 I have spot delivered a car to a customer, and I am then unable to obtain financing for him. What do I do if the customer refuses to return my vehicle or returns it with excess wear and tear or damage?If a customer refuses to return the vehicle, the dealer may sue for replevin and/or damages. However, the dealer does not normally have the right to repossess the vehicle at this time. Repossession is an extraordinary remedy, which only may be exercised by a dealer when he has a security interest in the vehicle and there is a default. Inasmuch as the security interest normally won't arise until execution of the retail installment contract, repossession is not available to dealers in these instances. Oftentimes dealers use riders to the Retail Installment Contracts with language that provides that the buyer shall return the automobile and that the seller shall return to the buyer all deposits less the value of any damage done to the vehicle. However, the Illinois Attorney General has issued an opinion that such language is in violation of Section 2C of the Illinois Consumer Fraud and Deceptive Business Practices Act which provides in relevant part: "If the furnishing of merchandise ... is conditioned upon the consumers ... having a credit rating acceptable to the seller and the seller rejects the credit application of that consumer, the seller must return to the consumer any down payment ... made on the purchase order or contract and may not retain any part thereof. The retention by the seller of part or all of the down payment ... is an unlawful practice within the meaning of the Act." Does prior use need to be disclosed on the sale of a used vehicle?A recent Illinois appellate case indicates that a selling dealer has an affirmative obligation to disclose prior use of a used vehicle, specifically if the vehicle was used in fleet or rental operations. Moreover, this obligation is not limited to only the previous owner's use. It appears that a good method of meeting this duty imposed by the courts would be to provide a customer with a complete vehicle history at the time of sale, using one of the well known services to accomplish this. This information should be made available to the customer prior to his executing the closing documents; the dealer should have the customer sign an acknowledgement that he has provided this information prior to the sale and should retain that acknowledgement in the dealer file. My customer has informed me that he is "revoking acceptance" of the new car that he purchased. What does this mean and how can I contest it?Under Section 2-608 of the Uniform Commercial Code, revocation of acceptance is provided as an extraordinary remedy to a car buyer. The remedy is available only when the product's non-conformity substantially impairs the product value to the buyer. While "substantially impairs" is an undefined term, the courts are given wide discretion in this area. The issue is to be judged from the perspective of the buyer, and might well include consideration of diminished value, as well as market value. The UCC clearly provides that revocation must be taken within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in the condition of the goods which is not caused by their own defects. It is possible to contest revocation on the theory that although the condition of the car may not have changed much in the physical sense, its value on the marketplace will already have declined appreciably since it is a secondhand car. However, if a buyer is successful in revoking acceptance, he is entitled to have refunded the entire retail price plus perceived monetary damages. May I do a direct mail campaign wherein a coupon is offered to further discount a vehicle for sale?No. This offer would be in violation of two Illinois provisions. The first, Section 475.530 of the Illinois Administrative Rules on Motor Vehicle Advertising, prohibits cash rebates, including, without limitation, a payment or an offset to a consumer or a payment to a dealer or a third party on behalf of the consumer on the condition that the consumer purchase or lease a motor vehicle, unless it is funded solely by the manufacturer pursuant to a manufacturer's rebate program. Additionally, the Illinois Consumer Fraud and Deceptive Business Practices Act regulates "coupons." It prohibits the use of any coupon offered in connection with a retail sale where the price is arrived at through bargaining or negotiation. May I send out a direct mail piece targeting customers who have filed for bankruptcy?This issue is covered by the Loan Advertising to Bankrupts Act. That Act provides that no person engaged in the business of making loans or selling property or services under installment contracts may include in any solicitation of or advertisement for such business any language stating or implying that a loan or extension of credit will be made to a person who has been adjudged a bankrupt. Accordingly, a dealer should avoid the use of the words "bankrupt," "bankruptcy," and the like. It is permissible to imply that credit will be made consumers who have "bad credit" or the like. Fines for violating this provision can amount to up to $1,000 for each person the advertisement reaches. I am a Cadillac dealer. My buddy, who is the neighborhood Chevrolet Dealer, wants to purchase a Cadillac from me for his personal use. He provides me with a copy of his resale certificate and asks that I not charge retailers occupation tax/use tax on the transaction. Can I be held liable?Yes. In Illinois, sales of tangible personal property for resale are exempt from tax. However, in this instance, this is a sale for use rather than for resale. Upon audit, the Department of Revenue would deny a resale exemption because the Chevrolet dealer does not have a franchise to sell new Cadillacs, but may only sell that car as a used vehicle. Personal use takes place prior to that sale, and accordingly the transaction is a sale for use rather than a sale for resale, and subject to ROT tax. When the vehicle is sold "used" by the Chevrolet dealer, ROT tax must be charged again predicated upon that sales price. How far back may the manufacturer audit warranty claims or other incentive and reimbursement programs?The Illinois Motor Vehicle Franchise Act provides that the manufacturer shall have the right to require documentation