Will buying a "Lemon" Ruin Your Credit Report or Credit Score?
If you have purchased a new vehicle that turned out to be a lemon, you may want to use the Michigan Lemon Law to get a refund or exchange the vehicle. Consumers who sue for these remedies under the Lemon Law regularly ask whether they must continue to pay for their car and whether stopping those payments will impact their credit report and credit score For consumers who have hired a Lemon Law attorney, the ongoing litigation should not impact your credit score or credit report if handled properly. Here's how to do it.
One Lemon, Two Laws
While there are several statutes that can be used to help consumers get an exchange or refund, the two primary statutes are the Lemon Law and the Uniform Commercial code. The Lemon Law requires creditors who have financed the purchase of a Lemon to agree that the owner can substitute a new vehicle if there is an exchange of the Lemon for a new vehicle, and to refund any payments received subject to offset for use. In practical terms, this simply means that the finance company has to live with the outcome of the Lemon Law case filed by the owner of the Lemon. This statute does not provide for the consumer to stop making payments, nor does it address credit reporting of the car loan. But, another statute does address this problem.
A second law, the Uniform Commercial Code (or UCC) governs all sales of goods -- including cars and trucks. Under that law, if the merchant sells a consumer a defective vehicle, the consumer is entitled to stop making payments under any credit contract governing the sale. So, if you have been sold a vehicle that qualifies for coverage under the Lemon Law, that vehicle is also "defective" or "non-conforming" for purposes of the UCC, and you may be able to stop payments. Under the terms of the loan note, these same requirements apply equally to the dealer that sold the vehicle as well as the finance company that holds the note. In short, the law will not make you pay for a defective vehicle.
In short, the law governing Lemons and defective goods will allow a consumer to stop payments. But, invoking these rights may require an attorney's help.
Stopping Payments in a Lemon Law Case
While the law allows consumers to stop payments, finance companies and dealers may take the position that the vehicle is not a "Lemon" and instead require the consumer to pay for the vehicle during any lawsuit. If the consumer continues to pay for the vehicle while the case is ongoing the consumer will receive a refund of those payments after successfully concluding the case. On the other hand if you do not want to, or cannot afford to pay for the vehicle while the case continues, this is where an attorney can definitely help.
If you have an ongoing case, your attorney can negotiate a court order that allows you to stop payments during while the case is still ongoing. That order, sometimes referred to as a status quo order, can provide for the consumer to stop their payments while the case continues. If the other sides agree, that order will ordinarily provide that the you can put those payments into escrow or a separate bank account and that the finance company will not credit report you as late. That order will help to protect your good credit report and credit score while the case continues.
Together, the UCC and a proper status quo order can protect the consumer from having to pay for a Lemon or suffer credit damage while a Lemon Law claim is pending.
When Finance Companies Lie About Their Responsibility
Even if the court enters a status quo order, finance companies sometimes fail to honor those agreements and report consumers as late, even though they continue to make payments into an escrow account or have been entirely excused by a court from making those payments. In those cases, the finance company would report the account as having a status of "late" or "charged off," both of which may ruin a credit report or credit score. they may also make monthly status reports showing the consumer as 30, 60, 90, 120, or 180 days late. If so, a consumer who has been harmed may be able to sue for damage to their credit report. But before suing, the consumer should first write to the finance company and must write a dispute letter to the credit bureaus who are reporting this information from the finance company.
Writing Your Dispute
Before writing your dispute, you should obtain copies of your credit reports to find out which of the credit bureaus is publishing false information about your payments. You should check those reports with each of the major credit bureaus. You can do that with our free credit report request form.
If the finance company has reported you as late, and has either received a status quo order or properly suspended payments under the UCC, you can dispute any late payment reporting to the credit reporting agencies that have published false information about late payments. The dispute letter should include
- information about who you are, like your name, address, date of birth, and social security number;
- a copy of your Lemon Law complaint;
- any dispute letters you sent to the finance company about payments; and
- and a statement that you do not owe money for a Lemon that is defective under the law.
You can assemble your own Lemon Law credit dispute letters using our free resources. Or, if you need help, you call us to help with your credit repair dispute.
When to Consult a Lawyer
Disputing credit errors can be complicated and time-consuming. Although consumers should be able to solve any mistakes due to lemon law on their own, they may need the help of a lawyer. If the errors remain even after you have sent a credit dispute letter, you may need the help of a credit reporting lawyer. Lyngklip & Associates is happy to help with your lemon law credit dispute letter.