Auto loan modifications? Take note.

Tough federal and state law enforcement has turned up the heat on mortgage foreclosure rescue scams.  So some operators are turning to auto loan modifications to make a fast buck on consumers in financial distress.  In the first cases of their kind filed by the FTC, the agency is alleging that two unrelated California outfits charged hundreds of dollars in upfront fees, based on bogus claims they could reduce consumers’ monthly car notes and help them avoid The Repo Man.

According to the FTC’s complaint against Hope for Car Owners and Patrick Freeman, the defendants deceived consumers with false promises of help:

• “We have nearly a 99% success rate which means in almost every situation we have been able to achieve a positive financial result which means putting real dollars back into our clients’ pockets.”

• “In nearly every instance our negotiations have allowed [our] clients to keep their vehicles AND reduce their monthly payment and/or principal balance. It is NECESSARY and it is EFFECTIVE!”

• “I was $11,000 upside down on my truck and was ready to give it back because I could no longer afford the payments. Hope 4 Car Owners negotiated a new payment plan that cut my payments in HALF!!”

According to the FTC’s brief in the case, in a telemarketing call with an undercover FTC investigator, the defendants’ representative made similar claims despite joking, “We’re not technically allowed to, you know, preemptively say where our average and things are because, you know, invariably human nature is like, yeah, that’s what I want.”   The FTC alleges he did so nonetheless.

The FTC’s lawsuit against NAFSO VLM, Kore Services, LLC, Naythem Nafso, and Michael Kamfiroozie charges those defendants with making promises to consumers struggling to make their car payments.  Doing business as Vehicle Loan Modification, Auto Debt Consulting, and Car Loans Modification, the defendants claimed:

• “LOWER YOUR MONTHLY VEHICLE PAYMENTS TODAY!”

• “Lower your payments by as much as 40% regardless of your credit score!”

• “When I came to Auto Debt Consulting my monthly car payment was $432 and I was 2 months behind on my payment . . . In the second week, Auto Debt Consulting called me up to let me know they negotiated my payments down to $350 a month. That’s over 20% savings and it’s also a number I can actually afford to pay.

What advice were the companies giving to people behind on their payments?  According to the FTC, consumers were told to pay fees to the defendants and to stop paying their lenders.  The FTC says the Hope for Car Owners defendants also advised people to hide their cars to avoid repossession. In both lawsuits, the FTC alleges the defendants lured consumers in with money-back guarantees, but didn’t live up to their promises.

The cases are pending in federal court in California.  The judge has entered an order against the Hope for Car Owners defendants, temporarily stopping them from engaging in the conduct the FTC has challenged.  The FTC is asking the court in the other case to put a stop to those defendants’ illegal activity as well.

So what’s the message for other companies?  Like any marketer, businesses touting their services as a way out for cash-strapped consumers have to back up their promises with solid proof.  Furthermore, given what’s at stake for folks struggling to pay their bills, claims that a company can reduce how much people owe or stave off repossession are likely to draw law enforcement scrutiny.

If you have friends in a financial fix, share the FTC’s new publication, Ads for Auto Loan Modifications: You May Be Able to Drive a Better Deal with Your Lender.