Much of what it means to be a lawyer involves knowing what to say and what not to say. Dealership personnel, however, generally do not take as much care when communicating with a customer.
I'm convinced people, even old ones, can be taught to change the way they do things. My call to all F&I writers and managers is to start paying attention to your word choices! Here are some examples:
The Interest Rate
If a customer asks, “Is that the best interest rate I can get?” your finance manager may respond, “Yes,” even though they are making 2% on the back end.
In the finance department, recognizing that spoken words play a crucial role lessens liability. In the example above, when the finance manager says “yes” to the customer's question, it can generate liability for a dealership. When plaintiff attorneys lose the argument that finance reserve is an illegal kickback, they then turn to a standard fraud argument: “My client asked if he qualified for a lower rate and the dealer said ‘no.’”
So how does a dealer prevent such a claim? With proper training and written acknowledgments. Tell personnel to avoid phrases such as:
- “This is the best interest rate available.”
- “You won't be able to get a better interest rate than this.”
- “We are going to find the best interest rate for you.”
- “We can't give you a better rate than this.”
- “The computer just ‘spits out’ the interest rate.”
And instead, use phrases such as:
- “We feel this is a very good rate, but you are always free to get your own financing.”
- “A lower rate just doesn't make sense for us.”
- “You will find that our rates are very competitive.”
- “We sell our loans to various lenders who compete for our business.”
Loans and Lending
When is the last time your dealership lent money to a customer? If you're like most dealers, probably never (at least not intentionally). Dealers offer vehicle financing. So why do salespeople continue to offer “car loans?”
Calling vehicle financing “loans” or referring to what a dealer does as “lending” can have legal consequences. But mainly, it causes plaintiff attorneys who don't understand installment sales to make those illegal kickback arguments mentioned earlier. Worse yet, a judge equally unfamiliar with installment sales may accept the argument!
Loans are subject to licensing requirements, interest rate caps and other regulations that installment sales are not. Most importantly, a commission received by a dealer pursuant to a loan is illegal in many states whereas yield spread (reserve) made pursuant to the assignment of a conditional sale contract may not be.
The moral: teach all your sales and finance personnel to use terms such as “financing” and “credit” rather than “loan.” Similarly, financial institutions should not be referred to as “lenders.”
Extended Warranty… Not!
The phrase “extended warranty” must be eliminated from the vocabulary of dealer personnel. Service contracts are not “extended warranties.”
Here's the Federal Trade Commission's position on this:
“A service contract is a promise to perform (or pay for) certain repairs or services. Sometimes called an “extended warranty,” a service contract is not a warranty as defined by federal law. A service contract may be arranged at any time and always costs extra; a warranty comes with a new car and is included in the original price.”
Dealership representations that confuse a service contract with a warranty can lead to consumer fraud claims.
Will it require re-training to avoid liability pitfalls? Yes. Better that than a lawsuit.
Former car salesman turned lawyer Rob Cohen is managing partner of Auto Advisory Services, a dealer compliance consulting company.