Consumer complaint received 2019-09-26
Company: AMERICAN HONDA FINANCE CORP
State: TX
Product: Vehicle loan or lease
Sub-product: Lease
Issue: Problems at the end of the loan or lease
Sub-issue: Excess mileage, damage, or wear fees, or other problem after the lease is finished

Complaint:
On XX/XX/XXXX, XXXX and XXXX XXXX ( the XXXX ) leased a vehicle from XXXX XXXX in XXXX County, Texas and executed a lease agreement with Acura Financial Services ( AFS ). Employees of XXXX XXXX, acting as agents of AFS, executed said lease agreement with the XXXX after negotiating and explaining its terms. 

One of those terms, the Total Loss Protection Assurance or gap waiver provision found in paragraph 36, was described by AFS agents, consistent with AFS marketing materials, as coverage of the difference between insurance proceeds and the lease balance in the event of a total loss or vehicle theft. 

On XX/XX/XXXX, the XXXX were attending an elementary school function with their young children when, due to no fault of their own, a third party crashed his vehicle into the leased vehicle and caused significant damage. The XXXX initiated a claim with the third partys automobile insurance provider, XXXX XXXX. XXXX XXXX subsequently declared the leased vehicle a total loss. XXXX XXXX appraised the value of the leased vehicle to be {$22000.00} and submitted payment to AFS for that amount. At the time, the balance owed on the lease was {$26.00}, XXXX. 

On XX/XX/XXXX, AFS notified the XXXX in writing that the gap waiver provision of their lease agreement would only cover {$140.00} and demanded payment of {$2800.00} due to excessive wear and use prior to the date of loss. The XXXX were understandably confused, as the leased vehicle was in excellent shape at the time of the accident, as evidenced by XXXX XXXX written appraisal and its accompanying photographs. In multiple conversations with agents of AFS, however, the XXXX were informed that AFS had not and would not inspect the condition of the leased vehicle, but rather would rely solely on XXXX XXXX  written appraisal to support their claim of excessive wear and prior use. 

However, the XXXX XXXX appraisal upon which AFS relied to support the existence of excessive wear and prior use did not describe, in any respect, any of the conditions listed in the lease agreements own definition of that term. Paragraph 30 of the lease agreement defines excessive wear and use as including : ( a ) mechanical defects or failure ; ( b ) broken or missing parts or accessories ( including missing keys or remote entry devices ), ( c ) damaged body, fenders, bumpers, metal work, lights or trim, or damaged or broken glass ; ( d ) paint which is chipped ; ( e ) interior rips, stains, burns, or excessively worn areas ; ( f ) missing or unsafe wheels or tires ( including spare ), tires with less than 1/8th inch of tread remaining at the shallowest point ; ( g ) damage or any other condition that makes the vehicle unsafe or unlawful to operate ; ( h ) safety and emission control equipment not in proper working order. 

Quite to the contrary, the appraisal specifically describes any wear as slight and minor, terms any reasonable person would consider the exact opposite of excessive. Thus, the appraisal merely described deductions for normal wear consistent with the vehicles age and mileagethe sort of diminution of value that the gap waiver is expressly intended to cover in situations such as these. 

After pointing out this glaring discrepancy in a telephone conversation on XX/XX/XXXX with AFS account manager XXXX XXXX, he announced that, despite multiple written notices to the contrary, AFS no longer claimed the existence of excessive wear but rather now claimed that the normal wear described by the XXXX XXXX appraisal would be considered prior damage, and thus similarly excluded from coverage by the gap waiver provision. This claim by AFS defies logic and only offers further evidence of the scam that AFS perpetuates. If all normal wear on a lease vehicle is considered prior damage, then it is hard to imagine any scenario where the gap waiver provision would function as it is advertised in its marketing material and as explained by AFS agents at the time of lease execution. 

By refusing to provide coverage as required by the gap waiver provision, AFS breached the express terms of the lease agreement. Even though the provision excluded coverage for deductions made for prior damage and excessive wear, these conditions did not exist in the leased vehicle as evidenced by the descriptions and photographs in the very appraisal upon which AFS relied. 

When the XXXX  informed AFS that the gap waiver provisions excessive wear exception violated Section 83.812 ( i ) ( 7 ) of the Texas Administrative Code, AFS argued that the lease provision was not gap insurance regulated under this section because the provision existed in a lease agreement and not as a part of a loan agreement. However, this distinction is not easily discernible by the reasonable consumer when AFS marketing material expressly describes the policy as gap insurance. 

Moreover, the XXXX  above complaint constitutes misrepresentation and breach of warranty under the Texas Deceptive Trade Practices Act - Consumer Protection Act 17.46 ( b ) ( 5 ), ( 12 ), and ( 20 ). By claiming that all diminution of value due to normal wear and use will be considered either prior damage or excessive wear, AFS exposed the inherent scam in their gap waiver provision, wherein they actively market and promote this lease feature as a no-cost benefit of financial security, when in reality they intend to consistently construe the provision in such a dishonest manner such that the provision never actually provides the benefits it is promised to provide. By allowing the consumer to believe that there is no need to purchase a genuine gap insurance policy independent of the lease agreement governed by the Texas Administrative Code, XXXX XXXX is then able to persuade the consumer to spend those saved funds on other optional products and services for which AFS derives a profit. 

Ultimately, AFS agreed to a partial settlement of {$1600.00}. After pursuing XXXX XXXX for their role in the deceptive trade practice, they agreed to pay {$1500.00} to settle all claims against themselves. The XXXX paid the difference in order to settle the account with AFS. 

AFS subsequently reported the account negatively to the credit bureaus as " settled after charge-off. '' The account was never charged off to a collection agency, but rather was turned over to AFS ' parent company, American Honda Finance.  Moreover, the account was not paid because the parties were engaged in litigation. The XXXX paid the lease every month on time, even after the the vehicle was totaled and they no longer had access to it. At a minimum, AFS should report that the account was paid in full in accordance with the lease.

Company response to consumer: Closed with explanation