Texas Dealer, December 2014 by Texas Independent Auto Dealers Association

2014 Annual Compliance

The

Quiz

See How You Stack Up

In This Special Compliance Issue: – Maximum Finance Charge Rates for 2015 –T xDMV Enforcement’s Top 10 Violations… and More! –T he OCCC 2014 Dealer Compliance Report –D ealer Audit Issues from the Texas Comptroller

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2015 TIADA Board of Directors President Brent Rhodes/Fiesta Motors 5150 Industrial Way Drive Buda, TX 78610 Office: 512.312.2201 Email: brent@fiestamotors.net

Volume XIV

Secretary Kathrine Tolsch/CICO Auto Sales 11050 Harry Hines Blvd. Dallas, TX 75229 Office: 214.352.9282 Email: cicoauto@verizon.net Treasurer Greg Zak/Dixon Motors 7902 North Freeway Houston, TX 77037 Office: 281.931.1300 Email: gzak@windstream.net Vice President, West Texas (Region 1) James Hobson/H-Town Motors 3714 Dyer Street El Paso TX 79930 Office: 915.564.9797 Email: htownmotors@sbcglobal.net Vice President, Fort Worth (Region 2) Tommy Gregory/Abilene Used Cars Sales Inc. 497 E.S. 11th Abilene, TX 79602 Office: 325.676.8000 Email: aucsinc@sbcglobal.net Vice President, Dallas (Region 3) Kevin Mims/VP Auto Sales 2921 S. Garland Ave. Garland, TX 75041 Office: 972.864.1300 Email: kevinm@vpautosales.com Vice President, Houston (Region 4) Juan Sabillon/Mi Tierra Auto Sales 7935 Gulf Freeway Houston, TX 77017 Office: 713.644.2446 Email: brentfordct@yahoo.com Vice President, Central Texas (Region 5) Robert Beck/Stop N’Drive Motors 711 N. General McMullen Dr. San Antonio, TX 78228 Office: 210.432.1101 Email: stopdrive@texas.net Vice President, South Texas (Region 6) Dan Keetch/Keetch Motors 1010 S. Staples Corpus Christi, TX 78404 Office: 361.882.3541 Email: dankeetch51@yahoo.com Vice President At Large Ryan Winkelmann/BJ’s Autohaus 5005 Telephone Road Houston, TX 77087 Office: 713.641.0980 Email: ryan.winkelmann@sbcglobal.net Vice President At Large Trey Crouch/Trey Crouch’s Wheels On Credit 636 E. Business 83 McAllen TX 78501 Office: 956.972.0700 Email: trey@wheelsoncredit.com TIADA Executive Director Jeff Martin 9951 Anderson Mill Rd., Suite 101 Austin, TX 78750 Office Hours M-F 8:30am - 4:30pm 800.442.5944 • Fax 512.244.6218 jeff.martin@txiada.com

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D e c e m b e r 2 014

texasDealer contents

chairman of the board Michael Thomasson/Mike Carlson Motor Company 264 Exchange St. Burleson, TX 76028 Office: 817.366.9578 Email: mthomasson@mcmcauto.com President Elect HL Hensley/Automax of Lubbock 1908 Avenue J Lubbock, Texas 79411 Office: 806.744.3533 Email: hl@gospac.com

5 Officers’ Message

by Kathrine Tolsch, TIADA Secretary

6 On The Cover: 2014 Annual Compliance Quiz 10 Local Chapters 10 2014 Auto Auction Directory & Resource Guide 14 Maximum Finance Charge Rates for 2015 by Michael W. Dunagan

OCCC Regulatory Activities Report

by Rudy Aguilar

22 Regulation Matters: Conditional Delivery Agreements by Danny Langfield

Texas Comptroller Audits

Lobby Day

T he Top Ten Motor Vehicle Dealer Violations… and More

provided by Texas Comptroller of Public Accounts Staff by Mario Martinez

by Ray Willoughby

37 New Members 39 Legal Corner: Is There a Mandatory Grace Period? by Michael W. Dunagan

40 Upcoming Events

46 Behind the Wheel by Jeff Martin

What’s happening at w w w . t x i a d a . c o m ? Membership Renewal!

When you login, the welcome screen displays a reminder of your membership status. If your membership is only current through 12/31/14, click the renewal link and easily renew your membership online for 2015. The Editor of the Texas Dealer magazine is Jenny Kroening, Special Projects Director of TIADA. To change your address for subscription and/or for other TIADA products, call the TIADA state office at 800.442.5944, 512.244.6060 or fax 512.244.6218. E-mail: info@txiada.com. New Membership/Subscriptions: If you are a member of TIADA, you may receive this magazine free of charge. Membership year runs from Jan 1 to Dec 31. Back issues are available for $20 each subject to availability. Send a check or money order, along with your name and mailing address to TEXAS DEALER, Attn: Back Issues, 9951 Anderson Mill Rd., Suite 101, Austin, TX 78750. Sorry, no billing. Notice to all members concerning services and products: TIADA was established in 1944 to develop professional standards of service and conduct for the independent auto industry. Opinions expressed herein are not necessarily those of the TIADA management, the Board of Directors or the membership. Likewise, the appearance of advertisers or their indemnifications of TIADA does not constitute endorsement of the products or services featured.

officers’ message “You make your money when you buy it.”

emember the first time the price of gas sky rocketed and dealers were dumping their big SUVs because customers were suddenly conscious of miles per gallon? I loved that time! I snapped up as many of those large SUVs as I could at really cheap prices, and my customers were buying them like crazy! We all have a story from “back in the day” when we made a fantastic deal on something we bought and sold with an exceptional profit margin. Today, it can be a bit more complicated to find inventory, let alone a great deal. Inventory is one of the largest assets in a dealership; it can also be one of the most complex. I remember my father saying, “You make your money when you buy it.” On the surface that sounded very simple and obvious… buy it cheap or at a good price and you will make money. Not so fast! Let’s take a deeper look at the real implications of such a simple statement. As I see it, the principles of acquiring inventory can be summed up with PRICE: Pricing Model: Cost plus, mark-up, gross profit, average recon cost, ACV, competitors’ pricing, etc. Resources: Capital resources, lines of credit, floor plans, cash flow, other sources of funding, etc. Inventory: What do you have, what do you need, what is your inventory turn, days on lot, target mix of units—domestic, foreign, luxury, car, truck, etc.

by Kathrine

Tolsch

CICO Auto Sales (Dallas) TIADA secretary

Customer Base: Customer buying habits, likes and dislikes, demographics—young, old, family, budget, longevity in a vehicle, etc. Establish an inventory pipeline: Auctions, web sources, wholesalers, etc. There are a multitude of topics within each of these areas that can be discussed, but I would like to focus on “Establish an inventory pipeline.” Dictionary.com defines a “pipeline” as a route along which something passes at a steady rate; or flow of supply. Finding and buying inventory in today’s world should not be an occasional event; it should be viewed as a pipeline that you work frequently, regularly and through multiple sources to keep filled. The challenge as an owner/operator is how much time you dedicate to this task. If you delegate this to a manager or buyer, are they creating a true pipeline utilizing the many means available for sourcing inventory? Working an inventory pipeline on a regular, on-going basis is how you can maximize the “make your money when you buy it” concept. You will find yourself in the driver’s seat on selecting the units you want to purchase, when you want to purchase them, rather than being compelled into buying at possibly the wrong price or the wrong time. As we all prepare for our upcoming busy season, I challenge you to evaluate how well you are working your pipeline and maximizing the opportunities to “make your money when you buy it.”

Let’s take a deeper look at the real implications of such a simple statement. December 2014

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on the cover

2014 Annual Compliance The

Quiz

See How You Stack Up

(Editor’s note: The following questions were taken from information that was published in a Legal Corner or Regulation Matters column in a 2014 issue of Texas Dealer magazine.)

1. Vehicle Inventory Tax (VIT) is (pick one):

a. S ales tax on inventory. b. A d valorem tax on a dealer’s inventory. c. Th e buyer’s property tax on his or her purchase. d. The buyer’s portion of the county bridge and road fee.

2. True or False: If you are moving your dealership to a new address within the same city, you will need to obtain a new P# from TxDMV. 6

3. The State Comptroller takes the position that:

a. Both the purchase price of GPS units and air time charges are taxable to the dealer. b. The purchase of GPS units is taxable, but air time charges are not taxable. c. The purchase price of GPS units is not taxable, but air time charges are taxable to the dealer. d. The purchase of the GPS is not taxable since the device is attached to the vehicle and increases the sales tax the state receives when the vehicle is sold. T e x a s

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December 2014

4. Regarding a buyer’s trade-in, if the title to that vehicle has been issued in the name of more than one person, then:

a. O ne of those people must sign off on the title as the seller. b. B oth of those people must sign off on the title as the sellers. c. A Certified Copy of Original (CCO) must be obtained. d. You may not accept the trade-in.

