The state agency charged with protecting consumers from unscrupulous car dealers and disciplining the offenders comes up short at both tasks.
In the past 5 1/2 years, board members and administrators at the Colorado Motor Vehicle Dealer Board have dismissed or extended lenient punishments in 80 percent of its cases and taken the licenses of only 29 of Colorado’s 13,000 salespeople.
In the worst cases, bureaucratic delays or leniency allowed offenders to continue selling cars long enough to victimize a new round of unsuspecting customers. And levied penalties can vary greatly despite identical infractions.
Investigators say that at times they’ve even allowed suspect dealers to continue harming consumers in order to build a stronger case against them. In other instances, cases have languished for years unattended while more and more customers were victimized.
Colorado’s regulation of auto dealers, governed by the nine-person panel of mostly car dealers, is a system consumers and even some salespeople say they can’t always trust. Even its defenders concede it needs reform.
“Something needs to be done when it’s this lax,” said Arlene Perkins, a retired Colorado Springs resident who lost $38,000 to an RV dealership in November 2003 after the business didn’t deliver the title to her new camper home.
“They let him keep at it after me. My God, what does that say for our system?” Perkins said.
Looking out for buyers?
The board and its investigators from Colorado’s Auto Industry Division, a part of the state Department of Revenue, exist to protect customers in their dealings with the occasional renegade car dealer. They handle complaints about business practices, most frequently title disputes, not quality issues or concerns about auto defects.
In hundreds of informal negotiations, investigators and administrators for the board have prodded dealers over the years to make things right with aggrieved customers. But 5 1/2 years of division data indicate that even egregious cases can linger with investigators for years without resolution, and when the cases do reach the board, its members, who largely represent the auto industry, at times choose not to discipline their colleagues harshly.
Department of Revenue officials, who agree that the division should run more efficiently, are considering wholesale changes of policy, rules and, if necessary, legislation. Among the options: expanding the number and types of convictions that would prevent someone from being licensed; forcing applicants to pay for their own background checks; and changing the board’s makeup to reflect a stronger consumer influence.
“We have a specific function to perform. We’re not here to be advocates of the industry or become friends of the industry,” said M. Michael Cooke, state revenue director. “We’re here to regulate the industry, and we intend to do it strongly and fairly.”
The board is made up of three public members, three used-car dealers and three new-car dealers – each appointed by the governor without review by the legislature. Each serves a three- year, renewable term and is paid $50 a meeting – typically two each month – plus expenses.
Some things are already different. The Auto Industry Division has changed leadership in the past five months, emphasizing more law enforcement. Its top three officials are all former police investigators. Two of them arrived in the past three months.
The changes were made following key retirements of division officials and to reflect a desire at the Department of Revenue to scrutinize the performance of all its sections. That came after learning of what they considered improper conduct among officials of the Colorado Lottery.
Despite the changes, officials concede that much more needs to happen.
Also, The Post found that the dealer board:
At least twice in the past six months licensed felons convicted of crimes that, by law, should automatically prevent them from selling cars.
Has used its discretion to license others convicted of serious crimes – including drug dealing and racketeering – while rejecting other applicants simply for failing to disclose minor crimes or arrests in their past.
Boasts to the legislature each year of levying millions of dollars in fines against violators it disciplines, but most of the money remains uncollected – and board members don’t intend it to be.
Trying to get it right
Dealer board president Gretchen Olson, a lawyer who specializes in probate law, said the panel tries to get it right.
“Humans make errors, and I can think of some information that was inaccurately brought to us in the past and decisions were made based on it,” she said. “Once the true information comes to light, we act appropriately.”
About 3,000 cases pass through the division each year, and, with just seven investigators, only the largest ones garner more attention than an hour or two, records show. The division has nearly 400 unsolved or open cases, and an average of 11 new ones are created each day.
Some have languished for at least five years, untouched and unresolved.
Nearly 38 percent of all cases since 2000 have been ruled unfounded or with insufficient evidence or resources to pursue, records show.
