“BUYERS ARE LIARS”.

I don’t think I was in the car business one hour before I heard that catchy little phrase. Sure enough, over the course of my retail career, I suspect I was lied to over and over again by the best of them.

I’m not going to pontificate about what buyers lie about and why – many of us could easily write a book on that subject. Instead I’m going to bring up what I think is an important point – buyers can say pretty much whatever they want without fear of recourse, dealers cannot. Yep, that’s right. Buyers can outright lie through their teeth, but dealers are not allowed to stretch the truth even a little.

Doesn’t seem fair, does it? Well it’s not. All may be fair in love and war, but it sure isn’t fair on a car lot. For the most part, when buyers lie to a dealer, they get to go on their merry old way. But if a dealership is accused of being dishonest with a customer, either by commission or omission, they may end up in a courtroom or worse.

When you look at actual enforcement actions and court cases against dealerships, there is typically one common element – the perception that the dealer was less than completely honest with a consumer. The laws allow for a very broad interpretation of what is considered to be unfair or deceptive. Here are some common examples of accusations by plaintiff’s attorneys and regulators:

• Making false statements or failing to disclose a material facts to a consumer
• Oral promises made to the consumer that the dealer fails to deliver upon
• Misleading statements about APR, such as “You won’t be able to get a better interest rate than this”, when the buy rate is being marked up
• Communicating information in a manner that may be misleading, either by commission or omission
• Adding the cost of an F&I product to a consumer’s purchase agreement or lease without first obtaining the consumer’s express consent to purchase the product
• Informing or suggesting to a consumer that the price of any F&I product is included in the price of the motor vehicle
• Informing or suggesting to a consumer that the sale or lease of a vehicle subject to credit approval is a final or completed transaction
• Altering documents without the knowledge and permission of all parties
• Obtaining a credit bureau without proper authorization
• Failing to sell a vehicle at or below an advertised price, whether or not the consumer knows about the advertisement
• Advertising vehicles with intent not to sell them as advertised
• Misrepresenting discounts in advertising and not disclosing important limitations
• Advertising claims such as "everyone financed," "no credit rejected," or similar claims when the dealer is unwilling to extend credit to any person under any and all circumstances
• Engaging in false or misleading advertising, either orally or by way of media
• Advertising “no money down” or “zero drive off” when there is actually some money needed to achieve the advertised payment amount (such as tax, license, acquisition fee, etc.)
• Representing to a consumer that a vehicle is available for sale when it is not
• Informing or suggesting to a consumer that an F&I product is a required purchase
• Informing or suggesting to a consumer that purchase of an F&I product will increase the likelihood that the consumer will be approved for financing or that financing will be approved on more favorable terms to the consumer
• Increasing the selling price of a vehicle to cover a bank acquisition fee
• Intentionally overstating a vehicle’s value by supplying an incorrect book-sheet or due bill to a financial institution
• Over-allowing on a trade-in, thereby increasing the sale price of the purchased vehicle or failing to properly disclose negative equity
• Misrepresenting the amount of rebates available to a customer
• Engaging in payment packing, i.e. inflating payments, inflating down payments, extending the contract term or in any way disguising the actual charges for goods or services.
• Knowingly delivering a vehicle where the lender or lessor will not approve the consumer for financing according to the terms set forth in the installment sales or lease contract, with the intention of re-writing the contract at a later date
• Failing to properly disclose deferred down payments
• Knowingly misrepresenting a vehicle’s prior history or condition, either by commission or omission
• Forging documents
• Knowingly misrepresenting a vehicle, products or the terms being offered
• Falsifying, or allowing to be falsified, any information on a credit application
• Knowingly allowing a consumer to participate in a “straw purchase”
• Misrepresenting the scope or extent of coverage under a service contract or warranty

It’s more important than ever to be very careful when dealing with customers. Plaintiff’s attorneys are constantly on the prowl for cases and regulators recognize the political capital in going after dealers. There’s just no upside to being accused of lying.

The good news is that you can feel free to lie to car salespeople in your spare time.

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Comment by Jim Radogna on September 5, 2010 at 1:50pm
Thanks Brad!
Comment by Brad Alexander on September 5, 2010 at 1:45pm
Good stuff guys!
Comment by MANNY LUNA on September 5, 2010 at 3:27am
Now a have a real clear picture on how to disclose the bank fee and I can share it with all my car friends.
Thank You!
Very good!
Comment by Jim Radogna on September 5, 2010 at 2:52am
Sorry Manny. My phone took a dive while I was sending the response so it was incomplete.

