Cash vs. Credit Pricing
Ever try to get a straight answer out of an attorney? One is reminded of the 1833 quote attributed to Charles Lamb: “He is no lawyer who cannot take two sides.” Or this one, from G.N. Tillman: “Lawyers are doubters, skeptics; not in a bad sense. But they never know anything absolutely and utterly without qualifications or modifications.”Nonetheless, I was excited to welcome a veritable who's-who of top legal talent to our conference this year and looked forward to getting some highly educated opinions on a high-profile issue; namely, cash vs. credit pricing.
The formidable intelligentsia assembled at the TIADA Annual Conference included our own general counsel of 40 years, Mike Dunagan of Jameson & Dunagan in Dallas; NIADA's Senior Vice President of Legal & Government Affairs, Shaun Petersen out of Arlington; Terry O'Loughlin, Director of Compliance, Reynolds Document Solutions in Florida, and Tom Hudson, a partner in Hudson Cook out of Washington, D.C.
With regard to cash vs. credit pricing, Mr. Hudson and Mr. O'Loughlin addressed the topic at a breakout session on Tuesday, and I understand the issue also came up several times at Monday's dealer roundtable on Handling Customer Complaints moderated by Mr. Hudson and Mr. Petersen. All of the lawyers at the conference had previously opined on the topic, often in writing, normally in reference to the CFPB's enforcement action against Herbie's, and most recently with Mike Dunagan's comprehensive article in the May issue of this magazine entitled, “The Herbie's Case from a Texas Dealer's Perspective.”
To sum up TIADA's understanding of the issue, a vehicle may only have one price. There should be no cash price, credit price, internet price, etc…just one price. We should also stop thinking of inventory in terms of “cash cars” and “finance cars” on the lot. You simply have vehicles on your lot, and you accept various methods of payment for those vehicles, which may include cash, 3rd party financing or in-house financing. A customer may negotiate to strike the best bargain; as long as the negotiated price is not contingent upon the payment method, there is no prohibition (yet) on price negotiation.
Some dealers have interpreted the Herbie's enforcement action to mean that prices cannot be negotiated at all. And in fact, many dealers choose not to negotiate price on any deal, period, which is certainly their right; that practice reduces the risk of a regulatory action. However, as stated above, there is currently no federal or state law that explicitly prohibits price negotiation on the sale of a vehicle, as long as substantially similar negotiation takes place in both cash and credit sales.
So, does following the policies above make you impervious to a consumer lawsuit or regulatory action? Nope. The attorneys at our conference agreed that no such bullet-proof policy exists. These are simply best practices to minimize your risk. Will they be enough to protect your dealership? Our experts agreed…maybe.
Can't resist closing with one final bit of humor at the expense of our attorney friends…
Why are scientists now using lawyers in laboratory experiments instead of rats? Three reasons: (1) lawyers are more plentiful than rats, (2) there is no danger the scientists will become attached to the lawyers, and (3) there are some things rats just won't do.