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Ford Lease Information

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Ford, Dealers Pay $21 Million To Settle With 38 States
June 10, 2004: Ending a six-year investigation, 38 state prosecutors announced a settlement with Ford Motor Credit and 1300 Ford/Lincoln-Mercury dealers over alleged overcharges on early lease terminations. Ford Credit was accused of withholding payoff information from its lease customers, and its dealers were accused of overcharging people on early lease payoffs. The settlement includes $100 in restitution for up to 150,000 Ford lease customers, plus $6.3 million to reimburse the states for legal fees and costs of the investigation. Texas press release Iowa press release

Ford, Dealers Pay $4.5 Million for Deceptive Leasing Practices
July 14, 2000: After a four-year investigation, California prosecutors announced a settlement with Ford Motor Credit and 204 Ford/Lincoln-Mercury dealers over alleged overcharges on early lease terminations. (For details, see "Ford's Payoff Packing Scheme" below.) The settlement includes $100 in restitution for up to 36,000 California consumers, plus over $934,000 in fines and investigative costs.

States Announce Ford Lease Investigations
November 20, 1998:The Florida Attorney General announced that 22 states are conducting investigations into the leasing practices of Ford Motor Credit Company. Investigators believe that Ford Credit may have provided training and materials that helped salespeople to exploit consumers. Prosecutors in at least four states have caught Ford and Lincoln-Mercury dealers cheating people on leases, and some dealers have already agreed to large settlements involving restitution and penalties. Florida press release

Ford Sued in 20 States for Deceptive Lease Practices, Fraud
Class-action lawsuits have now been filed against Ford Motor Credit in 20 states, alleging deceptive leasing practices and fraud. In the lawsuits, Ford was accused of charging undisclosed acquisition fees and of teaching deceptive sales practices to its dealers and their salespeople. (Nov. 1998)

Note: The following material is just a summary of Ford's deceptive leasing practices. Most of this information is condensed from the author's book, Leasing Lessons for Smart Shoppers, but a few facts have been added that were not known at the time of publication.

Ford's Payoff-Packing Scheme

Three former employees of a Florida Lincoln-Mercury dealer (from 1989-91) described a "payoff-packing" scheme that was used to overcharge customers who had leased through Ford Motor Credit. They said that representatives from Ford Credit told them how to inflate customers' early payoff balances, explaining that their Ford Credit branch would "participate" by refusing to give payoff amounts to customers who requested them. Instead, they were told that customers would be referred back to the dealer for payoff information, giving them "an opportunity to make additional profits" by overcharging their customers.

Five years later, in California, the Sacramento County District Attorney's office received a complaint of overcharging on a lease payoff by a local Ford dealer. Investigators discovered that Ford Credit had been concealing payoff information from its lease customers, so the investigation was expanded to include all early payoffs that occurred at that one dealer over a one-year period. It was discovered that 31 people had been overcharged.

That 1995 investigation of one dealer quickly spread to include eight Ford dealers in that area. When it was over, five of the dealers were accused of overcharging their customers by inflating the early payoff amounts on vehicles leased through Ford Credit. A total of 111 people were entitled to restitution, with some receiving as much as $2,000. (The investigation only covered one year of early payoffs.) Similar investigations were then started by district attorneys in other areas.

Payoff packing is believed to have been a common practice at many Ford and Lincoln-Mercury dealers across the country, since Ford Credit was withholding payoff information from its lease customers.

Ford's Deceptive Lease Training

Ford's deceptive lease training program was created by Half-A-Car, Inc., a Pennsylvania company that specialized in short-term leases. According to published reports, the founder of Half-A-Car ("HAC") took his idea for the two-year lease to Ford Motor Co. in 1982. Ford contacted one of its dealers to test the concept, and HAC became the company's national lease trainer.

