To state the obvious, dealers are often the target of lawsuits and investigations by federal and state agencies. But I have a solution which will immunize dealers from any and all further liability.
I propose that a new form be implemented in all dealerships across the United States, which will eliminate all dealer liability and risk. It will read:
I (name of consumer) hereby agree that I waive any and all infractions, civil or criminal, which may be engaged in by (name of dealer) in any and all transactions which I may have with the aforementioned dealer. In addition, I will not complain to any state agency or attorney, nor shall I divulge any infractions to any third-party. I agree to these terms in return for purchasing a vehicle at (name of dealer). Should I breech this agreement, I accept the liability of three times the value of the vehicle which I am purchasing or leasing. In addition, I agree to indemnify the dealer for any and all legal fees, and any damages, which the aforementioned dealer must bear due to my breach of this agreement.
Would such an agreement be enforced in a court? Under no circumstances would it be. Pursuant to various legal theories, it would be struck by a court, as it generally violates public policy. Public policy is defined as the principle that injury to the public good is a basis for denying the legality of a contract or other transaction. It would be construed to be unconscionable, as it contravenes the legislative and state mandate.
Contract law provides great flexibility, but certain terms and conditions cannot be waived by either contracting party. This concept applies directly to electronic contracting.
A Silent Legal Threat
This obviously flawed proposal relates to one of the potential enormous liabilities which dealers face in the electronic era. Dealers may think that contracting with consumers in an electronic environment on an iPad or some other similar type of device suspends their obligations regarding how contracts and other documents must be presented.
But that is fallacious, untrue, false, wrong, misleading, erroneous, and mythical. And it could cost certain dealers millions of dollars in liability. It also could be demonstrated in court very readily.
Many federal and state laws have been written for an ink-on-paper world where type size, font size, emboldened words, italicized words, colored wording, boxed disclosures, and “clear and conspicuous” language (i.e. understandable and prominent) must be recognized and provided to consumers.
These disclosures must be provided in advance to allow the consumer to study the terms and conditions of the transaction before agreeing to them. The fact that the language is being presented on a computer screen or, even worse, on a cellphone, does not excuse the requirement that the language must be presented in the manner demanded by law. In other words, regardless of the medium, the rules of presentation must be discharged by the dealer.
Should the dealer not comply, he could potentially face enormous liability. Such contraventions would violate the Unfair and Deceptive Trade Practices Act, a law which has been enacted in every state in the union. In some states, each violation could incur a $50,000 penalty — that is, $50,000 for each document signed where there is a breach of the law. In addition, federal law may also be violated by these transgressions. Under the Truth in Lending Act, both retail sale contracts and lease agreements have exacting disclosure requirements which the consumer, once again, must be exposed to prior to agreeing to the terms and conditions of these contracts.
The absolute worst cases, which have been reported to me, are the cases where dealers use signature pads for transactions and verbally relate to the consumer what they are signing. In other words, the consumer doesn’t see any documents until after they are executed. The consumer merely signs the signature pad as instructed. This clearly violates the law.
Even in cases where the consumer is shown the documents on a computer screen, and the consumer signs the signature pad, consumer advocates argue that this approach is legally objectionable because the consumer’s signatures or initials were not immediately appended to those sections of the agreement, immediately, and could not be seen by the consumer. Moreover, the consumer could only see portions of the agreement on the screen.
Dealers should note that various laws in most states require that a consumer’s signature must be affixed closely to a particular disclosure. A good example can be identified in Wisconsin. The Wisconsin code requires that every document evidencing the consumer’s obligation to pay under a closed-end consumer credit sale must be immediately above or adjacent to the place for the consumer’s signature, a clear, conspicuous, printed, or typewritten notice in substantially the following language:
Notice to Customer:
(a) Do not sign this before you read the writing on the reverse side, even if otherwise advised.
(b) Do not sign this if it contains any blank spaces.
(c) You are entitled to an exact copy of any agreement you sign.
(d) You have the right at any time to pay in advance the unpaid balance due under this agreement and you may be entitled to a partial refund of the finance charge.
It would appear that state attorneys general, consumer agencies, consumer advocacy organizations, consumer plaintiffs, and class-action attorneys have yet to recognize this wonderful opportunity for prosecution. But this lack of prosecution won’t always be the case. Someone will eventually recognize the chance to become a millionaire. Fortunately, for dealers, there are remedies to avoid this risk.
Under ESIGN (Electronic Signatures in Global and National Commerce Act) and UETA (Uniform Electronic Transactions Act), dealers clearly have the opportunity to electronically contract with consumers. But they need to be circumspect in how they do so. One of the key concepts is that dealers should always favor the right of the consumer to have retention rights and not mere access rights to any documents used in the transaction. Here are a few recommendations:
- If a dealer uses a tablet for the presentation, the consumer must be able to have some form of physical control over it.
- Documents must be able to be printed at any time upon request, whether they are completed or not.
- All documents should be printed and given to the consumer after the signing ceremony. In lieu of the actual printed documents, it may be permissible to provide a thumb drive or send the documents by email. However, it may be prudent to provide an additional disclosure if printed documents are not given to the consumer wherein the consumer consents to these other methods and has a computer with applications to retrieve these documents.
- On the computer screen, all requirements as to type and font size, emboldening, and so forth must at least be equal to the requirements provided by law. Larger font size than the state mandate would be recommended.
- Many state laws provide that signatures must be physically related to particular paragraphs. If a signature pad is utilized the consumer must be able to visually see where his signature is being affixed contemporaneously with its execution.
Disclosing information to a consumer before the consumer agrees to the terms and conditions is a serious matter. Although electronic contracting is permitted by law, these disclosures remain somber requirements.
Prudence would dictate to dealers to be conservative and disclose all these terms and conditions in a manner which meets, or exceeds, the requirements of the ink on paper world. Govern yourselves accordingly.
Terrence J. O’Loughlin JD MBA is director of compliance for The Reynolds and Reynolds Co.