Tennessee dealerships are not required to disclose that they will receive a dealer reserve on their finance agreements, according to the state Court of Appeals.
A three-judge panel unanimously rejected a class-action lawsuit accusing Larry Hill Pontiac-Oldsmobile-GMC Inc. in Sevierville, Tenn., of violating state consumer protection and trade practices laws.
The dealership had no legal duty to tell Patrick Beaudreau that it would receive 2.25 percent of the 13.5 percent interest he was paying on his General Motors Acceptance Corp. loan, the court said.
Plaintiff's lawyer Gordon Ball of Knoxville, Tenn., said his client is asking the state Supreme Court to review the case.
"It's a horrible decision for consumers," Ball said. He called the practice of undisclosed dealer reserves "just stealing."
The case is the first time the issue of a dealership's liability for the practice of receiving a dealer finance reserve has arisen in Tennessee.
But the Court of Appeals said that its decision is consistent with rulings elsewhere, including California and Alabama.
"A reasonable consumer should be aware that a for-profit retailer, in arranging for financing for a consumer, would expect to receive some sort of remuneration for its efforts," said Judge Charles Susano Jr.
"The consumer is free to seek financing elsewhere if he or she is unhappy with the terms quoted by the dealer."
Beaudreau sued for damages and a refund of the 2.25 percent reserve portion of the finance charge, accusing Hill Pontiac of "secretly inflating the real interest rates consumers are charged," and of failing to disclose the "real" rate.
He also alleged that the dealership had said he would get "the best rate."
The Court of Appeals upheld dismissal of the lawsuit in Sevier County Circuit Court and held that dealer reserves and dealer participation agreements are "in no way unlawful."
The court continued: "Regardless of whether GMAC was to receive all or only a portion of the stated interest of 13.5 percent, the fact remains that the plaintiff knew he was paying 13.5 percent to borrow the money.
"He was, at all times, free to reject GMAC financing and look elsewhere for a loan."
The appeals court also found no grounds for unjust enrichment and civil conspiracy claims.
The dealership's lawyer, William Young of Knoxville, said that it would be inappropriate to comment on the decision because "the appellate process is still ongoing."
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