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
press release Iowa
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
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
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
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. If you went through an early payoff on a Ford Credit
lease, and Ford told you to call the dealer for the payoff amount, be sure
to see the following section.
Were You Overcharged On
a Ford Credit Lease Payoff?
Fewer than one out of a hundred
payoff-packing victims realized that they had been cheated. To find out if
you were overcharged on a Ford Credit lease early payoff, be sure to see How Much Your Payoff Should Have Cost.
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.
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
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
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.
Find Out If You Were
Cheated on a Lease
Most victims of leasing fraud don't
even know that they were cheated because their lease contracts did not
disclose the price (or the APR). To find out if you were victimized by a
secret price increase or a "disappearing" down payment/trade-in,
be sure to see The Price You
Really Paid For That Vehicle.
For the complete story on Ford's
deceptive leasing practices, and other leasing secrets, be sure to see Leasing
Lessons for Smart Shoppers.
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