The Benefits of a Compliance Audit
By Jim Radogna
There’s something about selling that can drive even the sane to insane lengths to do a deal.
Take the case in which a Connecticut dealership was hell-bent on taking an aggressive selling approach with a customer. When the customer did not yield, the dealership’s business practices cost it more than $37,000 in penalties and legal fees for refusing to return a $2,500 deposit.
What happened here is all on the dealership.
Here, the plaintiff (the buyer) visited a dealership to purchase a ’07 Honda van advertised for sale at $10,995. The customer signed a retail purchase order, which showed a cash purchase price of $10,995, VIN etch for $198, dealer conveyance fee of $598, sales tax of 6.35 percent, and an unspecified amount for registration of the vehicle, which the plaintiff reasonably expected to be under $150. The purchase order showed a deposit of $2,500, with the statement “NO REFUND OF DEPOSIT.”
When the buyer questioned the NO REFUND language, she was told not to worry as the deposit would be returned if the defendant could not secure financing for her purchase. Two days later she returned to the dealership and paid the $2,500 deposit after she calculated online that her monthly payment on a 42-month loan at 19% (the state maximum) would be $320 per month.
Five days later, the buyer was told she was approved at 26%, but since the law did not permit interest above 19 percent, the dealership had to “buy down” the loan to get it within the legal interest rate. Also, she was told the bank required her to have GAP insurance and a service contract, resulting in a monthly payment over $500 per month.
When the buyer declined, the dealership came back with two other options. Both options required the customer to pay $21,292.90 over the life of the loan – an amount twice the cash price of the vehicle and thousands of dollars more than she would have paid had her monthly payments been $320, as she calculated they should be.
Neither financing package presented to the buyer contained what was provided in the Buyers Order originally signed. All finance offers included additional charges or increased purchase prices.
Forget the numerous compliance violations like failing to include forced GAP as part of the finance charge, and the lack of an Adverse Action notice for failure to provide credit on substantially the terms requested, and no acceptance of a counter offer.
Rather than simply walking away from a bad deal, the dealership refused to let go – and the result, a suit and penalties and fees of more than $37,000, all over a $2,500 deposit!
If aggressive sale and finance tactics don’t work, and the deal is not good for you, then walk away.
Over the years, I argued in court often that there is nothing wrong or illegal about a dealership making a good deal for itself and maybe not so right for the customer. This argument was 100% successful where there had been full disclosure, and terms agreed to by the customer were provided.
So here’s a wiser approach to your next deal:
- Strong arm tactics can cost far over the profit being sought.
- Before you even think about holding back a deposit you better dot your I’s and cross your T’s, and submit a finance offer to the customer that reflects exactly what was agreed to and signed off on by both parties.
- Adding a month or 12 months to the term or including service contracts and other ancillary products changes the deal for the customer and you, the dealer. Don’t do it unless agreed to in writing by your buyer and have that conspicuously annotated on your sales documents.
When a deal turns south, and the customer refuses to go along for the ride, bailout and put them back where they were before you started; including returning deposits and trades.