Hidden fee could add thousands to price of your car

Hidden fee could add thousands to price of your car
by Jeremy Rogalski

HOUSTON -- The I-Team obtained insider dealership documents which show how a hidden fee could add thousands to the price of a car.

Duane Overholt, a former auto dealership insider, calls it the best kept secret in the world.
“The consumer can't see it, can't feel it, can't touch it, doesn't see anything that has it,” Overholt said. “But they’re paying for it.”

It’s a secret that may be costing you thousands of dollars, and Overholt said he knows it well because, as a sales and finance manager, he did it for years.

"Ripped off customers, cheated them, lied to them. I was a liar, thief and a crook," Overholt said.

It's all part of a profitable game played by some car dealerships and lenders, and one that is most likely to happen to consumers with spotty credit, no credit or a checkered credit history. The problem is, those consumers rarely get told about it.

But in Shawn Henderson’s case, someone slipped. While buying a used Hyundai sedan at a local dealership, he said he overheard the sales and finance managers talking about a fee.

Henderson: "It was going to cost them $2,000 to get me financed."

I-Team: “To get the loan through.”

Henderson: “Yeah.”

But when it was time to sign the dotted line, Henderson said his paperwork never mentioned the two grand.

I-Team: "Was it ever disclosed to you that you were paying this fee?"

Henderson: “No."

But the I-Team has learned it's happening across the nation—banks and lenders charging dealerships thousands of dollars just to approve a loan. It's called an acquisition fee, and it's not supposed to be passed on to customers. But we obtained insider documents showing that you are footing the bill, without ever knowing it.

"The banks are saying to the dealer, there's going to be a bank fee for us to do business with you. You've agreed as a dealer not to charge that against the transaction," Overholt said.

But he said the banks are kidding themselves about that agreement. Overholt now fights against auto fraud as a consumer advocate.

"They (lenders) know how the auto industry works and ultimately how the dealer is going to charge it back to the transaction, he has to," Overholt said, in order to keep profits up.

The internal dealership documents the I-Team obtained show for a Ford Focus priced at nearly $22,000, the lender charged nearly $2,900 just to approve the loan.

Who paid for it? The customer.

Another deal, a $21,800 Ford Ranger, carried a $4,200 fee passed on to the customer. And a $34,000 Ford Edge we found topped them all. The buyer paid a whopping $7,500 acquisition fee.

So who sold those cars? Lone Star Ford located in the 8400 block of the North Freeway.

I-Team: “Why don't you tell consumers about these fees?’

Lone Star Ford: “You’ll have to talk with our corporate office out of Charlotte.

I-Team: “Do you think consumers should know?”

I-Team: “You'll have to talk to our corporate office in Charlotte.”

Lone Star's corporate office later told us it had no comment. But the I-Team has discovered another problem.

“The banks want the cake and ice cream too," said Overholt.

What's our former insider talking about? The car deals the I-Team highlighted were already financed at a hefty 18 percent interest rate. But we asked Certified Public Accountant Bob Martin to do some math, and hypothetically factor in the acquisition fee.

"If you add this extra layer, if you add this extra acquisition fee, regardless of what the terminology is, you're in effect paying a higher interest rate," said Martin.

Just how high? Martin said the Ford Focus would have jumped from 18 to 25 percent interest. The Ranger pick-up? From 18 to 28 percent. And the Ford Edge would have nearly doubled, from 18 to 35 percent interest.

However you consider it, someone is making money. In the cases the I-Team highlighted, it's a big-time industry player based in Dallas. Santander Consumer USA and its subsidiary Drive, does $25 billion in loans nationwide. It's something that lets the company's CEO live large in an $11 million mansion, complete with its own baseball field, soccer field, even a water slide, and oodles more on the inside.

The I-Team traveled to Dallas to visit Santander USA’s corporate office. Company attorney Raymond Scott met us in the lobby.

I-Team: "I'm wondering, why don't you disclose these fees to consumers?”

Scott: “Can I ask you to please turn off the camera.”

I-Team: “We'd rather not turn off the camera, can I ask you a question about these fees?”

Scott: “No you cannot, can I ask you to please leave the building."

So where does that leave car owners? Is this practice legal?

"I believe it can be under the way the law is written," said Rudy Aguilar with the Texas Office of Consumer Credit Commissioner, which regulates auto-finance transactions.

Aguilar: "There is specific law that says, first of all, that doesn't have to be disclosed.”

I-Team: “It doesn't?”

Aguilar: “No sir, and that is not finance charge.”

I-Team: “That seems to put the consumer at a disadvantage, big time.”

Aguilar: “It does.”

And consider this. Even if the fee is being added to the car, drastically inflating its price, Texas regulators don't have a problem with it.

Aguilar: “Well, they agreed to a price to purchase the vehicle."

I-Team: "So, if the consumer is dumb enough to pay this overinflated price and he signs the dotted line, S.O.L?”

Aguilar: “I would not put it in that sort of harsh terms."

I-Team: “But it's not a level playing field is it?”

Aguilar: “It can be a situation where it's not, correct."

Meanwhile, a spokesperson for Santander Consumer USA later told the I-Team by phone that the majority of the company’s clients have less than perfect credit, and the acquisition fees are a way to cover that riskier loan. The company also said it is providing a needed service, because many customers could not get financing otherwise.