MOTOR VEHICLE

DEALER APPLICANT

PROGRAM

ADVANCED DEALER

TRAINING HANDBOOK

1656 Linda Lou Drive

West Palm Beach, FL 33415

(561)791-9511

July 2011 edition www.mvdti.com

A Message to Our Students

We would like to thank you for selecting Advanced Dealer Training Institute as your training source for completing your dealer license education requirements. We have attempted to create the best possible training agenda for you. Our textbook was written by industry experts and is presented in a clear and concise manner. Our program is presented at various locations throughout Florida, utilizing the facilities of quality motels. All classes are scheduled for two days, and if you need to make overnight accommodations, we have provided a list of hotels and phone numbers for you. This book is published by the Advanced Dealer Training Institute for the purpose of providing the training for motor vehicle dealer, mobile home dealer, and recreational vehicle dealer applicants, as required by Florida Law. This publication is copyrighted and all rights are reserved including the right for reproduction in whole or in part in any form. We promise to maintain a professional environment for your learning. We will give you extra materials and information to assist you in obtaining your license, obtaining insurance and bonds, satisfying other government agencies, discovering multiple finance sources and understanding lending techniques. There are no gimmicks to our school. We simply provide training. We recognize that many students would not bother to even attend Dealer Training School if the State didn't require it. We see that as a challenge. Our graduates have consistently agreed that once they discovered the variety and quality of our instruction they were glad they enrolled. At the end of your classroom sessions, you will be given a state required examination. It will consist of 50 true/false questions. You will be given plenty of preparation to assure that you can make a passing grade. If anyone were to fail, we would gladly welcome them to attend our next class free of charge. We intend to make sure that you can pass the test and get your approved "Certificate of Attendance". YOU WILL BE ISSUED YOUR CERTIFICATE IMMEDIATELY UPON THE SUCCESSFUL COMPLETION OF YOUR EXAMINATION. THERE IS NO WAIT. Advanced Dealer Training Institute 1656 Linda Lou Drive West Palm Beach, Fl 33415 1(888)791-9511

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TABLE OF CONTENTS Department of Motor Vehicles Who Must be Licensed DMV 1 When Licensing is Not Required Consequences of Not Obtaining a License When Required DMV 2 Types of Licenses Issued DMV 2-3 1. VF Franchise Dealer 2. VI Independent Dealer 3. VW Wholesale Dealer 4. VA Auction House 5. DH Mobile Home Dealer 6. BH Mobile Home Broker 7. RV/RU Recreational Dealer New/Used 8. N (series) Non-resident (NI,NW,NA,NH,NR) 9. DMV issues manufacturers, importers and distributor licenses License Periods DMV 3 Initial Licensing Fees DMV 4 License Requirements DMV 4-8 Processing Initial Application DMV 8 Dealer License DMV 8 Denial of A Dealer License DMV 9-10 Procedure and Rights of Appeal DMV 10 Modifications After License Has Been Issued DMV10-12 Keeping and Maintaining A License DMV13-14 Going Out of Business DMV 14 License Renewals DMV 15 Transfer of Assignment of License DMV15-16

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Florida Certificate of Title DMV 16 Federal Law Revised DMV 17-18 Title and Registration Forms DMV 18 Processing Title and Lien Work DMV 19-24 1. Dealer to apply for title 2. Title in possession 3. Transfer within 30 days 4. Late Penalty 5. Customers who will title and register out of state 6. Proof of insurance 7. Accounts Receivable lot (ACR lot) 8. Lien Recording 9. Wholesale transactions 10. VIN verification 11. Odometer readings 12. Fast title service 13. Services of County tax collectors 14. DMV procedure manual Processing Registrations DMV 25-27 1. Applying for registration 2. Transfer of registration 3. Issuance of temporary tags Privileges DMV 28-31 1. Purchase and use of dealer plates 2. Purchase and use of temporary tags 3. Accessibility to title and registration records 4. DMV customer service 5. Tax Collector tag talk Record Keeping DMV 32-34 1. Requirements 2. Inspections

