Thursday, November 01, 2007

Avoiding Bank Fraud


At some point you might be exposed to someone who advocates unethical practices in order to profit. This refers to power booking vehicles and changing customer information on credit applications.

I am neither an attorney nor a judge, although I could be on a jury. These words are not meant to be legal advice. Rather, they are meant to be words of wisdom and good business practices.

Honesty really is the best policy

When anyone changes customer information on a credit application, he is misrepresenting the customer to the lender, and that is a violation of the dealer agreement. Some might even consider the practice of fabrication on an application as bank fraud.

Under the dealer-lender agreement, both parties enter into the agreement in good faith. The dealer makes certain warrants to the lender. These warrants include, but are not limited to:

Customers are who they say they are and all facts on applications are true representations of facts.

The vehicles are as represented. In other words, if dealerships say vehicles are certain models with certain equipment, they are accurate statements.

Dealers warrant all down payment funds are unencumbered: bankable funds, no additional loans, no hold checks and no credit cards.

If a lender discovers violations of these warrants, the contract assignment becomes an automatic unconditional guarantee. The lender could demand immediate payment of the balance and the dealer then becomes the collector. The lender will not lose one dime on the deal.

If this occurs, the F&I manager will lose credibility with the lender. And, when the dealer is confronted with the facts, the F&I manager will most likely be fired. Amazingly, no one admits to knowing anything about false statements or the power booking. The F&I manager will be standing alone to face whatever legal tunes the courts will be playing.

Desperate times sometimes lead to desperate deeds. When business is slow some are anxious to get something started. It is OK to think outside the box as long as it is honest, legal, ethical, and moral.

Words of Counsel

Play fair; be honest in your business dealings. The lenders trust you; do nothing to hinder that trust. Once the trust is gone it may be impossible to rebuild. There simply is not enough gross profit in any deal to justify lying. The lies outlive the pay vouchers.

Here is the test

If what you do and how you do it appeared on the front page of your local newspaper and everyone you love read all about your business dealings, how would you feel? If you would feel proud, then you are on the right path. If you gave the slightest shudder, you might want to re-evaluated what you are doing and make some fundamental changes.

World of Special Finance Magazine, November 2007, P. 36