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The Illinois Secretary of State Police, which regulates car dealers in Illinois, has shut down a large suburban Chicago car dealership, Nissan of St. Charles, for failing to pay off loans on trade-ins. As many as 500 transactions with Nissan of St. Charles are now under investigation, the Illinois Secretary of State Police stated.

Under Illinois law, a car dealer has 21 days after taking possession of a trade-in vehicle to pay off the loan on that vehicle. This is required in order to avoid damage to the purchaser's credit.

Furthermore, if the dealer arranged financing for the new car purchase, for example by having the consumer sign a retail installment contract which was assigned to a bank or finance company, the lender financing the new car purchase is liable for the dealer's failure to pay off the loan on the trade-in. (You do not have this protection if you arranged your own financing.)

While the Secretary of State Police can shut down a car dealer that violates the law, they are not authorized to pursue civil remedies against lenders.

A consumer who is injured by a car dealer's failure to pay off a trade-in vehicle should notify the new lender of the problem in writing immediately. However, asserting a claim against the new lender requires the assistance of an attorney.

The consumer protection lawyers at Edelman, Combs, Latturner & Goodwin have handled cases in unfair auto financing and are familiar with the law.

A word of advice -- if consumers can afford to pay off the trade-in vehicle themselves, they should do so rather than trust the dealer to make the payoff.

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