Tom Hudson Offers Special Finance (Legal) Tips and Insights

HANOVER, Md. — This issue's theme is "Special Finance Tips and Insights." Since I do the legal stuff, you'll note the amended title to this article.

Insights first:

1. From a legal standpoint, a dealer's contract and related documents (I'm not referring to "stips" and the like) used in a special finance transaction will look almost exactly like the documentation used in a "prime" deal. The arrangement between the dealership and the finance company might be radically different, but the dealer's "front-end" documents will largely look the same.

2. Special finance customers, as a group, are going to be more desperate for financing than other buyers. That desperation makes them vulnerable to sales and financing "flim-flams" than other buyers. A good dealership will make sure that special finance customers aren't preyed upon by its employees.

3. Because special finance customers tend to be more desperate than other customers, my impression is that more questionable practices take place with special finance transactions than with other transactions. If my impression is correct, dealers engaged in special finance transactions will likely be targeted more frequently by attorney generals and plaintiffs' lawyers. Again, if I'm correct, this means that they need to place even more importance on their compliance efforts.

Tips — I have 10:

1. Treat your customers like you'd treat your good friends. If your dealership mistreats customers and engages in all sorts of sharp practices, you can quit reading now — none of the rest of this stuff will do you any good.

2. Use an arbitration agreement. It is the best first line of defense against class actions and predatory litigators.

3. Appoint a compliance/privacy officer. Federal law (the Gramm-Leach-Bliley Act) already requires you to have a Privacy Officer. While you're at it, make that person your Compliance Officer.

4. Have a legal audit done of your documents and operations. We've done a bunch of these, and we find many, many areas where dealers can significantly reduce their risks.

5. Create an advertisement checklist. Work with your lawyer to determine what you can and cannot say in your ads and solicitations and create an ad checklist. Review every ad with the checklist in one hand and the ad in the other, checking off the requirements as they are met, then staple the checklist to the ad and maintain a file of your approved ads. 

6. Have your policies and procedures written down. Make every employee acknowledge in writing that he/she has read them. Fire people who do not adhere to your policies and procedures.

7. Create a code of ethics for your dealership. Be sure to incorporate into it any other codes of ethics (National Auto Dealers Association, state auto dealers association or independent auto dealers association, along with chamber of commerce) that you have agreed to. After your code of ethics is created, make every employee acknowledge in writing that he or she has read it. Fire people who violate it.

8. Get as many of your people trained and certified as possible. The Association of Finance and Insurance Professionals and several other organizations will train and certify your F&I and your salespeople. That certification can be valuable if you are sued.

9. Make sure your spot delivery procedures have gotten a (recent) legal review. The laws relating to spot deliveries are changing in many states, with new cases each month.  Dealers are getting nailed.

10. Make nice with the cops. Become acquainted with your state's consumer protection agency personnel. Educate them about your business and how it works. Let them know the name of your compliance officer so that they will have a at your dealership if they need to ask questions or resolve complaints.

If your reaction to these 10 tips is that they would apply to any dealership, whether it is doing special finance or not, give yourself a pat on the back. If you actually act on the list and implement most or all of these suggestions, give yourself a double pat on the back!

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