5. True or False: Selling “as is” eliminates any obligation to disclose the existence of repaired prior frame damage to a buyer. 6. True or False: There is no

state-level ID requirement for registration renewal.

7. True or False: If more than 60 per

cent of the original purchase price of the vehicle has been paid to the car creditor prior to repossession, the creditor can’t use strict foreclosure.

8. Which of the following documents needs to be provided to the county when making application for title on behalf of your customer? (Select all that apply.)

a. A copy of the customer’s photo ID b. ID of the person to whom secure Power of Attorney has been assigned c. Authorization to sign document d. V TR 136 County of Title Issuance form e. None of the above

9. True or False: Federal law requires

that all new and used vehicles have working airbags.

10. Once the combination of the registration and inspection stickers (“single sticker”) is fully implemented in March of 2016, a vehicle may be registered on a dealer sale as long as it has received a passing inspection in the: a. 12 months preceding the sale date. b. 90 days preceding the sale date. c. 180 days preceding the sale date. d. Dealers will no longer be allowed to register vehicles. December 2014

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11. A buyer of a vehicle has a 72-hour cooling-off period in which to cancel the purchase of a vehicle in which of the following situations: a. W hen the purchaser signs a conditional delivery agreement b. W hen the transaction is a “spot delivery” c. I n all vehicle purchases d. A purchase that is closed at the local Dairy Queen

12. Which of the following are examples of situations that would require a Transfer of License with the OCCC?

a. A sole proprietor wishes to bring in a new investor as a partner in the dealership. b. Th e sole owner of a business passes away, leaving the business to family members. c. A dealership is sold and will be taken over by all-new ownership. d. One business partner wishes to sell his entire interest to an existing owner or to a third party. e. All of the above

13. True or False: If a debtor

voluntarily drops off a vehicle and refuses to make future payments, the lienholder can do a strict foreclosure and seek a deficiency balance against the debtor.

14. Billy’s Roll Today Motors is advertising a truck for sale for $14,995 cash. A subprime customer with little cash has agreed to buy the truck, but the only second-chance finance company Billy can get to finance this customer is charging a $1500 acquisition fee. If Billy wants to do the deal and stay legal, how should he proceed?

a. Add the $1,500 to the cash price of the vehicle, increasing it to $16,495. b. Keep the price at $14,995 and add the $1,500 as a line item on the contract. c. Keep the price at $14,995 and add the $1500 to the doc fee. d. Keep the price at $14,995 and do not pass the $1,500 fee through to the customer at all.

15. The Service Person’s Civil Relief Act (SCRA) applies to which of the following situations: a. A person is in the military at the time of credit purchase. b. A person signs up for reserve status after the credit purchase. c. A person goes on active duty after the credit purchase. d. A person who financed a vehicle while on active duty is sent overseas.

16. A dealer must keep a complete record of all vehicle purchases and sales for a minimum period of _______ in order to satisfy TxDMV rules a. 24 months b. 48 months c. 10 years d. Infinity and beyond

17. True or False: An IRS Form 8300 need only be filed if a cash payment falls under the $10,000 threshold. 18. To title a vehicle in the name of an entity (business, government entity or organization) you will need to obtain:

a. The entity’s EIN/FEIN. b. An acceptable photo ID. c. Authorization to sign. d. A document associating the EIN/ FEIN with the entity. e. All of the above.

19. Texas law requires repossession notices to be sent by certified mail in which of the following circumstances:

a. When a private sale notice is used b. When a strict foreclosure is used c. When either a strict foreclosure or private sale is used d. Certified mail is not required on any repossession notice

20. True or False: Any change in

ownership requires you to obtain a new P# from TxDMV.

Answers can be found on page 44. 7

Texas I n d epen d ent A utomob i l e D ea l ers A ssociation

TIADA TIADA Membership Membership Renewal Renewal Notice Notice TIADA Membership Renewal Notice Dear Member: Dear Member: Dear Member: HappyHappy holidays holidays to youtoand youyour andfamily. your family. I hopeI 2014 hope has 2014been has another been another good year goodfor year you. forHere you. at Here TIADA at TIADA we we Happy holidays toup youfor and I hope 2014 been another good year formilestone you. milestone Here– at we are gearing are gearing up for the 2015 theyour legislative 2015family. legislative session session whilehas celebrating while celebrating a pretty a pretty significant significant anTIADA all-time – an all-time are gearing up for of the 2015 legislative session while celebrating abeing pretty significant milestone – an all-time membership membership high high over of1400 over members. 1400 members. I want Ito want thank to thank you foryou for being part ofpart thatofsuccess that success and ask and you asktoyou to membership of support over 1400 I want to thank forTIADA being part of that success and ask you to continue continue yourhigh support your by renewing by members. renewing your membership your membership withyou TIADA with for 2015. for 2015. continue your support by renewing your membership with TIADA for 2015. As I mentioned, As I mentioned, the legislative the legislative session session is just is around just around the corner the corner and, as and, youasprobably you probably know, know, we rely we upon rely upon As I mentioned, the legislative session is just around the corner and, as you probably know, we rely upon the strength the strength of our of membership our membership to be the to be most the powerful most powerful advocates advocates we can webecan for be youforand youthe and entire the entire the strength of our membership to be the most powerful advocates we can be for you and the entire industry. industry. SimplySimply put, there put, is there strength is strength in numbers in numbers – and –our and membership our membership is the source is the source of our of strength our strength at the at the industry. Simply put, there is strength in numbers – and our membership is the source of our strength at the Capitol. Capitol. Can we Can keep we pace keep with pacethe with endless the endless spending spending and bottomless and bottomless resources resources of the of special the special interests interests Capitol. Can keep pace with the endless spending and resources of the special interests and the and SuperPAC’s? thewe SuperPAC’s? No. But No. the But steadfast the steadfast dedication dedication andbottomless support and support of members of members like you like from youall from across all across and the SuperPAC’s? No. But the steadfast dedication and support of members like you from all across TexasTexas makesmakes us a formidable us a formidable presence presence in Austin in Austin nonetheless. nonetheless. Texas makes us a formidable presence in Austin nonetheless. And remember, And remember, your membership your membership can pay canforpay itself forwith itselfthe with 2015 the VIP 2015 Auction VIP Auction Card. Card. WhenWhen you renew you renew you’ll you’ll And remember, your membership can pay for itself with the 2015 VIP Auction Card. When you renew get a free get abuy/sell free buy/sell fee (upfee to (up $200) to $200) at every at every auction auction on theon card the–card 40 locations – 40 locations all across all across Texas.Texas.you’ll get a free buy/sell fee (up to $200) at every auction on the card – 40 locations all across Texas. To ensure To ensure there is there not a is lapse not a lapse in yourinmember your member benefits benefits and toand continue to continue receiving receiving criticalcritical updates updates on theon the To ensure there is not a lapse in your member benefits and to continue receiving critical updates on membership the and renew your membership issuesissues that directly that directly affect affect your business, your business, simplysimply go to www.txiada.com/renew go to www.txiada.com/renew and renew your issuesonline. that directly affect business, go to www.txiada.com/renew renew your membership online. If you’d prefer, youyour can return thesimply bottom portion of thisof letter payment by mail; fax your If you’d prefer, you can return the bottom portion this with letteryour withand your payment by mail; fax your online.renewal Ifto you’d prefer, you can return the bottom of this letter with your payment by mail; fax your renewal (512)244-6218 or renew by phone, atportion (800)442-5944. to (512)244-6218 or renew by phone, at (800)442-5944. renewal to (512)244-6218 or renew by phone, at (800)442-5944. Sincerely, Sincerely, Sincerely, Jeff Martin Jeff Martin Jeff Martin TIADATIADA Executive Director Executive Director TIADA Executive Director Company Company Name: Name: Company Name: ContactContact Person:Person: Contact Person: Address: Address: Address: Phone:Phone: Email: Email: Phone: Email: Payment Payment type (please type (please check one): checkCheck one): Check or money or money order (payable order (payable to TIADA) to TIADA) Credit Card Credit Card Payment type (please check one): Check or money order (payable to TIADA) Credit Card Credit Card Credit#Card # Exp. Date Exp. Date Credit Card # Exp. Date Name on Name Card on(please Card (please print): print): Name on Card (please print): 2015 Membership 2015 Membership Dues: Dues: $425 $425 2015 Membership Dues: $425 Mail to:Mail TIADA to: TIADA Renewals Renewals / 9951 /Anderson 9951 Anderson Mill Rd. Mill Suite Rd.101 Suite / Austin, 101 / Austin, TX 78750 TX 78750 Mail to: TIADA Renewals / 9951 Mill Rd. Suite 101 / Austin, TX 78750 FaxAnderson to:Fax (512) to:244-6218 (512) 244-6218 8

