|If you want to institute a spot delivery procedure that is an invitation to a lawsuit, just follow the following handy-dandy directions.|
Jeremiah Mann and DeeAundrea Cartier entered into a purchase contract and a retail installment sale contract with Brown Credit Lot for the purchase of a 2001 Saturn. Both documents purported to be “the entire agreement” between the parties.
The buyers gave Brown a $500 cash down payment and traded in a 1993 Honda Civic valued at $500. The buyers were told, before they left, their financing through Household Auto Finance was approved. However, Household declined to buy the contract.
At some point, Brown told the buyers that financing was not approved and new documents would have to be signed. Unhappy, the buyers asked for the return of their trade-in and down payment. Brown told the buyers the Honda had been sold and refused to return their down payment.
According to Brown’s finance manager, the buyers’ financing fell through when Household found a 9-month gap in Mann’s employment between his current and former jobs, and did not find this information reflected on Mann’s credit application. In fact, the credit application did not ask for employment dates and had no questions that would identify a gap in employment.
The buyers sued Brown, alleging that Brown’s representation that financing was approved when such was not the case was unfair, deceptive and unconscionable in violation of the Consumer Sales Practices Act.
The Ohio Municipal Court characterized the transaction as a “yo-yo deal” that was a “variation of the classic bait-and-switch.” The court had no difficulty concluding that the following acts by Brown were unfair or deceptive: the demand on the buyers to return the vehicle when Household declined to buy the contract; the representation that financing was approved when it was not; the failure to provide the buyers with a copy of the retail installment sales contract; the delivery of the vehicle pursuant to a sale subject to financing without a written agreement setting forth the parties’ rights and obligations; and sale of the buyers’ trade-in before the deal was finalized.
Limited by its small claims court maximum jurisdictional amount, the court awarded the buyers three times their actual damages of $1,000, or $3,000, plus court costs. In a court other than small claims court, the dealer would have faced the possibility of a much larger hit.
Several lessons are to be learned from cases like this:
Lesson 1. A dealer entering into a retail installment sales agreement with a car buyer is extending credit. If a dealer does not have some sort of “unwind agreement” permitting the dealer to rescind the deal if he cannot assign the agreement to a finance company or bank, the dealer must hold the agreement and collect the payments. He has no right to unilaterally cancel the deal. He cannot repossess the car if the customer is not in default. If you want to paint a big bullseye on your dealership, try to unwind a deal in the absence of an unwind agreement.
Lesson 2. A dealer should not sell the buyer’s trade-in vehicle until the assignment of the buyer’s agreement to an assignee is complete, even if state law and the dealer’s buyer’s order permit it. Judges and juries don’t like the practice, and will try to find some way to punish dealers who engage in it.
Lesson 3. Dealers should be careful what they tell their customers about the finality of the financing for their cars. It is possible in this case, Household’s communications with the dealer about these buyers led the dealer to believe in good faith the financing was final. If the possibility exists, however, that a bank or finance company could kick a deal back to a dealer after some delay, the dealer should be open with its buyers about that possibility.
Lesson 4. If the sales finance companies and banks your dealership assigns contracts to requires a continuous period of employment as a condition of approving deals, make sure that your credit application is set up to elicit that information. If it isn’t, your people should be trained to inquire about such gaps.
Spot deliveries are under attack by consumer advocates and have gotten the attention of state regulators and legislators. There are sometimes-dicey federal and state law problems with spot deliveries. If you haven’t had your spot delivery procedures reviewed by you lawyer recently, you need to put that on your “to-do” list.
Cartier v. Brown Credit Lot, 2005 WL 3867414 (Ohio Mun. April 4, 2005)
Vol 3, Issue 6
Lending Tree’s most recent auto finance snapshot finds originations, amounts financed, and monthly payments all accelerated in 2018.