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Mad Marv

Is That Legal?

Is manipulating a sales agreement to accommodate a customer’s request to cash out of a dealer-arranged retail sales contract allowed? His Madness gets answers from the industry’s top legal mind.

May 7, 2018

Make no mistake about it: When it comes to putting together impossible deals and turning them into gold, dealership folk are among the most inventive individuals out there. But sometimes that resourcefulness can go too far.

One of the more heated discussions I’ve engaged other F&I professionals in is the practice of allowing a customer to take cash out of a dealer-arranged retail sales contract for any variety of reasons. A common solution is to show a payoff to the customer on all sale documents, including the retail installment sales contract, then cut the customer a check for the payoff amount.

“When both the dealer rep and the finance company rep get paid on originations, there’s often a real devil’s deal going on. The dealer agreement probably has something (in legalese) that says the numbers reflect the deal, and it also says that it (the dealer agreement) can be amended only in writing. The wink and nod from the guy on the desk are worth nothing when it’s time for the finance company to shove the deal back to the dealer.”

Another scenario involves a customer having equity in his or her trade after the bank payoff. Rather than put the difference toward the vehicle purchase, the customer wants to use it to pay off other outstanding loans. So to accommodate the customer, the dealer manipulates the sales agreement by either increasing the sales price of the purchased unit or the trade value. Some dealers will even under-allow the trade value in the amount the customer wants back and then refund the difference.

This process saves the customer money in the many states that allow tax credits for trade-ins. F&I managers may believe notifying the finance company’s buyer and getting it OK’d in the notes or comment section covers them down the road. But does it?
Since I’m no lawyer, I consulted with one of the best legal minds in the car business to get some answers. That individual would be Mr. Thomas B. Hudson, co-author of “CARLAW F&I Legal Desk Book” — the widely known legal reference for F&I pros and the main study material for getting certified with the Association of Finance & Insurance Professionals.

In case you aren’t familiar with Mr. Hudson, here are just a few of his credentials: He’s the founder and chairman of Hudson Cook LLP, which employs more than 60 attorneys in 13 offices around the country, president of, founder and editor-in-chief of CARLAW, and a regular contributor to this magazine. He’s also served as president of the American College of Consumer Financial Services Lawyers, and is affiliated with legal professional groups that are too numerous to list here. Suffice it to say, his advice is highly sought-after.

I shared with Tom some of the various conversations and debates I’ve had with other F&I pros regarding so-called “cash-back” practices. And, well, his reply wasn’t surprising.

“A couple of thoughts: My spider sense goes off any time the numbers in the deal don’t really represent what they are supposed to represent. Courts and regulators never like it when numbers have to be explained as something they aren’t,” he said. “That said, I’d share your concerns with all these scenarios.

“I find that it is common for finance company reps dealing with dealers to approve all sorts of things that the finance company’s lawyers would choke on,” he continued. “When both the dealer rep and the finance company rep get paid on originations, there’s often a real devil’s deal going on. The dealer agreement probably has something (in legalese) that says the numbers reflect the deal, and it also says that it (the dealer agreement) can be amended only in writing. The wink and nod from the guy on the desk are worth nothing when it’s time for the finance company to shove the deal back to the dealer.”

And here’s the kicker: “Also, these are arguably Truth in Lending Act/Regulation Z violations, unfair and deceptive acts and practices, state sales tax violations, etc. — by the dealer, who, despite the fact that most dealers don’t understand it, is the initial creditor in the transaction. The finance company reps can’t ‘OK’ a dealer’s law violations and torts.”

The moral of all this is, if it smells like a rat, then it probably is. If not, then why would the dealer employee be so interested in getting the buyer to OK the practice in the deal notes?

As with all things, we tend to form opinions that suit us quickly to justify the means that lead to the desired result — which, in these scenarios, is satisfying the customer. Hey, satisfying customers is one of the most difficult high wires we’ll ever walk, because they’ll quickly let you know they’ll head off to a competitor if you don’t do what they want.