Fax to: (512) 244-6218

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December 2014

2 014 tiada a u t o a u c t i o n

Local Chapters Victoria Dennis Schroller Victoria Autos Direct 361.578.0530 Dennis@victoriaautosdirect.com Meeting – 1st Monday (Monthly) Fort Worth Jerry Smith HJ Smith Automobiles 817.282.0102 hjsmithauto@yahoo.com Meeting- 4th Thursday of December, February, April, June, August and October Dallas County Kevin Mims VP Auto Sales 972.864.1300 kevinm@vpautosales.com Meetings as needed/TBD Houston Michael Zak Dixon Motors 281.931.1300 houstoniada@gmail.com Meeting – 2nd Monday (Monthly) Waco-Heart of Texas Bill Miller Bill Miller Used Cars Meeting – 2nd Monday (Monthly) For more information contact Eddie Massey, Massey Motors 254.753.6661 San Antonio Robert Beck Stop N’ Drive Motors 210.432.1101 stopdrive@texas.net Meetings quarterly (dates announced at www.txiada.com) El Paso Ricardo Gardea Cars Plus 915.778.8285 cars_plus@att.net Meeting – 3rd Friday (Monthly) 10

ABILENE * Alliance Auto Auction of Abilene 6657 US Hwy 80 West / 79605 325.698.4391 / 866.310.3555 www.allianceautoauction.com Jimmy Compton, Auction Manager Danielle Staples, Office Manager Friday: 10 AM * CM Company Auctions 2258 S. Treadaway / 79602 325.677.3555 / 866.310.3555 www.cmauctions.com Gregory Chittum, Owner Thursday: 10 AM

AUSTIN * America’s Auto Auction Austin / San Antonio 16611 S. IH-35 / Buda / 78610 512.268.6600 www.americasautoauction.com John Swofford, General Manager Tuesday: 1:30 PM

BEAUMONT Gulf Coast Auto Auction 4450 South 11th Street / 77701 409.840.6000 www.gulfcoastautoauction.com Roger Rashall, General Manager Rocky Rashall Blake Rashall Thursday: 7 PM

CARROLLTON * Texas Lone Star Auto Auction 2205 Country Club Drive / 75006 214.483.3597 www.TLSAA.com Jeff Dunning, Jr., General Manager Tim Clement, Assistant GM Michelle Elrod, Office Manager Tuesday: 1 PM / Thursday: 2 PM

DALLAS / FT. WORTH METROPLEX * ADESA Dallas 3501 N. Lancaster-Hutchins Rd / Hutchins / 75141 972.225.6000 Ken Osborn, GM Wednesday: 3 PM – New Car Trade Thursday: 9:30 AM – Consignment/ Fleet/Lease * Use your TIADA VIP Auction card at these participating auctions and get a FREE buy/sell fee (up to $200).

* Alliance Auto Auction of Dallas 9426 Lakefield Blvd. / Dallas / 75220 www.allianceautoauction.com Christopher Dean, General Manager Wednesday: 1 PM * America’s Auto Auction – Dallas 219 N. Loop 12 / Irving / 75061 / 972.445.1044 www.americasautoauction.com Robert Hammonds, GM Ruben Figueroa, Assistant GM. Tuesday: 2 PM / Thursday: 2 PM

EL PASO * El Paso Independent Auto Auction 7930 Artcraft Road / 79932 / 915.587.6700 www.epiaa.com Lori Pidgeon, GM Luke Pidgeon, AGM Wednesday: 10 AM – Fleet/Lease & Dealer Consignment Wednesday: 1 PM as scheduled – GSA Public Auction

HARLINGEN / McALLEN * Big Valley Auto Auction 4315 N. Hutto Rd. / Donna / 78537 956.461.9000 www.bigvalleyaa.com Bernard Watson, GM Lisa Harms, alternate contact Thursdays: 10 AM

HOUSTON * America’s Auto Auction – N. Houston 1440 FM 3083 / Conroe / 77301 / 936.441.2882 www.americasautoauction.com Buddy Cheney, GM Ben Nash, Sales Manager Mondays: 6:30 pm

longview * Alliance Auto Auction, LLC 6000 SE Loop 281 / 75602 903.212.2955 www.allianceautoauction.com Jeff Loftin, Auction Manager Brenda Hunt, Office Manager Friday: 10 AM

LUBBOCK Lone Star Auto Auction 2706 Slaton Hwy / 79404 806.745.6606 (local) / 888.299.6606 (toll-free) www.lsaalubbock.com Jim McNulty, Owner Dale Martin, General Manager Wednesday: 10 AM T e x a s

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d i r e c t o r y & r e s o u r c e g u i d e LUFKIN * Lufkin Dealers Auto Auction 2109 N. John Redditt Drive / 75904 936.632.4299 Wayne Cook Thursday: 6 PM

ROCKWALL Lakeside Auto Auction 1810 East I-30 / 75087 972.771.9919 www.lakesideaa.com Pete Conley, Owner Tuesday: 7 PM

TYLER * Greater Tyler Auto Auction 11654 State Highway 64 W / 75704 903.597.2800 Tuesday: 5 PM – Repo Lane Tuesday: 6 PM – Consignment

WACO * Heart of Texas Auto Auction (Waco’s oldest auto auction- Proudly serving dealers for 20 years!) 2508 HWY 6 / 76705 254.755.7713 www.heartoftexasautoauction.com Allan Wichkoski, Owner Kenny Reigert, General Manager Shirley McMillan, Office Manager Thursday: 7 PM * Alliance Auto Auction 15735 N. Interstate Hwy 35 / Elm Mott, TX / 76640 254.829.0123 / 254.829.1298 (fax) www.allianceautoauction.com Darren Darnell, GM darren.darnell@allianceautoauction.com Carmen Klaus, Office Manager Every Friday: 10 AM

oKLAHOMA CITY, OK * Dealers Auto Auction of OKC 1028 S. Portland / Oklahoma City, OK / 73108 405.947.2886 /405.943.8370 (fax) www.daaokc.com Gary Smith, Owner/President/GM John Reininger, Asst. GM Mike Egdahl, F/L Manager Thursdays: 8:30 AM – Consignment Sale INOP Sale held weekly GSA sale held monthly (open to public) Call for info on sale dates and times Every other Tuesday: 10 AM – GM Sponsored Factory Sale December 2014

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The TIADA Website:

www.txiada.com Members can log in with their username/password and access our Dealer Member Directory, Legislative Action Center, Legal Consultation Service and much more. Register for all upcoming TIADA events online at the Calendar of Events; access our online membership application; find contact information for all our Local Chapters, and find many additional resources at our Links page. Texas Department of Motor Vehicles 888.368.4689 www.txdmv.gov Office of Consumer Credit Commissioner 800.538.1579 www.occc.state.tx.us Texas Comptroller 800.252.1382 www.window.state.tx.us NIADA 800.682.3837 www.niada.com

Repossessions

American Recovery Association 972.755.4755 www.repo.org or contact TIADA state office

Forms

Burrell Printing 800.252.9154 www.burrellprinting.com

One Second Locate (no spinning) Reduce Repossessions Impound Notiﬁcations Schedule Reports

Address Veriﬁcation Scheduled Reports Stops Report

Texas I n d epen d ent A utomob i l e D ea l ers A ssociation

2014 INDEPAC CoNtrIbutors (as of November 10, 2014)

$2,500+ Tommy Gregory

$1,000- $2,499

$500- $999

Patricia Harless

Keith Hagler

$250-$499

Up to $249

Kathrine Tolsch

Carleton Heller Byron Riley

Our final list of INDEPAC contributors will run in the January issue of Texas Dealer.

