So You Think You Know: Answers

  1. False. As long as you only advertise the rate using the term “annual percentage rate” or “APR”, you comply with the Truth in Lending Act. The advertising of annual percentage rate is not a trigger term requiring follow-on disclosures.

    Dealers get in trouble is when they use limiting disclaimers that may be trigger terms. For example, if the captive caps the rate at 48 month financing, and you advertise 0.9% APR financing for up to 48 months, you must then give follow-on disclosures — the amount of the installment payment, the amount or percentage of down payment, the number of installments (term), and the annual percentage rate.  That is because the duration of the credit – up to 48 months – is a trigger term.

  2. True, most likely. Most indirect finance agreements with finance sources contain representations and warranties. A common representation and warranty is that there was no breach of law in the sale of the vehicle. Most indirect agreements provide that if a customer sues on such a claim, that breaches the representations and warranties justifying a demand by the finance source that the dealership buy back the retail installment sale contract. Review the indirect finance agreements you sign and negotiate a change so you are not blindsided when a consumer raises a frivolous claim. You should not be required to buy back a deal for breaching your representations and warranties until a court rules you engaged in conduct that violated the indirect finance agreement.
  3. False. The advertisement of a lease with “no downpayment” is a trigger term under the Consumer Leasing Act. Once you use that term, you must do the follow-on disclosures required by the Act — the fact that the transaction is a lease, the total amount due at lease signing, the amount of the security deposit if one is required or “no security deposit is required” if one is not, and the number, amounts, due dates or periods of scheduled payments.
  4. True, most likely. In revising the used car rule which changes the format of the buyers guide, the FTC imposed some new duties. It is likely that used car buyers guides you completed before you learned of the changes in the rule do not comply with these requirements. These are:
    If you offer a non-dealer warranty, there is specific language you must use in disclosing it: “Ask the dealer for a copy of the warranty document and an explanation of warranty coverage, exclusions, and repair obligations.”
    If you offer a dealer warranty, you may not describe what it covers by the term “powertrain”. You must describe the components such as engine, transmission, and differential.
    If you have consumers sign the buyers guide, which you should do (and you must do in Virginia) specific language must appear on the rear of the buyers guide in the space identifying the contact for complaints:  “I hereby acknowledge receipt of the Buyers Guide at the closing of the sale.”

    It is likely that buyers guides completed before you knew of the new rule requirements do not comply with these new provisions, and they should be changed.

  5. False. A demonstrator is a used car only for purposes of the FTC used car rule. A vehicle not titled is a new car for purposes of recalls. If you are advised of an open recall on a demonstrator never titled and you cannot repair it, you may not deliver that vehicle to a customer.
  6. False. Federal law requires you to check and advise a customer whether there is an open recall on a customer vehicle of the brand you sell in for service if your manufacturer requires it. Many manufacturers claim they require dealers to check, either by dealer agreement or by later bulletin. Check for open recalls on service vehicles of the brand you sell, and advise the customer if there is an unremedied recall.
  7. True. Federal law does not require that a used car with unremedied recalls be grounded. Sometimes a manufacturer may notify dealers to ground used vehicles in their inventory, and we recommend that dealers follow that direction to protect them against liability. Absent such a direction from your manufacturer, there is no federal law that prevents sale of a used vehicle with an unremedied recall, and it is a best practice to disclose that unremedied recall to the consumer when you sell it. However, you may not sell such a car as a certified used car even if you disclose the unremedied recall. Most manufacturer certification programs do not allow you to certify a car with an unremedied recall. And the Federal Trade Commission has taken action against dealer groups that sold certified used vehicles with unremedied recalls. It is the theory of the FTC that sale of a vehicle as certified is a representation of its problem-free condition, and a vehicle with an unremedied recall does not qualify as problem-free. The FTC views sale of a vehicle with an unremedied recall as certified, as having passed a multi-point safety check, or with similar representations of safety as an unfair and deceptive practice.
  8. False. The CFPB has not been defanged. There may be plans to do so through legislative action to change the one director model into a multi-member bureau, or President Trump next year may simply appoint a director more in tune with the President’s policies. That has not yet happened. While the present director is in charge, and the memorandum to finance sources about dealer reserve is unchanged, the pressure on your dealership remains.  That pressure on dealer reserve is being imposed by the CFPB through your finance sources. CFPB has jurisdiction over just about every finance source for motor vehicle dealers. Its directions to those finance sources are still that they can be liable for discrimination in financing that they buy from dealers. That is why the finance sources have put pressure on dealers on this issue. That pressure will continue until there is a change. Keep your Fair Lending program designed to prevent unexplained rate differentials in place.
  9. False. A car dealer must not only know of the laws about cash reporting (which require a report of cash or cash equivalents over $10,000 in a transaction or series of transactions) but also the laws preventing money laundering. Doing a transaction involving the funds you have reason to believe are the proceeds, regardless of form of funds or amount, of over 100 specified crimes may be money laundering, a serious felony. If you know or have reason to believe that the proceeds of a transaction result from a prohibited felony, you should not do the deal. Reporting receipt of suspicious cash, although seemingly the proper thing to do, only identifies that you did a deal you know you should not have done.
  10. True. Courts will enforce contracts as they are written. A common provision in supplier contracts to trap dealers into continuing is to establish a lengthy duration for the contract, and provide that the contract will automatically renew for subsequent similar periods unless terminated with substantial advance notice. Many dealers believe that after the initial term they are on a month to month contract. That is not the case. Courts will generally enforce these roll over provisions.

    The answer is to review the contracts with suppliers, even the boilerplate on subjects like duration and renewal. For what reason are you signing a three year contract? Sometimes, when the supplier has an investment, like a uniform contract, there may be justification for a one-year or eighteen month duration. But why a cleaning contract? Why a hazardous material advisory contract? Sign the contract for the shortest duration possible, and there should be no automatic roll over. The contract should provide specifically that it will renew from month-to-month after the agreed term, and it can be cancelled on thirty days’ notice by either party following the end of the initial term.