Is It Legal for a Dealer to Place You in Default If Payment Is One Day Late?

Interviewer: Is that even fair or legal that you can be in default if you’re one day late on one payment?  Or are there are no rules?

Andrew Campbell: It’s a contract and in the state of Michigan, the terms of the contract, have to be honored.  You have the ability to shop wherever you want, and everyone’s going to really have the same deal. 

So if you are late you could be in default, even if just one day. Default is not a term defined by law, it is term defined solely by the contract that is signed.

The contract itself is technically known as a Retail Sale Installment Contract (RISC). It is a legal sized document in triplicate form. Most of the terms are in fine print on the back of the form. 

This is where you figure out how default is defined.

Most dealers want to have as much power over the deal as possible. So most of the time the contracts state that you are in default if you are even one day late. 

This tends to be confusing to many people because sometimes they are a couple of days late and the dealer doesn’t have any issues with that. 

The problem is that there is often a clause in the contract known as an “anti-waiver” clause that says any waiver of any right under the contract by the dealer does not constitute a waiver of any other right.

This simply means that the dealer doesn’t have to default you simply because you are one day late. If that continues on and on, however, they can default you for the same thing at a later time. 

So a consumer might not be able to always use that as a defense.

Most of the time, they would prefer to have your payment rather than just to put you in default.

When I talk about auto dealers I am usually talking about the worst of the worst. 

Keep in mind that I only see the problem cases. The victims of scammers. Most dealers do the right thing. It is an unfortunate fee that choose to do business in more risky ways than others.

Churning a Car Is When the Dealer Tries to Sell the Same Car Repeatedly but Only to Collect as Many Down Payments as Possible

Most businesses would rather have your payments.  They would rather have the deal keep going.

Most want you to come back and do business with them again. But unethical dealers want to scam you.  They want to churn the car.  They want to take that car, sell it, and basically get the vehicle back from you as quickly as possible.and sue you and make you pay some

Then they want to sue you and make you pay the deficiency balance.

The deficiency balance is the difference between what the car sold for and what was originally owed.

Typically at auction sales the dealer is getting only 40% of the retail value, at best.

So the spread can sometimes be quite significant.

You may have defaulted on the car loan years and years ago and suddenly be sued for the deficiency.

A dealer or holder of the contract only has 4 years to sue you though. This runs from the date of repossession.

So if you do get sued make sure you know the date of the repossession or have documents that support the general time period the repossession would

Unethical dealers want to scam you.  They want to churn the car. 

What does “churn” mean?

They want to take that car, sell it, and basically get the vehicle back from you and sue you and make you pay some money, and then sell the vehicle again to someone else.

Churning scams are where they just try to sell the same vehicle two or three times a year, and all they’re trying to do is get the down payment again and again.

Is There a Common Scenario When Encountering an Unethical Car Dealer?

Interviewer: Do your clients tend to have similar stories about how they were taken advantage of at a car dealer?

Andrew Campbell: Well, they always say the sales guy said, this, this and this, and they said they would do this and this and this, and now they’re saying something completely different.  I’ll say, “Okay, well, when they said those things, did they put those things in writing?”  They’ll say, “No.”

have occurred.

Getting a good quality credit report is also important as well. So I recommend going to and getting all three separate credit reports.

Many of my clients use services that give them access to one or two reports. So keep in mind that you might not be able to get all three separate reports.

Make sure you keep all credit reports in one place. Those are extremely valuable.

Some creditors or debt collectors will try and extend the time to pursue you by misrepresenting the date of default.

So it is vital that you keep copies of all credit reports.


Many People Receive Verbal Promises from Sales People that Ultimately Do Not Appear in the Contract

I’ll say, “Well, you have to have whatever was promised in writing, because you really can’t trust what people say unless it’s in writing.”  If it’s not a part of the contract, then it just as well might not exist.

In fact, there will be specific clauses in the contract called zipper clauses, and they’ll say, “Look, these are the entire terms of the agreement.  No other negotiations are part of this agreement.  It’s called the four corners rule.

All details, all agreements and all representations are within this agreement. 

People don’t read the contracts carefully.  They believe the sales people, and the sales people don’t even know what they’re saying half the time. 

The sales people are all driven by a commission. 

It’s unfortunate that it’s usually sales commissions that really are the major problem, or driver of fraud in our country.