Smoking Guns

Picture this scenario. You've just been served with a lawsuit alleging various violations of the Truth In Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and Unfair and Deceptive Trade Practices Act. And the postmaster managed to spill a cup of coffee on the envelope before it was delivered to you.

The deal is almost a year old (and falls just within the Truth-In-Lending statute of limitations).

The F&I manager who closed this deal is now working for a competitor after you fired her.

The sales manager is now selling insurance after you penciled his pay plan.

The salesperson is still hanging around, waiting for the next up while smoking a cigarette and complaining to anyone within earshot that your ads in the newspaper "ain't drawing a soul to the dealership."

Since the salesperson is the only one left who knows anything about the deal, you send him to the deposition as the dealership representative who is familiar with the deal. You might as well just start writing the settlement check and tell your spouse that Junior's college fund is now depleted.

Why?

Because the salesperson might let it slip that it is common practice at your dealership to engage in deceptive sales and F&I practices. These slips, commonly referred to as smoking guns, are what the dark side tries to pry out of unwitting deposition witnesses.

Dangerous Slips

Here are some potential smoking guns and the damage they can do.

We use Signature on File all the time!

Signature on File (SOF) is considered to be a forgery in many circles. Forgery is a criminal offense and certainly a deceptive practice.

Writing "signature on file" on product enrollment forms is the preferred tactic of the nefarious few in our industry to stuff products into a deal without the customer knowing he has the product.

It's a computer programming issue.

The plaintiff's bar is constantly looking for class-action certification on lawsuits they bring against auto dealers. Telling the plaintiff's attorney in a deposition that a Truth-In-Lending violation is programmed in the dealership's computer system is telling the attorney that the violation is not limited to this one case but to everyone who purchased and financed the product in question over the last year. Voila … class action!

We never tell the customer the true monthly payment the first time we quote a payment.

Leg room. Payment packing. Protected payment. Call it what you want, it is a blatantly deceptive practice that Darth Vader's side has caught onto. It is no longer acceptable to quote a protected payment. The customer has a right to know what the true monthly payment is at any point in the negotiation process.

Etch is included on the addendum window sticker along with pinstripes, paint sealant and fabric protection.

Commonly called product bundling, this practice is an up-and-coming issue as attorneys general and plaintiffs' bar are starting to pursue dealers under deceptive trade practices statutes (most states have one). The marketing concept is to package options into a value package and list one price for the package. If Taco Bell can do it, why can't car dealers?

The difference is that you can go through the Taco Bell drive-thru and buy a soft taco separate from the Dr. Pepper, and know what the price of the soft taco is.

When products are bundled together on an addendum window sticker, it appears the consumer does not have an opportunity to purchase etch separately and, furthermore, has no idea what the cost is for each product.

Mr. Smith did not sign the arbitration agreement so I called him and got his permission to sign his name.

Prove it, especially if Mr. Smith is the one suing the dealership. You can bet his attorney will fight to throw the arbitration agreement out. The real issue, though, is similar to the Signature on File discussion earlier. Signing someone's name to a document is forgery, a criminal offense and certainly a deceptive practice that can be pursued in civil court.

Management wants that menu thing in the file, so we fill it out after the customer leaves the dealership.

Let's see here. Your employee just admitted that he took great pains to violate your dealership's policy and procedures. The attorney on the other side should immediately ask what other procedures are regularly ignored, for example, "How often do you have customers sign blank contracts?"

We may have to shop the deal to a number of lenders, so we have the customer sign a blank credit app to save her time and so she won't have to come back to the dealership.

I always hear this excuse whenever I find blank, signed credit apps in the files while doing a file review. Amazingly, I almost always find two credit apps in other files with two different incomes listed for the customer. Another Kreskin moment ... there usually seems to be a lender's faxback declining the person for credit because of limited income or high debt-ratio concerns.

We take hold checks on 25 percent of our deals.

Here's a little known fact. Regulation Z allows for deferred down payments as long as the money is paid within 60 days and is not subject to finance charges. Take a look at your retail installment sales contracts. Some of them may have a space for deferred down payment. Now, Reg Z does not require that lenders accept contracts with a deferred down payment, and in today's lending environment most lenders won't accept them.

The potential issue is that any down payment not collected at the time of contract consummation is technically a Truth-In-Lending violation because it is not disclosed as a deferred down payment. So beware of hold checks and promissory notes!

I figure out the customer's probable bureau score by looking at him from a distance and then use an interest rate for that credit score to quote the payment.

I actually heard this one from a sales manager when I queried him on his methodology for quoting payments on the first pencil. Talk about potential discrimination ramifications!

Most lenders today provide dealers with a rate schedule based on bureau score, term and model year. Use this to your advantage and refrain from quoting payment until you have a bureau score in hand.

If you still insist on quoting payments before pulling a credit bureau report, do yourself a favor and use an average rate for new and an average rate for used. By using the same average rate for every customer that is only modified based on the vehicle, you can get past discrimination charges.

Gil Van Over is president of gvo3 Consulting LLC, a consulting firm that assists dealers with establishing a litigation defense strategy. He can be reached at 312-961-9065 or at [email protected].

© Copyright 2004 by gvo3 Consulting LLC. All rights reserved.