Many dealers have come to the conclusion that a full compliance review makes sense in light of the heat coming from federal regulators, state attorneys general and plaintiffs’ lawyers. For those who haven’t seen the light, I recommend a deal jacket review. It can be a useful first step in identifying compliance problems. It’s a bit like a doctor checking your pulse, blood pressure, temperature and respiration. If something’s amiss with one of those vitals, that’s a symptom that something more serious might be going on.
What sorts of things do we find when we do these reviews? Here are a few examples:
1. Rubbish Bin Files: Do your deal jackets look like miniature landfills? Each deal jacket should have a table of contents and checklist, and each document listed in the table of contents should appear, in that order, in the deal jacket. Nothing that doesn’t belong should be there, and nothing that is required should be missing.
If the files are an overstuffed mess, it suggests that the dealership isn’t organized and that there is no (lawyer-approved) document retention program. It also means that the quality control imposed by the uniform organization of the deal jackets is missing.
2. Signatures Would Be Nice: Many of the documents in the deal jacket constitute agreements between the dealership and the buyer, and such documents usually have signature lines with a space for a date. It isn’t unusual, in our experience, for these documents to lack a required signature. In some cases, only the dealership signatures will be omitted.
Unsigned documents can have dire consequences: The court refuses to enforce an arbitration agreement because the dealer didn’t sign it, so the dealer’s attempt to thwart a class-action lawsuit is unsuccessful. As another form of quality control, the deal jacket table of contents might highlight all deal jacket documents that need signatures.
3. Coloring Inside the Lines: Dealership computer systems are supposed to be programmed to print specific data entries in specific places on the various forms that are used in the sales and financing transaction. You’d be surprised how often the strike points for printing are off enough to give the buyer’s lawyer an argument that the disclosures are incorrect. “Close” doesn’t cut it.
4. Contracts So Old They Are Written on Parchment: Buyer’s orders, retail installment sales contracts and leases are not cast in stone. The companies that provide these forms to dealers frequently change the forms. Invariably, some dealers don’t get the word or choose to ignore the news in order to exhaust the supply of old forms. That can lead to disclosure or substantive violations for every deal in which those forms are used.
5. Safe Harbor? What Safe Harbor? Some laws are complicated, and the regulators who enforce those laws are considerate enough to provide “safe harbor” versions of legal forms required by those laws. As an example, the Federal Trade Commission published a safe harbor version of the privacy notice required by the FTC’s privacy regulations. If I open a deal jacket and see a privacy notice that isn’t in the safe harbor format, I know the dealership’s F&I forms and processes are not receiving a lawyer’s attention.
6. One Form Too Many: One arbitration agreement is enough. Some dealers use a form of retail installment sale agreement that contains an arbitration clause, a buyer’s order with a different arbitration clause and one or more documents evidencing the sale of ancillary products with still-different arbitration clauses. A judge looking at that sort of hodgepodge will likely throw up his hands and refuse to enforce any of the arbitration clauses.
7. Small Tricks and Traps: Does the buyer’s order contain the notice required by the FTC’s Used Car Rule? Is the notice conspicuous? If the dealer negotiates deals in Spanish, does the notice also appear in Spanish? Is the dealer’s disclaimer of implied warranties in an “as-is” sale conspicuous? Is the notice required by the FTC’s Preservation of Consumer Claims and Defenses Trade Regulation Rule in 10-point, bold-faced type?
These are just a few examples of the sorts of clues a deal jacket review will pick up. And if a dealer’s deal jackets can’t pass commonsense tests like the ones discussed above, you can be pretty sure that there are deeper F&I compliance problems that need to be addressed.
Thomas B. Hudson is a partner in the law firm of Hudson Cook LLP and the author of several compliance manuals available at CounselorLibrary.com. Copyright Counselor Library.com 2016, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to Bobit Business Media. HC# 4828-4187-7294.