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Handling and Disposition of Consumer Complaints DMV 35-37 1. Department philosophy 2. How complaints are received 3. Processing of complaints 4. The investigative process 5. Unresolvable complaints Administrative Disciplinary Actions DMV 38-40 1. Division philosophy 2. Sanctions available 3. Examples of administrative action cases Administrative Complaint Process DMV 40-41 Judicial Actions DMV 41-42 Chapter 15 c-7 Motor Vehicle Dealers DMV 43-51 Federal and State Law Federal and State Laws Affecting Dealers LAW 52 Patriot Act LAW 53-54 Background LAW 55 Federal Anti-Tampering Law LAW 55-56 Red Flags Rule LAW 57-58 Gramm-Leach- Bliley LAW 59-60 Large Cash Reporting LAW 61-62 N MV T I S LAW 63-64 State Sales Tax LAW 65-68

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Banking and Finance Motor Vehicle Retail Installment Sales BANK 69-70 Regulated by: Florida Department of Financial Services A. Who needs a license B. Licensing by the department C. Powers of the department Retail Installment sales BANK 70 A. Requirements and prohibitions B. Finance charge limitations C. Add-on interest techniques Finance Licenses for Dealer Activities BANK 71-72 Miscellaneous Finance Laws and Rules BANK 73-74 Related Finance Companies BANK 75 Economic Reasons BANK 75 Provide credit source for customers Improve the collection of accounts receivable Prevent adverse publicity on repossessions Remove the financial risk of default Diversification of ownership Finance other dealers customers Validity BANK 76 How an RFC is structured and operated Separate legal entity Meet licensing requirements Adequately capitalized Have own employees Maintain all appropriate business licenses Separate address and telephone number Maintain separate set of books Comply with all title, lien, and recordation rule Notify customer of the purchase of their note Purchase contract for the receivables Economic Substance BANK 77 Interest Rates in Auto Finance BANK 78-79 Finance Related Questions BANK 80-81

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Department of Financial Services Examinations BANK 82-84 Chapter 69V-50 - Motor Vehicle Sales Finance BANK 85-87

Legal Department of Legal Affairs LAW 88 A. Activities B. Remedies Other Regulatory Entities of Interest LAW 88 Area of Major Concern for Dealers LAW 88 A. At time of sale B. Advertising practices C. Warranties Watch Out for Deception LAW 89 Buyers Guide Regulations LAW 90-93 What is As-Is? LAW 94-95 Used Car Dealer Advertising Practices LAW 96-99 Unfair or Deceptive Acts or Practices LAW 100-102 Independent Motor Vehicle Industry Trends Evolution of the Motor Vehicle Industry TREND 103-104 1. History of automobile sales 2. Follow the money 3. Evolved lending techniques 4. Evolved selling techniques 5. Industry Response to Evolution 6. Where are we headed

Brief History of Lending in America TREND 105-106 The Drain on Funds TREND 107-108

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Alternate Finance Sources TREND 109-110 Operations Independent Used Car Dealer Operations OPS 111-113 A. Basic requirements B. Getting started C. Getting third party finance D. Getting started in lending E. Personnel F. Outside services Ways of Getting Financing OPS 114-116 Buy-Here Pay-Here Market Concepts OPS 117 Repossession Check List OPS 118-120 A. Forms and paper-work B. Choosing a responsible agent C. Setting-up to do your own repossessions D. Selling on the installment plan A Guide to Repossession Terms OPS 121-123

