When I sit down to write this column every month, I try to think about what’s new, what’s novel, what do folks not know about, etc. A request from a reader asking for an article that discussed spot deliveries made me realize that sometimes, a “best practices” article on a subject that’s been around a long time may provide more bang for the buck from time to time. Thanks to those of you who write in — keep the e-mails coming!
As you know, spot deliveries are fairly common transactions. For a variety of reasons, it is in everyone’s best interest (or so it seems) to deliver a vehicle before you’re sure you can find a finance company to take that paper off your hands. And in 99 percent of the cases, everything usually works out fine. Unfortunately, when things do go awry, it’s not pleasant for anyone.
Here are a few “best practices” you may want to consider when developing your internal spot delivery policy. As with all things, laws vary from state to state, so be sure to check with counsel for anything peculiar to your jurisdiction.
Use a Compliant Unwind Agreement:
When you enter into a retail installment sales agreement with a car buyer, you are extending credit to the buyer. Unless you have some sort of “unwind agreement” or “conditional sale contract” permitting you to rescind the deal if you can’t assign the agreement to a finance source, you are obligated to hold the agreement and collect the payments. You cannot unilaterally cancel the deal, nor can you repossess the car if the buyer is not in default. If you find yourself having to defend yourself for having done this, you will be paying big bucks to a litigation attorney. You may also find yourself the subject of one of those news shows that like to show dealers in the worst possible light. It won’t feel good.
Hold the Trade:
Don’t sell the buyer’s trade-in vehicle until you complete the assignment of the buyer’s agreement to the finance source, even if state law and your buyer’s order permit it. Judges and juries don’t like the practice, and they will try to find some way to punish you. And I can tell you, you won’t like it very much.
Be careful what you tell buyers about the finality of the financing for their cars. Do not mislead them. Sometimes, a finance source’s communications with you may lead you to believe that the financing is a done deal. If the possibility exists that the deal could get rejected after the finance source reviews the funding package, you should be straight with the buyer about that. I know, I know. Some of you are afraid you’ll lose the customer. Talk to your managers about how to handle this. People who are hard to finance generally know that, and aren’t going to be shocked at the news.
Collect the Right Information:
If your finance sources require different items (e.g., a continuous period of employment) as a condition of approving deals, make sure your credit application process obtains that information. You can either use a credit application that requests the required information or train your F&I folks to obtain it. I don’t know about you, but I just feel like an idiot when something craters because I didn’t do my homework. A little attention to detail goes a long way here.
The laws affecting spot deliveries can be tricky in some jurisdictions, and the practice is under attack by consumer advocates. More importantly, they’ve received the attention of state regulators and state legislators. Our lack of attention to the proper management of spot deliveries will only fuel the fire.
At the firm, we like to suggest that folks do a little “spring cleaning” every year. If your spot delivery policy is a little dusty and dated, reach out to your counsel for a tune up. You’ll be glad you did.
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 [email protected]. 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.