Every state attorney general signed on to a national resolution in 1999 defining payment packing in retail and lease transactions as illegal, subject to prosecution and fines. Much of the emphasis has been on retail transactions, but lease packing has also been a problem for many years, in various forms. 

As the name suggests, “packing” means adding illicit costs to a transaction in the monthly payment or in other ways.

A Variation

In 2004, 39 state attorneys general sued a major captive finance company for assisting dealers in a form of lease packing. Some lessees decided to terminate their leases and purchase their vehicles. They contacted the finance company, but it refused to provide a payoff amount and directed them back to the originating dealer for that amount. 

In some cases, the lessees were at a different dealership or in another state.  Nevertheless, only the originating dealer would receive the payoff amount, and the second dealer would have to obtain it from the originating dealer. 

In all cases, the lessee couldn’t get the payoff from the captive finance company. Some dealers decided to add a substantial amount to the actual payoff, a hidden profit, without disclosing to the lessee this added amount.  Or, the dealer would attempt to justify the transaction, arguing that the captive was “selling” the leased vehicle to the dealer and there was a subsequent sale to the lessee. 

This argument was a fiction because there was no transfer of title between the captive finance company and the dealer. It was a violation of the unfair or deceptive acts or practices, or UDAP, statute in all 39 states. There were 39 consent judgments filed in those states.

I was quite familiar with that case since I led the 39-state multistate action. I had become familiar with this particular deception and other similar ones in the 1990s and prosecuted numerous dealers for the lapses in moral clarity.

Other Variations

There are variants of lease packing. For example, at the conclusion of the 48-month lease term, the lease contract would specify that the consumer had the option to purchase the lease for its residual value.

Some lease contracts specify an additional administrative fee for the dealer to process the transaction. In other cases, the contract did not allow additional fees, or the line for the administrative fee would be populated with a zero or “N/A.” Some dealers would then attempt to add additional fees or different fees than those indicated in the lease contract, often in the thousands of dollars. 

Other dealers would tell the consumer that a safety check or inspection was needed, costing hundreds of dollars, before the sale could be concluded, a duplicitous assertion.

Recent Variations

There are other variations of these types of deceptive practices. Recently, the New York attorney general took action against a captive financing source and numerous dealers for various forms of lease packing.

The allegations in the attorney general’s complaint included the following nefarious practices:

• refusing to process lease buyouts
• failure to honor the stated buyout price
• demanding “large additional documentation fees” or fees for nonexistent after-sale products
• charging customers a $399 certified preowned warranty fee.

Dealer actions often violated the captive finance company’s directives.

Variation Recommendations

In light of the New York case, dealers should conduct internal audits of their lease transactions over the past five years or more to determine whether their F&I department has engaged in any of these practices. Unfortunately, some F&I managers surreptitiously violate dealer rules, exposing the store to liability as a consequence of their deceitful practices. 

Secondly, dealers need to examine their lease contracts to ascertain if they are being populated correctly. Most lease contracts provide lines for a dealer to add reasonable fees to process a lease purchase. Dealers should avail themselves of these options.

Finally, as with other potential legal perils, the compliance officer should include a protocol for lease packing in its various forms, as they should for other types of packing.

Unfortunately for dealers, legal compliance is long, but life is short.