                             THE VIRGINIAN-PILOT 
              Copyright (c) 1994, Landmark Communications, Inc.

DATE: Friday, October 14, 1994               TAG: 9410140741
SECTION: FRONT                    PAGE: A1   EDITION: FINAL 
SOURCE: BY MARC DAVIS, STAFF WRITER 
DATELINE: NORFOLK                            LENGTH: Long  :  107 lines

CAR DEALER TO FORGIVE MILLIONS IN DEFAULTS CHARLIE FALK SETTLES LAWSUIT BROUGHT BY 4 FORMER CUSTOMERS

Auto dealer Charlie Falk agreed Thursday to settle a class-action lawsuit against his dealership by forgiving about $10.5 million in defaulted loans by former customers and paying those customers $400,000 in damages.

Falk also agreed to change his repossession policies to give customers more notice after they default on loans and pay more money to them for cars he does repossess.

The federal lawsuit, filed in June 1993, accused Charlie Falk Auto Wholesale, JB Collection Corp., which is owned by Falk, and a finance company of fraud, racketeering and other illegal acts against customers.

About 2,500 to 3,100 former Falk customers will split the $400,000 settlement and have their debts forgiven, said lawyer Kieron F. Quinn of Baltimore, the lawsuit's lead counsel.

The proposed settlement was filed Thursday in Norfolk's federal court. A judge must approve it before it takes effect.

``The real key is that Charlie Falk is walking away from $10.5 million in (court) judgments,'' Quinn said. ``They will no longer be a drag on the credit of all these people.''

Most of the affected customers are ``poor people, generally, people who really need to go to someone like Charlie Falk to get a car,'' Quinn said.

Falk's attorneys in Norfolk and Washington declined to comment Thursday.

Falk is the biggest used-car dealer in Hampton Roads, with 11 locations in the area. He caters mainly to people with little money and poor credit. He is best known locally for his TV ads in which a goat eats customers' credit reports.

About one-quarter of all Falk customers eventually default on their loans, Falk's attorney said last year in court. Falk sells more than 3,000 cars a year.

In Thursday's settlement, Falk did not admit liability, but did agree to notify all former customers who may be affected.

The $400,000 settlement fund will be split equally among former customers who make a successful claim. Payments could be as small as $129 per customer if 3,100 make successful claims.

Only customers who bought cars from Falk, took loans from him or his companies, defaulted on the loans, lost their cars to repossession after June 17, 1989, and suffered ``deficiency judgments'' in court after that date can file claims.

A deficiency judgment is what a borrower owes after deducting the value of the repossessed car from the defaulted loan. Lawyers charged that Falk placed artificially low values on repossessed cars, and got inflated deficiency judgments against former customers.

The average judgment against Falk customers was about $4,000, Quinn said.

Finding all those customers could be a problem, Quinn said, since many have moved and left no forwarding addresses.

But all former customers in this category, regardless of whether they file claims, will have their debts forgiven, Quinn said.

``This settlement wipes the slate clean for thousands of consumers who found themselves deep in debt because of this used-car churning scheme,'' said Mary Parker, president of Trial Lawyers for Public Justice, in a written statement Thursday. ``It will also help ensure that future customers who find they can no longer keep up with their car payments will be afforded the protections they deserve under Virginia law.''

The class-action lawsuit was filed last year in U.S. District Court by four women from Norfolk and Portsmouth. Each had bought a car from Falk, defaulted on her loan, then lost the car to repossession.

As a result, each woman was sued by the collection agency for $2,743 to $3,661. This was the ``deficiency'' between the defaulted loan and Falk's artificially low value for the cars, the suit said.

In each case, Falk got the car back and resold it.

The lawsuit was notable for two reasons.

First, it accused Falk of racketeering and fraud, among other charges. A judge dismissed the racketeering charge, but a trial on the other issues was set for Nov. 2.

Second, the suit was an unusual cooperative effort among lawyers in six cities: Tidewater Legal Aid Society in Norfolk, Trial Lawyers for Public Justice in Washington, Virginia Poverty Law Center in Richmond, Notre Dame Law Professor R. Robert Blakey, lawyer Peter F. Herrick of Chesapeake, and the law firm of Quinn, Ward and Kershaw of Baltimore.

A judge dismissed an earlier defendant in the lawsuit, Transouth Financial Corp., but that ruling will be appealed, Quinn said. ILLUSTRATION: Graphic

WHO QUALIFIES?

Anyone who:

Bought a car and had a loan from Charlie Falk.

Defaulted on the loan.

Lost the car to repossession since June 17, 1989.

Lost a deficiency judgment to Falk or JB Collection Corp. since

June 17, 1989.

To file a claim

Write to Tidewater Legal Aid Society, 645 Church St., Suite

200-02, Norfolk, Va. 23510-2809. Or call 627-5423.

Who qualifies?