Fee designed to cover legal expenses could create legal problem

Donna Harris covers automotive retailing for Automotive News.
While browsing a dealership Web site recently I noticed the dealer charged every customer a nonnegotiable $250 administrative fee to cover the cost of compliance with state and federal laws.

I wondered if this fee could create legal problems for this dealer. I asked Mike Charapp, a McLean, Va., dealer lawyer who works with the Virginia Automobile Dealers Association and the National Automobile Dealers Association. He said it could be a problem if the dealer wasn’t closely following the law.

Charapp says fees charged in connection with vehicle sales have been a “lightning rod for lawsuits and legislative action” for the last decade. Many states strictly regulate these fees, and dealers who charge them must follow the law. He offers the following advice:

• Call the fee by the name legally allowed and use it in all documents.

• Set the fee within the legal cap.

• Even if there’s no cap, the fee must be reasonable and the dealer must be prepared to justify it.

• Don’t charge additional fees unless the law specifically allows them.

Such fees can’t be used to process credit, or they become finance charges. They can’t apply to title work in states like Maryland or Virginia where dealers are reimbursed for processing title work through an electronic title service.

“Call it an administrative fee, a compliance fee, or a baby needs a new set of shoes fee -- it doesn’t matter,” says Charapp. “A dealer who attempts to charge an exotic fee, in a state where the fee is regulated, hoping to get around the limitations and disclosure obligations for charging a processing fee or document fee, is simply looking for litigation.”