When it comes to leasing a car, ignorance is costly.

People sign on without understanding the myriad terms of the contract or how those terms affect each other. They zero in on the monthly payment and little else. Often, they are shocked by end-of-lease charges and penalties or, worse, they are victims of out-and-out fraud.

A familiar sight

Terrence O’Loughlin, a lead investigator with the Florida Attorney General’s office, sees it all the time.

A customer interested in buying a car gets “flipped” into a lease and the dealer pockets hundreds, sometimes thousands of dollars in additional profits. Disappearing trade-in amounts, missing initial cash payments, tacked-on fees, the list goes on and on. The Florida Attorney General’s office has identified 40 different types of fraud in leasing. In a typical case, the leasing customer is overcharged by $1,500. The worst case O’Loughlin has seen was $10,500.

“Almost all problems in leasing are related to disclosure,” O’Loughlin said. “If a consumer knows what they’re getting into, and why — that solves a lot of problems.”

Federal disclosures rules, which went into effect on Jan. 1, 1998, aim to do just that.

Dealers must detail their monthly payment calculations as well as costs and credits, such as trade-in allowances and rebates, at the beginning of the lease. End-of-the-lease charges and policies are also spelled out. All the disclosures are grouped together on a single form. In the past, disclosures were scattered throughout the leasing paperwork.

A copy of the federal disclosure form and a consumer brochure on leasing are available online.

Easy to understand

“We’ve really clarified the calculations so consumers can reasonably follow it,” said Jeanne Hogarth, a consumer policies analyst with the Federal Reserve Board. “That means there’s going to be less opportunities to tack in hidden costs.”

One of the biggest problems the disclosure rules hope to correct is improper crediting of the trade-in amount and the capitalized cost reduction — cash paid upfront to lower the cost of the transaction and in turn lower monthly payments. Consumers would get $1,000 credit for a $2,000 trade-in, or no credit at all. A $1,500 capitalized cost reduction would evaporate.

“By making these deductions much more explicit on the new forms, it’s going to be much harder for dealers to make those amounts disappear,” Hogarth said.

The State of Florida added its own disclosure rules on Oct. 1, 1995. They stipulate that the contract be clearly marked as a lease and that the price of the car or truck, with any added options or costs, be listed. Net trade-in value, cash or rebate are to be clearly noted, as well as the bottom-line price of the vehicle being leased.

In addition, all leasing customers are entitled to copies of all the documents that they sign. Since the state disclosures, complaints to the Florida Attorney General’s office have declined by 70 percent, O’Loughlin said.

He also pointed out that only 40 percent of the 13,000 phone calls and 6,000 of the written complaints about leasing fraud that the office has received since 1993 proved valid. The rest are perfectly legal, more-costly-than-the-customer-would-like lease agreements.

Mike Morrissey, a spokesman for the National Automobile Dealers Association, adds, “Lots of times what people call fraud is a mistake or a misunderstanding by the dealer or the customer. With 15.6 million transactions, there’s going to be some questions.”

Too many miles

One of the biggest sticking points comes when the customer returns the car at the end of the lease.

“A lot of people are still surprised by the end-of-lease charges and the excess wear-and-tear charges,” Hogarth said.

Lots of times, people sign on for a lease with lower mileage allowance, say 10,000 or 12,000 miles per year, because of the low monthly payment even though their driving needs are more suited to a lease with a 15,000-mile allowance. Often, they skim right by the disclosure detailing excess mileage penalties, which range from 10 cents to 25 cents a mile.

“People become sort of numbed by all the disclosures and, if they see it, they think, ‘It’s not going to happen to me,’ ” Hogarth said.

But it does and people end up owing hundreds of dollars in charges. O’Loughlin said one woman owed more than $3,000 in excess mileage charges because she agreed to a mileage allowance of 15,000 miles but signed on a lease with a 10,000-mile allowance.

The cost of wear

Another area of dispute focuses on charges for excess wear and tear.

“Some of it is very objective. They measure the tread on the tires. They check to see if you have a ding or scratch bigger than a credit card,” Hogarth said. “A lot of the other stuff is a little bit more of a judgment call … People are surprised at the amounts they owe.”

Not keeping track of routine maintenance — oil changes, new tires, even windshield wiper blades — can also result in excess wear-and-tear charges.

“You’re going to have to document that,” Hogarth said. “You want to be able to show them receipts.”

The best way to avoid problems in a lease contract is to understand all the costs and the terms before signing. Leasing tips are also available from the Florida Attorney General’s office.

“You need to make sure you spend 10 hours researching this stuff before you step in a dealership,” O’Loughlin said, “because you want to understand everything that goes into that contract.

“People, unfortunately, don’t want to look dumb. They should say ‘Hey, I want to know the answer to this question!’ … I always recommend that consumers go in two at a time. People have more confidence asking questions when they’re with someone else.”

— Updated: July 10, 2001

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