auto

Watch for 'cash for clunkers' scams

Editor's Note: On Thursday, Aug. 20, the Department of Transportation, or DOT, announced that the "Cash for Clunkers" program will conclude Monday, Aug. 24 at 8 p.m. EDT. The DOT advised dealers to only conduct transactions under the program with consumers who have all of their paperwork ready to submit to the dealer during the transaction, as dealers will only have until Aug. 24 to submit completed applications for reimbursement. Consumers can review the program's requirements at 6 Steps to Cash for Clunkers.

Tara Baukus MelloWith the government's "cash for clunkers" program kickoff earlier this week, many car shoppers are considering springing for a new set of wheels. The program, officially called the Car Allowance Rebate System, or CARS, offers buyers $3,500 and $4,500 off the purchase of a new vehicle when they bring in their gas-guzzling, older vehicles which then are scrapped. Complete details of how the program works can be found at "How to use 'cash for clunkers.'"

As consumers consider their options, the National Highway Traffic Safety Administration, or NHTSA, the government agency administering the program, cautions them to tread carefully to avoid fraud. Here are some tips.

Don't provide personal data to anyone who isn't a participating franchised dealer. NHTSA warns that many third parties have built Web sites, offering information on the "cash for clunkers" program, including some sites that end in ".org," seeming to appear as nonprofit groups. The only official Web site is cars.gov. While some of the information on these other Web sites may be accurate, many of the sites are collecting personal data from the car shopper reportedly to "match" them with a dealer.

The NHTSA cautions that consumers participating in the program should not give out personal information to third parties and that they can go to any participating, franchised new-car dealer they choose and work directly with them. At the time of publication, about 16,000 of the nearly 20,000 dealers in the U.S. have registered for the program. Those dealers are listed in a searchable database on the Cars.gov site.

The Better Business Bureau, Ohio Attorney General Richard Cordray and Illinois Attorney General Lisa Madigan are among those worried about the potential for identify theft, and have followed the federal government's lead in issuing consumer warnings.

Know your eligibility. Consumers with eligible vehicles qualify for either $3,500 or $4,500 toward the purchase of a new vehicle depending on the fuel economy difference between the old and new cars. This amount is in addition to any rebates or incentives offered by the manufacturer for that model, and dealers are not allowed to use the CARS credit to offset those discounts.

Understand how you are being taxed. The government has ruled that the CARS credit should be handled the same as manufacturer's rebate. In some states, sales tax will be owed on this amount, while in other states the sales tax will only be collected on the final sales price. Depending on the state, payment could be at the state or county level or both, so consumers should check locally to determine how new vehicle sales tax works in their area.

Know what fees you are paying. There are a variety of fees that dealers charge when they are selling a new vehicle. Some, such as registration fees, are required by law. Others, such as a documentation fee, may be fees that a dealer adds to the price to recoup some of his overhead costs and are sometimes negotiable. The CARS Act prohibits dealers from charging a fee to consumers to use the CARS program. However, it does allow dealers to charge their "normal" fees.

Review your contract carefully. As with any new car sale, consumers should review their contracts carefully to ensure that all the financial details are clear. This includes the $3,500 or $4,500 CARS credit, any manufacturer's rebates or special finance terms, sales tax on the final price and the applicable fees. Whether the "final price" includes the CARS credit depends on the state where the vehicle is purchased. Make sure you ask if it is because the tax would be less.

Consumers who believe that a dealer or third-party contractor or middleman is committing a fraudulent act related to the CARS program should report it to the Office of the Inspector General at the U.S. Department of Transportation at hotline@oig.dot.gov or (800) 424-9071. General questions about the program can be directed to (866) CAR-7891.

Read more Driving for Dollars columns and Bankrate auto stories.

Tara Baukus Mello is a freelance writer who has written about automotive topics of interest to consumers since 1995. If you have a car question, e-mail it to us at Driving for Dollars.

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