New car dealers beware; arranging financing for a customer from a used car dealership can lead to fines, litigation and/or chargebacks from your lenders.
Typical scenario: used car dealer advertises vehicle and attracts a willing customer. Customer wants to finance the vehicle but the used car dealer has no relationship with lenders. Neighboring new car dealer has access to several lenders. Used car dealer asks the new car dealer to obtain the financing for the customer through one of the new car dealer's lenders. Used car dealer offers to pay the new car dealer a "finders fee" plus any fees paid to the new car dealer from the lender. Totally legal; right? Maybe yes, maybe no.
This exact scenario has led to many fines from the Department of Motor Vehicles and Consumer Affairs, customer lawsuits and the chargeback or reassignment of loans from lenders to dealers on the basis of fraud and misrepresentation. If not done properly and diligently the handling of financing for a customer of another dealership can be
disastrous
.
The key to doing this process correctly is to make the used car customer your customer. First the used car dealer must wholesale the vehicle to your dealership. This will include the preparation of an MV-50 and bill of sale transferring ownership of the vehicle between dealerships BEFORE the vehicle is ultimately delivered to the consumer. Second the vehicle must be physically transferred from the used car dealership to the new car dealership. Lastly, the customer must be told of the transfer and instructed to complete the negotiations and sales process at the new car dealership. The new car dealership will prepare all usual and customary sales, finance, title and registration documents and have them executed by the customer at the new car dealership. The vehicle then gets delivered from the new car dealer's lot. The new car dealer is then considered the "selling dealer" and is also fully responsible for the lemon law warranty and the DMV Certificate of Adequacy.
Dealers are exposing themselves to considerable liability by skipping one or more of the steps above. Failure to follow any of the steps above can cost you thousands to tens of thousands of dollars in potential fines, penalties and litigation payouts plus placing your DMV and/or DCA license at risk of suspension or revocation.
Don't risk the unnecessary exposure to fines, penalties and costly consumer lawsuits. Develop a policy at the dealership for following the proper procedures for handling a finance deal from another dealership and instruct all employees to follow them to the letter.
