Review Your Indirect Lender Agreements
March 18, 2009
With the tightening of the credit markets and bankruptcies on the rise, many lenders are enforcing often overlooked provisions in their dealer agreements. When reviewing your agreements, look for the following items at a minimum.
- All of your representations and warranties should be limited to “the best of the Dealer’s knowledge and belief.”
- All of your indemnity provisions should be limited to “valid, binding and enforceable claims or defenses only.”
- Any EFT or ACH agreements should be limited to credit entries only…do not allow the lender to take funds from your account.
- You should not provide any warranty with regards to the vehicle or the servicing of the vehicle.
- Closely examine the lender’s definition of a down payment…some lenders do not include traveler’s checks or credit cards in their definition.
- Ensure that only the owner can sign any recourse paper.
- Verify that the bank will take responsibility, as required, under all of the privacy regulations.
If you have any questions or comments about this topic, please let us know. We’d love to hear from you.
Why does GMAC not have to follow REG Z definition of “down payment” which allows for a portion of down to be deferred as long as it is due before 2nd regular payment and is not subject to interest. GMAC says dealer must have all $down as of contract date or dealer can be reassigned contract if it defaults.
Regulation Z is all about consumer disclosure of loan terms. GMAC is required to follow Reg Z when it discloses loan terms to consumers. Dealers are also required to follow Reg Z when disclosing loan terms to consumers. The contracts dealers prepare for consumers are between the dealer and the consumer until the dealer assigns (sells) the contract to GMAC. GMAC can set the terms for which it is willing to take assignment of (purchase) contracts from dealers, and, likewise, dealers are free to accept or reject those terms and choose to not assign (sell) contracts to GMAC. Reg Z does not govern the assignment of contracts. It governs loan-term disclosure to consumers.
Oh by the way — GMAC is not the only lender that has this type of requirement. Almost every lender requires down payments to be made in cash and forbids any part of the down payment to be loaned to the customer from the dealer or any other party. Many banks intend these types of provisions to mean dealers cannot accept down payments on credit cards.
There are many other onerous terms and conditions in most lender agreements. Many such agreements hold the dealer responsible for the truth and correctness of all information and/or statements made by the dealer or customer and/or supplied to the lender regardless of whether the dealer knows the information or statement is untrue or incorrect.
Many lenders will negotiate terms of their agreements. Every dealer should have their lender agreements (and for that matter, all agreements) reviewed by their attorney.
None of the information herein is intended as legal advice. For specific legal advice, you should consult your attorney.
Mike Shanahan, Esq.
Stewart & Irwin P.C.
317) 639-5454