What About Those Fees? Legal v. Improper Fees
Tax, title and licensing fees, they're all items you will see on your sales contract all the time, but when was the last time you looked beyond the sales tax of 6.25%? As you know there are a lot of different fees out there. We all know about the importance of collecting and reporting the 6.25% sales tax to the State of Texas via the Comptroller's Office, but what about documentation fees and other dealer fees? What about including some additional items such as “dealer prep” or “dealer service fee” on a buyer's guide? Well, be careful as such “add-on” fees might cost the dealer later during an exam, audit, or lawsuit.
BHPH and Seller Finance. Fees on Retail Installment Contracts are strictly regulated by the Texas Office of Consumer Credit Commissioner (OCCC). The OCCC has been very clear about documentation fees and other fees on retail contacts. In Texas, dealers are allowed to charge up to $150 per transaction or less and a seller is not required to provide a notification or cost analysis to the OCCC before charging a documentary fee of $150 or less. However, for before charging a documentary fee greater than $150, a seller must provide both a notification and a cost analysis to the OCCC for approval. See Texas Administrative Code, Title 7, Section 84.205. Adding extra fees such as “dealer prep” to a Retail Installment Contract will be problematic with future OCCC examinations as outside of the scope of approved items on retail contracts.
In a retail installment transaction, the seller is subject to Chapter 348, Texas Finance Code, which allows for the following itemized charges to be added to the cash price under Sec. 348.005:
(1) fees for registration, certificate of title, and license and any additional registration fees charged by a full service deputy under Section 502.114, Transportation Code;
(2) any taxes;
(3) fees or charges prescribed by law and connected with the sale or inspection of the motor vehicle; and
(4) charges authorized for insurance, service contracts, warranties, or a debt cancellation agreement by Subchapter C.
Texas Finance Code § 348.006 states that for a documentary fee to be included in the principal balance of a retail installment contract:
1. The seller must charge the fee to cash and credit buyers;
2. The fee may not exceed a reasonable amount agreed to by the parties for the documentary services;
3. The buyer's order and the retail installment contract must include:
A. A statement of the amount of the fee;
B. The following statement in reasonable proximity to the charge in type that is bold faced, capitalized, underlined, or otherwise conspicuously set out from surrounding written material:
“A DOCUMENTARY FEE IS NOT AN OFFICIAL FEE. A DOCUMENTARY FEE IS NOT REQUIRED BY LAW, BUT
MAY BE CHARGED TO BUYERS FOR HANDLING DOCUMENTS RELATING TO THE SALE. A DOCUMENTARY FEE MAY NOT EXCEED A REASONABLE AMOUNT AGREED TO BY THE PARTIES. THIS NOTICE IS REQUIRED BY LAW.”
Can retail sellers include other “service fees” on the Buyer's Guide? Everybody knows or has heard of other dealers including discretionary fees such as dealer preparation, detail, service, and other vague ad-on charges included at the time of sale. However, be careful how you represent those additional fees. Be especially careful about advertising “internet specials” or even listing prices online, only to later include dealer prep fees or other hidden fees at the time of sale on the buyer's guide. This could potentially expose you to regulatory scrutiny for advertising violations. Texas 43 TAC 215.246 states that “advertisements shall be accurate, clear, and conspicuous. Advertisements shall not be false, deceptive, or misleading. For an internet advertisement, a disclosure may be considered accurate, clear, and conspicuous.” At the end of the day be careful about charging additional fees to get the car ready to sell that you cannot clearly document, explain, or account for or allow to be removed at the request of the customer.
Other required fees. When was the last time you reviewed your dealer management software and / or a white slip from a recent deal? Make sure your fees are up to date for the county you operate in. If you are unsure of the itemized charges in your jurisdiction, confirm with your dealer management software provider and local tax assessor collector that all fees are up to date.