for warranty claims and to audit such claims within a one year period from the date the claim was paid or credit issued by the manufacturer. With regard to other incentive and reimbursement programs, the manufacturer has the right to audit such claims within an 18 month period after the date of the transactions that are subject to audit. Notwithstanding the above, the manufacturer retains the right to charge back any fraudulent claim if he establishes in a court of competent jurisdiction in this State that the claim is fraudulent. What amount of damage must be disclosed on a new or used vehicle?On a new vehicle, the Illinois Motor Vehicle Franchise Act, as amended January 1, 2003, provides that a dealer must disclose in writing any damage of which he has actual knowledge, incurred between the end of the manufacturing process and the time of delivery, which exceeds 6% of the MSRP of the vehicle, excluding damage to glass, tires, bumpers, video and telephonic components, and in dash audio equipment, if said items were replaced with OEM equipment. With regard to the sale of a used vehicle, no Illinois Statute applies. Accordingly, the theory of common law misrepresentation would provide for dealer liability for an intentional misrepresentation of a material fact relied upon by the customer to his detriment. In this context, intentional means the dealer "knew or should have known" of the damage. The definition of "material" is left to the courts, but the rule of thumb is that it is material if the purchaser would have made a different purchase decision had he had knowledge of the damage. How far away must a relocated or new franchise be from an existing franchise of the same line make?The Illinois Motor Vehicle Franchise Act provides that the manufacturer may not grant an additional franchise in the relevant market area of an existing franchise of the same line make or relocate an existing motor vehicle dealership within or into the relevant market area of an existing franchise of the same line make without a showing of good cause. The appointment of a successor motor vehicle dealer at the same location as its predecessor, or within two miles of such location, or the relocation of an existing dealer within two miles of the existing location, is exempt from these requirements. In a county having a population of more than 300,000 persons, the manufacturer is prohibited from relocating a franchise within seven miles of the nearest dealer of the same line make absent a showing of good cause. With regard to the appointment of a new franchise, the manufacturer is prohibited from granting an additional franchise in the relevant market area, which is defined as an area within ten miles from the principal location of the dealership in a county of more than 300,000 persons or the area of responsibility as defined in the franchise agreement, whichever is greater, absent a showing of good cause. With regard to both a proposed relocation or grant of additional franchise, the manufacturer may attempt to show, and has the burden to establish, that good cause exists. The relocation or granting of the new franchise may not take place before the hearing process is concluded pursuant to the Franchise Act. A determination whether good cause exists is made by the Motor Vehicle Review Board pursuant to Subsection (c) of Section 12 of the Franchise Act. What does the FTC used car rule generally provide?requires a dealer to post a window sticker, called the Buyer's Guide, on every used car or light truck offered for sale. The Buyer's Guide must be in the exact format required by the rule and must be filled in according to the directions. In addition, the Buyer's Guide, or a copy, must be provided to the purchaser at the time of sale, and the information contained therein must be incorporated into the Contract for Sale. Any dealer who offers six or more used vehicles for sale in twelve months is covered by this rule. However, sales to other dealers are excluded. Demonstrators are specifically covered. You should further note that if a used car transaction is conducted in Spanish, a Spanish language version of the Buyer's Guide must be provided to the consumer. Finally, if your dealership enters into a service contract with a consumer either at the time of sale or within 90 days thereafter, federal law prohibits you from disclaiming or modifying any implied warranty to the consumer. May I obtain a consumer's credit report without written permission?The dealer may always obtain a credit report if the dealer has signed permission from the consumer. However, the FTC has recently interpreted the revised Fair Credit Reporting Act to provide for a two part test for obtaining a consumer's credit report without a signature. Those two parts are:
1. The consumer clearly understands that he or she is initiating the purchase or lease of a vehicle; and
2. The seller has a legitimate business need for the consumer report to complete the transaction.
Accordingly, a dealer may not obtain a credit report without written permission when a consumer is requesting only a test drive or asking questions about prices or financing, or if it is solely for the purpose of negotiating with a customer.
There are inherent risks in taking credit applications over the phone. Penalties can run to $2,500 per violation. When in doubt, written permission is always recommended, and such permission should be retained by dealers for three years. My customer purchased a vehicle, and executed all the paperwork. Now, two days later, he has returned the vehicle to my dealership and claimed that he is rescinding the sale under the Federal Trade Commission's "Cooling-Off Rule." Can he do this?No. The Cooling-Off Rule, which provides three days to cancel purchases of $25 or more, applies to sales at the buyer's home, workplace, or dormitory, or at facilities rented by the seller on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fair grounds, and restaurants. It applies even when the purchaser invites the salesperson into his home. However, it does not apply to sales made on the premises of the dealership. It further specifically exempts sales of automobiles, vans, trucks or motor vehicles at auctions, tents sales or other temporary places of business, provided that the seller is a seller of vehicles with a permanent place of business. |
