In this age of increased regulatory investigations and consumer lawsuits against auto dealers, it is more important than ever that your dealership position itself in the most positive light. You may be doing everything right from advertising to titling but if you can’t document it, regulators and courts may take adverse inferences. So let’s consider the critical documentation for your cash and credit transactions, the deal jacket. More often than not, deal jackets will make or break your case.
Deal jackets should be compiled and organized to lay out the transparent story of a compliant consumer transaction. Purchase, lease, finance, and cash deals will all come under scrutiny someday. And the deal jackets will tell the story.
General Rules for What Should and Should Not Be in a Deal Jacket
While there are no laws that require deal jackets, records retention periods are required by federal laws such as the Equal Credit Opportunity Act and Regulation B (ECOA) (25 months), the Truth in Lending Act and Regulation Z (TILA) (two years), the Consumer Leasing Act and Regulation M (two years), OFAC (five years), and others. These requirements should be considered a floor, not a ceiling. The ideal recordkeeping period is a month or two longer than the applicable statute of limitations to bring an action against your dealership. This will generally be five to seven years depending on state law. Check with your state attorney on record retention periods.
As a general rule, any document a consumer gives you or that you receive or give to a consumer together with any signed documents should be kept in a deal jacket. A credit application, a driver’s license or proof of identity, proof of income, proof of address, form of down payment and trade-in information are examples of documents a consumer gives you. Include disclosure documents you give to the consumer (e.g., privacy notice, risk-based pricing credit score disclosure notice, adverse action notice, payment quotes including a first pencil and final pencil, “we owes,” CARFAX report on a used vehicle sale and Used Car Buyer’s Guide, payment protection product disclosures). The customer’s proof of insurance.
Information you learn about a consumer should also be kept in the deal jacket. Examples are your red flags information report, OFAC report, credit report information, lender credit decisioning documents including rehashes, book outs on trade vehicles, and payoff information on a trade vehicle.
Contracts and signed documents are also a must. Buyers orders, lease orders, retail installment sales contracts, lease agreements, co-signer notices, preliminary and final menus showing the effect on a monthly payment that the consumer has signed or initialed, titling documents, payment protection product agreements, ancillary docs, and any disclosure documents the customer has signed are examples.
Finally, there are internal deal documents that are best kept in a deal jacket. These should start with the NADA Fair Credit Compliance Program Dealer Participation Certification Form and NADA Voluntary Protection Product Program Certification Form, IRS Form 8300 for certain cash deals, documentation of how you cleared red flags to verify a customer’s identity or cleared a preliminary OFAC hit, internal dealer-specific documents such as a MCO or another document indicating that the dealer has title to the vehicle being sold. Profit and commission forms can also be added if necessary.
It is not necessary to keep interim worksheets in a deal jacket. Four squares can be very confusing and unless the four square clearly reflects the final deal terms that are nowhere else reflected, I am not a fan of keeping four squares. I am not a fan of using them either.
Organization of Documents in a Deal Jacket
There is no right or wrong way to organize documents in a deal jacket. The critical point is to organize all of your deal jackets the same way so that an auditor or reviewer will find a consistent layout of documents for a deal.
I like the chronological approach starting with customer inquiries and responses, a list of the vehicle in inventory, and any communication with customers at the outset. I would put a first pencil here. This can be followed with a signed credit application, privacy notice, driver’s license or other identity documents, proof of residence and income, and the risk-based pricing credit score disclosure notice.
Identity verification documents could follow next including your red flags provider report, OFAC check, and steps taken to clear red flags or preliminary OFAC hits. If you used out-of-wallet authentication questions, just indicate how many questions the customer answered correctly. Do not keep the questions.
Deal documents come next. The final pencil. Approvals and declines from creditors to which you sent the credit application and document compliance with stips. Receipts for the down payment, an IRS 8300 if necessary, and trade-in documentation including title and vehicle book-out. For used vehicle saless, a CARFAX given to the customer and a signed Used Car Buyer’s Guide. A fully-signed buyers order or lease order, a retail installment sales contract or a lease agreement plus any co-signer notice. The customer’s proof of insurance. We owes. Titling documents. If the customer gave you a credit application but you did not get them financed, send the customer an adverse action notice and keep a copy in the deal jacket. Dead deals need deal jackets too.
Signed preliminary and final menus and voluntary protection product documents should follow.
The internal deal documents not previously included and any other documents can follow.
Unwound Spot Deliveries
If a spot deal is unwound, new documentation must be obtained for the rewritten deal. The documents relating to the unwound deal should be marked VOID/UNWOUND or similar notation and retained as well. Spot deliveries generate probably the most litigation and it is important to have both deals along with the lender decisions documented to show you weren’t “yo-yo” financing the customer.
Conclusion
If you inadvertently fail to get a customer’s signature or initials, do not sign or initial on the customer’s behalf. Try to get it after the fact. A missing signature or initial is better than a forged one. Training is the key to getting all documents properly signed and initialed.
