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May 23, 2017
Publications

by Barbara Darkes

It’s happened to every dealer, more so in the last eight or so years than ever – the lender has approved funding; the RISC has been signed by the customer and dealer, and assigned by the dealer to the lender; the title work has been processed, showing the lender as lienholder; and the vehicle has been delivered to the customer.   A week or three later, the dealer does not receive funding, but rather a notice from the lender that this deal will not be funded and the assignment of the RISC is, in essence, rejected.  This notice from the lender is typically because something has changed for the customer (employment, income confirmation, etc.) or sometimes because something was originally reported incorrectly (by mistake or otherwise) to the lender.  Now what is the dealer’s function?

A dealer wants to sell and fix vehicles, not finance them.  Truth is, however, that once the RISC is signed between the customer and the dealer, the dealer is the lender until the assignment to the lender is accepted.  So when there is a lender rejection, the first thing the dealer must realize is that the dealer is now the lender.

Here are some do’s and don’ts when the dealer finds itself at this lender rejection junction:

DO:

• React quickly – as soon as the lender rejection is received, someone at the dealership should be reacting to the circumstance quickly; it may be a good idea to have one person (with a backup) assigned to handle such situations.

• Put the customer on notice of the lender’s rejection and explain to the customer what the next step is.  Transparency with the customer can avoid confusion and allegations of deceit.

• Find out from the original lender why the RISC was rejected and whether the concern can be resolved so that the original lender reconsiders and accepts the assignment of the original RISC?

• If there is no remedy with the original lender, find out if there is another lender who will accept the assignment of the original RISC or a new RISC with the same terms as the original RISC?

• Properly handle the title record – if the original lender is already on the record as lienholder, then an assignment of that lien on a PennDOT Form MV-950A is the proper mechanism to correct the title record.  This can be a bit tricky, but the original lender who rejected the assignment of the RISC (and who is on the title record as lien holder) will need to cooperate in signing and providing this form – that’s the tricky part because the lender often takes the position that they have no interest in the vehicle to assign and, therefore, they do not want to complete or sign the MV-950A.

• Advise the customer in writing of the situation and explain that payments per the contract should be made to the dealership until further notice.  This way, whether the RISC assignment with the original lender works out, another lender agrees to accept the assignment, or the dealership ends up being the lender, the customer’s payments will be up to date (as opposed to chasing the customer for two or three payments at some point in the future).

DON’T:

• Forget about or ignore the rejection, and work with the presumption that the rejection will magically correct itself.  Be attentive to the situation immediately, put the customer on notice, and keep the customer in the loop with regular updates.

• Force the customer to sign another RISC with different terms.  Remember, the dealership has a contract with the customer; it’s the RISC assignment that has failed, not the original contract.  The dealership cannot force a new contract on the customer.  If the dealer cannot get another lender to accept assignment of the original contract, then the dealer must act as the lender for the RISC.

• Take possession of the Vehicle (as in a repossession)– there may be a time for this, but a lot of things need to first fall into place to make that the correct next step.

Following these best practices can help mitigate an uncomfortable situation that can easily turn into a compliance concern with one of the many agencies that regulate dealers or a civil complaint filed by the customer.  When in doubt about the process, call your attorney; a little prevention on the front end can avoid a lot of expense on the back end.