The wise thing to do is to explain why you can’t and offer to buy their car outright, pay off any loan balance, and refund them the difference to do as they choose. Some of you may scoff at Mr. Hudson’s take, while others will wisely heed his warning. Either way, good luck and keep closing!

Marv Eleazer is the F&I director at Langdale Ford in Valdosta, Ga. Email him at


  1. 1. Bill [ June 06, 2018 @ 06:32AM ]

    I'm sure you're opposed then to the bank fees, which can be in the thousands, charged by lenders like Santander, Westlake, etc that are not disclosed to the customer.

  2. 2. Steve [ June 09, 2018 @ 08:04AM ]

    Fees are not charged to the customer and are usually accompanied with language from the bank stating that they may not be passed on to the customer...i.e. dealer can not inflate the price to cover there is no disclosure to be made to the customer.

  3. 3. Mad Marv [ June 09, 2018 @ 07:51PM ]

    Bill, I'm not sure that bank fees charged to dealers has anything to do with this month's article but I will answer your question by first agreeing with Steve's comment. These fees cannot be charged to the customer. It violates a slew of federal regulations.

    I'll add that those fees are a part of doing business IF the dealer agrees to sell the contract to a finance source that charges one in order to do the deal. A dealer who chooses to pass on a deal because the fee is too high on a particular deal may certainly do so as the dealer isn't obligated to make a firm offer of credit just because a finance company is willing to buy the deal from the dealer. Fees are passed to the dealer to mitigate risk when dealing with poor credit customers. These customers have a HIGH probability of default and the fees help offset repossession costs when the car is sent to auction.

  4. 4. Spattman [ June 18, 2018 @ 07:46AM ]

    Like MM, I'm not sure how we got off track talking about bank fees. But, I have no intention of getting the discussion back on track. Instead, I want to mention, that contrary to popular belief, the dealer often CAN legally charge the customer a portion of the bank fee. Whether the loan provider allows it is another question. The fee must be disclosed and included in the interest rate. Think of it like points on a mortgage. The problem is that when you include it in the interest rate, it usually raises the APR beyond the acceptable limit, often beyond usury. So although you may "technically" be able to pass along a portion of the fee, it is usually a Pyrrich Victory.

  5. 5. Mad Marv [ June 18, 2018 @ 03:34PM ]

    A Pyrrich Victory indeed.

    To address the age old acquisition fee discussion that the comment section of this article has devolved to, I again turn to Thomas Hudson for guidance.

    Back in October 2013, he handily outlined eight conditions that would "allow" a dealer to pass the fee along to a customer based on his opinion. I lifted them out of that article for your consideration and have pasted here. And I dare say, it would take such patience and work to accomplish the feat that it would hardly be worth the trouble of covering one's legal tracks. Eat the fee and move on to the next deal, I say.

    So, in an effort to provide something more useful that an “It depends” answer, here’s what we think the answer might be: A dealer could impose the fee on the customer as a separate charge, provided that (i) the fee is disclosed as part of the finance charge and is used to calculate the APR; (ii) state law does not prohibit the fee; (iii) state law permits a prepaid finance charge; (iv) state law permits the calculation of finance charges using methods other than the imposition of a rate on a declining balance; (v) the total finance charge (including the fee) does not exceed the maximum finance charge rate permitted by state law; (vi) the RISC used by the dealership accommodates the disclosure of the fee as a prepaid finance charge; (vii) the dealership’s DMS system is programmed to accurately populate the fields in the RISC; and (viii) whatever method a dealer settles on to charge the fee does not violate the dealer’s agreement with the company that buys the dealer’s finance contracts.

  6. 6. Mad Marv [ June 18, 2018 @ 03:37PM ]

    Here is the entire article from F&I Showroom magazine.

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Author Bio

Marv Eleazer

Finance Director

Marv is no insider. He’s an actual F&I manager with more than 20 years of experience. Get his from-the-trenches take on the industry every month at

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