they unknowingly purchased.
The companies sell credit insurance and service contracts for vehicles. To help sell their products, the companies allegedly encouraged auto dealers to quote monthly car payments higher than what was actually needed to purchase the vehicle. The extra money in the quoted payment allowed dealers to slip the optional credit insurance or service contracts by the customer and into the sales contract.
The practices are known in the automobile industry as “packing” or “loading,” or “bumping” the payments.
“If the cost was $250 a month to buy the car, auto dealers would quote $300 and use the difference to hide the actual cost of the extra products,” Gregoire explained. “They made customers believe these extra products were all part of the deal, when in reality they were unknowingly paying for them.”
Auto dealers are taught certain sales techniques in combination with the “packed” payment to reduce the likelihood consumers would object to the inclusion of extra products based on their cost. Words such as “protected” payment; or “it's included”' or “it's provided”; were allegedly used to imply the use of packed payments by some of its dealers in Washington.
Gregoire believes many consumers are unaware they've been “packed” because, after hours of lengthy sales negotiations, they may have failed to focus on the additional cost of the optional products which was disclosed in writing at the end of the transaction.
“Auto dealers have a responsibility to accurately quote what consumers' monthly payments will be,” said Gregoire. “Consumers have a right to know precisely what they are paying for and resolving these cases is a major step towards eliminating the practice of packing payments in the auto industry.”
The settlement in the state case includes $400,000 in “cy pres” restitution for consumer education, $350,000 in costs and fees and $150,000 in civil penalties. As part of the education money, The Legal Aid for Washington (“The Law”) Fund will receive $200,000 and the National Consumer Law Center will receive $100,000 to assist indigent and low income persons on auto sales, repair, credit, insurance and other consumer issues and to help consumers experiencing difficulty managing their debt.
Consumers who purchased RDG's or ADG's credit insurance or service contract products as part of a dealer-financed vehicle purchase within the last three years have until August 20, 1998 to file a claim with the Attorney General's Office, the Better Business Bureau, or the Office of the Insurance Commissioner. Under the consent decree, RDG and ADG are required to make a good faith settlement offer to consumers, including refunds and or cancellations of the particular products or policies involved. Consumers may request that unsettled claims be submitted for binding arbitration.
To file a complaint or for more information on packing or other auto related issues contact the Attorney General's office at 1-800-551-4636 (1-800-833-6384 for hearing impaired) or visit the AG homepage at www.atg.wa.gov.