With the closing weekend of August upon us, Hudson Cook senior partner and chairman Tom Hudson shared his Top 10 list of practices buy-here, pay-here dealers need to recognize so they not only avoid a bad month, but the possibility of being on their way out of business.
Items such as promissory notes, deal jackets and other written policies are all mentioned by Hudson, who will deliver a keynote speech with his predictions for the next five years in the business at Innovate: The Independent Dealer Industry Conference on Sept. 20-23 in Fort Worth, Texas.
“In my 42 years practicing consumer financial services law, I've seen a lot of egregious violations by dealers, but these top them all," Hudson said.
“Let's face it — the newer regulations are highly complicated,” he continued. “It can be tempting to just bury your head in the sand and pretend you’re doing fine. If you choose that route, though, it's only a matter of time before you get a big surprise in the form of an investigation or lawsuit.”
Hudson previewed his Innovate keynote speech by outlining these clues that your dealership might use to turn an extra vehicle or two to close the month but that might soon lead to an operation shut down:
1. You don't know the difference between promissory notes and retail installment contracts.
Many dealers call the contracts that buyers sign “notes,” but they aren’t. They are retail installment contracts. Notes and retail installment contracts are completely different documents, subject to different laws. Dealers who trade vehicles for signed contracts need to understand those contracts.
2. You charge cash buyers less than you charge buyers who finance.
This is one of the biggest red flags in today’s market and must be avoided at all costs. If the financed price is higher, regulators may conclude you added an undisclosed finance charge. You may also be in violation of usury laws.
3. Your idea of obtaining documents that comply with state and federal law is to photocopy the deal jacket documents from the last place you worked.
Many well-established dealers — both buy-here, pay-here and franchised — use documents that are outdated, designed for use in other states, copyrighted, crafted by lawyers who don't know what they are doing, or are otherwise invalid.
4. You don't know the difference between precomputed retail installment contracts and interest-bearing (so called "simple interest") retail installment contracts.
Some dealers use precomputed contracts and service them as interest-bearing contracts, and vice versa. This is a huge no-no.
5. You think all your prior experience in the car business, which consists only of dealerships that sell retail installment contracts to unrelated financing sources, is enough to get by.
If you are new to the buy-here, pay-here world, you absolutely must learn how the activities of servicing, collections, repossession and sale of repossessed vehicles are regulated. If not, you will be flying blind with regard to half of your business.
6. You don't budget for legal compliance costs in your ongoing expenses.
In addition to up-front formal training, you must pay real attention to compliance issues by participating in dealer associations and 20 Groups; reading industry publications; and creating, implementing, updating and funding a credible compliance program for your dealership. Dealers should also prioritize in-person training at conferences like Innovate with a wide variety of compliance courses.
7. Your accountant and your lawyer are not well-versed in the car business.
Missing critical tax or compliance advice because your accountant and/or attorney is inexperienced with dealers is a shortcut to the poorhouse.
8. You think you can just buy your advertising from an ad agency without taking responsibility for the content of the ads.
Operation Ruse Control, led by the Federal Trade Commission and 32 law enforcement partners, resulted in 252 enforcement actions against dealers. The FTC is on a tear over dealer ads, and dealers need to understand that they are responsible for what their ad agencies do.
9. You don't have written policies for privacy safeguarding, red flags, underwriting, servicing and all your other compliance responsibilities.
Maintaining up-to-date policies is one of the clearest ways you can communicate your good faith effort to comply with regulations.
10. You think you don't need to worry about this compliance stuff because you “take good care” of your customers.
Unfortunately, it just doesn't work that way anymore. Inevitably, something will tip off a lawyer or regulator, and you will wish you had your legal house in order.
To get more detailed, real-world knowledge on buy-here, pay-here law, operators can join Hudson and some of the most-respected legal experts in the country at Innovate: The Independent Dealer Industry Conference, Sept. 20-23 in Fort Worth, Texas.
The event will feature more than 80 different classes — all more than an hour long — that dive deep into compliance, collections, finance, accounting, operations and more.
Officials insisted Innovate is one of the only events or independent dealers and finance companies with two full compliance tracks, which by themselves cover 16-20 different topics.
“In total, attendees will access more than $10,000 in legal insight for the price of admission,” organizers said.
AutoStar and DealerSocket, its parent company, expect more than 600 attendees at this year's conference, including major exhibitors and financial institutions that will showcase the latest dealership technology, best practices and industry solutions.
To view the full schedule or buy tickets, visit www.MyInnovate2015.com.