Make your contribution today and support your association! INDEPAC contributions may be sent to INDEPAC c/o TIADA 9951 Anderson Mill Rd, Austin, TX 78750 (Personal contributions only â&#x20AC;&#x201C; corporate funds cannot be accepted)

feature Maximum Finance Charge Rates for 2015 by Michael W. Dunagan TIADA General Counsel

Dealer Question: What is the maximum finance charge rate I can use on a motor vehicle retail installment contract? Answer: Dealers who hold vehicle finance licenses issued by the Office of Consumer Credit Commissioner (OCCC) are authorized to finance the sale of vehicles, and are allowed to add a finance charge or time-price-differential to the amount financed. (While the term “interest” is commonly used interchangeably with finance charge and time-pricedifferential, “interest” is actually the amount charged on a loan of money, and should not technically be used in the context of financing the sale of a motor vehicle.)

he legislature has established a sliding scale of maximum rates, with higher rates allowed on older cars. The maximum rate that sellers of older vehicles can add to the amount financed is $15 per $100 per annum or, stated another way, 15 per cent add on (see accompanying chart). Depending on such variables as the length of the repayment period, the amount of each payment,

and the frequency of payment (weekly, bi-weekly, semi-monthly or monthly), the annual percentage rate on 15 per cent add on can exceed 26 per cent. Chapter 348 of the Texas Finance Code allows sellers of vehicles to finance any unpaid balance at rates that generally exceed the rates of interest that can be legally charged by banks and traditional lenders.

All financing sellers, with a few exceptions, are required by federal law to disclose the rate of finance charge as an annual percentage rate, or APR, on their contracts.

Maximum Finance Charge Rates for Calendar Year 2015 Class One Two Three Four 14

Year Models

2016 and 2015 new Any new note appearing in Class One above; 2015, 2014 and 2013 used 2012 and 2011 2010 and older

Max. Rate

Alternate Rate

7.5 per cent add on 10 per cent add on

18 per cent APR 18 per cent APR

12.5 per cent add on 15 per cent add on

18 per cent APR 18 per cent APR T e x a s

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December 2014

For purposes of setting maximum rates of finance charge, Chapter 348 establishes four classes of vehicles based off the vehicle’s model year. The chart on page 14 shows allowable rates for calendar year 2015. These rates are valid on sales that take place between January 1, 2015 and December 31, 2015. The maximum rates “roll over” on January 1 of each year. The maximum rates of finance charges are stated in the Finance Code as “add-on” rates. For example, for vehicles that fall into the class-four category, sellers can charge fifteen dollars per one hundred dollars financed per annum. (“Add-on” should not be confused with “annual percentage rate” which is the rate required to be disclosed by federal law.) These are maximum rates, and any rate lower than the maximum can be charged.

All financing sellers, with a few exceptions, are required by federal law to disclose the rate of finance charge as an annual percentage rate, or APR, on their contracts. Since Texas law sets maximum rates as add-on rates, it is necessary to first calculate the amount of finance charge the creditor wishes to assess within the legal limit, then determine the APR for disclosure purposes. Federal Truth-In-Lending requires that any finance charge rate be advertised or expressed to a consumer as an APR. It is thus improper to advertise or discuss addon rates with customers. The process of calculating the APR on contracts that provide for payments other than equal monthly payments is extremely difficult. Most creditors rely on specialized software to perform this function. (For a list of reviewed programs, see the OCCC

website at www.occc.state.tx.us). Without appropriate software, it is virtually impossible for a creditor who collects weekly, bi-weekly, or semi-monthly payments to accurately calculate an APR and other required disclosures. Dealers should not guess at or estimate an APR, as incorrect disclosures are the basis for claims for statutory damages and attorneys fees. Michael W. Dunagan is an attorney in Dallas, Texas who has represented the Texas Independent Automobile Dealers Association for over 35 years. He has written a number of books and hundreds of articles for trade journals and law reviews. His clientele includes dealers, banks, finance companies, auto auctions and credit unions.

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The more members the association has, the more influence it has with the legislature and agencies that oversee your business.

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feature OCCC Regulatory Activities Report by Rudy Aguilar

Director of Consumer Protection, OCCC

he Office of Consumer Credit Commissioner (OCCC) closed its fiscal year 2014 regulatory activities on August 31, 2014. Fiscal year-end results show moderate improvement in the compliance level of the motor vehicle sales finance industry from previous years. During fiscal year 2014, the agency conducted 1,274 motor vehicle sales finance examinations, of which 923 exams (72.45%) demonstrated an acceptable level of compliance. Of the 1,380 examinations conducted in the previous year, 971 exams (70.36%) demonstrated an acceptable level of compliance (See Fig. 1). The chart below shows the quarterly examination results in the 2014 fiscal year which distinctly displays the compliance improvement (See Fig. 2). The OCCC required $22,453,950.00 in monetary restitution by motor vehicle sales finance licensees for fiscal year 2014. Agency staff members made 11 presentations to the motor vehicle sales finance industry in this past fiscal year and have provided ongoing examiner training in motor vehicle sales finance regulation to increase the knowledge and effectiveness of our examination team. The agency is committed to providing learning

(Fig. 1)

situations for licensees during the examination process when appropriate. These training and information sharing opportunities have contributed to the improved compliance levels of this industry. The compliance levels for the motor vehicle sales finance industry demonstrate fluctuation in FY 2014, showing persistent compliance issues remain in motor vehicle sales finance examinations.

(Fig. 2)

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Maintaining Records

Licensees that originate and service contracts are generally independent dealers (not associated with a motor vehicle manufacturer) and are required to keep all documents/records relating to the financing of motor vehicles and all documents/records relating to the servicing of the contracts. Examiners continue to find that dealers are not maintaining records as required by law. Specifically, the license holder (dealer) should maintain a record of each retail installment transaction made under §348.517 of the Texas Finance Code, as is necessary to enable the commissioner to determine whether the license holder is in compliance. The records are to be maintained until the later of (1) the third anniversary of the date the last payment was made on the retail installment transaction; or (2) the second anniversary of the date on which the final entry is made in the record. Rules/information regarding records that are required for the licensee that originates and services contracts to be maintained can be found under Texas Administrative Code §84.708. Examples of records to be maintained in the customer account file and at the dealership include retail installment contracts and all other documents signed by the customer, payment histories for each retail installment transaction file, a copy of the title application receipt (also known as

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the “white sheet”) from the Tax Assessor Collector, copies of buyer’s orders, a legible manual, electronic, or optical imaged recordkeeping system, a list of open and closed transactions, access records in alphabetical order by retail buyer name for open and closed transactions during the record retention period, a copy of the Dealer’s Motor Vehicle Inventory Tax Statement (VIT Statement), a copy of the Texas Disclosure of Equity in Trade-In Motor Vehicle, a copy of the debt cancellation agreement provided to the retail buyer if one is issued, repossession records, adverse action records and other records as required under Texas Administrative Code §84.708. Documents may be maintained out of state if the licensee has in writing acknowledged responsibility for either making the records available within the state for examination, or by acknowledging responsibility for additional examination costs associated with examinations conducted out of state.

Dealer Preparation Fee

Examiners are finding that dealers are not properly documenting dealer preparation charges. Dealer preparation charges are authorized in instances where the dealer preparation charge is (1) included as a component of the cash price of the vehicle; (2) considered a price for services related to

the sale; and (3) equally assessed, charged, and collected on both cash and credit transactions. The legal authority to assess, charge, and collect the dealer preparation charge in the cash price of the motor vehicle is found under Section 348.004(c)(2) of the Texas Finance Code. This provision indicates that at the retail seller’s option, the cash price may include the price of services related to the sale. The dealer preparation charge CANNOT be shown as an itemized charge on the motor vehicle retail installment contract. In respect to the taxation issue, the dealer preparation charge can be included in the cash price of the motor vehicle (a.k.a. “selling price”). According to the Texas Comptroller of Public Accounts, the “Selling Price” of a motor vehicle for taxation purposes must include the following items: the cost of the motor vehicle, the cost of materials, labor, service, interest, loss, or any other expense (“Dealer Prep”), the cost of transportation of the motor vehicle prior to its sale or purchase, and any manufacturer’s or importer’s excise tax imposed on the motor vehicle by the United States.

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Documentary Fee

Examiners continue to find that dealers are not meeting one or all of the requirements to increase the documentary fee. Dealers licensed by the OCCC may charge a doc fee in excess of $50 as long as the dealer (1) provides a written notice (thru the prescribed electronic system) to the OCCC of the maximum amount of the doc fee intended to be charged; (2) obtains a compliant buyer’s order/purchase order and retail installment contract that includes the new doc fee notice; and (3) posts the prescribed doc fee statement in each place where a vehicle sale is finalized so that it is clearly visible to the retail buyer. Some dealers who have increased the doc fee without the required filing notice with our agency have had to provide restitution to buyers for the amount in excess of $50, to pay administrative penalties, or both.

Documentary Fee: FY 2014

Active Filings Filings < 125 (Active) Filings > $125 (Active)

3,066 2,470 596

Doc fees at or below $125 are considered reasonable by rule, after written notice has been provided. The agency will request additional financial information from a dealer to determine reasonableness for doc fees above $125. Our agency received 732 new doc fee filings for the 2014 fiscal year. The total active filings to date is 3,066 in which 2,470 (81%) doc fee filings were for a doc fee at or below $125 and 596 (19%) were for a doc fee above $125. For filings above $125, our agency accepted 124 (21%) as reasonable.