By late 1995, HAC had trained 1,700 Ford & Lincoln-Mercury dealers to sell customers on "The Plan," which was the name that Ford used for its two-year lease. In addition, Ford Credit representatives provided HAC materials to its dealers to make sure that everyone knew how to sell "The Plan." Announcements for upcoming HAC seminars were sent out on Ford letterhead, Ford officials were often present at the training (and other HAC seminars), and Ford Credit representatives called on dealers to encourage them to send their salespeople to local HAC training classes.

Secret Bonuses for Ford's "Objective Financial Counselors"
Ford's dealers and salespeople were told to establish "advisory relationships" with customers and to assume the role of "objective financial counselors." However, from 1989 to 1995, the company gave secret cash bonuses to salespeople for talking customers into Ford Credit leases. So Ford's customers were being told by their "objective financial counselors" that Ford leases were "the smart way to get a new car," without being told about the bonuses or the deceptive sales techniques that were used.

The Plan: "Buying Language...Ownership and Equity"
Ford's two-year lease was called "The Plan." To trick people into leases, HAC taught dealers (and salespeople) to avoid the use of leasing terms. Since people preferred to buy, leasing terms were thought to be "turn-off words," so dealers were told to use "buying terms" instead. For example, when talking about Ford's lease, dealers were told to "get rid of" the term "lease," and refer to it as "The Plan." When customers asked if The Plan was a lease, dealers were taught to describe it as a "new program" from Ford that provided "ownership and equity." In fact, as Ford's own dealer handbook states, there is no ownership or equity in a leased vehicle.

Deceptive Lease-vs.-Buy Comparisons
Dealers were taught to make dishonest comparisons of a lease vs. a conventional purchase. First, HAC taught dealers to quote inflated payments on conventional loans so they would appear more expensive than The Plan. In fact, monthly payments for The Plan were often equal to (or greater than) payments on a conventional loan that provided ownership. Second, HAC taught dealers to quote inflated early payoff balances on four-year loans to trick people into believing that The Plan provided more "equity" than a conventional loan.

Concealing Prices from Customers
Ford's lease contracts did not provide disclosure of the cap cost (vehicle price) until July of 1995. Dealers were taught strategies that were designed to conceal actual prices from customers and to deceive them into believing that they were getting significant discounts when they were not.

Secret Price Increases
Dealers were taught to quote inflated lease payments that represented higher prices than those negotiated by customers or posted on vehicles. Since Ford's lease contracts did not provide cap cost disclosure (before 7/95), this practice often resulted in secret price increases of $1,000 to $2,000. In some cases, prices were hiked $4,000 or more.

Cheating Customers Out of Negotiated Discounts
Several strategies were taught by HAC that were designed to cheat customers out of negotiated discounts. One strategy resulted in no real discount at all; another reduced the expected (or negotiated) discount by 40%.

Deceptive Lease Rates
Ford's method of calculating and quoting lease rates allowed its dealers to deceive customers into thinking that they were getting lower rates. Dealers received lease rate sheets from Ford Credit, but the published rates did not include Ford's hidden administrative fee that was based on a vehicle's acquisition cost and added to the monthly lease charges. According to Ford's own internal documents, the actual rate paid by a customer was about 1.75% higher than the published rate. (For example, if the published lease rate for a particular vehicle was 8.25, the dealer could quote that rate to a customer--even though they would actually be paying 10%.)

Kickbacks for Secret Rate Increases
Ford offered to pay dealers for increasing a customer's lease rate (finance charge) above the current available rate. On a two-year Ford Credit lease, the dealer share was 85% of the additional lease charges, so a dealer who raised the rate by two points would be paid $765 for increasing a customer's total lease charges by $900. Since Ford's leases did not disclose the APR (and dealers obviously wouldn't have mentioned this to their customers), many people unknowingly paid inflated lease rates.

For the complete story on Ford's deceptive leasing practices, and other leasing secrets, be sure to see Leasing Lessons for Smart Shoppers at Amazon.


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