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Compliance

Spots on the Spot

August 2007, F&I and Showroom - Feature

by Michael Benoit

As all of you know, spot deliveries are a common practice in many dealerships around the country. Where they are permitted by law and properly executed, spot deliveries are a valuable sales process. However, there are many things that can go wrong in a spot delivery, and dealers need to be vigilant in their training and policies to make sure they don’t find themselves in a “spot.” A recent case (and I couldn’t make up anything as good as this) brings the point home once again. See if you can “spot” the errors this dealer made.

Betty Buyer purchased New Car in a spot delivery transaction from Danny Dealer. Betty traded in Old Car as a down payment. She and Danny Dealer signed a retail installment sales contract, contingent on Danny being able to find a finance source to purchase it. Betty brought New Car back the next day to get the fuel gauge fixed and saw Old Car being vacuumed and cleaned.Unbeknownst to Betty, Danny sold Old Car later that day to a fellow. We’ll call him Dummy.

SPOT NO. 1: If you think the Dealer should have held onto Old Car until Betty’s deal was sold, give yourself a gold star.

Dummy enjoyed Old Car for a few days before law enforcement discovered him in Old Car in possession of certain unlawful vegetable matter. As a result, Old Car found itself residing at the police impound.

A few days later, Betty dropped back by Danny Dealer’s to obtain some additional equipment Danny had promised to install on New Car. Much to her surprise, Danny Dealer demanded she return New Car. He told her that her financing had been denied and tried to talk her into different financing terms (Danny never provided Betty any notice that Betty’s financing application had been denied). Danny also told Betty that Old Car was in the pokey for unlawful vegetable possession.

SPOT NO. 2: In this case, we’re not sure if Danny Dealer ever forwarded Betty’s application to a finance source. Danny didn’t provide any evidence that he did. If he didn’t, denying Betty’s application for credit was an adverse action that would require Danny to provide written notice under the Equal Credit Opportunity Act. If he had pulled her bureau, he’d also have the obligation under the Fair Credit Reporting Act.

Although he had cleaned and vacuumed Old Car before selling it to Dummy, Danny blamed Betty for the vegetation inside Old Car and publicly called her a “drug dealer.” He threatened to call the police and report Betty as a drug dealer if she did not surrender New Car and leave the premises.

SPOT NO. 3: This really isn’t a spot delivery issue, but Danny is really shooting himself in the foot. Falsely calling Betty a drug dealer in public could be slander. That’s an actionable offense. Threatening to report her to the police on those grounds as a means of getting New Car back isn’t too cool either.

Betty handed over the keys and asked for Old Car back, but Danny said she would have to pay the impound charges and get it back herself. Of course, she couldn’t because Danny had the title and Dummy actually owned it.

About a week later (after several phone calls from Betty) Danny towed Old Car to Betty’s house and left it on the street, leaving the keys and the title on Betty’s stoop. Old Car was in much worse shape than it had been when Betty traded it in. It wouldn’t start, had spare tires, was dented and scratched, and had numbers carved into the finish. Its trunk also had bad water damage.

SPOT NO. 4: Let’s go back to Spot No. 1. If you take a trade on a spot delivery, in addition to keeping it until the financing transaction is complete, give it back in the same condition you received it when the financing goes south.

As a dealer, your people are your greatest asset, but they can be your biggest liability if not properly trained. Betty is going to get her rightful day in court, most likely because one of Danny Dealer’s sales or F&I staff was not adequately trained. A solid training program (and there are a number out there) can help everyone spot the “spots” in the organization, and keep the back-end mess to a minimum. Invariably, the dollars you spend up front can save you a hundred fold on the back — in attorneys’ fees alone.

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at michael.benoit@bobit.com. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.

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