HANOVER, Md. -

Friends who play poker tell me that sometimes they find themselves up against a player who unknowingly betrays the cards he holds by some “tell” — the player’s posture, his facial expression, the way he holds his cards, or some other non-verbal communication.

That thought came to mind recently when I was doing a compliance review of deal jackets for a dealership. I realized that certain items in a deal jacket stand out as “tells” that the dealership’s compliance is not going to be up to snuff. These indicators almost never fail me.

Are you curious to know what these tells are, to see if anything in your jackets betrays you? I’m glad to share. Here are a few examples.

Side Notes

I frequently see “side notes” in deal jackets. It may be possible to use these things correctly, but I have never seen it done.

When state law permits deferred down payments, dealers who want to accept them should reflect them in the buyer’s retail installment sales contract. Using a “note” makes no sense — the dealer is not lending money to the buyer, but rather is deferring part of the purchase price in a credit sale.

Using side notes raises several state and federal disclosure issues, most of which can be resolved by including the required payments in the retail installment sales contract. So, the use of side notes is usually a tell.

Financing Repairs

Buy-here, pay-here dealers sometimes finance repairs to their customers’ vehicles. They tell me that it is important to keep the car running so the buyer will keep paying.

Usually, this practice is done with little or no regard for the laws and regulations that apply to it. If the repairs are done by the transmission shop down the street, and the dealer pays for the repairs and then “tacks them onto the end of the contract,” or adds them to the account balance, the dealer has engaged in a loan transaction that, depending on its terms, could raise state and federal disclosure issues, finance charge cap issues and licensing issues.

If the repairs are done by the dealership, then the dealer is selling those repairs to the buyer on credit. Again, documentation and disclosure issues arise. In some states, the laws that apply to the credit sale of the vehicle will be different than the laws that apply to the credit sale of repairs (especially when the repairs are not “goods” but are instead all or primarily “services”).

Financing repairs? Always a tell.

Dueling Arbitration Agreements

When I see an arbitration agreement in a deal jacket, the first thing I do is look for more of the things. I’ve seen deal jackets with a “free-standing” arbitration agreement and an arbitration agreement in the retail installment sales contract, in the buyer’s order, and in some other document, like a GAP addendum. “What’s the problem?” you ask. “Isn’t that just a belt and suspenders sort of deal?”

The problem is that all of the arbitration agreements are different, with contradictory and varying terms. A court faced with multiple arbitration agreements is likely to throw up its hands and not enforce any of them. As a result, when the dealer needs the arbitration agreement most — to pull the rug out from under a class action plaintiff ’s lawyer — it isn’t enforceable.

So, multiple arbitration agreements are always a tell.

Pinching Pennies, Spending Dollars

This one takes several forms. Dealers are, shall we say, frugal.

They will cheerfully take someone’s copyrighted buyer’s order or retail installment contract to their friendly local printer and have a few thousand of them printed so they can avoid paying 50 or 75 cents a form to some forms vendor.

Or, they will bring home from 20-group meetings forms that have been shared by other dealers in the group, roll out the copying machine, and run off a batch. Often, the forms reflect the laws of other states.

Then they use the forms year after year, oblivious to the possibility that the forms have become obsolete because state or federal laws, or both, have changed. When I look at the bottom left -hand corner of a retail installment contract and see a 10-year-old print date, or I see on the back of a contract used by a Mississippi dealer a provision that says that the parties elect Florida law to govern the contract, that’s a tell.

What’s my takeaway when I spot a tell?

I tentatively conclude that the dealer has no compliance program and has gotten no compliance advice from a competent compliance lawyer. I start asking about written policies — privacy, red flags, risk-based pricing, underwriting, collections, and all the rest. The usual response is that these policies don’t exist, and, in many cases, the dealer does not know that they are required.

In other words, I’m looking at a car dealer who, if he cannot up his game, needs to fold.

Thomas Hudson, Esq. (tbhudson@hudco.com) is the author of several books, and is also the editor/ author of the CARLAW F&I Legal Desk Book. The books are available at www.Counselorlibrary.com. He is also the publisher of Spot Delivery, a monthly legal newsletter for dealers, and the editor in chief of CARLAW, a monthly report of legal developments in all states for the auto sales, finance and leasing industry. For information, call (410) 865-5411 or visit www.counselorlibrary.com.