Another 39 percent ended with little more than a wag of a finger in the form of a spoken or written warning, or “educational contact,” meaning the dealership was instructed how to comply with the law.
Some car dealers have received dozens of those letters, records show.
Typically, investigators allow dealers to clean up a problem before referring the matter to the board, a practice some say is designed to keep the panel from having to deal with too many cases. Others contend wrongdoers get off easy.
Fewer than 12 percent of the legitimate cases result in a misdemeanor ticket or referral to prosecutors, and only a handful result in actual charges. From January to June, the division referred 35 cases for criminal action, 21 of them against salespeople. Of the total, 14 cases ended in a misdemeanor ticket – two were eventually dismissed and three were deferred sentences – and one is being prosecuted as a felony, court records show. There is no record of any action taken on the remaining 20 referrals.
2 out of 3 keep licenses
And of the more than 12,000 cases the division has had since January 2000, one out of 12 got any attention from the board. Of the 300 dealers and 100 salespeople referred to the board in that time, two out of three got to keep their licenses.
Colorado’s dealer board is actually stricter than agencies in some neighboring states. In Arizona, where the state’s motor vehicle division logged fewer than 2,000 cases last year, just 22 were referred to an administrative law judge for sanctions. Nebraska consumers on average file 180 complaints a year against car dealers, and only one will reach the board that determines whether victims get restitution. Colorado’s board doesn’t have the legal authority to order restitution.
It took two years, and the start of an Arapahoe County grand jury investigation, before investigators asked the board to take action last month against Public Auto Auction in Sheridan and Family Trucks & Vans in Denver.
The businesses, which had been the subject of 75 complaints from consumers to the board since 2001 and never disciplined with more than a warning, are accused of being part of an elaborate scheme to pocket money from a number of charity groups that had vehicles donated to them.
According to an emergency order from the board, the dealerships, owned by 30-year auto dealer John Sharp, reported to charities that the businesses sold donated cars for far less than was actually paid and allegedly pocketed the difference between the true price a buyer paid at auction and the price the dealer reported to the charities. The companies auctioned about 450 cars a year on behalf of one group, Catholic Charities Archdiocese of Denver, in each of the past three years, officials there said.
The grand jury investigation continues, and Sharp’s license to sell cars has been suspended after an emergency meeting of the dealer board. Investigators retrieved about 180 boxes of records during a search of Sharp’s businesses, he said.
“I’m in shock and can’t believe this,” Sharp said in denying the complaint against him. “I’ve never had a problem in 30 years.”
A Catholic Charities official said the group kept sending cars to Sharp’s companies even after filing a complaint with the division. The charity was under the mistaken belief that the case had been investigated and closed, the official said.
“We got to thinking that the investigation yielded nothing, that it was finished,” said Jim Ruybal, the charity’s vice president of development and the person responsible for its car-donation program. “It appears that it just dropped off after we gave it to the state.”
Cooke acknowledged that her agency has dropped the ball in some cases by letting complaints pile up, and she pointed partly to staff reductions. The agency had 27 investigators in 1973 and now has just seven.
“We may have been through some budget cuts and have fewer resources than at one time, with staff at levels from 20 years ago, but I don’t think that gives us an excuse not to do our jobs,” Cooke said. “If there’s a job to be done in this agency, I expect it to get done. We’ve got to find a way to do it.”
The board is likely to hold a hearing soon to decide whether Sharp keeps his license. It’s an infrequent event for the board.
Of the 300 dealers and salespeople whose cases were called to the dealer board between January 2000 and June 2005, just 99 were tossed from the business. Several – it’s unclear exactly how many – had already closed shop by the time state investigators caught up with them, leaving a trail of consumers in their wake.
One thing is clear: By the time the board revoked the licenses, dozens of consumers had been harmed – many of them after the offenders had been disciplined several times.
“Some dealers just screwed people; they take off or give up and not be responsible,” said Mary Marvin, the division’s former chief investigator who retired in May after a 32-year career. “Those guys are hard to catch up to. The most we can do is revoke their licenses so they can’t start up again.”
