As used car prices have skyrocketed in recent years, people who leased their vehicles before the pandemic have found themselves in a unique situation:
At the end of their lease term, their leases give them the option to buy their cars. They discover that these buyout prices are thousands of dollars cheaper than what they would have to spend to buy the same vehicle from a dealer.
Many lease customers take advantage of the option with little or no problem, going directly to the finance companies that hold title to their cars.
But others are not so lucky. Some lease financiers send customers back to the dealers who leased them the cars, where they’re told they’ll have to spend hundreds, if not thousands, of dollars in undisclosed fees if they want to exercise their buyout options, they say lawsuits filed earlier this year by merchants and financial firms in Florida.
The Florida attorney general’s office has received about 120 complaints since last year, including 75 in 2022, about undisclosed charges “collected by various entities across the state,” spokesman Gerald Whitney Ray said in an email.
“We have referred many of these complaints to state and federal agencies for further investigation,” the statement said. “Our office is also reviewing complaints as part of our active consumer protection investigation into this practice.” He gave no further details about the state’s investigation.
It’s not just happening in Florida, said Zander Cook, co-founder and chief operating officer of Lease End.com, an online company that handles lease purchases on behalf of consumers. Dealers and the financial firms they work with “make it as difficult as possible for people to buy out their leases,” Cook said. “They see equity in leased cars and they want it back.”
Joshua Feygin, a Hollywood-based attorney who represents consumers in disputes with car sellers, says car dealers suffering from severe inventory shortages try to make up for lost business by illegally charging buyout fees that aren’t in their leases customers are specified.
“They find ways to pressure consumers as much as possible,” Feygin said.
But when served with a lawsuit or threat of lawsuit over the additional fees, most merchants choose to settle the cases and reimburse customers for the undisclosed fees, Feygin said.
The problem emerges because COVID-19-triggered shutdowns of Chinese microchip factories have slowed new car production around the world, dealerships have fewer cars for sale and used car prices have soared.
Customers who took out four-year leases in 2018 look at their contracts and find that the residual values – what dealers and finance companies estimate the value of the cars at the end of the lease — are well below what the market is for them today Cars. However, their leases give them the option to buy the cars outright at residual value.
According to Zander, leasing customers have the right to finance buyouts with any lender of their choice as long as they pay the residual value plus any fees clearly specified in the contracts.
However, when some consumers contact their lease financiers about purchasing their car, their finance companies tell them they need to go back to the dealer to complete the acquisition.
And then dealers tell customers they have to pay additional fees that aren’t specified in the leases, Feygin said.
In a lawsuit filed by Feygin in May, a customer said he leased a 2018 Kia Optima from a South Florida dealership with a residual value of $12,571. The lease agreement states that the customer may purchase the vehicle at the end of the lease term by paying a $300 “option to purchase” fee.
When the customer went to the dealership to purchase the vehicle in July, they were billed a $995 “pre-delivery service fee” and $499 “electronic registration fee” — a total of $1,141 more than the purchase option price in the lease, the lawsuit states. The charging of the undisclosed fees violates the federal Consumer Leasing Act, which requires disclosure of the total purchase price, the lawsuit alleges.
The dealer agreed to settle the claim less than two months after Feygin filed the lawsuit, court filings show.
In a separate lawsuit filed in July, a woman rented a 2018 Nissan Rogue from a South Florida dealership with an option to purchase it for a residual value of $18,248 plus a $300 option fee. Not only was she billed $19,381 for the vehicle, she also had to pay a $799 pre-delivery purchase fee and an “electronic registration fee” of $399, according to her lawsuit.
That dealer agreed to settle the case within a month of Feygin filing it, court filings show.
The dealers named in the two suits did not immediately respond to requests for comment on this story.
Other cases filed by Feygin remain controversial. Frequently, traders require that the disputes be submitted to arbitration, as required by most contracts. Feygin says they tend to change their minds and come to an agreement when he tells them he has claims from other clients that he plans to file for arbitration. A settlement is usually cheaper for the dealer than paying an arbitrator $3,000 a case, he says.
Feygin says he’s seen the list of ancillary charges expand to include fees for extended service contracts and mandatory inspections and certification of the buyback vehicle “to see if it qualifies for an extended warranty.” No service is necessary if the customer buys the car as is, and depends on the original manufacturer’s warranty or their own ability to pay for repairs, he says.
LeaseEnd.com was launched in February 2021, before the explosion in used car prices made lease buyouts so attractive, Zander said. Since then, the Burley, Idaho business has “gone nuts,” he says. Since their cars are worth so much more than their option to buy, “everyone is in an equity position now.”
Lease End’s business model is based on handling all aspects of a lease buyout without requiring the lessee to return to the dealer, he said.
Customers enter their information into the company’s web portal, and the company processes the application, finds a lender, and sends a check to the lease finance provider for the remaining amount plus any fees specified in the lease agreement.
Zander says it works seamlessly most of the time. Lease End makes a commission on the financing portion and sells optional warranties and other services such as B. Tag and Title Transfers. But those extra fees are all optional, he says.
Customers “can do the process at home without having to speak to anyone,” he says.
Lease End, as the name suggests, deals only with lease purchases, says Zander. Another online company, MyAutoLoan.com, connects customers with lenders for all types of auto purchase transactions, including lease buyouts.
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Greg Thibodeau, CEO of MyAutoLoan.com of Irving, Texas, agrees that lease customers don’t have to go back to their dealership to exercise buyout options. After a lease is in place, the lease financer owns the vehicle and not the dealership. “My advice is: don’t go back to the retailer, go back to the financing bank,” he says. A lease buyout “is a very simple transaction.”
Lease financiers — often owned by automakers themselves — who require their customers to return to the dealer to exercise buyout options, may have worked out agreements to sell the leased vehicle to the dealer, and then the dealer sells on to customers as if it were a direct purchase with all the additional fees a customer will accept, Thibodeau said.
Dealers add the exorbitant fees because customers often don’t know their rights under the terms of their leases and “often don’t know what options are available,” he said.
Ed McFadden, spokesman for the American Financial Services Association, a trade organization of auto finance and leasing companies, said via email that auto finance companies are expected to honor the terms of customers’ leases.
Association members “comply with the terms of the contract and expect the same from dealers,” he said. But he added: “It’s common practice to bring a vehicle to a dealership at the end of a lease.”
Regarding the allegations in Feygin’s lawsuits, McFadden said he could not comment without examining the specific allegations. However, he said: “There may be some merchants in bad faith who violate their contracts with customers and financial companies.”
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or email at email@example.com.