If done correctly, a spot delivery transaction can be a win-win situation for all involved. Being able to leave the dealership with a vehicle pending the assignment of the retail installment sales contract (RISC) to a finance source makes the dealer and the customer happy. The customer gets to enjoy his or her new ride while the dealer and the finance company confirm that the information the customer provided is complete and accurate.
Done incorrectly and/or unethically, a spot delivery deal can be viewed as a deceptive or abusive dealer practice by consumer advocates, state regulators and courts. The former have for years railed against spot deliveries. They refer to them as “yo-yo” deals, and believe dealers intentionally spot deliver cars to customers knowing they will be unable to assign their RISC without having them return to the store to re-contract with new terms that are more detrimental. But when pressed for proof that these abuses occur frequently, they can offer little or no evidence.
Consumer advocates simply want spot deliveries outlawed. They pressed the issue before congressional committee hearings on bills that eventually led to the Dodd-Frank Act, and you can bet they’ll press the issue with the Bureau of Consumer Financial Protection (CFPB). When they do, they will point to stories like these:
- A customer buys a spot-delivered car, only to be called back to the dealership two months later because the deal is being rescinded.
- A customer trades in his car for a spot-delivered car. Three days later, he is told his RISC cannot be assigned. He returns to the dealership only to find that the car he traded in was sold. He receives the trade-in’s wholesale value and, if he owed money on it, must repay the lienholder. Meanwhile, he’s walking, not driving.
- A customer buys a spot-delivered car and signs a RISC. She does not sign any sort of rescission or “unwind” agreement, and no such language is contained in the RISC. Notwithstanding the absence of any contractual right to require the customer to return the car, the dealer, unable to assign the RISC, demands that the customer return the car and re-contract. When the customer refuses, the dealer repossesses the car despite the buyer not being in default.
I have no doubt that these sorts of situations happen occasionally. Sometimes they happen because the dealer has never had the spot delivery process vetted by an attorney. Sometimes they happen because of mistakes. Sometimes it happens out of simple abuse.
When the new CFPB addresses spot deliveries, I hope it doesn’t throw the baby out with the bathwater. If President Obama were to appoint me as the bureau’s director, I would first tell my staff to research how often abuse occurs. Only if the staff determined that abusive practices were occurring in significant numbers would I consider regulating the practice.
If evidence showed that dealers were behaving badly when they engaged in spot deliveries, I’d have the staff address the practices they believed to be harmful to consumers, not ban spot deliveries altogether.
Additionally, regulations would be based on the “best practices” of dealers who spot deliver on a daily basis. They might, for instance:
- Allow for mutual rescission until the contract is assigned;
- Require a dealer to keep the customer’s trade-in until the customer’s RISC is assigned;
- Provide a reasonable period (say, 10 business days) for the assignment of the RISC, beyond which the deal could not be unwound;
- Prohibit a dealer from imposing any fees other than charges for excess wear and use, or damage to the car;
- Prohibit a dealer from requiring a customer to re-contract if the RISC could not be assigned;
- Prohibit any unwinding of a deal unless the customer has agreed to it in writing. (This last one, in my view, isn’t necessary since a dealer generally has no unwind rights absent the customer’s written agreement, but the prohibition might still serve to educate dealers and consumers alike.)
No doubt there are other protections and prohibitions my staff might consider. As long as they are based on real evidence and dealer best practices, they might well be acceptable. At the end of the day, though, spot deliveries have their uses, and, if done correctly, can benefit dealers and customers alike. Throw out the bathwater. Keep the baby.
Thomas B. Hudson Esq. is a partner in the law firm of Hudson Cook LLP and author of several books.