“Get that bond higher”
Matheson resident William Gordon said there’s a better way to help consumers who get ripped off: Raise the required bond for dealers from $30,000. Bonds are insurance policies against which victimized consumers can make claims. Many times, there are more claims than money to cover them.
“The first thing is to get that bond higher and not leave a lot of people holding the sack,” said Gordon, a retiree who nearly lost a $70,000 motor home to Colorado Springs dealership Midtown Auto Sales, which in late 2003 left a trail of nearly 30 other complainants over just two months.
Gordon said he was forced to file a costly lawsuit to keep the motor home since the dealer’s bond wasn’t enough to cover his losses once Midtown’s license was revoked in December 2003. Another 14 consumers filed complaints after the revocation, records show.
“All I wanted was the title, which is what I paid for,” he said.
Car titles are the source of the single most common consumer complaint the division gets. The division has logged 3,540 title- related complaints since 2000, records show.
Tampering with transfers
Here’s how car-title transfers are supposed to work: A consumer buys a car, typically makes a down payment and secures a loan. Using the consumer’s payment, the dealer is to repay his own financing on the car – the money he borrowed to buy it for resale. Then the finance company, or bank, that loaned the dealer the money transfers the title to the consumer, who registers the car with the state and gets a new title. Sometimes the title goes to the bank or finance company the customer borrowed from to buy the car.
Problems arise when a dealership with financial troubles uses the customer’s money to pay off a different car the dealer sold weeks earlier, hoping that another sale will happen quickly enough to pay off the car the customer purchased.
The customer is left waiting for his title since the dealer’s bank hasn’t been paid and won’t release the document.
In the worst cases, a title may not even exist or, as has happened, the dealer pockets the consumer’s cash and runs.
Banks then will repossess cars from consumers, who are left with no car, a bank loan and nothing to show for their down payment. At best, they have a car with no title and no license plate.
The Auto Industry Division often allows dealers to fix title problems and stay in business. Some of those dealers will wind up back before the board with new customer complaints.
Kelly’s International Auto Sales owner Richard Newendyke received warning letters for at least 13 different infractions going back to early 2003, records show.
In May 2004, the dealer board revoked his license and shuttered the business when 22 other title-related complaints had piled up.
“He should have been in the clink a long time before selling me this car,” said Holly King, a 45-year-old Evans resident who was the last in a line of alleged Kelly’s victims that stretched over three years.
“All I want are damn license plates. Is that too much to ask?” she said, noting how she has been using temporary plates for about two years and is regularly stopped by police and forced to explain. She said she has heard nothing from division investigators.
For the majority of car dealers allowed to stay in business, the board typically issued what appears to be a hard-line penalty – a fine of several thousand dollars and suspension of varying length – only to set aside most of it, records show.
Since January, the board has disciplined five dealers for a variety of misdeeds that included fraud, perjury and misrepresentation. In all, the dealers were suspended a total of 35 days and fined $140,000. All kept their license to sell cars.
But the board allowed the dealers to serve only half the suspension time and collectively pay just $10,000 – slightly more than 7 percent of the levied fines – as long as they stay out of trouble, records show.
Despite appearances of leniency from the board, Olson said the idea is to deter bad behavior.
“The board’s main duty is to right the consumer, the person who is wronged. That’s huge to us,” she said. “When salespeople see the fines we levy against others in the business, that’s a deterrent. It works.”
While some dealers never appear before the board again, others can’t seem to avoid it.
Rohac Motors in Denver managed to keep its license despite four appearances before the board between 2001 and 2004, more than any other dealer or salesperson during that time, records show.
Each time a new pile of allegations surfaced, the board gave Rohac a reprieve, reconfigured its punishment and allowed the dealership back to work.
When the dealership’s license was finally revoked in July 2004, it wasn’t for the trail of 52 consumer complaints that had piled up but rather for not paying the $1,600 balance of a $5,000 fine the board had levied along the way.
