Unsafe at Any Speed: How NJ’s Unscrupulous Used-Car Dealers Hurt Consumers

Carly Sitrin | November 21, 2018 | Social
Hiding behind legislative loopholes in the tristate area, multidealer locations get away with scams and fraud and sometimes far worse

used car dealer
New Jersey has long tolerated a specific type of used-car dealership model that skirts the law and, in many cases, causes serious financial and possible physical harm to consumers across at least three states.

And the problem is getting worse.

They’re called multidealer locations or MDLs and they’re a loosely regulated corner of the used-car market. They set up shop in massive warehouses, sell questionable and sometimes dangerously unsound cars, and when buyers return to complain or seek financial recourse, they often find only empty desks.

Three years after releasing their bombshell 2015 study titled “Gaming the System,” the State Commission of Investigations (SCI) has issued a followup report that has found “unscrupulous activity,” and “downright dangerous” rip-offs occurring at some used-car dealerships across New Jersey.

“The whole notion of it really is a sham,” said Kathy Riley, SCI’s director of communications. “The bottom line is the setup of these (MDL) things is a problem. There needs to be real regulations. We question should this business model even exist,” she said “If you’re going to have it, you really need to police it and hold these dealers accountable.”

What’s more, since the commission’s first report on this issue, the problem appears to be growing. According to SCI investigators, as of November 2017 there were 19 multidealer complexes in the state. In 2015, the commission only identified 11.

Perhaps worst of all, proposed legislation would exacerbate the situation, loosening restrictions on these unscrupulous dealers and sweeping aside the “good reforms” made by the Motor Vehicle Commission, which Riley calls “a grave concern.”

Selling ‘piles of junk’

The commission received more than 85 detailed complaints for used-car purchases made from licensed New Jersey-based MDLs between 2014 and 2017.

According to the report, investigators found rampant abuse including instances of tax evasion, insurance fraud, and a black market in dealer credentials. “Once again,” the report said, “the commission found dozens of instances in which consumers spent thousands of dollars for vehicles that in some instances turned out to be thinly disguised piles of junk.”

It cited shocking examples of fraud and dangerous activity, including a Ford Explorer SUV in such bad shape that one buyer’s 84-year-old mother only narrowly escaped injury when a severely rusted step disintegrated beneath her feet as she attempted to climb into the car.

Operating on the fringes

The MDL business model exists at the very fringes of New Jersey law. It allows a landlord to lease physical space to individuals or entities on paper, enabling them to meet the bare minimum requirements for obtaining used-car dealer licenses from the state. New Jersey has more lenient licensing rules than New York and other states, so many dealers not actually based here use the MDL model to qualify for certified dealer credentials they would not be able to get in their home state.

Indeed, many dealers may technically occupy a cubicle in Bridgeton, but angry buyers would be hard pressed to find them at their desks.

And when those buyers — often unable to purchase a car at full price — realize they’ve been scammed, they can’t recoup repair costs or demand refunds because the transactions have gone through as “as-is” sales. According to New Jersey state law, cars can be sold “as-is” without any warranty; the customer assumes sole responsibility for any repair costs.

In addition, the SCI found that those who attempted to get back in touch with their salesperson often found “nothing but an empty building full of locked cubicles with one complex employee on-site serving as a representative for up to hundreds of dealers who often knows little to nothing about the individual businesses and/or specific transactions.”

New Jersey does have what’s known as a “lemon law” that covers vehicles for the first two years or 24,000 miles. It also kicks in after three failed repairs of the same defect or one failed repair of a serious defect that “substantially impairs the use, value or safety of your vehicle,” or is “likely to cause death or serious bodily injury if the vehicle is driven.”

However, the lemon law is seriously hamstrung: It does not cover vehicles that cost less than $3,000, have greater than 100,000 miles on the odometer, or are more than seven years old. It also does not cover cars sold “as is,” leaving most MDL buyers without any protection.

The salvage scam

The SCI’s Riley also pointed to the problem of subverting salvage inspections. The commission’s report found what it characterizes as a pattern of abuse by some MDL dealers who take advantage of the reciprocal titling agreements between New York, New Jersey, and Pennsylvania to put cars on the road that were too damaged to be repaired.

