SELLING A CAR IS HARD ENOUGH, DON’T LET YOUR
DEALERSHIP’S PAPERWORK GET IN THE WAY!
By: Keith E. Whann
Today we live in a rapidly changing and seemingly more difficult world.
It used to be that when a motor vehicle dealership made a mistake, it
had an opportunity to fix it. Now, the first mistake a dealer makes can
cost him the dealership. Not surprisingly, paperwork compliance is one
of the biggest challenges and the area that presents the greatest legal
exposure for a motor vehicle dealership. There are a whole host of State
and Federal Laws that impact a motor vehicle transaction, including State
Unfair and Deceptive Acts and Practices (UDAP) Statutes and Administrative
Rules, State Motor Vehicle Titling and Retail Installment Sales Acts,
the Uniform Commercial Code, the Magnuson Moss Warranty Act, the Fair
Credit Reporting Act, the Truth in Lending and Leasing Acts, the FTC
Used Car Rule and the new Federal Privacy and Anti-Terrorism Laws and
their implementing Regulations, to name a few. What’s more, not only
have these State and Federal Laws have gone through major revisions during
this past year, but numerous case decisions and regulatory interpretations
addressing compliance with these Laws are rendered on an ongoing basis.
Putting all of this together, achieving forms compliance for a motor
vehicle dealership and keeping current with legal, regulatory and legislative
developments that impact the dealership’s forms can be extremely challenging.
One of the most important things to remember is that none of the individual
forms in a transaction is meant to stand on its own. Rather, the dealership’s
forms must work together and be considered in the context of the entire
transaction. Just as important is to recognize that the different variables
in a transaction, such as whether a vehicle is new or used, whether the
dealership is selling or leasing a vehicle, and whether traditional or
subprime financing is being obtained, will impact the content of the
dealership’s forms and the types of disclosures contained therein. While
an individual form may be appropriate for the purpose for which it was
designed, it may cause a problem for the dealership when used in conjunction
with other forms in a transaction.
The fact that dealerships often obtain their forms from multiple sources
can further complicate the issue. For example, the Uniform Commercial
Code, the Magnuson Moss Warranty Act and the FTC Used Car Rule each impose
specific requirements on dealerships when offering or disclaiming warranties.
Many State UDAP Statutes also require that every retail sale of a motor
vehicle be preceded by a written contract that contains all of the agreements
of the parties, including all material statements made prior to obtaining
the customer’s signature on the purchase contract. If a dealership is
to be in compliance with all of these Laws, it must ensure that the Retail
Buyers Order, FTC Buyers Guide and Limited Warranty Document contain
the required disclosures and those disclosures must be consistent and
properly integrated.
The difficulties motor vehicle dealerships face in making sure that
their forms comply with the maze of overlapping State and Federal Laws
has not been overlooked by consumer attorneys. They have adopted a new
strategy for handling motor vehicle cases in hopes of recovering large
damage awards and attorney fees. Instead of focusing on what the consumer
alleges his problem is with the motor vehicle transaction, the consumer’s
lawyer goes for what has become known as the “quick kill.” They carefully
scrutinize the dealership’s paperwork looking for incorrect or inappropriately
completed paperwork that might provide the basis to successfully rescind
the transaction, recover damages and collect attorney fees. Consider
these quotes taken from various consumer publications regarding motor
vehicle transactions:
“The abuses are rampant. In almost every motor vehicle transaction there
is some violation either in the sale of the car or the financing process.
In order to find out if there is a valid defense or counterclaim, lawyers
should review paperwork from the entire transaction.”
“Most of these statutes provide for statutory damages and attorney fees.
In addition, it’s often possible to bring a class action, because certain
practices may be symptomatic of similar problems in other transactions
by the same dealer.”
Not only are consumer lawyers scrutinizing dealership paperwork, some
lenders have modified their lender dealer agreements in an effort to
use noncompliant dealership forms to create a recourse obligation on
the dealership. In the vast majority of the nearly 200 lender dealer
agreements we have reviewed during the past year, the dealership must
warrant that it has complied with and the documents used in the transaction
are in compliance with applicable State and Federal Laws, Rules, and
Regulations. Dealerships should be cautious about warranting that their
forms are in compliance without first looking at them. Such a warranty
takes on even more significance in today’s market given the declining
creditworthiness of consumers and the increasing use of subprime financing.
With the likelihood of consumer defaults increasing, dealerships should
take steps to ensure that their paperwork does not open the door for
the equivalent of a “recourse” obligation against them.
The bottom line is, if you don’t look at your paperwork, someone else
will. What’s more, if you have not updated your dealership’s forms and
related procedures within the last year, they probably are not in compliance
with applicable State and Federal Laws. With today’s sluggish economy,
dealers find themselves having to work harder for each vehicle sale.
Given this fact, dealers should take steps to ensure that the vehicles
they sell stay sold. If you are not capable of reviewing and updating
your dealership’s paperwork on your own, assistance such as the newly
developed Forms Compliance Program from ADP/Standard Register is available.
Whether you review the paperwork yourself or seek outside assistance,
taking action now to make sure your dealership’s day-to-day sales activities
and forms are in compliance will help minimize the dealership’s legal
exposure while increasing its efficiency and profitability.
The information contained herein has been provided by Keith E. Whann
and Deanna L. Stockamp of the Law Firm of Whann Associates, LLC, and
is for general information purposes only. You should contact legal counsel
for specific application.
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