legal corner
After-Sale Repairs: Keeping Them Running by Michael
O
ne of the more quaint phrases used by buyhere-pay-here dealers in the ancient past was: “If they ain’t driving, they ain’t paying.” The rustic wisdom of that saying holds true today. In the world of subprime motor vehicle finance, but especially in the BHPH business, it is often necessary to assist customers in getting repairs done. It is also often in a dealer’s best interest to be involved in the process of analyzing breakdowns and referring customers to preferred repair shops to prevent such unpleasant occurrences as abandonments and the placement of mechanic’s liens. At one time, almost all dealerfinanced sales were on an “as is” basis. But in recent years, more and more dealers have gone to offering some type of warranty on their vehicles and others are offering to sell commercial service contracts, adding the charge to the amount financed in the installment contract. What are some of the ways dealers can address postsale repairs as part of the sales transaction? When it comes to discussing warranties and service contracts, it’s necessary to understand the definitions of the key terms. Even though the terms “warranty” and “service contract” are often used interchangeably, they are actually different things.
As Is
This term refers to selling a vehicle (or any other product) without giving a warranty. October 2020
T e x a s
D e a l e r
Dunagan
Warranty
Warranty is by definition an undertaking or promise given by a manufacturer or seller of a product to repair or replace merchandise if certain defects occur. There is and can be no separate charge for a warranty. An example of a warranty is the limited warranty given by automobile manufacturers on the new cars sold by their franchised dealers. There are no additional charges to the buyers, and the terms of the warranties are set forth in written documents given to the buyers.
Service Contract
W.
TIADA GENERAL COUNSEL
The issuers of ser vice contracts are required in Texas to be registered with the Texas Depar tment of Licensing and Regulation (TDLR) and must meet rigorous financial requirements involving cash deposits and/or insurance backing of the product.
Service contracts, on the other hand, are insurance-like products sold to car buyers to provide or pay for repairs that are not covered by a warranty. Service contracts are usually offered by third-party providers and sold through car dealers (although some are directmarketed to consumers). The issuers of service contracts are required in Texas to be registered with the Texas Department of Licensing and Regulation (TDLR) and must meet rigorous financial
requirements involving cash deposits and/or insurance backing of the product.
SELLER OPTIONS
Selling As Is
It is still possible to sell a vehicle on an “as is” basis. This means that there are no warranties given with the sale. While selling “as is” eliminates the threat of breach of warranty claims, it doesn’t preclude claims of misrepresentation 9
