Changes in dealership agreements with lenders are shifting more liability to dealerships for customers' vehicle loans.
Auto lenders are holding dealerships more accountable for verifying customers' identities and financial data, dealership attorneys say. If a buyer defaults on a finance contract, lenders increasingly are forcing dealerships to repurchase the contract, take back the vehicle and pay off the loan.
"It is a discouraging trend," says Bob Bernstein, CFO of Braman Dealerships, a private dealership group in Miami. "Banks can pass all the risk to the dealer."
The growth of identity theft and stiffer anti-terrorism regulation help account for the changes. National TV exposes of some dealerships falsifying information on credit applications have left banks and finance companies wary.
Some of the changes lenders are demanding in their agreements with dealerships are subtle, dealership attorneys say.
"From a casual reading of the terms, it would seem that a dealer is on the hook only under limited circumstances," attorney Leonard Bellavia of Mineola, N.Y., says. "The reality is just about every default scenario can be strained and twisted to fit within the repurchase provisions."