DES MOINES. Attorney General Tom Miller filed a lawsuit today alleging consumer fraud violations by Dan Nelson and the Dan Nelson Automotive Group, Inc., which does business as the Dan Nelson Finance Super Center with dealerships in Des Moines and Council Bluffs. Dan Nelson Automotive also has a separate dealership in Sioux City. [See end for list of named defendants.]
"We allege that Dan Nelson Automotive targets vulnerable consumers with marginal credit histories by promising them reliable and safe transportation and the chance to build or rebuild their credit," Miller said. "According to the lawsuit, customers often find themselves much worse off, with more debt, worse credit, and no working vehicle," he said.
"We allege the defendants use misleading advertising to induce customers to come to their lot, where the defendants hide the extremely high price of their cars," he said. In a typical transaction, the suit states, the defendants charge purchase prices far exceeding the value of vehicles, arrange a typical interest rate of over 24%, and provide loan terms that are likely to exceed the mechanical life of the vehicle.
"We allege this is a predatory system, aggravated by the poor condition of the vehicles, in-house warranties offered by the defendants that often are not honored in a timely manner, and repair work that is substandard," he said.
"We allege that many consumers effectively become trapped by these circumstances, forced to return to Dan Nelson Automotive because inflated prices, extremely high interest rates and vehicles in poor condition leave them with 'negative equity' -- preventing consumers from going on to other dealerships or obtaining refinancing through other sources," Miller said.
"We allege the defendants use illegal and harassing debt collection techniques designed to intimidate and embarrass consumers, and that many consumers ultimately default on these predatory loans, resulting in high repossession rates," he said.
"In sum, we allege Dan Nelson Automotive has harmed thousands of Iowa consumers through this tightly-controlled system," Miller said.
The suit alleges that the defendants have made more than one hundred million dollars of sales and loans since beginning operations in Iowa in 1996.
"Many consumers cite the so-called 'credit-reestablishment program' as a significant reason for doing business with Dan Nelson Automotive," Miller said. "They think it is a means for improving their overall credit record. Unfortunately, we allege, the so-called 'program' consists of nothing more than the defendants extending credit and their promise to report customers' payment history to the three major credit bureaus. And, unfortunately, the report is often damaging. Many consumers never realize the promise of rebuilt credit," he said.
"We allege this business represents itself as more than a car dealership in that it emphasizes repairing consumers' credit. The problem is that too few consumers find their financial circumstances improved from having done business with defendants. Instead, they find themselves trapped in a high-interest car loan with little prospect of paying it off or refinancing the loan elsewhere," he said.
"We allege that this dealership misleads vulnerable consumers from start to finish," Miller said.
The suit was filed Friday morning in Polk County District Court. It asks the court to order reimbursement for consumers, injunctive relief against future violations, civil penalties, and costs and attorney fees for the state.
The suit alleges that the defendants violated the Iowa Consumer Fraud Act and the Iowa Consumer Credit Code in their advertisement and sales of used vehicles, in their extension of credit regarding the vehicles, and in their debt collection practices.
The suit alleges that Dan Nelson Automotive Group hides or fails to disclose vehicle prices, going so far as to require detailed financial information and a credit check from consumers before revealing the price. It alleges that the defendants unfairly restrict consumer choice by telling consumers which few vehicles they may purchase, keeping consumers on dealership premises for hours on end and, in some instances, steering consumers into high-interest loans with terms less beneficial than those for which consumers would actually qualify.
It alleges that vehicles often break down after purchase and that the dealership sometimes fails to fully honor its warranty. It alleges the dealership may also subject consumers to unlawful debt collection tactics by calling their references and disclosing their debts, or suing them in counties other than where they live, which is illegal.
The suit also alleges that the defendants violated the Consumer Fraud Act by advertising sales based on "lease elimination" and "rental car company" bankruptcies, claims the lawsuit alleges are simply untrue.
The suit also alleges the defendants misled banks and credit bureaus regarding the true payment histories of their customers.
Defendants named in the suit:
DAN NELSON AUTOMOTIVE GROUP, INC., a South Dakota corporation, formerly known as South Dakota Auto Group, Inc., d/b/a Dan Nelson Finance Super Center, J.D. Byrider Sales, and Dan Nelson Auto Network. The corporation headquarters are at 2900 W. 12th St., Sioux Falls, SD.
SOUTH DAKOTA ACCEPTANCE CORPORATION, a South Dakota corporation, d/b/a Car Now Acceptance Company, CNAC.
DANIEL A. NELSON. Nelson is the President, Secretary, and 75% owner of both Dan Nelson Automative and CNAC.
CHRISTIAN J. TAPKEN. Tapken is the Vice-President, Treasurer, Chief Operating Officer and 25% owner of both Dan Nelson Automotive and CNAC.
VICTORY PROPERTIES, LLC (a land-holding company for other named defendants.)
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Click here for PDF copy of the lawsuit (33 pages).