I frequently speak to dealer 20 groups and at dealer conferences. When I have finished my presentation, there is usually a question and answer period to give the members of the audience an opportunity to steer the discussion toward issues and problems they are dealing with in real life.
I really enjoy the Q&A sessions. They can be challenging, and they frequently require some fast footwork. Occasionally, I’m stumped by a question. When that happens, I’ll admit I don’t know the answer but will commit to go home, do some homework and get back to the questioner with a response.
If I had to identify the most frequent topic that dealers have raised over the last decade at these sessions, it would be so-called “loan fees” or “acquisition fees” charged by some finance companies as a condition of the purchase from dealers of retail installment contracts involving credit-challenged buyers.
The dealers always assert that they should be permitted to pass these fees along to the car buyers, and cannot understand why they can’t, or why they can’t in some states, or why they might be able to do so but must follow some very strict rules if they do.
A recent North Dakota case illustrates one of the difficulties dealers face when they try to pass these fees along to car buyers. Let’s take a look at what happened.
Darilyn Baker bought a used car from Autos Inc., d.b.a. Global Autos. Baker signed a buyer’s order and a retail installment contract. The buyer’s order identified a $200 “loan fee” as part of the $5,500 balance that Baker owed.
The Truth-in-Lending disclosures in the retail installment contract listed the amount financed as $5,500. Global Autos assigned Baker’s contract to RW Enterprises. Baker defaulted, and RW repossessed the vehicle.
Baker sued Global Autos for willful violation of the North Dakota Retail Installment Sales Act. Baker claimed that Global Autos improperly disclosed the loan fee as part of the amount financed rather than as part of the finance charge.
The trial court entered judgment and dismissed Baker’s claim. Baker appealed to the North Dakota Supreme Court.
The state supreme court reversed the trial court’s denial of Baker’s motion to amend the judgment and remanded the case. The high court found that the retail installment contract did not disclose the loan fee properly. As the Supreme Court explained, the NDRISA requires a retail installment contract to disclose the amount of finance charges. The NDRISA defines the finance charge as any charge for the extension of credit, subject to certain exceptions. No such exception covered the “loan fee.”
It’s a Finance Charge
Although the buyer’s order disclosed the existence and amount of the loan fee, it characterized the loan fee as part of the balance due, not as part of the finance charge. As a result, when Global Autos transferred the itemization from the buyer’s order to the retail installment contract, the retail installment contract included the loan fee in the amount financed, not in the finance charge.
Because the NDRISA requires a retail installment contract to disclose the amount of finance charges and Baker’s contract did not include the loan fee as part of the finance charge, the disclosures in the retail installment contract were inaccurate.
The car buyer in this case alleged a violation of the state retail installment sales act. The same facts would likely support a claim under the federal Truth in Lending Act. For that reason, dealers in other jurisdictions should be interested in the outcome of this lawsuit.
The case illustrates only one issue that arises with the imposition of these fees by dealers. If your dealership imposes such fees, or wants to begin to do so, you and your lawyer will want to consider several other issues that must be dealt with in determining whether the imposition of the fees is legal.
A good starting point for identifying and examining these issues is my article in the August 2012 issue of Spot Delivery titled “Passing Acquisition Fees Along to the Buyer? Read This.” Although the article is seven years old, it remains generally accurate and should be of great assistance to your dealership’s lawyer.
Thomas B. Hudson Esq. was a founding partner of Hudson Cook LLP and is now of counsel in the firm’s Maryland office. He is the CEO of CounselorLibrary.com LLC and is a frequent speaker and writer on a variety of consumer credit topics. Contact him at [email protected] HC No. 4822-8645-9285.1