It usually happens like this: your dealership finance & insurance manager places a new lender agreement on your desk for you to sign.
Despite the fact that you have 67 other signed agreements, this new one is a must-have lender.
Their rates are 25% lower than anyone else, they're buying everything, they approve deals no one else would buy, or their relationship with a local credit union will send all of their members to your dealership.
Whatever the reason, and regardless of whether your store needs another lender, be sure to read lender agreements, as there are areas of exposure that many dealer principals or general managers do not catch. They just sign the documents.
Too often, dealers presuppose that all of these agreements are the same, and there's no recourse to make changes. However, depending on the circumstances, lenders do show flexibility. Their willingness to alter the agreement often depends on the size of your store and its volume potential, but, when warranted, all attempts should be made to work with the lender to make changes that can help protect the dealership.
Lender agreements make the dealership represent and warrant a long list of actions and indemnify the lender against a long list of issues. It's wise to read and examine them, and make sure your F&I staff acts accordingly in doing business under an agreement with a particular lender.
Dealers should pay attention to certain areas that are typically included in lender agreements:
- The dealer is asked to represent and warrant that the contracts or leases they use meet all federal and state laws. Reasonable? Yes. But most of those forms are provided by the lender themselves, and the deal will not be funded if written on a form that is unacceptable to the lender. The dealer has no choice in the matter. So make sure your people use the right form.
- The dealer has to agree to comply with all state and federal privacy and data protection laws. Once again, a reasonable requirement, however nowhere in most agreements does it suggest that the lender is required to do the same. Although they, of course, have legal requirements of protecting data and customer's privacy, those requirements aren't usually found in the lender's agreement, and there's no good reason they shouldn't be.
- There is usually an extensive list of warranties that the dealer has to give the lender on each contract bought. These focus on fraud and misrepresentations by the customer or dealership, and they provide the lender their protection against different scams and improper conduct. Such common assurances are: that the customer's information is accurate, that their signatures are valid, that there is no information that would indicate that the contract might not be collectable, or the down payment is in cash and not loaned to the purchaser. Any breach of these could cause the contract to be repurchased or open up the dealer to additional liability. The different warranties vary greatly by lender but are usually thorough. Ensure that the dealership personnel are in compliance with these assurances and are not creating exposure for the store.
These are just a few examples. Most agreements have a number of other areas that ideally could be changed to create a more balanced document.
Whereas a dealership has a strong relationship or is sending significant volume to a particular lender or two, it might be an opportune time to take another look at the lender agreements.
Bryan Dorfler is an F&I consultant. E-mail: [email protected]