In my days with the Florida attorney general’s office, I was the “car guy.” I received hundreds of written complaints every year regarding vehicle transactions. One of my most amusing complaints — but an instructional one as well — was the one I received from a woman who had returned her leased sedan. Several months after the return, she received a letter from the leasing company, which assessed her $2,100 for a missing moonroof.
Her lease did indicate that a moonroof was one of the options on the vehicle. However, upon review of the subpoenaed deal jacket, there was no evidence of a moonroof. Of course, even before I perused the deal jacket, I was quite confident that this poor woman had been powerbooked.
I contacted the leasing company and the first two clerks told me that she owed the money for the missing moonroof. I was extremely amused by their response as I posed the question, “Do you honestly think that this woman would lease a vehicle and weld the roof closed?” Incredibly, the two clerks both said yes. Ultimately, I spoke with their general counsel, who understood the absurdity of the situation and waived the excessive wear charges. And, of course, the dealer had to pay damages to the consumer.
I was reminded of this incident recently by a conversation I had with a dealer consultant who also works with nearprime and subprime financing sources. He told me that he has been reviewing numerous transactions recently and concluded that as many as 70% of these vehicle sales were powerbooked. He also said he believed this nefarious practice is reemerging in the industry. If this consultant is correct, certain finance managers are challenging fate.
If finance managers don’t believe that they can face criminal charges over these infractions, they would be poorly advised. I prosecuted a case which led to a finance manager being incarcerated for eight years. He, too, didn’t think that he would ever be caught, tried, and sentenced.
To be clear, the term “powerbooking” refers to the practice by some dealers of misleading the financing source about alleged added options to the vehicle, which is the subject of the intended assignment of a retail installment sale contract or lease contract. With the fictitious addition of equipment and accessories to the vehicle, the financing source will pay more for the contract, since the asset is theoretically worth more. Both new and used vehicles can be the subject of powerbooking.
Furthermore, powerbooking is illegal, unlawful, deceitful, fraudulent, unfair, larcenous, and a material breach, among other accurate assertions. Finance managers could face time in prison if they engage in this practice.
In order to underwrite these transactions, financing sources require from the dealer a description of the vehicle including a posting of the accessorization. The full value is then ascertained by the financing source. Obviously, the inclusion of accessories such as a navigation system, remote starter, or a premium sound system will increase the value of the vehicle which will be the basis of the amount advanced by the underwriter.
This fraud may affect both the underwriter and the consumer. In the case of the underwriter, it is accepting an assignment of a retail contract or lease of a vehicle which has nonexistent accessories. It is not getting what it bargained for.
Consumers are not always careful in reading the documents which they sign at the dealership. They may sign a buyer’s order, for example, which lists these nonexistent accessories. Hence, they are victims of both a theft and a fraud.
Civil and Criminal Law Charges
Powerbooking is a pernicious act in the industry and the penalties can be severe. It may be instructive to understand the relevant law.
The great distinction between civil and criminal law remedies is the loss of one’s liberty. Someone who is convicted of a criminal infraction may go to jail for a specified period of time. Generally, if one is incarcerated for less than a year, it is a misdemeanor, whereas if one is incarcerated for more than a year, it is considered a felony.
This distinction also includes the severity of the crime, which, in these cases, would mean the amount of money involved. For example, if it is a $300 fraud, it may be a misdemeanor; a $1,000 fraud might constitute a felony. In other words, if a finance manager powerbooks a transaction for $1,000, he could spend a year in jail, depending upon that state’s criminal code.
Relevant civil charges for powerbooking include civil theft, civil fraud, civil RICO (defined below), material breach of contract, recourse, and a violation of the unfair and deceptive trade practices act. Suffice it to say that the standard of proof for a civil allegation is less than the standard is to prove a criminal violation.
Relevant criminal charges for powerbooking include theft, fraud, and RICO. In proving a criminal infraction, the prosecutor has a much heavier burden than in a civil matter.
Depending upon who prosecutes the case will determine which of these charges or allegations may be advanced. For example, the underwriter may advance all of them except RICO, whereas the attorney general, state attorney, or district attorney could advance RICO, theft, and fraud. UDAP (defined below) is generally prosecuted by the state attorney general.
In both criminal and civil cases, the finance manager must have the requisite intent and must complete the act. In other words, the finance manager must have purposely performed the act, although gross negligence can rise to being considered “intent.” Finance managers should understand the following terms and their definitions as they relate to them:
- Material breach of contract: If a finance manager significantly fails to perform a key term or condition under the contract, which would allow the underwriter to sue the dealer for various monetary damages and termination of the contract, it is characterized as a material breach. Powerbooking is such a breach since the financing source is not receiving the vehicle with all the indicated options as promised.
- Recourse: The right of the underwriter to seek the complete or partial return of any advanced funds.
- Fraud: A known false statement, or a material omission, by the finance manager intended to mislead a consumer to rely upon that statement or omission.
- Theft: If a finance manager permanently or temporarily takes a consumer’s property or money it is a theft. Theft includes larceny and the crime of false pretenses.
- RICO: RICO stands for the Racketeering Influenced Corrupt Organizations Act. It allows for various enhanced penalties including forfeiting all the dealer’s inventory and assets. It is a grave charge.
- UDAP: The Unfair and Deceptive Trade Practices Act allows for penalties, damages, and injunctions. It is the favorite statute of the state attorney general.
The Evil Cousins of Powerbooking
Offering and selling ancillary products to consumers as part of the overall vehicle transaction can be extremely beneficial to the public. In the vast majority of cases, the finance manager executes all the proper documents and the third-party provider of the product, such as the GAP or a service contract provider, is appropriately remunerated and the contracts are delivered.
However, in some cases, the finance manager never pays or notifies the third party and pockets the premium or payment. In the alternative, the consumer is misled into believing in a nonexistent third-party provider. The finance manager hopes that the consumer never attempts to utilize the benefits of the product in these cases or discharges the work at the dealership.
A further dishonest related practice is adding these types of ancillary products without the consumer being informed of their existence. This could rise to being payment packing in some cases.
All these evil cousins can be both civil and criminal violations.
It is said that 90% of all attorneys give the other 10% a bad name. The reverse could be stated concerning the car business: 10% of the dealers give 90% of the dealers a bad name. If a dealer is identified as having a finance manager on his staff who powerbooks, he immediately becomes a member of that 10% — an unenviable position.
Wise dealers should be monitoring their deal jackets for any of these practices and proceeding appropriately with their legal counsel should they be found. And finance managers who engage in these practices are hereby warned and should cease and desist.
Govern yourselves accordingly.