“I remember driving by their lot on Broadway and was amazed they were still in business,” said Nancy Boyd, whose 2000 car deal with owner Steven Rohac went sour quickly when the dealer did not give Boyd title to her car. Her solution: She refused to begin paying on the financing deal she signed with Rohac.
What came next, Boyd said, was an array of attempts to repossess the car that included intentional car accidents she reported to police and garage break-ins at her sister’s home. At the time, Boyd was the 27th person to file a complaint against the dealership, records show.
“I was never given the opportunity to appear before the board, and I called many times,” Boyd said. “It was hellish. I just wasn’t in the mood anymore and gave in.”
Boyd said she parked the car, removed the temporary sticker and allowed it to be towed. She never reclaimed it.
Several more complaints by others followed, mostly for the same infractions that only garnered a warning letter or “educational contact” from investigators, records show. When the board did make a decision, it was to approve a deal that had been worked out by Rohac’s attorney and the assistant attorney general representing the board.
“Anybody can make a mistake once, even a car dealer,” Boyd said. “But he got off easy with mine and screwed all those other people after me.”
Rohac did not return telephone messages.
Gearing up for change
The division’s intent has been to help consumers, even if it meant keeping problem dealerships in business.
“My concern was always first with the consumer,” said Marvin, the retired investigator. “If the dealer will take care of the problem, then let’s suspend him, issue a fine and probation, then make sure he’s taking care of business.”
That’s changing, promised David Dechant, the revenue department’s director of enforcement, who oversees the divisions that regulate gaming, lottery and automotive industry licensing.
“We’re much more enforcement-oriented now,” he said. “Dealers coming before the board repeatedly is not likely to recur.”
In May, Cooke appointed Robert Sexton, a former Colorado Bureau of Investigation boss, to run the division. And the division’s new chief investigator is a lawyer.
In his first two months, Sexton requested, and the board approved, the revocation of licenses of three dealers and two salesmen – one of them a convicted felon licensed more than three years ago whom Sexton identified his second day on the job.
The board, following its own informal policies, levies its heftiest fines against people it wants out of the car business. To ensure they don’t return, a huge fine is assessed, to be paid only if the person wants to reapply for a license. Typically, the person doesn’t.
At its August meeting, the board fined used-car dealer Franklin Burkeen more than $330,000 for 66 violations committed. Through his attorney, Burkeen agreed to the fine only if he didn’t have to pay it. He said he had no plans to return to the car-sales business.
There are many others like Burkeen, fined but not required to pay.
In 2004, the board issued $2.98 million in fines against dealers and salespeople. It has collected less than $53,000 of it – a paltry 1.8 percent return.
“The fines send a message to the industry that says we can and will fine you, but they’re just numbers that mean nothing,” said Jerry Fay, executive director of the Colorado Independent Automobile Dealers Association, a trade group that represents the state’s used-car dealers.
Fay noted that collecting from closed dealerships would be nearly impossible.
“But keeping the undesirables out of the business makes the fines a good deterrent,” he said.
The “undesirables” get in anyway. Sometimes with the board’s approval.
“Mandatory disqualifiers”
The Colorado legislature in 1998 changed the law to prohibit the licensure of car sellers or dealers if they had been convicted of certain felonies involving bodily harm or property theft in the previous 10 years. The crimes are known as “mandatory disqualifiers,” meaning applicants are supposed to be rejected automatically.
However, the division’s inability to fully check the backgrounds of each applicant – inquiries are done randomly and do not reach into national criminal databases because the division is not considered a criminal-justice agency by law – translates into spotty work. For instance, there have been felons who readily admitted a criminal history on their application yet were licensed because investigators never checked any further.
While selling cars at some of Denver’s most well-known dealerships, Kenneth Herrera was spending his evenings in jail.
A car salesman since 1996, Herrera pleaded guilty in 1997 to a felony burglary charge and received a deferred sentence.
But a Jefferson County judge revoked Herrera’s probation in 1999, rescinded the deferred sentence and resentenced him to jail under the county’s work- release program. Herrera could work during the day but had to report back to the county jail each night.