Final Thoughts

The Office of Consumer Credit Commissioner will continue to take appropriate efforts to increase compliance in the industry. The instances where licensees do not comply with or complete exam “Special Instructions” remain too frequent. The agency is reviewing options to improve timely compliance. The agency does have the option of billing additional fees for follow-up examinations. As a dealer and a licensee, you are responsible for periodically reviewing your procedures and records to ensure that they are current and compliant with existing regulations. These proactive measures can limit your risk and exposure to private actions liability. Additionally, these measures will reduce the use of significant resources and monies to address examination or investigation issues.

*Texas Department of Insurance License # 13764570

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regulation matters Conditional Delivery Agreements

by Danny

hat a fitting title for a column appearing so close to Christmastime. Conditional delivery agreement — sounds like a document that could come in handy for that brotherin-law to whom your wife always sends a nice, expensive gift, but who always sends you some kind of disgusting fruitcake. Wouldn’t it be nice to have a signed agreement stating that he can only keep that nice, expensive gift on the condition that he sends you something better than a fruitcake? Like a Ferrari? Of course CDA’s in the business of used auto sales don’t quite work that way, as you may imagine. In fact, most independent dealers don’t use CDA’s at all. So let’s have a look at what a conditional delivery agreement is, how it works, and when it can be used. In some circles CDA’s have a very bad name, indeed. That is because they have been associated with spot deliveries, a common practice of car dealers that has long drawn fire from various consumer protection advocates. A spot delivery occurs when the dealer delivers the car (on the “spot”) and allows the buyer to drive it home before the financing is complete. It should be noted that the vast majority of spot deliveries occur without issue. However, over the years a few unscrupulous operators have used the spot delivery process in conjunction with conditional delivery clauses in the contract to victimize buyers with so-called, “yo-yo financing.” This occurs when the dealer calls the buyer back into the dealership (often several weeks after the sale) to inform him that his financing has fallen through and that he will now have to accept a higher interest rate and/or provide a larger down payment — or lose his vehicle. In the worst cases of this abusive practice, the dealer may have already sold the buyer’s trade in, so the deal can’t be unwound. Not pretty, eh? In Texas, such activity is illegal. In 2009 the legislature amended the Texas Finance Code to address the use of conditional delivery agreements, which we will discuss in detail below. The legislature also added a provision

Langfield

TIADA deputy director

A CDA is normally not used in a cash purchase or in-house financing (BHPH) deal. It is used in situations where the dealer is helping a customer secure financing through a third party. prohibiting a retail installment contract from being conditioned on the subsequent assignment of the contract to a finance company. The latter provision (found at §348.1015) effectively ended the use of conditional delivery clauses in retail installment contracts. So what about a stand-alone CDA? Let’s start by having a look at the transactional situation a CDA addresses. A CDA is normally not used in a cash purchase or in-house financing (BHPH) deal. It is used in situations where the dealer is helping a customer secure financing through a third party. The way this typically works is that a dealer looks for a bank, credit union or finance company willing to “buy” the deal based on the desired vehicle and the customer’s credit information. Technically, if a retail sale is made, it is the dealer who will actually enter into a retail installment contract with the customer (I say “technically” but the distinction as to who is obligated to finance the purchase is no trivial matter, as we will see below.) The dealer will then immediately “assign” the contract to the finance company that agreed to buy the deal. T e x a s

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In the event that all proceeds as expected — that is, the contract is successfully assigned to the finance company that holds it — there is no issue. But, as dealers in this line of business are all too aware, things do not always proceed as expected. There’s many a slip ‘twixt the cup and the lip, as they say. The finance company may decide not to buy the deal after all and kick it back to the dealer for any number of reasons. Some reasons are justified, some less so, and some (among the really bad actors) are probably fraudulent. This is not the space for that debate; for whatever the reason, the dealer now finds himself in the unwanted role of “holder” of the contract, meaning it is up to him to live up to the financing terms therein. This is worth reiterating: If you as a dealer enter a retail installment contract and are unable to assign it, for whatever reason, you are now in the financing business (at least on that deal). We frequently get calls from members who have found themselves in this unhappy position, wanting to know how they can avoid it in the future. One answer is to consider the use of a CDA (see sample form on page 24), although conditional delivery agreements definitely have both pros and cons. On the positive side, your customer may take delivery of his new vehicle immediately; and if the financing falls through, you are not left on the hook to finance the vehicle yourself.

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On the negative side, you do not have a sale. No two ways about it; if the customer decides he doesn’t want the vehicle for any reason during the CDA period before a contract is signed, he can return the vehicle to you and you must return his down payment. Other considerations: A CDA is defined as a contract between a retail seller and prospective retail buyer under the terms of which the retail seller allows the prospective retail buyer the use and benefit of a motor vehicle for a specified term. The agreement may not exceed 15 days and is void upon the execution of a retail installment contract between buyer and seller. The value of the buyer’s trade-in must be agreed to and stated in the agreement. Seller must use reasonable care to conserve the buyer’s trade-in and must return it in substantially the same condition as when the agreement was signed. If the trade-in can’t be returned, seller must pay buyer the value of the trade-in as stated in the agreement. As we all know, third party finance carries inherent risk for a dealer (subprime finance especially); that is just part of the game. Dealers in this line of business may want to consider using conditional delivery agreements in those situations where the vehicle will be delivered before the financing is finalized.

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e-Tag Supplies —

In Stock for Immediate Shipment!

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TIADA DeAler AcADemy 2015 Education Offerings for Winter/Spring 2015

8:30 a.m. - 5:30 p.m. This class is designed for those dealers new to the business, those considering opening their own dealership, new employees, family members or anyone else needing a refresher on the basics, including: • Transferring Titles • Odometers • Title & Registration Fees • Temp Tags & Metal Dealer Plates • Requirements for Maintaining Dealer License • The Buyer’s Guide - As Is • SOLD! The Deal Jacket

9:00 a.m. - 4:00 p.m. The seminar will focus on advanced financing concepts, with special emphasis on in-house financing, repossession & bankruptcy issues, OCCC compliance and federal regulations.

• Record Keeping • Motor Vehicle Sales Tax • Vehicle Inventory Tax • Consignment • Online Sales • Out of State / Out of Country • OCCC: the MVSF License • Federal Requirements

$149 per registrant Wednesday, January 14, 2015 – Houston Tuesday, March 24, 2015 – Fort Worth Thursday, May 7, 2015 – San Antonio

• OCCC Audits – what are the most common mistakes dealers make? • What is the Comptrollers position on GPS units? • Credit Card Convenience Fees – what is allowable? • Consumer Financial Protection Bureau (CFPB) – how might it affect dealers? • Bankruptcy – when do we have to give the vehicle back? mEmBErS - 1st Registrant $149, each additional $99 nOn-mEmBErS $299 Thursday, February 12, 2015 – Austin Monday, April 13, 2015 – Houston Tuesday, June 16, 2015 – Fort Worth

An Introduction to Transferring Titles This self-guided online course is designed to walk you through the process of a successful title transfer and is best suited for people new to transferring titles or those who want to brush up on the basics. Available in English or Spanish. SInglE-uSEr AccESS: MEMBERS – $49 / NON-MEMBERS – $99 mulTI-uSEr AccESS: MEMBERS – $199 / NON-MEMBERS – not Available

For details and registration, visit www.txiada.com/DealerTrainingCenter

Register online at w w w . t x i a d a . c o m or by phone at 800.442.5944. Texas Independent Automobile Dealers Association

feature Texas Comptroller Audits Provided by Texas Comptroller of Public Accounts Staff

he Texas Comptroller of Public Accounts is the chief steward of the state’s finances, acting as tax collector, chief accountant, chief revenue estimator and chief treasurer for all of state government. Texas law allows the Comptroller’s office to examine a taxpayer’s books and records to make sure the correct amount of tax was paid to our office. Most audits are routine, conducted to ensure tax collection and reporting requirements are being met.

a copy of the receipt for the title application, registration and motor vehicle tax issued by the county tax assessor-collector; resale certificates (Form 14-313, Texas Motor Vehicle Sales Tax Resale Certificate) for any sales for resale; orthopedically handicapped exemption certificates (Form 14-318, Texas Motor Vehicle Orthopedically Handicapped Exemption Certificate) for any sales to persons claiming the orthopedically handicapped exemption; and agricultural/timber exemption certificates (Form 14 319, Texas Motor Vehicle Tax Exemption Certificate for Agricultural/Timber) for any sales to persons claiming the agriculture/timber exemption.

