A group of people arrived at the Beijing office of Pang Da Automobile Trade Co (PD Group) in Beijing at 8:30am on August 20, hoping to disturb the company's shareholder meeting and saying that they had been cheated.

The group of about 40 to 50 protesters held banners reading "Victims of 14 provinces accusing Pang Da of contract fraud."

PD Group, China's largest auto dealer, saw its share price fall by 1.22 percent later that day, compared to a fall of just 0.37 percent in the Shanghai Composite Index.

The protesters said they had acquired trucks from PD Group but had been tricked into just"leasing" the vehicles, rather than buying them.

They are claiming total compensation of around 70 million yuan ($11 million), one of the protesters, Zheng Zhenwu, told the Global Times.

"We won't leave Beijing without having this issue solved," he said. Zheng said he faced bankruptcy and had lost 3 million yuan due to PD Group's fraud.

Pang Qinghua, chairman and CEO of Pang Da Automobile Trade, spoke to the protesters and said the case would be investigated. "But he lacks sincerity," Zheng said.

Angry customers

Zheng had planned to buy 20 heavy trucks for transporting coal in Baotou, Inner Mongolia in 2011. But he did not have enough money and it was difficult to get bank loans amid tightening monetary policies last year.

His friends recommended PD Group, which said they could help customers get auto loans.

Zheng said he signed a purchase contract with PD Group in February 2011, and later people from PD posing as bank staff checked his property in Fujian and asked him to sign another contract in March 2011. But the contract did not include a counter signature from the bank or from PD Group, Zheng said.

Thinking that the people offering him the contract were bank staff and eager to get the loan, Zheng signed the contract.

Zheng said that he never received a copy of the contracts he signed, but he received his trucks between March 15 and early April 2011.

Then he found technical problems with some of the trucks so he sent them for repair. Without the trucks, he had to stop working at the coal mines and was not able to pay the monthly installments.

After Zheng failed to pay three installments, Pang Da's leasing unit confiscated the trucks. It was at this point that Zheng realized the contract for the trucks was just a leasing agreement.

"When the 'bank staff' came to my home in Fujian, they accepted my house as collateral. If I failed to pay the loans, they could take my house but not my trucks. Without the trucks, how could I make money and repay the debt?" he said.

Unlike bank loans, financial leasing allows customers to use an asset or product by paying rent, but the customer will not have the ownership of the assets until he pays the last term of rent. That means Zheng had never actually owned those trucks.

Hubei-based Zhang Xiaoqiao told the Global Times that he was cheated by a local automobile dealer who had a partnership with the PD leasing unit and made him sign a contract that he thought was an auto loan.

Zhang received 12 trucks on March 14 but was surprised when Pang Da Leasing demanded on April 10, 2012 that he pay two months rent at about 19,000 yuan per truck.

Zhang did not pay the rent, and as a result his 12 trucks were confiscated by the company.

It's not our fault

"We'll try our utmost to help the vehicle owners," PD Group said in an e-mail sent to the Global Times on August 23.

But the company refuted the accusation of fraud. "The financial leasing contract is full of words such as 'lease' and 'rent' - we do not know how leasing becomes sales," PD Group said.

The contract is supposed to have two copies, with one held by each party as required, so the company is conducting an internal investigation into why the customers were not given a copy of the contract, according to PD Group.

Financial leasing companies sometimes offer contracts that put the customer at a disadvantage, said Luo Xili, a lawyer with Hunan-based Tao Yi Law Firm.

If it is a lease, the down payment should not be as much as for an auto loan, said Li Haiying, an auto analyst with Beijing-based Anbound Consulting.

Li said that PD Group was cheating customers by mingling the concept of auto loans and leasing.

Customers need to pay a 20 percent down payment, a 5 percent intermediary fee and other service fees, and pay the monthly installments as well as interest, a sales representative at PD Group's Baotou branch, told the Global Times.

A down payment of 10 to 15 percent is already very high for a leasing contract, Sheng Shangkun, a financial lease lawyer with Beijing-based Long An Law Firm, told the Global Times.

Sheng said it was either fraud or at least a misrepresentation on the company's part if the customers had no idea they were signing a leasing contract rather than an agreement to purchase the trucks via a loan. But the victims may be able to sue PD Group or its leasing subsidiary for infringement of their rights by concealing the truth, Sheng noted.

However, it will be hard to come up with evidence to prove their case, Sheng said. "After all, they signed the contract, indicating that they agreed to the terms," he noted.

Large stockpiles of coal have reportedly piled up this year due to sluggish demand, and the revenue from coal transportation may not be enough to repay debts, Li Congfang, a lawyer with Beijing Filong Law Firm, told the Global Times. So there could be some cases of truck buyers trying to find excuses in order to avoid paying their debts, Li noted.

More clarification

To avoid future disputes, the company said it would set up rooms equipped with audio and video equipment when signing contracts. The contracts will also be signed in the presence of a lawyer or notary recommended by either PD or the customer.

PD Group is the largest distributor of heavy trucks in China, and about 50 to 60 percent of its customers buy the trucks through loans, according to a report by Bank of China's Investment Banking Group in May.

The financial leasing business model was first introduced in 2010, and it allows companies to earn extra income from interest and service fees, the report also said.