This article is intended only as a summary and not a comprehensive description of all documents in a deal jacket. Your deal jackets will speak long after the fact and a good deal jacket may be your best defense to a lawsuit or regulatory challenge.
Deal jackets should be compiled and organized to lay out the transparent story of a compliant consumer transaction. Purchase, lease, finance, and cash deals will all come under scrutiny someday. And the deal jackets will tell the story.
General Rules for What Should and Should Not Be in a Deal Jacket
While there are no laws that require deal jackets, records retention periods are required by federal laws such as the Equal Credit Opportunity Act and Regulation B (ECOA) (25 months), the Truth in Lending Act and Regulation Z (TILA) (two years), the Consumer Leasing Act and Regulation M (two years), OFAC (five years), and others. These requirements should be considered a floor, not a ceiling. The ideal recordkeeping period is a month or two longer than the applicable statute of limitations to bring an action against your dealership. This will generally be five to seven years depending on state law. Check with your state attorney on record retention periods.
As a general rule, any document a consumer gives you or that you receive or give to a consumer together with any signed documents should be kept in a deal jacket. A credit application, a driver’s license or proof of identity, proof of income, proof of address, form of down payment and trade-in information are examples of documents a consumer gives you. Include disclosure documents you give to the consumer (e.g., privacy notice, risk-based pricing credit score disclosure notice, adverse action notice, payment quotes including a first pencil and final pencil, “we owes,” CARFAX report on a used vehicle sale and Used Car Buyer’s Guide, payment protection product disclosures). The customer’s proof of insurance.
Information you learn about a consumer should also be kept in the deal jacket. Examples are your red flags information report, OFAC report, credit report information, lender credit decisioning documents including rehashes, book outs on trade vehicles, and payoff information on a trade vehicle.
Contracts and signed documents are also a must. Buyers orders, lease orders, retail installment sales contracts, lease agreements, co-signer notices, preliminary and final menus showing the effect on a monthly payment that the consumer has signed or initialed, titling documents, payment protection product agreements, ancillary docs, and any disclosure documents the customer has signed are examples.
Finally, there are internal deal documents that are best kept in a deal jacket. These should start with the NADA Fair Credit Compliance Program Dealer Participation Certification Form and NADA Voluntary Protection Product Program Certification Form, IRS Form 8300 for certain cash deals, documentation of how you cleared red flags to verify a customer’s identity or cleared a preliminary OFAC hit, internal dealer-specific documents such as a MCO or another document indicating that the dealer has title to the vehicle being sold. Profit and commission forms can also be added if necessary.
It is not necessary to keep interim worksheets in a deal jacket. Four squares can be very confusing and unless the four square clearly reflects the final deal terms that are nowhere else reflected, I am not a fan of keeping four squares. I am not a fan of using them either.
Organization of Documents in a Deal Jacket
There is no right or wrong way to organize documents in a deal jacket. The critical point is to organize all of your deal jackets the same way so that an auditor or reviewer will find a consistent layout of documents for a deal.
I like the chronological approach starting with customer inquiries and responses, a list of the vehicle in inventory, and any communication with customers at the outset. I would put a first pencil here. This can be followed with a signed credit application, privacy notice, driver’s license or other identity documents, proof of residence and income, and the risk-based pricing credit score disclosure notice.
Identity verification documents could follow next including your red flags provider report, OFAC check, and steps taken to clear red flags or preliminary OFAC hits. If you used out-of-wallet authentication questions, just indicate how many questions the customer answered correctly. Do not keep the questions.
Deal documents come next. The final pencil. Approvals and declines from creditors to which you sent the credit application and document compliance with stips. Receipts for the down payment, an IRS 8300 if necessary, and trade-in documentation including title and vehicle book-out. For used vehicle saless, a CARFAX given to the customer and a signed Used Car Buyer’s Guide. A fully-signed buyers order or lease order, a retail installment sales contract or a lease agreement plus any co-signer notice. The customer’s proof of insurance. We owes. Titling documents. If the customer gave you a credit application but you did not get them financed, send the customer an adverse action notice and keep a copy in the deal jacket. Dead deals need deal jackets too.
Signed preliminary and final menus and voluntary protection product documents should follow.
The internal deal documents not previously included and any other documents can follow.
Unwound Spot Deliveries
If a spot deal is unwound, new documentation must be obtained for the rewritten deal. The documents relating to the unwound deal should be marked VOID/UNWOUND or similar notation and retained as well. Spot deliveries generate probably the most litigation and it is important to have both deals along with the lender decisions documented to show you weren’t “yo-yo” financing the customer.
Conclusion
If you inadvertently fail to get a customer’s signature or initials, do not sign or initial on the customer’s behalf. Try to get it after the fact. A missing signature or initial is better than a forged one. Training is the key to getting all documents properly signed and initialed.
This article is intended only as a summary and not a comprehensive description of all documents in a deal jacket. Your deal jackets will speak long after the fact and a good deal jacket may be your best defense to a lawsuit or regulatory challenge.
RSS Feed