Records Required

A taxpayer’s sales records and supporting documents are open to inspection during an audit. All sellers of motor vehicles are required to keep detailed records of each sale (whether seller-financed or third-party-financed) at their principal office for at least four years. The seller is required to retain its records for more than four years when a refund claim or administrative or judicial proceeding is pending. Sellers must keep records that include, but are not limited to, the following: a copy of the invoice for each motor vehicle sold, indicating the full sales price and itemizing the price of all accessories; the total receipts from all sources of income and expenses; when full payment is made at the time of sale, docu mentation of a complete payment (copy of the payment instrument or the receipt for cash);

Seller-Financed Dealers

Motor vehicle dealers making seller-financed sales must keep additional documentation, including a ledger or other document, with the following information: a complete record of payment history for a motor vehicle; the name and address of the purchaser; the total consideration paid; the amount of down payment received when the mo tor vehicle is sold; the date and amount of each subsequent payment; the date of sale; and the date of any repossession.

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If a taxpayerâ&#x20AC;&#x2122;s records are incomplete or inadequate, such that a complete audit for the period is not possible, the Comptroller may use sampling auditing methods to project the audit assessment. If the taxpayerâ&#x20AC;&#x2122;s records do not accurately reflect its business operations, the Comptroller must determine the best evidence available and base the audit on that information. Generally, the auditor will first examine a portion of the business records to determine if there are errors in compliance with tax laws. The Comptroller can use the following methods to conduct the audit: Detailed Audit Sampling Audit Estimation

Common Errors

Errors commonly found during audits of used car dealers include: incomplete records to support the source of sales rev enue (auction sales, dealer-to-dealer, seller-financed or cash sales); incomplete records to substantiate amounts deposited in bank accounts (motor vehicle sales, loans or other sources); lack of documentation to support the existence and value of trade-in motor vehicles; and motor vehicles that are not titled/registered timely.

Avoiding Errors

To avoid common errors that can lead to incorrect collection of motor vehicle tax, dealers (especially those financing their own sales) should pay special attention to the following situations: Tax accelerates if a note is sold, factored or trans ferred to anyone other than a registered related finance company. Tax accelerates in seller-financed sales if title is not transferred within 60 days from the date of sale, regardless of the reason (remember title transfer on seller-financed sales is due within 45 days to avoid title/registration penalty). The failure of a previous lienholder to provide title does not delay tax acceleration. Tax on cash or third-party-financed sales remains due within 30 days from the date of sale. The dealer pays the tax to the county tax assessor-collector.

For more information about recordkeeping and audits, see Notice of Routine Audit online at www.window.state.tx.us/taxinfo/taxpubs/tx96_146.pdf and Texas Tax Code sections 111.0041, 111.0042, 152.047, 152.063 and 152.0635. The Texas Tax Code, related rules and publications are online at www.window.state.tx.us/taxes/index.html.

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11/13/2014 9:38:30 AM

Lobby Day Know Your Legislator — the 84th Legislative Session is about to Convene

top me if you’ve heard this one before. A bunch of attorneys, an insurance agent, a preacher and an engineer walk into… the Texas Capitol! We are only one month away from the Texas Legislative Session (gaveling in January 13). As it gets underway, the first week is mostly ceremonial with families gathering to support and congratulate the swearing-in of the new members to the Texas House and Senate. Rules and procedures for House and Senate will also be debated and adopted. In the House, there will be an additional task of electing the Speaker for the 84th Legislative Session. At this time, all indicators point to the reelection of Joe Straus as Speaker. The incoming freshman class in the House and Senate this year will consist of 29 new members; four new senators and 25 freshman house members coming from all walks of life. This presents a special challenge for us to make sure these new faces are aware of TIADA, what we stand for and how we can help them. The TIADA legislative team has been out introducing ourselves to most of these legislators and will continue that orientation process by hosting various events leading up to the session. We have also been strengthening our relationship with many of our friends who will be returning to the House and Senate. Many of the more senior members will be tapped to chair committees and help lead their respective chambers. It is extremely beneficial when local connections are made with your own legislators in your home district.

December 2014

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by Mario

Martinez

Martinez & Associates tiada legislative consultant

These legislators are normal people just like you. Most of them run businesses, are married with kids, and have normal lives, just like you. I am strongly encouraging you to get to know your legislators. Additionally, when these contacts are made locally, it would be helpful to provide any pertinent information to the TIADA office as we continue to build our grassroots network. Finally, please mark your calendar for Tuesday, January 27, 2015, for TIADA’s Lobby Day at the Capitol.

From left, Kevin Mims, Sharon Lathrop, Phil Lathrop, Senator-Elect Don Huffines, Kathrine Tolsch during a recent visit.

TIADA representatives and dealers have been meeting with legislators all across the state and Lobby Day will provide an excellent opportunity to meet or reconnect with your legislators and their staff at the Capitol. Lobby day is for dealer members who want to be more politically active. We will set up meetings with your legislators, train you and help you become an educated, active member. Lobby day is free to attend; all you have to do is register at www.tiada.com. 31

feature The Top Ten Motor Vehicle

Dealer Violations… and More by Ray Willoughby

Managing Attorney, TxDMV Enforcement Division

ill Harbeson, the enforcement division director, who usually offers his wit and season’s cheer in the December edition of TIADA’s Texas Dealer, is busy making lists and checking them twice so he asked me to write this year’s article. Unlike Santa Claus, the enforcement division cannot use state resources to deliver holiday gifts to motor vehicle dealers but we can, and are happy to, provide some information that will help you avoid run-ins with the law. It has been a busy year for the enforcement division. We investigated over 6,000 motor vehicle related complaints. Not unexpectedly, we saw the same “top ten” violations this year as in previous years. Coming in at its perennial No. 1 position is “failure to timely file for title

and registration transfer.” We take this opportunity to remind dealers that you must apply for title and registration transfer within 30 calendar days, or 45 calendar days if a vehicle is financed in-house, from the date you sell a motor vehicle.

And the rest... Drum roll please! Top 10 motor vehicle dealer violations processed by the enforcement division in FY 2014:

ailure to timely file for title and registration F transfer

2 3 4 5 6 7 8 9 10

Inadequate dealer premises

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Fraud Improper Record keeping

“Buyer’s Guide” displayed on used vehicles No offered for sale

Curbstoning by unlicensed dealers Misuse of license plates Misuse of temporary tags

iving the vehicle title directly to buyer (when G not authorized)

Curbstoning by licensed dealers

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With the exception of fraud issues, which can involve a wide variety of facts and circumstances, the remaining top ten violations are easy to avoid by being familiar with, and following, the laws regulating motor vehicle sales. To educate yourselves on the top ten violations and other dealer laws, you can attend a TIADA education offering or a free TxDMV Dealer Training Seminar. The TxDMVseminars are held throughout the state during the year. You can obtain additional information on, and register for, a TxDMVseminar online at www.txdmv.gov. Hover over the “Dealers” tab at the top and select “Dealer Training Seminars.” Likewise, you can consult the TxDMV Dealer Manual online at www.txdmv.gov. Select the “Dealers” tab at the top

and you’ll find the “Dealer Manual” link on the right side of the page. In addition to listing the top ten dealer violations, I want to mention a few new noteworthy changes and

To educate yourselves on the top ten violations and other dealer laws, you can attend a TIADA education offering or a free TxDMV Dealer Training Seminar. initiatives that I hope you will find informative. As you read earlier, two violations on the top ten list relate to “curbstoning.” For those

readers who may not know what that term means, it is commonly used to describe a vehicle being illegally offered for sale by a licensed or unlicensed dealer. As licensed dealers are aware, the unlawful sale of motor vehicles via curbstoning is a serious problem in Texas which harms the legitimate motor vehicle industry and puts consumers at risk. Although generally associated with unlicensed dealers, a licensed dealer can become a curbstoner if he offers a vehicle for sale away from the licensed premises. Not only is it illegal to do so, curbstoning creates an uneven playing field for dealers who follow the law. The TxDMV has launched a state-wide initiative to advise local law enforcement agencies on how to combat curbstoners. Texas Transportation Code Section 503.096 allows Texas peace

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officers, and other specified persons, to “tag” a suspected curbstoned vehicle with a conspicuous written notice. After two hours from placement of the notice, a peace officer can have the vehicle towed away if the person responsible for offering the vehicle for sale cannot provide proof of ownership or authorization from the owner to offer the vehicle for sale. (Editor’s note: This law is a result of TIADA’s anti-curbstoning bill, HB2690 (Elkins/Ellis), passed during the 2013 legislative session.) We hope this new law and our initiative will reduce the number of vehicles being illegally offered for sale in Texas and in doing so help protect the motor vehicle industry and the consumers of Texas. The TxDMV recently adopted new “Fitness” and “Criminal Offenses” rules related to qualifications to obtain and hold a dealer license issued by the department. While this article does not allow an opportunity to fully discuss the new rules, the major points are:

