The continuing economic downturn is impacting more than dealership profit margins. It has recently come to our attention that lenders are employing desperate measures in an attempt to force dealers to buy back their contracts. More specifically, lenders are clinging to any arguments that they can make, however credible, that dealers are in default on their contracts. Some examples are instructive and will serve to put dealerships on notice of recurring lender tactics.
One of our clients contacted us when a lender attempted to argue that the dealer was in default because the car had been returned with wheels other than those listed in the contract. The lender attempted to argue that the dealer had fraudulently completed the contract. The lender reasoned that because the vehicle had been returned with cheaper wheels, the cheaper wheels must have been on the car when the dealer leased it to the customer. The lender somehow discounted the possibility that the customer, who had been driving the car for over a year, might have decided to change the wheels. Luckily, the dealer in question had taken a picture of the car at the time the lease was executed. The picture, unsurprisingly, included the type of wheels that the dealer had listed in the contract.
Another one of our clients contacted us when a lender attempted to argue that the dealer was in default because the contract did not disclose that the customer was purchasing the car for his child to drive. There was nothing unusual about this case. The title was in the customer’s name. The child was simply the primary driver. I can only imagine how many dealers would be in default if failing to disclose that the customer was purchasing the car for his child to drive constituted an event of default. More importantly, in most cases the customer would have no reason to disclose this information to anyone other than his insurance company.
Lastly, we have seen a lender attempt to argue that a dealer’s failure to include a picture driver’s license for a spouse constituted an event of default even when the spouse had never obtained a license to drive.
Desperate times make for desperate measures and some lenders have adopted the worst practices of collection agencies. Their behavior is borderline extortion and should be met with aggressive resistance. We have successfully prevented buybacks and urge dealers to challenge these objectionable lender practices.