Blaming Printer No Defense

Occasionally I’m asked to define Compliance as it relates to the variable operations in a dealership.

Speaking before dealer associations, accounting organizations, general agents or dealer groups, I offer up a quiz to gauge where the participants believe they or their dealer clients are on the compliance continuum.

One question is, “Have you reviewed your dealer-management system output within the last year for compliance with state and federal requirements?”

Well, according to a judge in a recent federal case, at least one dealer would not have scored 100% on my quiz.

U.S. District Judge Warren Edington ruled that a Connecticut dealer violated the federal Truth in Lending Act because the first payment due date on the pre-printed Retail Installment Sales Contract was obscured by pre-printed language on the form.

The judge said: “The payment due date is not clear or conspicuous on any of the 104 buyers’ contracts. The printed due dates range from indistinct to indiscernible, but an average, reasonable person could not find any of the disclosures to be clear and conspicuous.”

This reasonable person doesn’t see the harm; it seems frivolous to me. But the plaintiffs, the attorney or the judge didn’t see it that way.

Both the dealer and lender were found in violation and are awaiting the damages hearing. The plaintiffs are looking for $1,000 per class member, or $104,000.

I can think of a few reasons why 104 contracts to one lender from one dealer had a singular issue.

Most likely, the lender had its own contract and the dealer either did not or could not use a generic contract.

Otherwise, I suspect the attorney could have dropped the lender from the lawsuit and expanded the class (and ultimate potential damages) if a generic contract were used.

It also is painfully obvious that the dealer, the lender or both did not utilize e-contracting to finalize transactions. If e-contracting does nothing else, it does print nice-looking contracts.

This leads me to believe that the DMS was not properly programmed to print the first payment due date in the correct spot on a lender-specific contract.

There also is the possibility that the dealer had an older printer that slipped while loading the form and printed the form off-line or off-registration.

Finally, maybe the finance and insurance manager was new or careless or untrained. Or all three.

Outside of the dealer or its insurance company, ponying up more than a hundred big ones, there are ramifications that likely will spread nationwide.

Because this case was in federal court, it could serve as precedent for dark-side litigators from Connecticut to Hawaii.

As this case involved a rather simple interpretation of Truth-In-Lending and non-disclosure, attorneys could take similar cases to court without a lot of research time or brain cells.

As this case dismissed the dealer’s defense of acting in good faith and any non-disclosures were a bonafide error, it limits potential defenses to class- action litigation.

Dealers immediately should have F&I managers print test deals, one for every different retail and lease contract printed and submitted to lenders. Include every F&I product you sell in the test deal. Make sure it has negative equity so you can test that disclosure as well.

Flyspeck the output looking for any DMS-printed disclosure that does not print in the proper space. Correct any issues.

Remedies can include contacting the DMS provider to correct contract registration, buying a new printer, training F&I personnel on how to properly load a contract into the printer and (my favorite) embracing e-contracting!

Gil Van Over is president of gvo3 & Associates, a national compliance consulting firm. He can be contacted at [email protected] and 312-961-9065.