*Cash Back Loans This one occasionally raises its ugly head and isn’t usually the fault of a salesperson or manager. On the contrary, it actually originates from the customer who wants to use the money to pay off a high-interest credit card or other obligation. I’ve even heard some customers wanting to avoid paying sales tax (my state allows trade tax credit) with the sales department actually listing the customer as the pay-off bank on the Buyer’s Order! This practice seemed to gain popularity when 0% interest was first introduced and even though we don’t read about it much these days, it still continues. Like some of you, I’ve actually seen Buyer’s Orders with sales prices increased to accommodate the customer’s wishes. The dealer simply cuts a check back to the customer and the bank funds the contract. “No harm no foul” you might say. ‘Not so fast’ says Thomas Hudson of Hudson & Cook-and the author of CARLAW F&I Legal Desk Book which happens to be the study guide for the Association of Finance and Insurance Professionals (AFIP). His take, when asked about the ramifications of such a practice, was clear in the May 2018 issue of F&I Showroom magazine- I shared with him some of the various conversations and debates I’ve had with other F&I pros regarding so-called “cash-back” practices. And, well, his reply wasn’t surprising. “A couple of thoughts: My spider-sense goes off any time the numbers in the deal don’t really represent what they are supposed to represent. Courts and regulators never like it when numbers have to be explained as something they aren’t,” he said. “that said, I’d share your concerns with all these scenarios.” “I find that it is common for finance company reps dealing with dealers to approve all sorts of things that the finance company’s lawyers would choke on, when both the dealer rep and the finance company rep get paid on originations, there’s often a real devil’s deal going on.” “The dealer agreement probably has something (in legalese) that says the numbers reflect the deal, and it also says that it (the dealer agreement) can be amended only in writing. The wink and nod from the guy on the [approval] desk are worth nothing when it’s time for the finance company to shove the deal back to the dealer.” And here’s the kicker: “Also, these are arguably Truth In Lending Act/Regulation Z violations, Unfair and Deceptive Acts, And Practices, state sales tax violations, etc. — by the dealer, who, despite the fact that most dealers don’t understand it, is the initial creditor in the transaction. The finance company reps can’t ‘OK’ a dealer’s law violations and torts.” The moral of all this is, if it smells like a rat, then it probably is. If not, then why would the dealer employee be so interested in getting the credit buyer to OK the practice in the deal notes? *Scooping Rebates This practice is one of the more creative ways of padding deal profit at the expense of customer satisfaction. You see, some new cars can qualify for multiple rebates based on a myriad of criteria and often, new ones can pop up at the last minute due to manufacture sales planning goals. The scenario goes like this: The customer has been shopping for a while and finally decides to pull the trigger and sets up a delivery time to finalize everything. Rebates have been discussed as part of the proposed sale numbers and everyone has agreed. And since rebate dates must coincide with actual deal dates, management will pull a fresh update, and sometimes a new one has been added. Viola! Since the customer has already agreed to numbers, unscrupulous staffers will refigure the same agreed-upon payment or bottom line price by adjusting the sales price and absorb the scooped rebate as additional profit. 6
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