A convicted felon, Herrera should not have been allowed to sell cars any longer. But the board never knew nor checked whether he had been convicted.
Division investigators finally checked Herrera’s background in August 2001 as he applied for yet another license and saw the burglary conviction from two years earlier. His license was revoked that October. Herrera could not be located for comment.
Felons selling cars is as old as the profession itself, insiders say.
“There were probation officers who would recommend the business to men just out of prison,” said Bill Barrow, retired executive director of the Colorado Automobile Dealers Association.
The board has licensed at least two people in the past several months who have a mandatory disqualifier in their background, at least one even after the board held special hearings to evaluate their fitness to be licensed. And others were granted a license despite disqualifying felonies that were pending against them, The Post found.
Nick Carranco, known to federal authorities as “Nick the Pig,” is a former general manager at Don Massey Pontiac Buick in Denver who was originally licensed in October 2001 to work at Skyline Automotive while on parole for a federal racketeering-related conviction. Carranco revealed the conviction on his license applications, records show, but it didn’t raise eyebrows and no one checked for years.
The board finally revoked Carranco’s license this past August after the new division director, Sexton, remembered Carranco’s name from the federal case. He brought it back to the board’s attention – but only after the panel had already rubber-stamped a renewal.
“The hardest part is they let me establish a lifestyle, making $130,000 a year, and I’ve never had any (consumer) problems,” Carranco said.
Audit may be coming
Cooke said it may be time for the division to run a comprehensive check of its records to find undisclosed criminal convictions and catch every person who has wrongly been licensed.
“To the extent we can do an audit, we should,” Cooke said. “It’s certainly something that needs to happen in some form.”
The disqualifier law, however, does not apply to people with criminal records who were already licensed at the time the law went into effect in 1998, according to an attorney general opinion that year. Cooke said she favors a change to the statute so that anyone with a mandatory disqualifier in the past 10 years is not allowed to sell cars.
“It kind of defies logic to have a cutoff date where if you entered under the wire, it’s OK to have these felonies, but if you’re after the fact, you’re not OK,” she said.
The board has discretion to license – and frequently does – anyone convicted of other felonies or crimes such as drug trafficking.
Indeed, board-meeting minutes for just this year reflect that licenses to sell cars have been issued to more than three dozen people with criminal backgrounds that range from misdemeanor theft, forgery and fraud to assault, criminal mischief and attempted prison escape.
The board licensed one person – a former youth pastor at an Englewood church – in January who had been convicted of a misdemeanor sexual-assault charge a year earlier. The conviction was a plea bargain down from felony sexual assault against a child by a person in a position of trust, which stemmed from his time at the church, records show.
In that same meeting, the board licensed a 24-year-old Longmont man despite a pair of misdemeanor convictions relating to the theft and sale of stolen auto parts five years earlier, records show.
The board wasn’t required to grant either license.
Others, such as Robert Rice, were issued licenses despite obvious warning bells.
After denying Rice’s application, the board licensed the 50-year-old in April on one condition: “The owner of the dealership must provide a letter acknowledging he is aware of Mr. Rice’s disciplinary history and will accept responsibility for him as a salesperson,” records show.
The board had suspended Rice’s license in September 2000 following allegations of theft and fraud.
Two months after the board relicensed Rice, he was charged in Arapahoe County District Court with felony theft in an incident unrelated to his dealership job, records show. The charge is pending. And he still has his license.
“Clearly, these individuals raise red flags for me,” Cooke said.
Many admit their transgressions, are sent packing and are not prosecuted for the crimes.
“They’re taken out of the auto business, and in a less-than- perfect world, that’s enough,” said Fay, from the independent auto dealers association.
Dechant said that’s about to change, too.
“We want to address those issues more aggressively than had been in the past,” he said. “In the future, we will be charging more people criminally than just taking them to the board.”
Staff writer David Migoya can be reached at 303-820-1506 or dmigoya@denverpost.com.