Riley indicated that a “phantom exam” makes that situation possible. Sellers have damaged cars inspected in Pennsylvania because it is widely known that inspectors there would issue so-called salvage titles without a thorough check. Salvage titles are awarded to cars that were previously wrecked, totaled, or damaged to such an extent that the insurance company considered them a loss and not worth the cost of repair. Such cars can be fixed and resold but must be inspected and labeled as salvaged or rebuilt vehicles.

Salvaged cars would then be moved to MDL dealers in New Jersey, where they would be sold and titled to buyers in New York.

The practice was so rampant and harmful that regulators in New York have stopped accepting salvage titles from New Jersey in order to “protect unsuspecting consumers,” as the SCI report detailed. The New York Department of Motor Vehicles found that a number of vehicles in question “were not fit for the highway,” though those same cars are still legally allowed to be driven on New Jersey roads.

Overtaxed MVC

MDLs and other used-car dealerships have long been engaged in these kinds of shady deals, according to Riley. The SCI report explained there are two reasons why the problem has proven intractable. An overburdened and toothless Motor Vehicle Commission combined with powerful — sometimes mob-related — lobbying efforts to loosen restrictions.

The MVC has limited resources, but according to March 2018 dealer-license renewal documents, the commision regulates about 3,900 dealerships — including 3,177 used-car dealers. Of those, 850 are based at multidealer locations.

The state’s biggest multidealer location is NJDAM, owned by Louis Civello Jr., whose father, Louis Civello Sr., is a member of the Bonanno crime family, according to SCI, which credited its information to confidential sources and New York law enforcement authorities.

The SCI report found that attempts at meaningful oversight by MVC staff were often undermined or thwarted by managers who were influenced by “aggressive legal maneuvering and behind-the-scenes pressure” from C. Richard Kamin, a Trenton lobbyist working on behalf of NJDAM. The SCI reports that Kamin had intimate knowledge of the inner workings of the state’s used-car laws; he worked for years as the director of New Jersey’s Division of Motor Vehicles, the MVC’s predecessor agency.

The SCI report does credit the MVC with taking steps to reform the process following its 2015 investigation, but the watchdog group fears those small gains may be wiped out thanks to a new bill in the Legislature backed by Kamin.

No help from the law

Riley said the pending bill (S-1649) “would effectively legitimize nearly all of what the commission found to be wrong,” by eliminating the requirement for dealers to maintain office hours, allowing one person to serve as the authorized signatory for hundreds of separate dealerships at once and, enabling dealerships to skirt penalties for record-keeping violations.

The bill’s sponsor, Sen. Mike Doherty (R-Warren/Hunterdon) said he’s willing to revisit the proposed legislation but emphasizes that his intention in moving it forward was to “eliminate ridiculous regulations” and foster competition between businesses. He pointed to the MVC requirement that MDLs install safety‐related firewalls between the dealership cubicles as evidence of being over the top.

“I’m a small-business guy. We live in a 24/7 world,” he said. “The way I see it, what’s the difference between selling cars and running a law firm? You’re just shuffling papers.”

Doherty acknowledged that “maybe there are some loopholes in my legislation” and the SCI report may raise valid concerns. “If it needs to be modified or even killed, I’m willing to consider that,” he said.

As far as needed reforms are concerned, the report makes several recommendations: legislation to strengthen and expand New Jersey’s consumer protection laws; a requirement for in-state inspection for salvage titles; a stipulation for the MVC to conduct more extensive vetting and background checks of dealership applicants; and the need to develop clear, actionable disciplinary standards for out-of-state licensing. It also calls for establishing a separate license for people involved in wholesaling used vehicles and increased transparency for lobbyists.

Sue Fulton, chief administrator of the MVC, emailed a statement noting that there are many departments on the hook for these problems. “As the SCI has pointed out, we continue to make great strides. We have standardized penalties, hired additional staff, and are drafting additional regulations to make dealers aware we will be imposing progressive measures for repeat offenders.”

She also pointed out that in many cases, the MVC’s hands are tied. “When our investigators uncover infractions, we take appropriate action. As the SCI noted, in many instances we are guided by existing statutes. For example, New Jersey’s inspection process — including salvage inspections — is dictated by statute.”

The report points to Massachusetts’ strong consumer protections for used-car transactions and urges lawmakers to examine the laws in places like California and New York when drafting legislation.

“This time around, we found the MVC is a little too hands off,” Riley said. “More needs to be done here.”