DECREASE LEGAL EXPOSURE Motor vehicle dealers face legal exposure on both sides of a transaction when we are sued or a claim is made concerning the purchase of a motor vehicle. We need to avoid exposure by consumers and, secondarily, from our indirect lenders. To clarify, if a lender is named as a party to a civil action arising from the sale of a motor vehicle in which we engaged in indirect financing, the lender will look to the motor vehicle dealer for defense and indemnification. Indirect lending contracts are extremely lender-friendly and typically contain language that holds a motor vehicle dealer liable to the lender for any claims arising from the purchase of a motor vehicle. While most dealers have consumer compliance coverage, and fortunately, we have seen those limits increase over the years, they are still limited. Consumer complaint coverage normally has what is called “eroding” limits, meaning that the available policy limit is decreased by defense costs, which limits the monies available to pay any claim, or a dealer’s indemnity monies. Further complicating legal exposure is that consumer claims are “fee-shifting,” meaning that we are also exposed to the consumer’s attorney fees. Complicating this long-standing dynamic is that courts have significantly increased their attorney fees awards to the $600 to $800 per hour range. I have my personal opinions on that, but they are beyond the scope of this article. So how do we protect ourselves? Obviously, the answers are simple; the challenges lie in implementation and demanding strict compliance with our policies. Documentation should not be rushed and should be explained to the consumer. We have numerous opportunities to evidence a consumer’s intention to purchase a product or service. I have long believed that the difference in time required by the F&I manager to rush through a transaction as opposed to slowing down and explaining products and services more thoroughly takes only an extra few minutes. Signatures and initials should be obtained where needed to indicate permission to either purchase or decline a voluntary protection product. COMPLIANCE AUDITS I also encourage the development of an audit program as part of our overall compliance. For example, if we audit a certain number of retail files from every F&I manager on a monthly basis, we can easily catch systematic issues and immediately correct. Additionally, we can capture those inadvertent or occasional mistakes. Regardless, it gives us the opportunity to tailor our compliance training and emphasize the importance of overall paperwork and disclosure. If assistance is needed with a compliance program, I am aware of reputable vendors that provide support to our West Virginia dealers. Likewise, our association and I are always available to assist and answer your questions. Stay safe out there. WVADA NEWS 21
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