Navigate the minefields by offering a customer on credit the “lowest rate” | Hudson Cook, LLP

Every day, donors offer financing to clients. Sometimes they encourage a customer to apply for credit from the dealership by saying they can give the customer the best financing deal. One such claim led a Ford dealership to court by a customer, who alleged misrepresentation and racial discrimination under Ohio law.

Spoiler alert: The dealership won the case. But even with small changes in the facts, it is not certain that the result would have been so positive. Let’s see what’s going on.

John Scott, an African-American man, bought a used Volvo from Sarchione Ford. Sarchione’s CFO David Liebro told Scott he would help him get financing at the lowest rate available. Liebro submitted Scott’s loan application to five funding sources. Each creditor provided Sarchione with a buy rate and a range for a customer rate, which is an additional percentage that each finance company allows on top of the buy rate. It is Sarchione’s policy to always add the maximum client rate allowed by each finance company, subject to certain exceptions, to ensure that everyone is treated the same.

Citizens Bank offered the lowest interest rate – a purchase rate of 4.13% and a customer rate of 1.75%, for a total of 5.88%. Scott accepted the rate without receiving a rate breakdown and signed the finance documents.

After purchasing the car, Scott learned from Citizens that he was offering rates “as low as 4%”. When Scott inquired, Liebro replied that Scott had received the lowest rate and gave him a list of the rates offered by each of the five creditors, although the list does not include purchase rates or rates. clients.

When Scott was faced with a costly repair not covered by the limited warranty, he sued Sarchione for violation of the Ohio Consumer Practices Act, warranty violation, misrepresentation and racial discrimination. The trial court granted summary judgment for Sarchione and the Ohio Court of Appeals upheld. The decision of the Court of Appeal was well motivated and represented a clear victory for the concessionaire.

But if the facts had been a little different, would the dealer have been at greater risk? See what you think.

Scott’s OCSPA claim was tied to the rate the dealership got for him. Scott alleged that the dealer had in fact not offered him the best rate available and that he could have benefited from a lower rate had he obtained the financing himself.

The CFO’s claim that he would get Scott the best available rate could have two different meanings: (1) getting the best possible rate available to the dealership, and (2) getting the best possible rate available anywhere. The appeals court did not clarify the meaning it got from the CFO’s statement, but the court discussed the facts under both interpretations.

The court of appeal ruled that Scott received the best available rate from the dealership, rejecting his claim that the dealership could have offered him credit at the lowest purchase rate, without the participation or additional “mark-up” of the dealership. dealer. Here’s the first way the facts helped Sarchione. The CFO testified that the dealership treated all customers the same by adding the maximum allowable share or markup to each buy rate, with two exceptions that did not apply to Scott’s situation. The CFO is allowed to reduce the participation rate if the client claims that a lower rate is available from a local credit union or other lender or if the client informs the CFO that he or she is not. can not afford the payment.

Another useful fact was that Sarchione’s offer to Scott was the lowest retail price received of the five funding sources, based on the dealer’s pricing policy. Sometimes a dealer may be tempted to offer the customer the best deal for the customer. Trader– the one with the highest participation. In general, this conduct can be authorized. But if the dealer promises the best and lowest fare, you better make sure they offer the best fare for the customer.

The third useful fact is that Scott did not provide any corroborating evidence that he could have received a lower rate elsewhere. It has not requested refinancing or even obtained another rate quote specific to its agreement. The only evidence was Scott’s affidavit, which the appellate court called selfish. But what if he had refinanced at a lower rate at a bank or credit union? The opinion leaves open the possibility that the court found a false statement by a concessionaire.

Scott’s allegation of discrimination alleged that because the dealer failed to use its discretion to reduce its rate as it does for customers who meet one of the two exceptions, Sarchione discriminated against him. . Scott noted that the dealership did not keep records of when it reduced a customer’s rate and that this defect allowed discriminatory behavior to occur. Scott claimed he was a highly skilled buyer and furthermore was never told of the lower purchase rates.

The argument did not impress the appeals court, which wrote: “Just because Scott assumes discrimination does not make it so.” The court said the evidence showed Sarchione’s policy was to treat clients consistently unless one of the two exceptions existed, and Scott did not fall under either of those exceptions. Scott did not submit a competing offer from another source of financing and told the CFO “he was going to finance the car elsewhere. He took the loan offered to him instead.”

The Court of Appeal observed that Scott presented no evidence that a person in the same situation was treated differently from him. There was no evidence offered that Sarchione considered race or any other factor prohibited in setting interest rates.

Scott had a weak racial discrimination claim, but his OCSPA claim has two important lessons for dealers:

1. If you tell consumers you’re going to get the “best” or “lowest” rate, be sure to do so.

If the rate the CFO offered Scott had not been the lowest overall rate per his rate exception policy, I suspect the court would have found a false statement. In other words, if you ever select the rate with a higher stake over a lower rate for the consumer, never pretend to be able to provide the best finance rate.

Gives the customer the lowest available rate from the dealership good enough? This case does not say, but it can be read to mean that the best rate is not limited to the rates available to the dealer. A wise dealer promising the lowest rate will ensure that this claim is limited to rates that the dealer can offer. He should avoid suggesting that his rates will also exceed those of local credit unions and direct loans from local banks unless he has market research to show that to be true.

2. If you have a rate exception policy, keep good records of your rate exceptions.

That court said the lowest rate could include the dealer’s participation, but the court appeared to rely on the dealer’s testimony that it had a rate-sharing policy and a consistent practice that included the maximum mark-up allowed. , with limited exceptions. Scott’s protest that the dealership was not keeping records did not change the outcome in the dealer’s favor. But if Scott had demanded a discovery about the consistency of Sarchione’s policy and Sarchione had been unable to provide it, Scott might have created a question of material fact that would have prevented the trial court from issuing summary judgment in favor of Sarchione.

As we draw these cautionary lessons from this case, let us not forget some very useful words from the Ohio Court of Appeals decision. The appeals court ruled that Sarchione had no obligation to disclose the terms of its agreements with finance companies, purchase rates or the difference between the purchase rate and the rate charged to the customer. In fact, the appeals court found that Sarchione had no obligation to disclose anything other than the interest rate available to Scott for the funding request presented.

Some consumer advocates have long argued that dealers should disclose purchase rates and markups. This argument is based on the mistaken belief that the buy rate is the rate at which the consumer “qualifies”. It does not recognize that the buy rate is a wholesale rate that reflects the savings to the funding source by not having to sell directly to consumers, maintain a staff to accept requests and bear the cost of collecting checks. and other administrative formalities.

Federal Trade Commissioner Rohit Chopra, who has been nominated to be the next director of the Consumer Financial Protection Bureau, described a mark-up as “an undisclosed bribe that dealers earn to convince potential buyers of cars to accept a higher rate of interest than they actually qualify. for with a lender. In the same FTC case, Acting FTC President Rebecca Kelly Slaughter wrote, “The auto finance market in the United States is deeply shattered. financing and the sale of automobiles is long overdue. and urgently: first and foremost, the Commission can start by initiating a regulation, under the Dodd-Frank Act, to regulate the profit margin of the dealers. “

As the new CFPB and FTC leaders are confirmed and assume their roles, it is clear that we will have a lot of education to do on the consumer benefits of dealer financing.

Scott vs. Sarchione Ford, 2021 Ohio App. LEXIS 222 (Ohio App. January 28, 2021).

About Mitchel McMillan

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