The Industry's Leading Source For F&I, Sales And Technology

Special Finance®

Charge or No Charge?

August 2010, F&I and Showroom - Feature

by Tom Hudson

The e-mail from the dealer’s lawyer was actually painful to read. He wrote:

“I read your article regarding GPS devices being installed in vehicles by creditors. I represent a buy-here, pay-here dealer who installs GPS devices in financed vehicles and adds $500 to the car’s price, part of which is refunded to the customer if the device is retrieved after the financing is paid off. A class-action has been filed against my client, in part under our state’s Retail Installment Sales Act. That act prohibits retail installment sellers from including in a transaction ‘finance charges’ other than those expressly permitted by the statute. A ‘finance charge’ is any charge for a financed transaction that is not also imposed in a non-financed transaction.

“The claim is that the charge for the GPS device violates this prohibition. Charging for a GPS system is not expressly authorized in the statute and my client does not use GPS devices for cash deals. Do you have any experience with a case like this? Are there any defenses that my client has? It would be nice to say that the GPS device is a piece of equipment, not a finance charge, but I’m not sure that will stick. Any help you can give would be appreciated.”

My reply was short and not-so-sweet:

“I think your client is in the soup. Charging for the devices when the devices are required by the seller (or finance company) turns the charge for the devices into a finance charge for federal Truth in Lending purposes, and probably for state law purposes. I take it your client wasn’t using mandatory arbitration agreements with his customers? That would be his first line of defense against a class-action suit.”

My reaction was to wonder how, with all I and others have written over the last several years, the dealer could possibly have failed to know that what he was doing was an invitation to a lawsuit. We’ve tried so hard to spread the word about how to use the devices, but it always seems there’s some tail-end Charlie who doesn’t bother to read the legal columns in trade magazines like this one, who doesn’t go to the legal sessions at his state dealer association meetings or join a 20-group. In fact, I believe a dealer would almost have to intentionally bury his head in the sand not to have gotten the word.

So, let’s try again.

DEALERS! ATTENTION! If you require the installation of a starter-interrupt or GPS system, DON’T CHARGE the customer for it. The cost of the device will be treated as a finance charge under federal and state law, and the charge may well be prohibited by state law.

OK, that takes care of that. But while we’re having this little chat, let’s cover some more basics.

If you’re going to use such a device, be sure to disclose it to the customer that you are doing so. Better yet, get the customer’s John Hancock on a signature line agreeing to the installation of the device. Speak with your insurance company before you begin to install the devices — it’s possible they might have some pointers for you. While you’re checking, check with your lawyer — a few states regulate the devices or prohibit the use of them altogether. You’ll also want to talk to your lawyer about how to handle the devices if your customer declares bankruptcy. Finally, use an arbitration agreement drafted by someone who knows what he or she is doing. These agreements will give you a first line of defense against class-action lawsuits.

If you don’t want to bother with these precautions, that’s your call, but maybe the next e-mail I get will be from the lawyer you’ve hired to defend your class action.

Thomas B. Hudson Esq. is a partner in the law firm of Hudson Cook LLP and the author of several books, including the recently released CARLAW III: Reloaded. For information regarding the books, call (401) 865-5411 or visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2010, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only to F&I and Showroom magazine. HC# 4846-6973-8247 (8/10).

 

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email: