My email mailbox lit up recently with the rumor that the Federal Trade Commission had dropped Civil Investigative Demands (essentially subpoenas) on a number of dealers. The CIDs, said the rumors, dealt with the dealers’ spot delivery practices.
Dealers who read Spot Deliveryand who are not doing spot deliveries correctly have no one but themselves to blame if the FTC hammers them for bad acts. We have featured several articles on spot delivery “best practices,” outlining steps dealers can take to avoid trouble.
After its Roundtables on auto finance, the FTC asked interested parties to submit additional comments on the Roundtables’ topics. In May of 2012, the attorneys general of Alaska, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Washington, and West Virginia got together and submitted comments for the FTC’s further consideration.
The AGs urged the FTC to regulate spot deliveries to prohibit abusive practices. Their recommendations read very much like “best practices” that dealership lawyers have been urging dealers to institute in connection with these transactions. Here are the specific practices that the AGs urged the FTC to regulate by rule:
- Require dealers to retain consumers’ trade-in vehicles until financing is approved.
- Preclude dealers from threatening to repossess or repossessing vehicles in a manner that does not comply with state law and from threatening to file or filing a theft or other police report due to the consumers’ refusal to return the vehicle to the dealership if financing is not approved.
- Bar dealers from charging consumers for mileage, for wear and tear, or for any other reason, pending approval of financing.
- Require dealers to offer consumers either a complete unwinding of the deal or credit under other terms, with the consumers having the choice to decide which of the two alternatives to accept, and bar dealers from making any representations to the contrary concerning the consumers’ obligations or rights.
- Bar dealers from retaining portions of down payments or deposits when a deal falls through.
- Require dealers to disclose to consumers that if the first finance agreement is rejected, the consumer has the right to walk away from the deal and has no obligation to the dealer.
- Prior to completing a spot delivery, require dealers to clearly disclose to consumers that financing has not been finalized and the responsibilities and potential consequences for consumers.
With a couple of exceptions, these recommendations echo those that I and other lawyers have been making to dealers for several years. Compare the AGs’ list above with the following list from my “Pitch the Bathwater, Save the Baby” article from two years ago (arguing that spot deliveries, done correctly, are not abusive):
- Allow for mutual rescission until the contract is assigned.
- Require a dealer to keep the customer’s trade-in until the customer’s retail installment contract is assigned.
- Provide a reasonable period (say, 10 business days) for the assignment of the retail installment contract, beyond which the deal could not be unwound.
- Prohibit a dealer from imposing any fees on the consumer other than charges for excess wear and use or damage to the car.
- Prohibit a dealer from requiring a customer to re-contract if the retail installment contract could not be assigned.
- Prohibit any unwinding of a deal unless the customer has agreed in writing to the unwind (this last one, in my view, isn’t necessary, since a dealer generally has no unwind rights absent the customer’s written agreement, but the prohibition might still serve a useful educational purpose for dealers and consumers alike).
I’ll add a couple suggestions to those above.
Your spot delivery practices should be in writing and reviewed by your counsel to assure that they reflect best practices like the ones above and that they comply with state laws and regulations. This written spot delivery manual should be updated periodically to make sure that it reflects any changes in the laws and regulations applicable to spot deliveries. Your personnel responsible for handling spot deliveries should be trained on the procedures, and periodically retrained, to make sure that they know what the dealership’s obligations are.
I haven’t seen one of the rumored CIDs yet, but I’ll bet you Mama’s fried okra recipe that one of the things the FTC demands in those CIDs is a copy of the dealership’s spot delivery procedures. Those dealers who can produce one that reflects the best practices outlined above will do better than dealers whose response to such a request is, “Say what?”
Thomas B. Hudson, Esq. (email@example.com) is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry. He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by CounselorLibrary.com LLC. For information, call 410-865-5411 or visit www.counselorlibrary.com.