Customer's Death Reveals Risks of Deferred Down Payments
A recent issue with a member has brought attention to a special situation that sometimes occurs in our industry.
By Erik Wilson
Erik Wilson and Associates, PLLC
A recent issue with a member has brought attention to a special situation that sometimes occurs in our industry. Specifically, there are times when dealers feel forced to take deferred down payments or, in retail transactions, partial payoffs for vehicles sold to customers. To be clear, TIADA's stance on this is that all members should refrain from engaging in any type of deferred payments. However, in the unavoidable situation where a deferred payment must be taken dealers should ensure the agreement is memorialized in the confines of the retail installment contract.
The purpose for contracting around the deferred payment is two-fold. First, it is important to have the terms of the payment clearly stated to avoid any confusion with the customer. Second, and just as important, the Office of Consumer Credit Commissioner (OCCC) requires deferred down payments be made within certain time constraints. The down payment must be collected by the time the second payment for the vehicle is due on a in-house financed transaction. If that payment is not received by the due date, the customer will be in breach of contract and the dealer can then exercise his contract remedies.
There are also deferred payments being taken on retail deals by some dealers. Let me first point out that any time a dealer takes more than one payment for a vehicle sale that is considered to be a financed transaction by the OCCC. Dealers have tried to convince me that they do not need the OCCC license because they only do retail deals and my first question to them is, “do you ever take down payments?” If the answer is yes, then you need an OCCC license. It doesn't matter what the reasoning for taking the payment is, the OCCC has made it quite clear that you will need an OCCC license to lawfully accept multiple payments for a sale in Texas. The Texas Finance Code section 348 governs these types of transactions.
One of the more interesting scenarios I have dealt with had to do with a dealer that entered into a retail deal with a customer but took a deferred payment for the Tax, Title, and Licensing fees. It was a simple matter and the customer was going to return with the $450.00 within a week or so. However, the customer died prior to paying the fees. This left the dealer with multiple questions. Does he need to pay the fees? Does he still need to register the car? Can the vehicle be assigned to another family member? All of these were relevant questions and my advice to dealers in similar circumstances is that you should stick with your contract even if you feel like you have walked into a less than optimal situation. The contract is there for your protection, and in this situation that may mean keeping the contract and paying the tax yourself to ensure you can registers the vehicle in time (and keep your dealership from receiving an angry letter from the Texas Department of Motor Vehicles). Otherwise, depending on the circumstances you may be able to unwind the deal with the estate of the deceased.
Assigning the contract was a trick question because you would not be able to assign this contract to another family member without the consent of the estate and possibly the blessing of the probate court.
This blog post first appeared on the TIADA blog on August 2018.