There seems to be a disconnect between many finance managers and reality when it comes to dealing with banks, and I’m going to give you just one example.
A decade or so ago, I learned a big lesson from a bank. The banks are your friends and your partners, but when there is a disagreement, or an issue, it’s their way or the highway and they don’t screw around.
The bank rep walks into my office one day. “We have a problem.” Of course, those are words you generally don’t want to hear from a bank rep. Usually it’s “Here is your coffee and donuts,” maybe a few pens or something, maybe even look over a few declines. Not this time.
Apparently, a year or so earlier we had done a deal where the finance manager had completed the financing in the husband’s name and then registered the vehicle in his common-law spouse's name. In most cases the bank requires a vehicle to be registered in the same name as appears on the bank contract.
In most cases the bank requires a vehicle to be registered in the same name as appears on the bank contract.
After looking into it, apparently the client and his common-law spouse asked for the vehicle to be registered in her name only. I’m not sure why, she was much younger and way out of his league but I’m sure that had nothing to do with it. The finance manager, really thinking nothing of it, registered the vehicle as requested in the “wife’s” name.
Well, a year or so later, the customer passes away, leaving his grieving common-law widow nothing except the car already in her name. Apparently, the ex-wife and kids came first.
Now back to the bank guy. “The lien on the vehicle is $25,000. We are going to need it paid out by Friday.”
I would say being unhappy about the situation was an understatement. “There is still a lien on the vehicle. Just repo it.”
“The bank’s not repossessing a car from a grieving widow. Your dealer agreement states you must register the vehicle to the individual on the contract. You didn’t so you pay. That’s it.” I’m paraphrasing.
“There is still a lien on it. A loan agreement. Wouldn’t the estate have to pay?” Seemed logical to me.
The bank rep would go on to explain that the bank doesn’t need the headache or the bad publicity associated with repossessing a vehicle from a widow or suing the estate of an ex-wife and kids while the girlfriend drives away in the car. It’s the path of least resistance. The dealer pays.
Finance managers sometimes don’t realize that a core responsibility of the position is to protect the dealership from liability, not to create it.
There are two lessons here. First, finance managers sometimes don’t realize that what they are doing represents significant liability, the simple act of registering a vehicle in a name that does not match the bank contract being just one. Finance managers sometimes don’t realize that a core responsibility of the position is to protect the dealership from liability, not to create it. Signatures, credit applications, disclosure forms, representations to banks and to customers are all huge sources of liability that are just lost on some finance managers.
The second lesson here is that it’s pretty tough to fight the banks because you need them way more than they need you. Having tight files and a second set of eyes helps, but when the bank comes knocking and asking for money, they usually get it, and they are usually right.
So the next time you put that deal together, and think about whether to cross the line and do something like register the vehicle in someone else’s name maybe ask yourself, “What if this guy dies?” and if you think about it, that’s always the rule when you’re thinking about crossing that line, “What if this happens?” because when it does, you pay. Good luck and good selling.