Compliance Firm Advises Dealers to Review Arbitration Clauses
Automotive Compliance Consultants warned dealers this week to review their arbitration clauses in their finance contracts. The firm says such language is coming under scrutiny from courts and regulators.
CRYSTAL LAKE, Ill. — David R. Missimer, general counsel for Automotive Compliance Consultants, which specializes in dealership compliance, advised auto dealers today to review their arbitration clause language used in their finance contracts.
Missimer issued his warning in response to the way courts are viewing finance contract language, as well as the pressure such clauses are getting from consumer groups and the Consumer Financial Protection Bureau (CFPB).
“The purpose of an arbitration clause is to keep a customer’s suit against a dealership from becoming the basis of a class action,” Missimer said. “But the CFPB is busy looking at arbitration clauses and both federal and state courts are reviewing such clauses with more scrutiny. It would be prudent for any dealer to review the arbitration clause now being used and make sure it will keep the dealership out of the court system and a class action when the time comes.”
Missimer noted that some courts have begun to review arbitration clauses as unconscionable and are looking for any ambiguity to find them nonbinding. The California Supreme Court is currently considering a case involving arbitration clauses. It has stayed action on a number of California Appellate Court Cases striking down arbitration clauses.
“An arbitration clause drafted in accordance with the Federal Arbitration Act requires disputes to be resolved before an arbitrator and precludes class actions by prohibiting class arbitration,” Missimer said. “Consumer groups object to the use of mandatory arbitration and are lobbying the CFPB hard to pass rules and regulations to limit the use of arbitration in consumer loan transactions.”
Missimer and Automotive Compliance Consultants noted that mandatory arbitration clauses should be based upon the Federal Arbitration Act, which preempts state law. The compliance expert also offered the following recommendations:
• Be clear and concise on any waivers including waiving the right to participate as a class representative or class member.
• Make the arbitration provision of the contract conspicuous, and consider highlighting through bold or different size type any waivers of legal rights like class action waivers.
• The agreement should be balanced and not pro seller.
• Avoid provisions and arbitration organizations that would make it financially burdensome for consumers to arbitrate.
• Clearly define any legal remedies not subject to arbitration like self-help remedies, or proceeding in small claims courts.
Missimer advised dealers to have their legal counsel review the arbitration clause language used in their documents. To learn more, contact Missimer at dmissimer@compliantnow.com.
Originally posted on F&I and Showroom
More Dealer Ops

Dealer Debrief: Defection Data & EV Updates
In this week's debrief, host Lauren Lawrence discusses how to use defection data to your advantage and the latest on EV sales and charging infrastructure.
Read More →
How Defection Data is Bridging the Dealership Conversion Gap
Lead volume is flat, cross-shopping is up and brand loyalty is in retreat. As confident sales teams keep losing buyers they thought they had, daily industry sales data is showing dealers exactly where their funnel is breaking and how to fix it without buying a single new lead.
Read More →
Dealer Debrief: Where are you losing customers?
In this week's debrief, host Lauren Lawrence discusses the hidden leaks in dealerships where you might be losing customers without even realizing it.
Read More →
Dealer Debrief: Improving Your Inventory Management
In this week's debrief, host Lauren Lawrence covers a new survey that shows what service technicians really want and two launches that could help improve your inventory and vehicle life cycle management.
Read More →
Ladies and Gentlemen, This Is a Dealership: Why the Fundamentals Still Decide Who Wins
A teaching moment by a legendary football coach happens to apply perfectly in the auto retail space. Learn what it is and how to use it to your store’s advantage.
Read More →
What Market Timing Mistakes Mean for Your Reinsurance Program
When volatility hits, dealer-owned reinsurance programs face a familiar temptation: pull back and wait for calmer waters. New data from BOK Financial shows why that instinct can quietly cost you years of surplus growth.
Read More →
Dealer Ads and the FTC
The agency has made it clear in recent enforcement actions and warnings, in auto retail and other industries, that advertised prices must include all nonoptional costs to the consumer.
Read More →
Used Autos Supply Dwindles
The March shopping surge, despite high prices, cut into inventory by the most since the thick of the pandemic, Cox Automotive analysts calculated.
Read More →
Managing Risk Effectively Through Changing Times
The variables influencing risk pricing have changed significantly over the past five years. Being proactive and responsive to emerging trends is not optional but essential.
Read More →
Survey Reveals What Won't Fix What's Breaking Car Sales
AutoPayPlus says extra-long auto loans are trapping consumers and threatening the dealer trade-in cycle, and that the industry is leveraging the wrong tools to combat high MSRPs.
Read More →
