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Compliance

Dos and Don’ts of Spot Delivery

September 2007, F&I and Showroom - Feature

by Joe Bartolone - Also by this author

You might be considered an old timer in the car industry if you remember the 1970 release of “Sign Sign Everywhere a Sign” by the Five Man Electrical Band. The chorus goes like this (it helps if you get the tune in your mind first):

 

Sign Sign everywhere a sign

 

Blocking out the scenery

breaking my mind

 

Do this, don’t do that, can’t you read the sign

 

As a compliance consultant with gvo3 & Associates, it’s interesting to watch newscasts or read articles about dealerships who could have avoided lawsuits, regulatory violations, or being a victim of identity theft had they read the “signs.” Unfortunately, we are in a highly regulated and visible industry and dealers must decide if they are going to heed the warning signs or continue with an operating philosophy of business as usual.

 

One area that dealers are under attack includes spot delivery — the practice of contracting a customer prior to obtaining financing approval from a third-party lender. It also includes the resulting circumstances when a dealer is not able to arrange financing on the agreed upon terms. In most cases, when the agreed upon financing terms change, the dealer and the customer enter into a new agreement — a process referred to as recontracting. In other cases, the dealer may not be able to find a lender who is willing to accept the agreed upon terms or credit worthiness of the customer. This situation is commonly referred to as an unwind. In both cases, dealers incur a variety of risks and exposures.

 

Knowing Your State Requirements

 

The first order of business is to know your state law. Let’s take a look at how various states address spot delivery and the use of a spot delivery agreement.

 

In conjunction with its retail contract single document rule, California is very specific regarding its position on spot delivery. On the face of the “CA LAW 553 Retail Installment Sales Contract,” there is a box labeled “Seller’s Right to Cancel.” It states:

 

“If Buyer and Co-Buyer sign here, the provisions of the Seller’s Right to Cancel section on the back giving the Seller the right to cancel if Seller is unable to assign this contract to a financial institution will apply.”

 

On the reverse side, the Seller’s Right to cancel is defined as:

 

“Seller agrees to deliver the vehicle to

you on the date this contract is signed by

Seller and you. You understand that it

may take a few days for Seller to verify

your credit and assign the contract. You

agree that if Seller is unable to assign the

contract to any one of the financial

institutions with whom Seller regularly

does business under an assignment

acceptable to Seller, Seller may cancel

the contract.”

 

Following this definition, the contract goes on to describe how and when the customer should be contacted, as well as the customer’s responsibilities while the car is in his or her possession. If the seller decides to exercise his right to cancel, then the seller has to ensure that it has a well-defined legal process to exercise the right.

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