Anyway, when a dealer sells a car to a consumer with a Retail Installment Sale Contract (RISC), the dealer is agreeing to be the creditor. In other words, the dealer agrees to accept installment payments for the vehicle purchase and sets the terms, interest rate, etc. Next, the dealer makes a choice:
1. Hold the contract and collect the payments in-house (BHPH) or;
2, Assign the RISC to a bank or finance company and collect the amount financed up front. Basically, the dealer is selling a receivable. (This is the most common situation).

Now, in the second situation, the finance company may agree to an assignment of the contract at a "discount", e.g. they'll pay the dealer $12,500 for a contract with an amount financed of $15,000. If this is the case, the dealer has every right to make a business decision, i.e. they can choose to refuse to assign the contract under terms that they feel are unacceptable. Remember, the dealer is the original creditor and is entitled to make a credit decision (as long as the decision isn't discriminatory).

That's why I recommend giving the customer the "Understanding Vehicle Financing" info. This can help the customer to understand the dealer's role in auto financing. Everybody in the dealership should read it as well!

The reason for the Adverse Action Notification is because the DEALER is deciding not to grant credit to the consumer.

As far as properly disclosing an acquisition fee in Texas, or anywhere else (these are federal Truth in Lending disclosures), any amount that is added to the selling price would have to be disclosed as a FINANCE CHARGE. So, that amount would have to be added to the finance charge from interest and the APR would have to be adjusted accordingly. So, for example, if the total interest on the contract is $3000 and the rate is 18% APR, if you add a $1500 bank fee the finance charge would have to be disclosed as $4500 and the APR would become ???. See what I mean?

I know this stuff can be kind of confusing. If you have any questions, please feel free to call me at (858) 722-2726 or email me at jim@dealercomplianceconsultants.com. Have a great holiday weekend!

Jim
Comment by MANNY LUNA on September 4, 2010 at 11:25pm
Thank You Jim!
Comment by Jim Radogna on September 4, 2010 at 10:45pm
Hey Manny,

It's not bait and switch unless you are unwilling to sell the car at the advertised price/terms etc. This is a situation where you are unable to assign the contract at acceptable terms but are still willing to sell the car if the customer can come up with the money to buy it. Again. The customer
Comment by MANNY LUNA on September 4, 2010 at 9:33pm
The problem with trying to do that is that I don't know of a DMS that has the capability to do the proper disclosures.
What is the legal and proper disclosures in the case of acquisition fee in the state of Texas?
Comment by MANNY LUNA on September 4, 2010 at 9:19pm
How would you properly disclose the additional cost as a finance charge to the customer in the state of Texas?
Comment by MANNY LUNA on September 4, 2010 at 9:09pm
Right on and I love the awnswer !
And thats what I did whe I sold cars!
But in some many cases the customer dont understand why we cant secure an approval on the ad car but we can do it on anther that may cost 2 to 3 thousands more,so does that fall under the bait and switch? because thats what the custmers feel were doing. Please reply back!
Comment by Jim Radogna on September 4, 2010 at 8:10pm
Ah Manny - you're gonna be sorry you asked!

Here's what I would do - I would say something to the effect of: "Unfortunately, we have been unable to secure an approval from a financial institution that will accept assignment of a retail installment contract with terms acceptable to us on this particular vehicle. However, there may be other vehicles in our inventory which we may be able to work with (this is up to you - if you can land the customer on a vehicle that you're willing to eat the fee on, go for it - if not, you may want to ignore this sentence and send the customer on their way). Of course, we would be happy to sell you this particular vehicle if you are able to obtain your own financing or be in a position to pay cash."

I know this seems long-winded, but this is a tricky area. While a dealer does not have to accept a deal that doesn't make sense financially, they cannot charge a credit customer more than they would charge a cash buyer unless they properly disclose the additional cost as a finance charge to the customer (including a recalculated APR). The problem with trying to do that is that I don't know of a DMS that has the capability to do the proper disclosures. Plus, even if your DMS could handle that task, you could potentially run into state usury issues.

I would also recommend giving the customer a copy of the publication "Understanding Vehicle Financing", which is produced by the American Financial Services Association Education Foundation (AFSAEF) and the National Automobile Dealers Association (NADA), and prepared in cooperation with the Federal Trade Commission (FTC). It provides information to help consumers learn about dealership financing. Here's the link: http://www.nada.org/NR/rdonlyres/A7731694-50E7-48CE-94E3-2EC33B4462...

One more thing - make sure to give the customer an Adverse Action Notice.

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