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List of Exhibits Exhibit 1 Proof of Surety Bond HSMV 86020 Exhibit 2 Irrevocable Letter of Credit HSMV 86057 Exhibit 3-8 Application for License HSMV 86056 Exhibit 9 Sample Dealer License HSMV 84103 Exhibit 10 Sample of License Receipt Exhibit 11 Renewal Application HSMV 86720 Exhibit 12 Modification to Dealer License HSMV 86072 Exhibit 13 DMV Regional Offices Exhibit 14 Criminal History Certificate Affidavit Exhibit 15 Sample Title Exhibit 16 Sample Title (Back) Exhibit 17 Bank Draft Exhibit 18 Air Pollution Control Statement Exhibit 19 Certification of Pollution Control (Hillsborough County) Exhibit 20 Use of Dealer Plates - Letter Exhibit 21 Consignment Agreement Exhibit 22-25 Retail Installment Sales Contract Exhibit 26-27 Complaint Affidavit HSMV84901 Exhibit 28 Application for Off-Premise Sale HSMV 84200 Exhibit 29 Notice of Sale HSMV 82050 Exhibit 30 Title Clerk Check List Exhibit 31 Florida Insurance Affidavit HSMV 83330 Exhibit 32 Odometer Disclosure Statement HSMV 82993 Exhibit 33-34 Buyers Guide Exhibit 35 Title Reassignment Supplement HSMV 82994 Exhibit 36 Application for Duplicate or Lost Title HSMV 82101 Exhibit 37 Power Of Attorney / Odometer Disclosure HSMV 82995 Exhibit 38 Power of Attorney Form HSMV 82053 Exhibit 39-40 Application for Certificate of Title HSMV 82040 Exhibit 41 Affidavit for Vehicle Registered in Another State HSMV84061 Exhibit 42-43 MH & RV/RU License Exhibit 44 Registration MH Dealer Salesperson HSMV84045 Exhibit 45 Discretionary Sales Surtax DR-15DSS Exhibit 46 FL Dept of Revenue Resources Exhibit 47 Affidavit for Partial Exemption of Vehicle Sold DR-123 for Licensing in another State. Exhibit 48 Suggested Affidavit Form: Delivery To Out of State Dealer Exhibit 49 Suggested Affidavit Form: Purchase by Non-resident Dealer for Resale Outside of Florida Exhibit 50-51 Report Cash Payment Over $10,000 IRS-8300

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WHO MUST BE LICENSED

As a Motor Vehicle Dealer

Any person engaged in the business of buying, selling or dealing in motor vehicles or offering or displaying motor vehicles for sale at wholesale or retail, is a motor vehicle dealer. A person who buys, sells or deals in three or more motor vehicles in any twelve month period or who offers or displays for sale three or more motor vehicles in a twelve month period is prima facie presumed to be engaged in business as a motor vehicle dealer, and therefore, must be licensed. The terms "selling" and "sale" as used in the law, include lease-purchase transactions.

WHEN LICENSING IS NOT REQUIRED

As a Motor Vehicle Dealer

Any person dealing in motor vehicles under one or more of the circumstances described below, is specifically exempt by law from the necessity of being licensed as a motor vehicle dealer:

a. Persons not engaged in the purchase or sale of motor vehicles as a business, but rather, are disposing of their own vehicles or vehicles used in their business.

b. Public officers while performing their official duties. This exemption includes such activities as the sale of vehicles owned by a governmental entity or the sale of vehicles seized by public officers while performing their official duties.

c. Receivers.

d. Trustees, administrators, executors, guardians, or other persons appointed or acting under the judgement of any court.

e. Banks, financial companies, or other loan agencies that acquire motor vehicles as an incident to their regular business.

f. Motor vehicle brokers. A motor vehicle broker is defined by law as a person engaged in the business of offering to procure or procuring motor vehicles for the general public, or who holds himself out through solicitation, advertisement, or otherwise as one who offers to procure or procures motor vehicles for the general public, and does not store, display, or take ownership of any vehicles for the purpose of selling such vehicles.

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g. Motor vehicle rental and leasing companies that sell motor vehicles to licensed motor vehicle dealers on a wholesale basis. In such cases, the fact of sale indicates that the vehicles being sold are no longer being used as rental or leased vehicles. The exemption applies only if off-lease vehicles are being sold on a wholesale basis.

h. A motor vehicle acquired by foreclosure or by operation of law.

i. Motor vehicle dealers must have to have a separate license to sell motor homes. Motor homes are actually classified as recreational vehicles.

j. The sale of twenty-five or fewer trailers in a twelve month period.

