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In this blog post, we’ll discuss what vehicle buybacks are and what you should know about them.

Whether due to the tightening of the finance providers or the riskiness of buyers, we are seeing repurchase requests become more prevalent recently. As we know,  vehicle buybacks are a common provision in most Dealer Agreements. In addition to dictating the terms of the original sales transaction, your Dealer Agreement with the finance company will also govern the finance company’s demand for repurchase or buyback. Pursuant to most repurchase clauses, if something were to go wrong with the consumer’s account – i.e. the customer fails to make a payment on the car, litigation, etc. – the finance company can demand or require the dealer to purchase the contract back. Historically, some finance companies did not bother with such a task. However, with high interest rates and market volatility, we’re seeing more and more finance companies employ this contingency…and it is crushing dealers who get surprised by a repurchase demand.

Common scenario for vehicle buybacks – customer-initiated lawsuit:

There are a few common scenarios we see that result in finance companies requesting a vehicle buyback. The most common is when the customer initiates a lawsuit. Some will argue consumer lawsuits are on the rise due to manufacturing, warranty, and repair issues post-COVID. This could very well be the case; however, most believe the larger cause of this upward trend is due to current market conditions. Consumers are purchasing cars and agreeing to loans that they simply cannot afford.

Rather than forfeiting the cars to repossession, consumers are suing the dealer and/or finance company with the hopes they can negotiate out of the deal or find a resolution that allows them to stay in the car with more favorable terms. Once a finance company is made aware of a lawsuit, its first line of recourse is usually to request a repurchase from the dealer. Many consumers are keenly aware that most small to medium-business owners will find the cost of litigation too high of a risk and, as a result, many dealers and/or finance companies are willing to negotiate with consumers.

Common scenario for vehicle buybacks – consumer fraud:

A second example we often see that could result in a request for a repurchase is due to consumer fraud, most commonly in the falsifying of information on a credit application. For example, a consumer will provide fake pay stubs to a dealer with the hopes of being approved for financing. Some fake stubs aren’t discovered until an audit of the account is performed, which could be months after a sale. Depending on the terms of the Dealer Agreement, the finance company can immediately demand the repurchase of a vehicle as a result of fraud.

Common scenario for vehicle buybacks – payment default repurchase

The third and final example we’ll review is the First or Second Payment Default Repurchase. This clause would allow a finance company to request a repurchase after one or two missed payments from the consumer. Failure to pay can be intentional or as innocent as a consumer not knowing where to remit payment. Thus, we strongly suggest against agreeing to a Dealer’s Agreement inclusive of this language.

What recourse do you have if you receive a repurchase request from your finance company?

  1. Fight back. Review your Dealer Agreement and determine the validity of their claims. You’ll want to consider the following:
    1. confirm whether the language cited in the finance company’s repurchase request is, in fact, in your executed Dealer Agreement;
    2. do the allegations of your finance company and/or consumer satisfy a condition for repurchase?
    3. Do they have the right to do so under your Agreement?
  2. Your second option is to simply agree to the repurchase. In choosing this option you must consider whether you (dealer) have the ability to service a payment schedule or seek a servicer to partner with in order to do so.
  3. Lastly, you can attempt to negotiate a resolution with the finance company that is not a one-time, direct payment. Instead, you can try to offset the repurchase against future purchases or transfers to finance company.

If you would like to have an attorney review your Dealer Agreement or if you are currently involved in a claim with your finance company or a consumer, please don’t hesitate to reach out to us anytime at Leffkoff Law.

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