What Is the Typical Scenario of a De-Horsing Practice?

Andrew Campbell: There are all sorts of legal claims that come up in this scenario.   Typically, the dealer hands you the keys and you’ve signed the financing documents.  In Michigan, once the dealer hands you the keys it’s called a spot delivery.  Once they handed you the keys and you’ve signed the financing paperwork, the deal is done.  The deal can’t fall through.

The problem is the dealer doesn’t really educate and doesn’t really tell the truth to the buyer.  The dealer won’t say, “Oh, you have to make payments to us and here’s where you send the payments” because the financing company always has an obligation.  They’ll send out the payment books.

I don’t know if you’ve seen those payment books.  Sometimes they’ll do it by e-mail now or they’ll do automatic payments.  When the dealer has to finance the deal, the dealer doesn’t want to finance the deal.  They make the money by selling the paper.

Recent Car Buyers Should Be Wary If They Haven’t Received Notification about Payments

That’s how they make their money.  They don’t want to do that, so they’ll lie.  They won’t send out payment books.  They won’t send out letters when payments are due.  They’ll just let the payment due date go by and then they’ll repossess the vehicle and they’ll say, “Oh, the person who bought the vehicle defaulted on the loan.  They defaulted, so we could repossess.”

Interviewer: If this occurs people should say, “We want to undo the deal” and then, also, if people don’t get a notification when their first payment is due, by e-mail or regular mail, they should be worried?

Car Dealers Can Correct Financing That Initially Falls through

Andrew Campbell: They should be very worried.  I want to emphasize that it’s not all dealers that do this and it’s not always a scam.  Sometimes the financing falls through for an unexpected reason, and the dealer can correct it.

There are ways to correct it but that doesn’t mean that you’ve defaulted.  That doesn’t mean you’ve done anything wrong.  What the deceptive dealer will often say, “Oh, the person who signed this application lied.  The buyer lied on their application for credit.”  They always say they committed fraud.

The Truth in Lending Act was created to Provide Information about Financing to Consumers before They Make a Major Purchase

But that is irrelevant, because under the truth in lending act, any time you go to a used car dealer, one of the things you should do, if you’re buying a car, is you’re going to be signing documents.

One of the documents you sign is the truth in lending act disclosures, and those disclosures tell you exactly how much your credit’s going to cost you.  Whenever you go get a mortgage, whenever you go get a car loan, you sign the same document.

Interviewer: The document will indicate with interest, if you pay on time, the total amount you’ll pay over X number of years?

You May Be Able to Learn in Advance if a Dealer Is Planning a Deceptive Practice by Asking to Take Purchase Paperwork with You to Compare Pricing

Andrew Campbell: Exactly.  It’ll tell you the finance charge.  Commonly, the document has four or five different boxes with all the numbers and the interest rates.  When you see that document, you can test the dealer by simply taking that document, standing up and saying, “Do you mind if I take this and go compare prices at another dealership?”

If the dealer’s honest, they’ll say, “You can go ahead and do that, but we want to sell a vehicle to you, so keep us in mind.”  A deceptive dealer will say, “No.  No.  Don’t do that.  Don’t take that.”

The truth in lending act is all about being able to figure out how much credit’s going to cost you and then shop and compare with other competitors, with other dealers.  That’s the whole goal of it.

As a Consumer, You Are Well within Your Rights to Compare Prices and Interest Rates for Financing in Advance of Making a Commitment 

But the problem is that the industry never gives you the truth in lending disclosure document until you’re finalizing the deal.  People feel like they don’t have the right to just walk around and compare, but they actually do.

That’s how you test the dealers.

Default and Repossession

Interviewer: What happens if someone buys a car and they don’t hear anything and don’t take the initiative to contact the lending company? How long will it take until they will be in repossession or they will have their credit damaged?

Many Financing Agreements Have Clauses Where the Buyer Is in Default if the Payment Is One Day Late

Andrew Campbell: Repossession is all about default, and default is always defined by the agreement.  Normal agreements usually say, if you’re even one day late, you’re in default.  So, typically if you miss the first payment, boom.

Lending Companies Are Not Required to Provide Advance Notice When They Are Having Your Vehicle Repossessed 

They’ll hire a repossession company, you will not be notified and your vehicle will be seized. Before the sale of the vehicle, they are obligated to send you a repossession notice, which is another area where people have to be really careful.

You Will Receive Notification after Repossession, before Your Vehicle Is Sold

Those repossession notices have to be stated in certain ways.  There’s certain information that must be stated on those notices, and if those notices are not done properly, there’s a huge penalty.  It’s an enormous penalty.

The reason for that is that the government, the courts, dealers, and consumers, all want to keep prices cheap.  Prices increase if the dealer has to go through a court process to recover vehicles.

In the U.S., Dealers Are Permitted to Utilize Self-Help

Because they have to hire an attorney and there’s filing fees, and there’s a length of time, a delay.  In the United States we came up with the premise that the dealer has the ability to use self-help.

Self-help means that as long as they follow certain rules and they do the repossession properly, and they give the proper notices, in return, they can do everything without court orders.  But the tradeoff is they must do everything strictly correct.

In Order to Utilize Self-Help, the Company Must Follow Strict Criteria

They must be correct about it.  If there are any mistakes, they’re liable.  The liability is the finance charge plus 10% of the cash sale price.

The finance charge is normally the profit.  If you think about the finance charge, it’s really just the profit, and 10% of the cash sale price is a little bit of pain because that’s probably not all profit.  There are probably some other costs in there, too.

I’ve seen situations, where major companies that deal in tens of millions of dollars in receivables, still don’t have their repossession notices correct.  When they get hit with a class action, the penalties are enormous because it’s the 10% of the cash sale price plus the finance charge times thousands and thousands, perhaps tens of thousands, of people.