Dealerships Sell Identity Theft Protection and Credit Repair, Fined Millions

At least three dealers in New York are being forced to pay millions back to the customers who they allegedly defrauded. Paragon Honda, Paragon Acura and White Plains Honda will all have to make payments to customers who purchased products that the state attorney general has found to be “worthless.”

In a statement, Eric T. Schneiderman said, “New York consumers must beware: Car dealerships sometimes pad their pockets by charging for worthless after-sale items, which inflate the price of their car. These items are often ones that consumers don’t need, did not ask for and often are not even told about. Businesses need to make a profit to survive, but it’s illegal to do so by duping consumers.” The dealers will have to pay a combined restitution settlement of almost $14 million dollars. However, after targeting those three dealerships for fraud, Attorney General Schneiderman isn’t done. He also announced 11 other dealers in the New York City area would also be sued by the state for committing similar acts of fraud. The obvious question is: what did those dealers sell?

The dealerships sold identity theft protection and credit repair as part of vehicle purchase packages. According to a report from the New York state Attorney General, “Credit Forget, Inc sold unlawful credit repair and identity theft protection services to car dealerships.” The dealers mentioned previously then sold those service contracts for a profit. Schneiderman wrote that it’s a violation of state and federal law to charge upfront fees for services that are meant to help consumers improve their credit. He added that those types of contracts, since they violated the law are now null and void. Attempts to learn more about the Credit Forget It organization are difficult since their website has been temporarily suspended.

The dealers involved in the settlement used to be optimistic about their new credit repair product. In a 2011 article by Automotive News, Brian Benstock, general manager of Paragon Auto Group, talked about success with the credit-rebuilding product and seemed optimistic for the future. “We’re all about customer retention.” It is in our self-interest to make it easy for customers to do their next transaction with us,” Benstock said as part of the AN article. According to the report, dealers would be charged $269 for selling a 36-month credit rebuilding product that had a suggested dealer price of $995.

What do you think of the punishment thrown down upon the dealers in New York? Do you think that credit rebuilding packages should be a viable F&I product? Finally, should dealers be in the business of consulting consumers on how to rebuild their credit?