Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
Issue link: http://autodealermonthly.epubxp.com/i/72788
industry expert / legal Preparing Multiple Contracts? Think Again Thomas B. Hudson, Esq. is a partner in the firm Hudson Cook, LLP; the author of four CARLAW® books; the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers; and the editor in chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. For information, call 410.865.5411. THudson@AutoDealerMonthly.com open a deal jacket with two or three fully executed retail installment sales contracts, all with different terms. Because the terms of the transactions are different, the federal disclosures that are built into most retail installment con- tracts will be different, as well. O When I ask why multiple ccasionally, I'll be conducting a dealer compliance audit and contracts are contained in the deal jacket, I'm frequently told something like, "We don't know which finance company will buy the deal, so we do different deals to reflect the terms required by the various companies that buy our paper." That leads to a lengthy explanation of why the prac- tice is a very bad idea, logically unsound, and in violation of a number of state and federal laws. Here's an example of the sort of mischief that can result from multiple disclosures. The case is from the housing finance world, but the princi- ple applies to vehicle finance transactions, as well. Martha Young refinanced her home in July 2007. At the closing, the closing agent presented her with three versions of the Truth in Lending Act disclosures. One was dated July 2, 2007, one was dated July 10, 2007, and one was dated the date of the closing, July 19, 2007. The final disclosure accurately disclosed the information for the loan Young received. The closing agent gave Young the final version to take home and kept the earlier versions. Each version contained different information. The earlier versions were presumably copies of disclosures delivered to Young during the applica- tion stage that the creditor wanted signed for recordkeep- ing purposes. The loan was eventually assigned to One West Bank, FSB. Young sued the bank in the U.S. District Court for the District of Oregon to rescind the loan under the Truth in Lending Act and for damages under TILA. The bank moved for summary judgment, arguing that Young had no case. The bank argued that the creditor complied 12 with TILA because the final version was accurate. The court denied the motion. The court found that the credi- tor failed to provide "clear and conspicuous" disclosures of the loan terms. The court stated that nothing in the record indicated that the creditor attempted to explain to Young why she was asked to sign different versions of the disclosure. According to the court, a reasonable consumer would not notice and understand the information in the final version if the consumer was asked to sign several versions contain- ing different information with- out any explanation of why she received different versions. It is not clear whether the court would have been satis- fied if the record showed that the closing agent explained that the creditor wanted Young to sign the earlier ver- sions simply to acknowledge receipt of disclosures that had been delivered to her during the application process, but that the final version was the version that applied to the closing itself. Remember that compliance with the federal Truth in Lend- ing Act is your responsibility, even if you assign your contracts to a bank or sales finance company. If your dealership prepares multiple contracts, you should pay attention to this case, and address the issue with your lawyer.