Golfers call them mulligans. To actors, they’re retakes. Kids beg for do-overs. The dealership finance and insurance office knows them as recontracts.
All are names for another opportunity. Another chance to get it right. To do it better.
Whether because of an error, an omission or a mistaken belief about getting a particular deal structure financed, recontracting is known all too well by dealerships that spot deliver, the practice of allowing customers to take possession of a newly purchased car upon tentative approval of financing.
If an issue crops up before a lender gives final approval, recontracting is necessary.
In my experience, the recontracted deal many times works to the customer’s benefit. Many times dealers have to cut the deal, accepting a loss or less profit to keep the deal together.
Sometimes, though, in order to salvage the deal, the customer must accept term terms that might have a higher APR, a higher monthly payment, require a bigger down payment or include more finance charges.
These are the deals that have drawn the ire of the dark side, and the primary reason spot deliveries are under attack.
Last year, the Federal Trade Commission hosted a series of roundtable discussions in which consumer-advocacy groups provided plenty of anecdotal horror stories about spot deliveries gone bad, but with very few hard facts.
The FTC requested empirical data, which the advocates failed to deliver. So the regulator is seeking this data from another source: car dealers.
Some dealers have received a ‘Civil Investigative Demand” from the FTC. The agency apparently believes dealers can push a button to get detailed data in the format the agency wants.
For example, the FTC asks: For the years 2009, 2010 and 2011, please tell us, by year, how many consumers did you spot-deliver?
And the number and names of all consumers who were denied financing on the terms they were delivered on, and why they were denied financing?
And of those denied financing, how many and who were offered new financing terms? And of those offered new financing terms, what are the number and names of those who were offered higher interest rates?
How many of these consumers had trade-ins and how many trade-ins did you sell prior to assigning the contract to a third-party lender?
Not only does the FTC want all that, it wants it ASAP.
The agency also is asking for documentation of training, policies and procedures. Dealers who have received such requests hopefully can show they have a structured approach to handling recontracted transactions.
Unless prohibited by state law, these policies should include:
- A spot- or conditional-delivery agreement.
- A rescission agreement or acknowledgement of rewrite. Some essential terms include the acknowledgement of rescinding the original agreement and voluntarily entering into a new agreement. It also should include the ability to rescind without entering into a new agreement.
- A reprinting of all essential documents, including F&I menus, purchase agreements, retail-installment sales contracts and F&I product-enrollment forms.
- All forms dated the date they are signed, not the date the original forms were signed and the vehicle originally was delivered.
- Not selling a trade-in until the vehicle transaction it stemmed from has been funded.
Dealers who did not receive this FTC request might still want to take heed. Adopting the policies listed above just might help keep you focused on selling cars, not responding to the dark side.
Gil Van Over is president of gvo3 & Associates, a national compliance consulting firm. He can be contacted at [email protected] and 312-961-9065.
