Remember that the RISC is active as soon as the customer signs it, so be deliberate. BY TONY DUPAQUIER
As business managers, it is our responsibility to protect the dealership’s interests during interactions with every customer. In the business office, that responsibility rises to an entirely new legal level upon consummation of the retail installment sale contract (RISC).
Many F&I managers make handling and explaining the RISC substantially more complicated than necessary, and in some cases can expose the dealership and themselves to litigation. To manage the anxiety over the sales contract, I’d like to review the basic legalities with which you must be familiar and best practices to clearly but properly explain the contract.
A quick disclaimer: This article in no way should serve as legal advice. You should always contact your legal team or state dealer association regarding the laws in your state and addendums that must be signed.
Contract Is Self-Disclosing
Contrary to popular belief, there are no federal requirements for a verbal disclosure of the RISC. Under the Federal Reserve’s Regulation Z, the contract is a self-disclosing instrument that is to inform a vehicle customer of the cost of financing to make a purchase on that day.
In my opinion, the most important thing that every business manager, dealer, general manager and sales manager needs to remember about the RISC is that as soon as the dealership has printed the contract, handed it to the customer on-premises and had it signed by that customer, it is consummated, hot, active.
Under that contract, the selling dealership is the original creditor. It is not the customer’s concern if the dealership winds up unable to get the loan approved or funded at the stipulated terms for any reason. (That is, except for in the handful of states that give recourse to the dealership assuming proper notification was made to the customer in the contract.)
Conditional Agreement Isn’t An Option
I know some of you reading this article are thinking, “We’ll just have the customer sign a conditional sale agreement/bailment to protect us in the event we can’t secure financing from an outside source or funding of the RISC.” Maybe your state association or legal team has told you this is an option.
In reality, such a conditional form is null and void upon consummation of the RISC. In fact, many dealerships have gotten themselves in hot water by demanding the vehicle back from the customer or trying to have the buyer sign a different RISC after the fact. Once the customer signs the RISC in your dealership, the dealership becomes the lienholder. If you look at the top-right box on most RISCs, it will read “Seller/Creditor.”
It is critical that all dealership managers remember that a customer has a right under federal Regulation Z to review the RISC before signing it. That customer can take the yellow Truth In Lending copy for 24 hours, knowing the stated terms must stay in effect, before signing it.
If a customer wants to take the copy to his or her attorney or accountant, or to the dealership down the street, then you must let that happen. This does not mean your dealership has to deliver the vehicle, but it does mean you must provide a copy of the contract for review. This is clearly written on the bottom of the RISC, and if a customer ever requests a copy, I would bet you are being tested. Do not fail this test.
Don’t Mark Up The RISC
However, your people want to refrain from making any foreign marks on the white copy of the RISC. If you do, the finance company may deny funding. Although there has been debate recently about whether a business manager can at least mark where the customer is to sign, it is better to be safe than sorry. Don’t highlight, don’t make an X, don’t leave a dot.
Instead, it’s safer just to use your pen to point to where the customer is to sign, without ever leaving a mark. Once the customer does start to sign in your business office, he or she must sign all documentation and in their full name, no initials.
Steps To A Careful Disclosure
Following is an eight-step verbal disclosure about the RISC that my group teaches in F&I school:
1) Hand the Truth in Lending copy of the RISC to the customer. Don’t slide it across the desk. If your dealership prefers electronic RISC transmission, print off a physical copy and hand it to the customer.
The Truth in Lending copy does not need the customer’s signature on it, although the most common practice in the marketplace is to hand over the entire four-page RISC and say, “This is your retail installment sales contract. I would like for you to take it and review it.”
2) Review the agreed-upon term, payment and first payment date on the RISC.
3) Start at the top of the contract and review the customer’s information as well as the seller/creditor information.
4) Review the information about collateral on this contract. This means the vehicle year, make and model, and VIN.
5) Review the federal Truth in Lending boxes with the customer. A good verbal disclosure of these boxes would be: “This shows your APR, your finance charge, your amount financed, your total payments, and your total sales price including your down payment.”
Your staff is not required to verbally review any of the numbers listed in these boxes. According to federal Truth in Lending laws, this is what makes the RISC self-disclosing.
6) Disclose the itemization of amount financed. This would be the selling price including sales tax, title and licensing fees, and the prices of any financial services products and insurance policies that the customer opted to purchase along with his or her loan.
7) Go back to the agreed-upon payment and re-disclose the term, payment and the first due date of this loan.
8) With your shiny tip pen, point to the individual signature lines that the customer must sign. Have the customer sign the RISC in the appropriate locations. Depending on your state, you will need a minimum two signatures. In California, 10 signatures are required on the contract.
Explaining the RISC and making all necessary disclosures do not amount to a difficult sequence, and it should not prove taxing for the customer to understand the terms and conditions. Business managers should make sure to follow up with any appropriate state laws about which they need to be aware, and with any additional addenda to the contract that also must be signed.