The Consumers Union Study

This is the first of two complaint studies to be produced by Consumers Union Southwest Regional Office. Initially, we report on issues presented by consumers to the Office of the Attorney General (OAG) and the Office of Consumer Credit Commissioner (OCCC). In the second report, we will address concerns of the much larger group of consumers (nearly 13,000 over the past five years) who complain to the Texas Department of Housing and Community Affairs (TDHCA).

Consumers with a manufactured home problem can complain to the Attorney General (fraud, misrepresentation), the Office of the Consumer Credit Commissioner (retail installment contract loans), or the Texas Department of Housing and Community Affairs (home quality, installation, warranty issues, advertising, refunds). There is some overlap. About 24 percent of consumers who complained to the AG and the OCCC report problems exclusively with home quality, installation or warranty repairs (no other problems noted). These complaints, under TDHCA's jurisdiction, will be addressed in more detail in our second report, to be released in the fall of 2002. At the same time, many consumers who complain to TDHCA report dealer fraud, refund problems, deceptive trade practices and other issues outlined here.(5)

We here focus our attention on the issues properly addressed to the two agencies under study. Consumers Union read the complete file for 424 written complaints filed with the OAG or the OCCC primarily in 1999 and 2000.(6) We looked at the type of problems reported by consumers, the agency response, and asked consumers whether they were satisfied in the end.

Clearly, these complaints do not reflect the experience of satisfied families who receive a good product in good order from a trustworthy dealership. At the same time, not all families who are dissatisfied actually find a regulator, and even those who do most often file only an oral complaint, leaving insufficient documentation for study. Therefore, the problems encountered by the customers in this sample probably happened to others. While some of these complaints relate to highly individualized incidents, most reveal a pattern of problems shared among many consumers that should be addressed through a stronger and more coherent regulatory system.

Consumers Union received various levels of information on each case. In some cases, information was redacted from the complaint file in compliance with various laws, but in general we were able to develop a reasonably complete picture of the consumer's problem. We also mailed a short survey to 369 consumers for whom we had adequate contact information. Eighteen percent (70 people) sent back the survey and provided us with additional information about their experience.

Shopping Around

Most consumers report an easy initial sales experience, as long as they don't want to do a lot of comparison shopping. They walk through a model home, decide they might be interested, and go to the office to get a credit check. At this point, the dealer asks for anywhere from $100 to $500 dollars, explaining it as a "deposit" or "credit check fee" or something else.

Dealers discourage shopping in a number of ways. Although a credit check costs the dealer very little (a few dollars at most), consumers are sometimes charged $25 or more for a credit check or "application fee."(7) Some consumers report much higher charges to run credit reports. Ms. F. of Hidalgo reported a dealership deducting $162 from her refund of deposit for a credit application charge. (8)

Further, the industry warns against getting credit checks at multiple dealerships. At a recent dealer training, a representative of the Texas Manufactured Housing Association told dealers that consumers who shop around will have to agree to multiple credit checks and this will damage their credit score.(9) According to Fair Issacs, multiple inquiries from auto or mortgage lenders within a short period ("rate shopping") will have little impact on credit scores, but the policy is murky for manufactured home loans (see "Rate Shopping, right).(10)

Credit checks create a significant deterrent to aggressive comparison shopping. An even greater deterrent is the deposit many consumers are asked to pay to hold a house they might like. Consumers typically report deposit requests of $100 to $500. Porfirio P. of El Paso tried to shop around for rates and homes. He ended up leaving a deposit of $100 with Tres "B" Mobile Homes of El Paso and another $300 with Nationwide, but finally bought a home from a third company-an exercise in comparison shopping that left him $400 out of pocket until the Attorney General intervened.(11)

While improvements in attractive multisection homes have changed the image of the industry, the "simple, no frills trailer," as one consumer described her single wide home, still represents about a third of homes shipped in Texas.

 

Texas law now gives consumers the right to a refund of deposit money within 15 days of a written request. The law is designed to encourage consumers to shop around, knowing they can get a deposit back if they prefer a different home at a different dealership. But about 19 percent of AG and OCCC consumer complaints involved dealers who were unwilling to return a consumer's investment after he or she decided to walk away from a deal. Hundreds more consumers filed complaints with TDHCA to get a refund of their deposit.(12)

Some dealers refused to give back deposit money once a loan had been approved. Tres "B" Mobile Homes told the AG in November of 1999, "Once we get a customer approved [for a loan] we do not return their money back." Georgetown Mobile Homes in 2000 gave consumers a notice saying that a refund of deposit was available if the dealer could not obtain financing. A whistle blowing dealership employee in San Antonio reported in mid-2000 that consumers were asked to sign a form stating that if their loans were approved, they would not get a refund of deposit, "so they wouldn't shop."(13)

Prior to September 1, 1999, dealers could keep deposit money up to $200 if a consumer cancelled before signing a credit agreement. Now, deposit money is fully refundable until after loan closing unless the home is a "custom" home.(14)

Consumers who walk away as soon as the deal starts to look different from their expectations-and without signing anything-usually get a refund, though they may need to contact regulators first. Edwardo R. of Houston put $500 deposit on a Fleetwood home. But when the dealer called him in to sign the loan contract, the terms differed from his expectations. The price of the home, the payments and the loan term had changed, so Mr. R. refused to sign and asked for his deposit back. "No firme el contrato por todas las mentiras que estaban escritas," he wrote to the Attorney General ("I didn't sign the contract due to all the lies that were written in it"). After intervention from the AG, the company released his $500.(15)

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