The TxDMV may deny a new or renewal license appli cation if the applicant, or applicant’s spouse who owns a community property interest in the motor vehicle business, has been convicted of specified criminal felonies or other offenses. The TxDMV may deny a new or renewal license application or impose other sanctions for non-criminal reasons such as a prior revoked TxDMV license, unpaid civil penalties assessed by the department, or being the subject of orders issued under the Texas Family Code (regarding child support). As required under Texas law, a new applicant or licensed dealer will be afforded an opportunity to request a hearing before the State Office of Administrative Hearings in conjunction with any department decision to deny or revoke a license under the new rules. The full text of the new rules is found in Title 43 of the Texas

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Administrative Code, Sections 215.88 and 215.89. Discussed in-depth in a Texas Dealer article appearing earlier this year, but worthy of another mention, is the introduction of the TxDMV’s Notice of Department Decision (NODD). A NODD is a legal instrument by which the department advises a dealer that it has violated a provision of law and seeks to impose a specified sanction. To negotiate a different sanction or contest the allegation(s), the dealer MUST file a written request for a hearing with the enforcement division within 26 days of the date of the NODD. Failure to timely request a hearing will result in a final order being issued imposing the sanctions listed in the NODD.

Lastly, we present the much asked for “oddest violation” of the year. While maybe not so odd as brazen, we have discovered that some Texas licensed motor vehicle dealers unlawfully “sub-lease” the use of their GDN number, name, and access to the E-Tag system. Under this scheme the Texas dealer will, for a monthly and/or per-vehicle-sold

laws. The enforcement division remains available to help dealers follow the law and avoid violations. Although we cannot provide legal advice to a dealer, we can point out what the dealer laws are, how we interpret them, and what we look for during an inspection or investigation. You can reach the enforcement division motor vehicle investigations section directly by calling (512)465-4205 during regular state business hours. In closing, I want to repeat our division mantra to please never disregard any correspondence from the TxDMV, especially the enforcement division. Ignoring or delaying action on a regulatory issue will not make it go away and doing so is likely to eliminate more favorable options available to address the problem. Likewise, if we have an outdated mailing address for you, important correspondence may never be received. Please report any change to your licensed business mailing address to the TxDMV within 10 days of the change. The enforcement division wishes you, your employees and your families the very best for the holidays, and for a prosperous new year. We look forward to serving you in 2015 and beyond.

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fee, allow people, both in and out of state, to act under the dealer’s GDN license. The person then buys and sells vehicles as if they were the Texas dealer and obtains temporary E-Tags from the real dealer to be placed on the vehicles. The above scenario may sound lucrative, but it violates several state administrative regulations and criminal laws. Not to mention, any administrative violation committed by the “lessee” in this scheme will be attributable to the TxDMV licensed dealer, which can result in sanctions up to and including GDN revocation. In addition to conducting our own investigations into these illegal acts, the enforcement division is working with several Texas and out-of-state law enforcement agencies who are examining these schemes as well. Fortunately, the vast majority of licensed motor vehicle dealers in Texas operate within the regulatory December 2014

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Please Welcome Our Newest TIADA Members Dealer Members Alexander’s Auto Sale, Inc. Gustavo Martinez 6018 Thomas Rd. Houston, TX 77041 B&M Car Company Richard Dodson 815 East Davis St. Conroe, TX 77301 Benevolent Motors Nancy Shriner 5900 S. Lake Forest Dr, Ste #300 McKinney, TX 75070 Brown Motor Company, LLC Dawn Wickstrom PO Box 260154 Plano, TX 75026 Deals on Wheels Auto Sales LLC Jose Garza 9640 Telephone Rd Houston, TX 77075

Don Carro Gonzalo Barajas 538 South Buckner Dallas, TX 75217

Pioneer Auto Finance Nep Luna 8211 Lynbrook Manor Dr San Antonio, TX 78254

Drive 512 Auto Ranch Nicole Martinez 11029 Signal Hill Dr Austin, TX 78737

Pro Truck Sales LLC Jay Freeman 8140 N Hwy 142 Baytown, TX 77523

Father & Son Auto Sales Philip Orand 900 Gilmer Sulpher Springs, TX 75482

Ronnie’s Auto Sales Ronald Williams 815 E Davis Conroe, TX 77301

H&H Autos Tammy Hannon 719 West 2nd Street Taylor, TX 76574

Smiles Auto Sales, LLC Deborah Roberts 102 E. Main St. Tomball, TX 77375

Mi Patria Auto Sales, Inc. Vicente Estrada 5306 Airline Drive Houston, TX 77022

Twins JJ Auto Sales Mele Benitez PO Box 360996 Dallas, TX 75336

associate Members American Auto Financing, Inc Betty Valencia 1530 E Warner Ave, Suite A Santa Ana, CA 92705

Paris Auto Group Raymond Nixon 1625 NE Loop 286 Paris, TX 75460

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S I N C E 1972.

legal corner

Is There a Mandatory Grace Period? [Editor’s note: This column has been adapted from Texas Automobile Repossession: A Lien Holder’s Legal Guide, Mr. Dunagan’s authoritative book on repossession law in Texas, which is available for purchase at www.txiada.com.]

Dealer Question: I am a

buy-here, pay-here dealer and I’ve heard different opinions on whether there is a period of time I must wait after a debtor misses a payment before I can repossess. Is there a mandatory grace period in Texas?

Answer: The Uniform

Commercial Code (which has been adopted by Texas and all states with certain variations) authorizes a secured creditor to repossess collateral upon the default of the debtor. The U.C.C. does not define default, but courts have consistently held that the failure to make a payment when due under an installment contract and security agreement is default. Some states, either by adopting non-uniform provisions of the U.C.C., or through their installment sales acts, have imposed mandatory “grace periods. ” These provisions usually consist of requirements that debtors be a certain number of days past due before a secured creditor can act upon the default. Another type of grace period requires the creditor to wait a given period of time after notice of default has been sent to the debtor. Texas, on the other hand, has adopted the standard version of the U.C.C. which has no waiting period after default. Additionally, the Texas Finance Code does not impose any type of grace period and does not require notice of default before repossession.

December 2014

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ommon sense and the U.C.C. requirement of goodfaith dealing would dictate that, even though no mandatory grace period exists, some period of time should be allowed for delays in the mail or actual emergency situations. One reason for the rumors of a mandatory grace period is confusion over the section of the Texas Finance Code that authorizes the charging of a latepayment penalty. The code says that a retail installment contract may provide that if an installment remains unpaid after the 15th day after the installment is due, the creditor can assess a delinquency charge that does not exceed five per cent of the amount of the installment. Thus, there is a mandatory grace period before a delinquency charge can be assessed. Most form installment contracts in Texas have prominently disclosed on the face of the contract the following language:

by Michael

W. Dunagan

TIADA general counsel

Some debtors claim they were lulled into thinking they had a default grace period, and a number of debtor attorneys have sent letters threatening suit over a creditor’s repossession during the alleged “grace period.”

Late Charge: If you do not receive my entire payment within 15 days after it is due, I will pay a late charge of ____ per cent of the scheduled payment. Some car buyers, attorneys, and even judges have interpreted the

late-charge grace period to be a default or repossession grace period. This provision was clearly never intended to apply to default and repossession, yet the confusion continues. Some debtors claim they were lulled into thinking they had a default grace period, and a number of debtor attorneys have sent letters threatening suit over a creditor’s repossession during the alleged “grace period.” 39

Upcoming Events TIADA Dealer Academy

December 2014 8 Keeping Your Dealership Legal & Compliant DoubleTree by Hilton Hotel Dallas Market Center 2015 Market Center Blvd. Dallas, TX 75207 214.741.7481 Online registration available at www.txiada.com

January 2015 14 Dealer 101: Nobody

Told Me That DoubleTree by Hilton Houston Hobby Airport 8181 Airport Blvd., Houston, TX 77061 713.645.3000 Online registration available at www.txiada.com

other TIADA events January 2015 26 TIADA Board of

Director’s Meeting Austin, TX

27 Lobby Day

Texas Capitol 1100 Congress Ave., Austin, TX 78701 Online registration available at www.txiada.com

In response to this confusion, Burrell Printing Company has inserted language in its motor vehicle retail installment contracts that makes it clear that the 15-day time period before a late payment penalty can be assessed is not a “grace period” for overall performance under the contract. Another possible area of confusion surrounding grace periods has arisen because of some court rulings regarding acceptance by a creditor of late payments. This line of cases has held that a creditor may waive its right to strict compliance with the installment agreement if it regularly accepts late payments. The reasoning of these courts is that a creditor has lulled a debtor into thinking that it’s O.K. to make late payments, and it would be unfair for the creditor to suddenly change course and repossess and/or accelerate without some type of written notice that late payments won’t be tolerated. While a written notice that late payments won’t be accepted in the future is not the same as pre-repossession notice, which is not required by law, some have interpreted the two to be the

same thing. Thus, some dealers might feel that there is a mandatory grace period when in fact none exists.

