Remember to Regularly Review Dealer Jacket Materials
By: Micah A. Andrews
Dealers across the country are familiar with the many State and Federal laws regulating the documents and forms used in a dealer’s standard “deal jacket.” This includes regulations related to the dealer’s odometer disclosure requirements, the disclosure of their documentation fees, and rules about the enforceability of arbitration provisions just to name a few. While much effort is put in on the front end to ensure that a dealer’s standard deal jacket paperwork is compliant and includes all the necessary contract language, dealers who do not regularly review their deal jacket materials often face regulatory or consumer complaints down the road. In order to avoid these often-costly complaints, a dealer is wise to sit down and review their standard deal jacket materials on an annual basis to ensure no issues have arisen.
Below are some important contractual provisions and/or disclosures requirements that dealers often realize have become non-compliant, but only after the issue was raised by a regulatory agency or consumer lawsuit:
Arbitration Provisions – Dealers in nearly every State include arbitration provisions within their sales contracts. While one hopes no dispute ever arises that requires arbitration, these provisions can be very important to a dealer as they require a consumer to bring individual disputes before a third-party arbitrator, instead of a significantly more costly class action lawsuit. A dealer should review this provision to ensure it is within their sales contract and properly disclosed to consumers at the time of execution. It is also important to ensure that this provision is generally consistent with any arbitration provision that is included in a financing entities contract.
Documentation Fees – Many State statutes require a dealer to disclose documentation fees collected by the dealership in a specific manner (for example; as its own line-item or with specific disclosure language explaining the nature of the fee). A dealer should review its contracts to ensure that these fees are disclosed correctly.
Financing Contracts – Financing Companies and Banking Institutions purchasing Retail Installment Sales Contracts and Lease Agreements will often provide their own contractual agreements for use in these transactions. While these entities are generally resistant to changes in their forms, a dealer must make sure that they review these documents to ensure compliance with applicable law. This is because disclosure and regulatory requirements do not forgive dealerships for noncompliance because it is not their form. Instead, dealers are responsible for the disclosures within these documents. Generally, most consumer contractual disputes arise from a problem within the financing entities’ form to the frustration of dealers who did not double-check this form when they received it from the creditor entity.
Bailment Agreement/Seller’s Right to Cancel Provision – Many states allow a dealer to cancel an already executed contract if the financing for the purchase ultimately falls through. This allows a dealer to deliver a vehicle to a consumer at the time of purchase, but also equips them to recover the vehicle if the financing company ultimately decides that the consumer’s credit is not approved. A dealer who wishes to use this very useful process must ensure that the “right to cancel” or “bailment agreement” is properly memorialized in the sales contract. However, many dealers fail to include this provision, fail to specifically describe the vehicle return requirements, or fail to assert a right to daily fees if the vehicle is not timely returned. A dealer is wise to review its sales contracts and make sure its bailment language is satisfactory.
Odometer/Titling Requirements – Finally, all States have requirements related to the disclosure of a vehicle’s odometer at the time of sale and the timely and correct recording of a vehicle’s title work. A dealer should regularly review the forms it uses in this effort to ensure that it is meeting applicable regulatory requirements.
Depending on the specific State a dealer is located in, there are often many other contract requirements that a dealer will want to review to confirm compliance. Any questions regarding a dealer’s compliance obligations or specific questions concerning forms within a deal jacket should be directed to your dealer attorney. An experienced dealer attorney can review a dealership’s standard forms to ensure compliance and identify any issues that may be problematic for the dealer in the future.