CURBSTONING CAUSES PROBLEMS FOR CONSUMERS,
DEALERS AND
THE MOTOR VEHICLE INDUSTRY AS A WHOLE; SO HOW DO WE STOP IT?
By: Keith E. Whann
The old consumer protection law adage that warns consumers “if the deal
sounds too good to be true, it probably is” remains sound advice when
it comes to dealing with a curbstoner. The term “curbstoning” is commonly
used to define the practice of engaging in the business of offering for
sale motor vehicles to the general public without a license. While curbstoners
compete with licensed motor vehicle dealers for retail customers, that
is where the similarities between licensed dealers and the curbstoners
end.
As most everyone knows, the licensing of motor vehicle dealers is the
responsibility of the individual states. State licensing laws generally
mandate that anyone who sells a specific number of vehicles (typically
five) within a twelve-month period are required to obtain a motor vehicle
dealer license. Being able to obtain a motor vehicle dealer’s license
is not automatic and for good reason. It helps to remember that having
dealer’s license is a privilege, not a right. Licensed dealers must generally
demonstrate a good business reputation and character. They are subject
to background and identification checks and must have an established
place of business to display inventory and transact business, and are
required to keep specific records of all sales transactions. In some
states, dealers must also take mandatory pre-licensing training courses
and/or continuing education classes, while others require the posting
of a bond. Once a motor vehicle dealer’s license is obtained, the dealer’s
business records and facilities are subject to inspection by law enforcement
officers and state regulators. As a result, curbstoners either don’t
bother to obtain a license or simply do not qualify to obtain one.
Curbstoners obtain vehicles from a wide variety of sources. Many tend
to seek out inexpensive vehicles that can be acquired by purchasers without
the need to obtain financing. These lower priced vehicles frequently
have high mileage and mechanical problems, which may include safety and
emissions items. Curbstoners may spend a small amount of money cleaning
up the appearance of a vehicle, but they seldom spend money remedying
mechanical problems. Once the vehicle has curb appeal, the curbstoner
advertises the vehicle for sale in local newspaper’s classified ads and
usually park it in a high traffic area, such as a gas station, supermarket
or mall parking lot. When a potential purchaser calls, the curbstoner
often will claim to be the original owner of the vehicle or a family
member or friend of the owner who suddenly had to move or became ill,
hence the reason for the low price on such a quality vehicle. They prey
on customers who are weary of purchasing vehicles from dealerships and
think they can get a better quality vehicle for less money by purchasing
from an individual seller. The irony of the situation is the desire to
purchase from a trustworthy individual is what drives the purchaser to
the curbstoner, however, curbstoners are possibly the most untrustworthy
individuals selling vehicles.
In addition to violating licensing laws and offering for sale vehicles
that may be of questionable quality, curbstoners frequently engage in
practices that violate consumer protection, titling and state sales tax
laws. Unfortunately for the purchasers of these vehicles, these practices
often give rise to problems that are not easily remedied. They include
odometer and title fraud; selling vehicles with undisclosed damage and
faulty or non-existent safety equipment, such as air bags, emissions
components, and brake systems; selling vehicles with undisclosed liens;
tax evasion; and title jumping. Because curbstoner’s often adopt fictitious
names, operate from several remote locations rather than a single licensed
location, and tend to move from one location to another, they do not
have an investment in maintaining a good reputation, selling quality
vehicles or complying with consumer regulations. By the time the purchaser
realizes that he has purchased a vehicle that is riddled with problems,
the curbstoner is long gone.
Unfortunately, licensed motor vehicle dealers may unknowingly assist
a curbstoner in engaging in inappropriate activity and expose their dealerships
to liability in the process. For example, if a vehicle is sold to the
curbstoner at wholesale or pursuant to a claimed tax exemption for which
the curbstoner does not qualify, the dealer may be responsible for uncollected
sales tax which a selling dealer is usually obligated to collect in connection
with a retail sale. The good news is that by engaging in some simple
and prudent business practices, dealers can protect their dealership
from this type of legal exposure. Begin by making background and license
inquiries before entering into a wholesale transaction with someone who
represents they are a motor vehicle dealer. Obtaining license verification
at the beginning of the business relationship is certainly prudent, but
may not be enough. While someone may have had a license at one point
in time, that license may have expired or been revoked or suspended.
Remember, a licensed motor vehicle dealer commits a violation of most
state licensing laws when he sells a vehicle in a tax exempt or “wholesale”
transaction to an unlicensed dealer, even if such dealer represents himself
as licensed.
Motor vehicle dealers should take this opportunity to make sure that
whenever they sell a motor vehicle at wholesale to another licensed dealer,
a wholesale purchase agreement is used for each transaction. The wholesale
purchase agreement should include the names and addresses of both the
seller and purchaser, the name of any authorized representatives, and
the buying dealer’s valid dealer license number, which should be verified
on a periodic basis. In some cases, members of a “curbstoning team” may
attempt to share a dealer license number that appears, at first blush,
to be valid. Dealers should pay particular attention to situations where
different individuals attempt to use the same dealer license number on
a wholesale purchase agreement or where a purchaser routinely pays with
cash.
Curbstoning is bad for consumers, licensed dealers and the motor vehicle
industry as a whole. Licensed motor vehicle dealers have a vested interest
in providing a quality vehicle to their customers, while taking steps
to protect the reputation of both their dealership and their industry.
In addition to education themselves as to how to help prevent curbstoning,
dealers should advise consumers of precautions they can take to avoid
getting taken by a curbstoner. These precautions include: running a vehicle
history report; looking at the seller’s license and the vehicle’s title
to make sure the names on the two documents match; inquiring about the
vehicle’s title history, including prior owners, title brands, prior
damage and odometer problems; and having the vehicle inspected by a mechanic
prior to making a decision to purchase.
Curbstoners may eventually be identified by computerized titling systems
or a law enforcement agency, but more often than not they are caught
as a result of consumer complaints and information provided by licensed
dealers. Any dealer who becomes aware of curbstoning activity should
take the time to immediately report it to the appropriate licensing agency.
Although curbstoning cases often take a considerable amount time and
investigative effort before legal action is taken, such cases must be
reported and vigorously pursued for the protection and betterment of
the motor vehicle industry. If licensed dealers don’t consider this issue
important enough to take action and report illegal curbstoning activity,
how can we expect others to do so?
The information contained herein has been provided by
Keith E. Whann and Deanna L. Stockamp of the law firm Whann & Associates
and is for general information purposes only. You should contact professional
counsel regarding specific application of the information.
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