I haven't gotten a straight answer on this from various finance companies...

I'm an insurance agent and have had some "interesting" run-ins with a person in my area whose clients keep wanting to buy insurance from me. Thing is, I never do business with them because I don't think what he's doing is legal--somebody give me some input here.

This guy, let's just say his name is "Smith". Smith finds somebody who is behind on their car payments, and is about to be repo'd. Let's call them client "A". He also finds someone who wants to buy a car, has a good paying job but crappy credit; let's call them client "B". Smith arranges for B to make A's car payments, take the vehicle, pay A up to date with their lender, and get insurance on the vehicle. The only benefit to A is they avoid a black mark on their credit. B gets to drive around in this vehicle that they're paying for, while the vehicle remains under A's name--financed by, titled, and registered to A.

Thing is, B comes to me for insurance on a vehicle that they don't legally own. I deny them insurance and explain how Smith does business. B gets scared and tries to get their money back from Smith. Did I mention that to even get the car, Smith requires B to pay all back charges to A's lender as well as a healthy finders fee to Smith? This can sometimes be as much as $3000-$5000.

There are tons of reasons that this doesn't seem right to me. B is making payments to A's lender, and this benefits A's credit but not B in any way. A remains the owner of the car and is legally liable for any accident caused while B is driving their car. If B kills someone, A is on the hook for it. Not to mention, the only way to properly insure the car is for A to buy the insurance and to list B as a driver. Any agent who sells B the insurance straight out is selling improperly--A has to be a named insured.

Smith tells B that after a "while" of operating under this arrangement, the vehicle can be refinanced under B's name. Says who? The finance company has no knowlege of this arrangement...

wtf is wrong with people? Is there any way this can be legal; and if not, are there any laws Smith is breaking?

 

If the finance companies can't tell you if it's legal or not, then wouldn't it be legal? Sounds unethical, but not illegal. The driver is at least trying to do the "honest" thing and have insurance on the car.

 

Interesting question. Legally, it sounds like "B" has an expensive car rental (rent-to-own) from "A?" Doesn't SEEM any more illegal than me letting a someone buy my car by making payments on it, with me handing over the pink slip after last payment. But maybe the DMV would take a dim view of the concept?

 

Ultimately, as long as the car remains titled and registered under "A" they are responsible. I don't think any insurance company is going to issue a policy to a person for a car that is not legally registered in their name.

My .02.

 

hum...it doesn't sound illegal but maybe "wrong".

 

Damn, they keep coming up with new ways to screw poor people. I would have nothing to do with any part of that operation.

 

I have 2 cars, both of them are registered under my name. The S2000 is only insured under my name. Then this winter I bought a beater car, a MY92 Civic and to save money on insurance, my dad bought insurance for it under his name. I'm the owner, he's the insured driver.

 

As I understand it that is an illegal practice. The finance company requires approval of any "change of interest" in the vehicle and can call the note due and payable.

If the payments should fall behind the finance company has the right to know who has the car. Typically this type of situation has Smith making $$ on the deal for putting it together.

 

I am not an expert on this by any means. But it would seem to me that the titled owner of the car would be liable for any damages exceeding the damages covered by the driver.

For instance, you lend your car to a friend for an errand. Your friend gets into an at-fault accident. Your friend's insurance would typically cover the damages since their insured driver was behind the wheel. Your insurance would only be on the hook if your friend had no insurance or not enough. You would only be on the hook legally if your friend was drunk, didn't have a license, or perhaps had no insurance.


I'm not sure there is anything to be gained by denying the business. The person financing the car has to maintain coverage according to most state's laws. The company that would insure the driver would be who I'd ask for an opinion, rather than a finance company.

It would seem that the owner of the car could cut Smith out of the deal entirely if they could add the new driver as a co-signer. I'm pretty sure the financial institution financing the car might be interested in the arrangement, as well as the involved insurance company. But violating terms of a contract doesn't automatically mean that anyone has done anything illegal, only that the contract is now no longer valid. As long as the payments are being made, however, the lender has no motivation to repossess.

 

It seems okay to me. B is taking a risk because A owns the car and could legally take it back at any time and B has no recourse. I used to buy my own insurance on cars owned by my parents and operated and payed for entirely by me.

It's like subletting real estate. I rent it from the landlord and someone rents it from me. THey get renters insurance to cover problems.

I pay the landlord he's satisfied, B pays me I'm satisfied.