Summary: There is no manda-

tory grace period in Texas between the time default occurs and repossession is authorized. However, the prudent car creditor will still wait a reasonable time after default before exercising post-default remedies.

Michael W. Dunagan is an attorney in Dallas, Texas who has represented the Texas Independent Automobile Dealers Association for over 35 years. He has written a number of books and hundreds of articles for trade journals and law reviews. His clientele includes dealers, banks, finance companies, auto auctions and credit unions.

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Transferring Titles Customer ID Requirements Odometer Disclosures Title & Registration Fees Acquiring Inventory Temp Tags & Metal Dealer Plates Requirements for Maintaining Dealer License The Buyerâ&#x20AC;&#x2122;s Guide - As Is Inspections, Emissions, Green Slip Power of Attorney

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SOLD! The Deal Jacket Record Keeping Garage Liability & Dealer Bond Motor Vehicle Sales Tax Vehicle Inventory Tax Online Sales Out of State / Out of Country OCCC: the MVSF License Advertising Rules Federal Requirements Forms Review

We will build a deal jacket from scratch... we will role-play an actual of transfer of title at the tax office... we will do a simulation of VIT calculation, with real numbers over multiple years... and much more. TIADA teaches you the business from an experienced, practical point of view. Presenters will include: Dorothy Starr, Motor Vehicle Manager, Tarrant County Tax Assessor-Collector Danny Langfield, Deputy Director, TIADA Michael W. Dunagan, attorney, Jameson & Dunagan, TIADA General Counsel

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Answers to the 2014 Annual Compliance Quiz 1. b. VIT is the dealer’s ad valorem or property tax on the value of the dealer’s inventory . (January 2014; VIT: A Refresher Course)

right (October 2014; Dealer Questions About Disclosure of Prior Damage and Cooling-Off Periods Addressed)

12. e. All of the above. In each of these situations, an

2. False. Relocations that do not cross city lines do not

MVSF licensee is required to go through the Transfer of License process; simply filing an Amendment to a License form is not sufficient. (April 2014; A Change in Ownership & Your OCCC License)

3. a. Both the purchase price of GPS units and air time

13. False. A strict foreclosure results in forgiveness of any

4. b. Both of those people must sign off on the title as the

14. d. Keep the price at $14,995 and do not pass the $1500

require a new P# application. Filing the Application to Amend is sufficient. (March 2014; Location, Location, Location) charges are taxable according to the State Comptroller. (May 2014; Use of Electronic Tracking and Disabling Devices Raises Legal Issues)

sellers. Unless the vehicle is exempt from odometer disclosure requirements, all persons listed on the front of the title must sign the back as sellers. (July 2014; Speed Kills)

5. False. Selling “as is” disclaims warranties, but doesn’t

eliminate the need to made adequate disclosure of known material defects. (October 2014; Dealer Questions About Disclosure of Prior Damage and Cooling-Off Periods Addressed)

6. True. Many counties require specific ID types for renewals being done in person at the county. However, there is no state-level ID requirement for registration renewal. A customer having trouble renewing at the county may find relief by renewing his or her registration online or by mail. (January 2014; Buyers, Co-Buyers & the 130-U)

7. True. If the so-called 60-percent-rule kicks in, and the

debtor doesn’t sign a waiver, the creditor must use a private sale. (March 2014; The Differences Between Strict Foreclosure and Private Sale)

8. e. None of the above. Why? a. A copy of the customer’s photo ID goes in the deal jacket, not to the county; b. ID of the person to whom secure Power of Attorney is assigned is not required at all; c. Authorization to sign document—if applicable to the sale—goes in the deal jacket, not to the county; d. VTR 136 County of Title Issuance form goes in the deal jacket, not to the county. (May 2014; TxDMV Board Tweaks Customer ID Rules)

9. False. Only new cars are required by federal law to have operable airbags at the time of sale. (July 2014; Airbag Safety Issues Raise Liability Concerns for Dealer)

10. c. 180 days preceding the sale date. Non-dealer registrations will have to have received a passing inspection in the 90 days preceding the sale date. (September 2014; Looking Ahead to a “Single Sticker” World)

11. d. Closing a sale away from the dealer’s lot triggers the con-

sumer’s 72-hour cancellation right as well as the requirement that a written notice be given advising the consumer of the 44

(questions found on pg. 6)

deficiency and prevents any attempt to collect additional amounts. (February 2014; Options for Dealing With the Voluntary Return of Collateral)

fee through to the customer at all. Why? Well, (a) an advertised sale price cannot be increased; (b) a finance company acquisition fee is not an allowable additional charge on a retail installment contract; and (c) a doc fee in excess of $125 must be reviewed and approved by the OCCC (in Texas a $1500 doc fee would be challenging to get approved, to say the least). (November 2014; Cash vs. Credit Pricing: Handle with Care)

15. c. The key triggering event for the SCRA to apply is the debtor going on active duty status after entering into the installment contract. (April 2014; Military Enlistments Raise Concerns Over Servicepersons’ Civil Relief Act) 16. b. 48 months. The most recent 13 months must be

kept at the licensed location or must be accessible electronically. (February 2014; Records Retention)

17. False. The IRS requires reporting on a Form 8300

cash transactions that come under the $10,000 threshold if they appear to be “structured” so as to fall under the $10,000 amount. (June 2014: Failure to Report Cash Transactions Can Lead to Money-Laundering Charges)

18. e. All of the above. These must be retained by the

dealer; however, TxDMV has indicated via rule and communications to the counties that none of the documents listed are required to be submitted to the tax office for a dealer transaction. The actual EIN/FEIN will be entered on the 130-U title application form. (October 2014; Titling a Vehicle in the Name of an Entity)

19. d. The law does not require that any repossession

notices be sent by certified mail. However, being able to prove that notice was sent may become an issue if certified mail or some other type of registered procedure is not used. (September 2014; Do Notices Have to Be Sent by Certified Mail?)

20. False. Some ownership changes will only trigger the filing of an Application to Amend. (June 2014; A Change in Ownership & Your TxDMV License) T e x a s

D e a l e r

December 2014

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Updates from TIADA

by Jeff

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tiada executive director

2014 INDEPAC Contributors (as of November 10, 2014)

$2,500+ Tommy Gregory

$1,000- $2,499 Patricia Harless

$500- $999 Keith Hagler

$250-$499

Kathrine Tolsch

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Carleton Heller Byron Riley Our final list of INDEPAC contributors will run in the January issue of Texas Dealer.

hen I first wrote this article, it started out with the line, “To the avid readers of this article, you might notice something a little different.” When it came back from the first round of editing, someone had struck through, “To the avid readers of this article” and replaced it with, “Dear Mom.” Maybe my first attempt was a little presumptuous. Whether or not you are an avid reader of this article, I want to point out that the layout and graphics you see here are different than usual. Why? I want to introduce you to the graphic treatment that will be similar to what you’ll see in TIADA member emails starting in January. This new graphic treatment will help members differentiate TIADA emails from those coming from other sources. At the top of the email you will always find important Texas dealer information like new rules, state agency announcements and legal updates. In addition, you’ll read about upcoming TIADA education classes, annual conference, auction day visits and other TIADA tidbits of information relevant to Texas dealers. A little further down in the email, we’ll share links to a broader spectrum of industry news from outside of Texas. Our goal is to be your first and best resource for industry news. Our board had two important questions when we discussed the new email program. First, does this mean that members will receive more emails from TIADA? The answer is — No! We’ve reviewed the email communications we’ve sent over the last two years to create a new communications schedule that will allow us to be more effective and more mindful of your time by decreasing the total number of emails you will receive from us in 2015. The second question — one that every board with a fiduciary bone in its body must ask staff — was, what will this cost the association? Your board is always looking out for your dues dollars. The answer — Nothing! This program allows us to sell advertisements that will offset the cost and maybe even generate revenue that can be used to help protect your industry. I hope you (like my Mom) enjoy the new look for 2015!

Wednesday, January 14, 2015 Houston

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December 2014

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