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Be Careful of Automatic Chargebacks or Offsets

Some F&I administrators who have been sued are affiliates of captive finance companies for vehicle franchisors. Some of the agreements of those F&I administrators allow them to fund and charge payments through the dealership’s “open” or parts account. If you receive notice of potential chargebacks from an affiliate of the captive of your franchisor, investigate carefully what that affiliate is planning to do. If that F&I administrator is planning to have your franchisor debit your “open” or parts account, carefully examine your rights. 
 
A franchisor does not have the right to debit your account for improper chargebacks. A Virginia dealer has even greater rights than dealers in other states since state law protects you against chargebacks to your open account without notice and an opportunity to challenge the chargeback.
 
Similarly, some F&I administrators may seek to offset payments due to the dealership for commissions or service contract repairs because of an open balance for chargebacks. Carefully review your monthly statements to determine whether offsets for which the administrator has made a claim are being applied to the money due to the dealership. And take action if the administrator is doing this.
Some F&I administrators who have been sued are affiliates of captive finance companies for vehicle franchisors. Some of the agreements of those F&I administrators allow them to fund and charge payments through the dealership’s “open” or parts account. If you receive notice of potential chargebacks from an affiliate of the captive of your franchisor, investigate carefully what that affiliate is planning to do. If that F&I administrator is planning to have your franchisor debit your “open” or parts account, carefully examine your rights. 
 
A franchisor does not have the right to debit your account for improper chargebacks. A Virginia dealer has even greater rights than dealers in other states since state law protects you against chargebacks to your open account without notice and an opportunity to challenge the chargeback.
 
Similarly, some F&I administrators may seek to offset payments due to the dealership for commissions or service contract repairs because of an open balance for chargebacks. Carefully review your monthly statements to determine whether offsets for which the administrator has made a claim are being applied to the money due to the dealership. And take action if the administrator is doing this.

Chargebacks From Your F&I Provider for Settling Lawsuits – Are They Really for Refunds?

Some dealers have been receiving notifications of lump sum chargebacks from their F&I providers. The basis? It seems that some of the F&I providers were sued with allegations of sloppy practices in making refunds as a result of early pay offs or other cancellations by policy holders. 
 
There have been a number of class action lawsuits around the country in which plaintiffs contend that policy holders were damaged because F&I administrators failed to give refunds to those who cancelled their policies. Naturally, the suits seek recovery of damages for the policy holders and…wait for it…massive attorneys fees for the lawyers seeking to obtain recoveries for folks who did not even know that they were damaged. So what do you do if you are an F&I administrator who has to pay out a large amount of money to end the embarrassment of claims that you engaged in shoddy practices? Naturally, you try to pass some large portion of the damages to dealers. That is the purpose of the demand letters.
 
The rationale is apparently the provision in most F&I administrator contracts with dealers that dealers will be responsible for their shares of refunds due for cancellations. However, are the chargebacks being assessed really about refunds? What should a dealer do if it receives one of the chargeback letters? 
 
Each dealer will have to discuss the effect of such a letter with knowledgeable legal counsel. However, here are some things to think about.
  1. The demand letters are simply demands without much explanation with attached lists of allegedly cancelled customer contracts. The F&I administrators clearly know they have a weakness in their demands. Otherwise, why not give dealers a detailed explanation of the basis for the chargebacks when they send the letter demanding them? The letters are simply notifications that a chargeback is due without detailed explanations. The very lack of explanation betrays the weaknesses of the F&I administrators’ position.
  2. It is questionable that the payments made by an F&I administrator as a result of its voluntary settlement of a series of claims constitutes refunds. They are, plainly and simply, payments to settle lawsuits. They are not the result of court adjudications that refunds were due. They are simply the result of a voluntary decision to end the trouble and expense of continued litigation. Under the contracts between F&I administrators and dealers, payments to settle lawsuits are usually not a basis for chargebacks to dealers.
  3. When the F&I administrator sends the list of customers to whom payments have been made, check them carefully. You may see that some of the alleged cancellations were more than a decade old. A healthy percentage are probably several years old. In fact, if the F&I administrator brought suit against your dealership for breach of contract for failing to pay because of the alleged cancellations, the claims as to many of the alleged refunds for which a dealership is liable would be time barred by the applicable statute of limitations.
So if you are the recipient of a notice from your F&I administrator that you are liable for thousands of dollars in chargebacks, examine the claim. Consult a knowledgeable legal advisor. Take a good look at the basis for the claim. Take a hard look at the alleged cancellations, especially the dates. 
 
Do not be afraid to exercise the dealership’s right to have the F&I administrator prove that these sums are due to it.
Some dealers have been receiving notifications of lump sum chargebacks from their F&I providers. The basis? It seems that some of the F&I providers were sued with allegations of sloppy practices in making refunds as a result of early pay offs or other cancellations by policy holders. 
 
There have been a number of class action lawsuits around the country in which plaintiffs contend that policy holders were damaged because F&I administrators failed to give refunds to those who cancelled their policies. Naturally, the suits seek recovery of damages for the policy holders and…wait for it…massive attorneys fees for the lawyers seeking to obtain recoveries for folks who did not even know that they were damaged. So what do you do if you are an F&I administrator who has to pay out a large amount of money to end the embarrassment of claims that you engaged in shoddy practices? Naturally, you try to pass some large portion of the damages to dealers. That is the purpose of the demand letters.
 
The rationale is apparently the provision in most F&I administrator contracts with dealers that dealers will be responsible for their shares of refunds due for cancellations. However, are the chargebacks being assessed really about refunds? What should a dealer do if it receives one of the chargeback letters? 
 
Each dealer will have to discuss the effect of such a letter with knowledgeable legal counsel. However, here are some things to think about.
  1. The demand letters are simply demands without much explanation with attached lists of allegedly cancelled customer contracts. The F&I administrators clearly know they have a weakness in their demands. Otherwise, why not give dealers a detailed explanation of the basis for the chargebacks when they send the letter demanding them? The letters are simply notifications that a chargeback is due without detailed explanations. The very lack of explanation betrays the weaknesses of the F&I administrators’ position.
  2. It is questionable that the payments made by an F&I administrator as a result of its voluntary settlement of a series of claims constitutes refunds. They are, plainly and simply, payments to settle lawsuits. They are not the result of court adjudications that refunds were due. They are simply the result of a voluntary decision to end the trouble and expense of continued litigation. Under the contracts between F&I administrators and dealers, payments to settle lawsuits are usually not a basis for chargebacks to dealers.
  3. When the F&I administrator sends the list of customers to whom payments have been made, check them carefully. You may see that some of the alleged cancellations were more than a decade old. A healthy percentage are probably several years old. In fact, if the F&I administrator brought suit against your dealership for breach of contract for failing to pay because of the alleged cancellations, the claims as to many of the alleged refunds for which a dealership is liable would be time barred by the applicable statute of limitations.
So if you are the recipient of a notice from your F&I administrator that you are liable for thousands of dollars in chargebacks, examine the claim. Consult a knowledgeable legal advisor. Take a good look at the basis for the claim. Take a hard look at the alleged cancellations, especially the dates. 
 
Do not be afraid to exercise the dealership’s right to have the F&I administrator prove that these sums are due to it.
 
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