Way back in time the federal government got into the auto lease business when consumers complained about GMAC (now ALLY) SMARTLEASE, balloon payment finance contracts and open-ended leases that subjected the car buyer to what we all know as a “BAD CAR DEAL”.
Hence new Regulations (M and Z) changed the actual look and feel of a car lease contract to better resemble a finance contract:
- four boxes across the top noting the total amount put down on the lease
- the exact breakdown of money used towards the payments and that of tax on the money down, trade-in, rebates.
- the exact date of the end of the lease, and any fees associated with taking the car back to the auction.
- Early Termination clause noting the car would be subject to market value fluctuation because the balance of payments was outstanding. (This clause gave consumer/dealer the option of considering the total amount of payments due vs. market value as a figure for getting out of the lease early.)
5. The lease contract also had to have a stated residual value
clearly printed on the contract. The residual was the basis for calculating the presumed DEPRECIATION over the term of the lease, which defined the amount of financial participation the new car buyer (lessee) would share with the bank. At the end of the term, the car buyer had the right to purchase the vehicle for this residual value, or walk away without penalty excepting for damage, high miles or both. There was a small “termination fee” if you completed all the monthly payments. THE STATED RESIDUAL was designed to eliminate the dealer being able to manipulate the residual to a higher amount, which would lower the consumers payment, or allow the dealer to make more profit at the expense of the bank or the consumer.
If the lessee wanted to purchase their vehicle at lease end, there was a small fee ($125-300.) to transfer title, however, the new regulations imposed by the government included specific language dis-allowing for excessive charges for a difference between what the car was worth at market value and what the stated residual on the contract reflected. This was to eliminate the ability of the dealer to demand “market value” or “premiums” for buyouts at the end of the contract.
Fast forward to today, where the residual on a ALLY, formerly GMAC, SMARTLEASE is NOT THE ACTUAL BUYOUT. While the paperwork says it is a closed end lease, GMAC ALLY SMARTLEASE thinks by putting the excessive amount in print it is “legal”. Legal, I am not a lawyer, so I have asked a few to weigh in for your benefit. However, ethical, moral or even business-wise, this makes no sense.
“This purchase price reflecting a different amount from the residual makes no sense,” stated Jim M., a 30+ year veteran of the automobile business.”
“This (balloon buyout) is exactly why we don’t write ANY SMARTLEASES for Ally (GMAC). The consumer gets angry, especially those with previous lease experience,” reported another manager for a large chain of dealerships in the Southwest.
The consumer is being completely shafted on this SMARTLEASE. If the car isn’t worth that amount, you can bet ALLY isn’t writing the lessee a check for the difference. If the car is worth the residual, but NOT THE BALLOON PURCHASE OPTION the lessee is being told they can negotiate with the bank. I personally witnessed this on Saturday with my clients, but note, for the record this “negotiation option” IS NOT PRINTED anywhere, so this statement is as false as the old leases of yesteryear.
Back in the days before Regulation M or Z, many consumers never knew they were in a lease until the term ended and a balloon note was due. Here in 2011, the genius at Ally – GMAC SMARTLEASE think they are smart by shoving the BALLOON amount into the FINE PRINT directly under the excessive mileage charge, where you can’t miss it… if you are looking.
SO WHY HAVE A LEASE RESIDUAL?
If the idea of a lease is shared interest in the vehicle, but there is a balloon on the balance, what is the value of a residual value?
I will have to wait until tomorrow to get a comment from GMAC, now Ally, however, I can tell you there is one reference on their website to a purchase option at the end of the lease.
I am also searching with legal counsel the precedent for this unconscionable contract. Here a company the US taxpayers bailed out, has the audacity to try and resurrect one of their biggest foibles of the ’1990′s “SMARTLEASE”, flying in the face of President Obama’s Consumer Financial Protection Bureau and the mandate it has to enforce this type of contract nonsense. Just as our government has pushed to enforce banking oversight, of which the car dealerships were barely able to escape exactly for this reason: THE CAR BANKS write these contracts and approve them, the dealer has no direct control, other than to not use them. Hello Elizabeth Warren are you listening?
TO DATE, I have contacted sixteen other manufacturer brands about their contracts and NOT ONE has imposed such overwhelming purchase option costs. These are not fees, which typically range for $150.00 (Chrysler, on old Chrysler Financial contracts. Chrysler leases are now handled by the same Ally bank, using SMARTLEASE contracts since May 2010) to $250.00 some foreign brands.
If you have an ALLY GMAC SMARTLEASE contract on your vehicle, please review line #9 and make sure you know what you signed. Anyone told this was a negotiable figure has been mis-led.
Contact me at sarahlee@mycarlady.com with any questions or comment below. I will keep you in the loop as I investigate this matter.
——————————————————————————-
I’m here to help you with any of your automotive needs and advice is ALWAYS free.
Sarah Lee is an automotive executive with 22+ years of experience. She writes about Cars, and is a staunch consumer advocate on car related subjects.
Her company: MY CARLADY is a personal car concierge service committed to helping you manage your fleet, one car or many. Servicing, selling or buying, MyCarlady understands your automotive needs: new or pre-owned. You can reach her at sarahlee@mycarlady.com
USED TOYOTA CAMRY-SOLARA COUPE
More From MyCarlady®
Available Cars
Download Free MyCarlady Podcasts:
