As used car prices have skyrocketed in recent years, people who leased their vehicles before the pandemic are finding themselves in a unique situation:
At the end of their lease terms, their lease contracts give them the option to buy their cars. They are discovering that those buy-out prices are thousands of dollars cheaper than what they’d have to spend to buy the same vehicle at a dealership.
Many lease customers exercise the option with little or no problem by dealing directly with the finance companies that hold the titles to their cars.
But others aren’t so fortunate. Some lease financiers send customers back to the dealers that leased them the cars, where they are told they must spend hundreds, if not thousands of dollars in undisclosed fees if they want to exercise their buy-out options, according to lawsuits filed this year against Florida dealers and finance companies.
The Florida Attorney General’s Office has received about 120 complaints since last year, including 75 in 2022, about undisclosed fees “being charged by different entities across the state,” spokesman Gerald Whitney Ray said in an email.
“We have forwarded many of these complaints to state and federal agencies for further review,” the statement said. “Our office is also reviewing complaints as part of our active consumer protection investigation into this practice.” He provided no other details about the state’s investigation.
It’s not only happening in Florida, said Zander Cook, co-founder and chief operating officer of Lease End.com, an online company that handles lease buy-outs on behalf of consumers. Dealers and the finance companies they work with “are making it as difficult as possible for people to buy out their leases,” Cook said. “They’re seeing equity in leased autos and they want them back.”
Joshua Feygin, a Hollywood-based attorney who represents consumers in disputes with car sellers, says car dealers suffering from severe inventory shortages are trying to make up for lost business by illegally charging buy-out fees not disclosed in their customers’ lease contracts.
“They’re finding ways to squeeze consumers as much as possible,” Feygin said.
But when served with a lawsuit or threat of lawsuit over the additional fees, most dealers are choosing to settle the cases and refund customers the undisclosed fees, Feygin said.
The issue is surfacing because COVID-19-triggered shutdowns of Chinese microchip plants have slowed new car production worldwide, leaving dealers with fewer cars to sell and boosting prices of used cars.
Customers who entered four-year leases back in 2018 are looking at their contracts and finding that the residual values — what the dealers and finance companies estimate the cars to be worth at the end of the lease term — are significantly below today’s market value for their cars. Yet, their lease contracts give them the option to buy the cars outright for the residual values.
According to Zander, lease customers have the right to finance buy-outs with whichever lender they choose, as long as they pay the residual value plus any fees clearly stipulated in the contracts.
Yet when some consumers contact their lease financiers about buying their cars, their finance companies tell them they must return to the dealer to finalize the buy-out.
And that’s when dealers tell the customers they must pay additional fees not disclosed in the lease contracts, Feygin said.
In one suit filed by Feygin in May, a customer said he leased a Kia Optima from a South Florida dealer in 2018 with a residual value of $12,571. The lease contract states that the customer could buy the vehicle at the end of the lease term by paying a $300 “purchase option fee.”
When the customer went to the dealership in July to buy the vehicle, he was charged a $995 “predelivery service charge,” and a $499 “electronic registration filing fee” — totaling $1,141 more than the purchase option price in the lease, the suit states. Charging the undisclosed fees violated the federal Consumer Leasing Act, which requires disclosure of the total buy-out price, the suit states.
The dealer agreed to settle the claim less than two months after Feygin filed the suit, court records show.
In a separate suit filed in July, a woman leased a Nissan Rogue from a South Florida dealer in 2018 with an option to buy it for a residual value of $18,248 plus a $300 purchase option fee. Not only was she charged $19,381 for the vehicle, she was required to pay a $799 predelivery purchase fee and a $399 “electronic registration filing fee,” according to her lawsuit.
That dealer agreed to settle the case within a month after Feygin filed it, court records show.
The dealerships named in the two suits did not immediately respond to requests for comment for this story.
Other cases filed by Feygin remain in dispute. Often, dealers demand that the disputes be sent to arbitration as required in most contracts. Feygin says they tend to change their minds and settle when he informs them he has claims from other customers he plans to file for arbitration. Settling is usually cheaper for the dealer than paying an arbitrator $3,000 per case, he says.
Feygin says he’s seen the list of add-on charges increase to include fees for extended service contracts as well as mandatory inspections and certifications of the buy-back vehicle “to see if it qualifies for an extended warranty.” Neither service is necessary if the customers is buying the car as-is and will depend on the original manufacturer’s warranty or their own ability to pay for repairs, he says.
LeaseEnd.com was founded in February 2021, before the used-car price explosion made lease buy-outs so attractive, Zander said. Since then, the Burley, Idaho-baed business has been “going crazy” he says. With their cars worth so much more than their buy-out option, “Everyone is in an equity position now.”
Lease End’s business model is based on handling all aspects of a lease buyout without requiring the lessee to return to the dealership, he said.
Customers type their information into the company’s web portal, and the company processes the application, finds a lender, and sends a check to the lease financier for the residual price, plus whatever fees are spelled out in the lease agreement.
Zander says it works seamlessly most of the time. Lease End makes a commission on the financing portion, plus sells optional warranties and other services, such as tag and title transfers. But those additional fees are all optional, he says.
Customers “can do the process at home without having to talk to anyone,” he says.
Lease End, as its name implies, only deals with lease buyouts, Zander says. Another online company, MyAutoLoan.com, connects customers with lenders for all kinds of auto purchase transactions, including lease buy-outs.
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Greg Thibodeau, CEO of Irving, Texas-based MyAutoLoan.com, agrees that lease customers don’t have to go back to their dealer to exercise buy-out options. After a lease is finalized, the lease financier owns the vehicle and not the dealership. “My advice is don’t go back to the dealer, go to the financing bank,” he says. A lease buy-out “is a very simple transaction.”
Lease financiers — often owned by automakers themselves — that require their customers to return to the dealership to exercise buy-out options might have worked out arrangements to sell the leased vehicle to the dealer, and then the dealer sells to the customer as though it was a straight purchase, with all the add-on fees a customer will accept, Thibodeau said.
Dealers are adding the exorbitant fees because customers often don’t know their rights under terms of their lease agreements, and “often don’t know what options are available,” he said.
Ed McFadden, spokesman for the American Financial Services Association, a trade organization of vehicle finance and leasing companies, said by email that auto finance companies are expected to honor terms of customers’ leases.
Association members “adhere to terms of contracts and expect dealers to do the same,” he said. But he added, “It is standard practice to bring a vehicle to a dealership at the end of a lease.”
Regarding allegations in Feygin’s lawsuits, McFadden said he couldn’t comment without reviewing the specific claims. Yet, he said, “it may be that there are some bad-faith dealers violating their contracts with customers and finance companies.”
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].