Don't let your auto dealership get stung by a bad financing deal
The old saw in business has it that the buyer should beware. But when it comes to used-car sales that hold the potential to boomerang back onto independent dealers in the form of consumer lawsuits, it's the seller who should be smart - and prepared.
In my practice at Scaringi Law, where I focus on employment law, civil litigation and workers compensation, I have found that many dealers allow their finance manager to fill out the customer's credit application form for the car loan. Most do this so that the applications for third-party financing will be legible, with all the required information included.
While these are worthy goals aimed at ensuring that the financing will go through and the hard-won deal will be finalized, handling customer credit applications in this way can open up dealers to legal risks regarding credit and finance laws.
For example, what is to stop a buyer who is no longer willing or able to pay off his car loan from claiming that the credit information penned by a dealership employee was incorrect or even made up? Suddenly the finance agency could be coming back at the dealership to make good on a car loan gone bad.
Bad credit, big problems
So many car ads like to boast "Bad credit? No problem."
But bad credit can be a big problem if your dealership is left holding the bag. This legal dilemma is more likely to occur when a dealership permits an employee to fill out the official credit application based on what the customer says.
What if the customer happens to be lying, or simply supplies incorrect answers to all those intrusive credit questions on finance applications?
If the false application is written by a dealership employee, it could be easier for the finance company or the customer to come back at the dealership should something go wrong with the financing. Suddenly, the dealership could be caught in the middle of a collection action, or even hit with a claim of financial fraud.
The basic rule of thumb when taking credit applications is this: Let the customer fill out the form. If the customer's handwriting is horrible, have the finance manager fill out a second application that mirrors the first. Then submit both the original and the copy to the finance company, with the dealership keeping copies of each.
Waiting for approval
Depending on how fast your finance company works, pre-approval and tentative approval just aren't the same as final approval. By jumping the gun and allowing a customer to pull off the lot in the purchased vehicle before the car loan is finalized, you may be asking for more legal headaches and financial troubles.
Suppose the loan company says the car loan didn't go through after all. Hitches such as requiring additional credit information or demanding more money down have been known to occur in third-party financings. Caught between a customer and a car-loan company is no place for an independent dealer to be. This means the consumer has the car, but you're not getting paid for it - at least until the loan is fixed.
Technically, the buyer of the car who possesses the vehicle, but whose loan has been turned down, has committed theft. Yet as a dealer, you don't want to be bringing criminal charges against your customers.
I've talked to at least five or six dealers who have been caught in just such a scenario: Either the loan didn't go through or it wasn't approved according to the agreed-upon terms. It is an unfortunate, but preventable reality of the auto sales business.
The right move is to wait for the loan to be finalized so such finance snafus never happen to you. Don't put your dealership in the awkward position of having to cajole a customer into redoing a loan or securing a new one.
In our litigious society, no deal is without risk. There's nothing stopping a duplicitous consumer who is looking to get out from under a loan. Still, if the credit application is penned in the consumer's hand and duly signed, this will be a tougher argument for him to make.
Heading off the risks of financing gone wrong is just another to prevent the costly potholes of potential legal problems.
By analyzing your business practices for all possible legal pitfalls, we can limit your dealership's risk of seeing the inside of a courtroom or being served in a lawsuit. And should legal troubles ever darken your dealership's door, I'll be there to react and ward off costly and prolonged litigation. A carefully worded letter or phone call from your attorney may go a long way in short-circuiting legal action by a customer who mistakenly believes he or she has a case.
As an owner, you deal every day with employees, contracts, finance and the myriad other legalities of running a business. Why add legal woes that can be prevented with careful planning?
To learn more about how Scaringi Law we can help you, call him toll-free at 877-LAW-2555 or email him at firstname.lastname@example.org