Spend any time in automotive retail and you quickly learn how small our community is. It doesn’t take long to get to know who’s who in your area. Frequent visits from vendors and manufacturer reps — not to mention the transient nature of employment — regularly brings the latest news and gossip from friends and competitors.

This is especially true in F&I, where the reservoir of talented professionals is neither broad nor deep. Individuals who have no business in the business office can often find a seat at a needy store. Compressed front-end margins put significant pressure on dealers to find productive F&I personnel. Results are important, but how you achieve those results is more important. If pressure to find productive personnel results in a failure to exercise diligence in screening candidates, dealers do so at their peril.

Take Julio Estrada of Hackettstown, N.J. In December 2012, the Queens County district attorney charged Estrada, the former finance manager at 1 800 PreOwned in Valley Stream, N.Y., with defrauding 23 car buyers out of more than $115,000. The 95-count indictment included numerous counts of third- and fourth-degree grand larceny, second-degree forgery, criminal possession of a forged instrument, criminal possession of stolen property, first- and second-degree identity theft, and one count of first-degree scheme to defraud. Estrada faced up to seven years in prison if convicted.

The indictment claimed Estrada enticed buyers into purchases by promising he would assist them in refinancing their loans at a lower rate if they returned to the dealership after making six months of on-time payments. When they returned, however, Estrada allegedly informed the customers they had to pay a “fee,” in cash, to refinance the loan.

This type of thing will make the news, and did. I understand everyone deserves their day in court, but if you consider hiring someone with a colorful past, make a phone call. The business is so small that not much effort is required to learn how your candidate operates. Still, as I said, the talent reservoir is not exactly overflowing.

Consequently, four months after being indicted in Valley Stream, Estrada resurfaced in the employ of the New York Motor Group (NYMG) in nearby Woodside, N.Y. According to facts alleged in a civil suit against NYMG, his primary responsibilities included the arranging of financing for customers. The suit asserts multiple violations of the Truth in Lending Act, Magnuson-Moss Warranty Act, New York consumer protection laws, state common law, and violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). In addition, the court allowed the plaintiffs to add a claim of negligent hiring for employing Estrada in the first place.

Many people — especially fans of mobster movies — are familiar with criminal RICO actions, but the statute allows for civil actions as well. Civil RICO is attractive for plaintiffs and attorneys, who stand to collect treble damages, costs, and attorney’s fees if they prevail.

By allowing the RICO claims to move forward, the court observed that the plaintiffs’ allegations described, in detail, a sophisticated scheme to lure customers with low advertised prices and induce them into onerous financing contracts using aggressive sales tactics, false promises and improperly disclosed charges. The activities of Julio Estrada feature prominently in the plaintiffs’ allegations.

One plaintiff alleged Estrada represented that his loan required the purchase of additional products. Others alleged Estrada said their interest rates would be lowered if plaintiffs made a number of payments on time. They further alleged that he refused to return deposits or threatened additional charges when customers wanted to back out.

In allowing plaintiffs to add the claim of negligent hiring, the court observed that NYMG hired Estrada “after he had been indicted and arrested for defrauding customers while working at other used-car dealerships” and “despite a public announcement from the Queens County district attorney that Estrada had defrauded more than 23 consumers out of more than $115,000.”

Properly trained professionals can produce at a high level without engaging in practices that will put you out of business. Learning how your prospective candidate produces results is not difficult in an industry as close as this one. Candidates for F&I positions need to possess the skill and knowledge to protect the dealership from liability, not create it. Careful screening, along with proper training and oversight of your staff, can go a long way toward ensuring your dealership won’t be the next one to make the evening news. 

Eric James Judson Esq. is a dealer attorney with a background in auto retail and finance, and expertise in compliance, advertising and F&I best practices. Contact him at [email protected].