CONSEQUENCES OF NOT OBTAINING A MOTOR VEHICLE DEALER LICENSE WHEN REQUIRED

Any person dealing in motor vehicles who is required to have a dealer license, but fails to obtain a license, is subject to a number of different penalties. These can include the issuance of an injunction by a court of competent jurisdiction, by the filing of an unfair and deceptive trade practices complaint with the State Attorney or the Attorney General's Office (that may lead to fines of up to five thousand dollars per violation and a cease and desist order), or the filing of criminal charges amounting to a second degree misdemeanor for violation of the licensing requirements.

TYPES OF LICENSES ISSUED

The Department issues a number of categories of dealer licenses.(Exhibit 12). The license prefix designations and descriptions are:

1. VF - This is the prefix for a franchised motor vehicle dealer. This type license allows a licensee to sell new motor vehicles under an established agreement with a manufacturer, importer or distributor.

2. VI - This prefix is for an independent motor vehicle dealer. This license allows a licensee to sell used motor vehicles either at retail or wholesale.

3. VW - A license with this prefix is issued to one who is buying, selling, or dealing in motor vehicles only at wholesale, with other licensed dealers.

4. VA - Auctions that sell motor vehicles and recreational vehicles on behalf of licensed dealers, by the bid process, may obtain a VA license. Auctions that plan to sell motor vehicles at retail are required to be licensed with a VI prefix license.

5. DH - A license with this prefix is issued to one who is buying, selling and dealing in new and used mobile homes. One who is licensed as a mobile home

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dealer may also buy, sell and deal or broker in recreational vehicles. A licensed mobile home dealer may transact business in recreational vehicles with a mobile home auction. Any licensed mobile home dealer dealing exclusively in mobile homes shall not have the benefit of using dealer license plates.

6. BH - A license with this prefix is issued to a mobile home/recreational vehicle broker. Mobile home/recreational vehicle broker means a person engaged in the business of offering to procure or procuring used mobile homes or used recreational vehicles for the general public. A mobile home/recreational vehicle broker may act as an agent or intermediary on behalf of the owner or seller of a used mobile home or used recreational vehicle.

7. RV / RU - A recreational vehicle dealer is engaged in the business of buying, selling and dealing exclusively in new or used recreational vehicles. The term recreational vehicle dealer includes recreational vehicle broker.

8. SD - This prefix is for a salvage dealer dealing in parts, salvage and derelict vehicles.

9. NI - NW - NA - NH - NR - These license prefixes are for applicants who are non-residents of the State of Florida, but otherwise qualify for a motor vehicle dealer license.

LICENSING PERIODS

All dealer licenses are issued for a maximum period of one year. Because the volume of licenses issued is approaching 13,000 annually, the effective and expiration dates of the various licenses are staggered to provide a more manageable work load for department employees. The licensing periods are as follows:

1. VF - Franchised motor vehicle dealer. January 1 to December 31

2. VI - Independent motor vehicle dealer May 1 to April 30

3. VW - Wholesale motor vehicle dealer. May 1 to April 30

4. VA - Motor vehicle auction. May 1 to April 30

5. DH - Mobile Home Dealer. October 1 to September 30

6. BH - Mobile Home Broker October 1 to September 30

7. RV - New Recreational Vehicle Dealer. October 1 to September 30. RU - Used Recreational Vehicle Dealer. October 1 to September 30.

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8. SD – Salvage Dealer May 1 to April 30

9. NI - NW - NA - NH - NR - Non-resident Dealer January 1 to December 31.

Regardless of when a license is issued during the license year, it will expire upon the established expiration date. License fees are not prorated.

INITIAL LICENSING FEE

The fee for an initial dealer license in any of the motor vehicle license categories previously described, except a non-resident license, is $300. A license fee is non- refundable unless the Department determines that one of three exceptions exist - either the applicant sent duplicate money in error, an overpayment was made in error, or the fee accompanying an application was submitted for an activity which is not required to be licensed. If a license is denied for any other reason, the fee is not refundable. A license fee may not be prorated for a portion of a licensing period. The fee for all non- resident dealer licenses is $2000 for each county in which they do business.

GENERAL LICENSING REQUIREMENTS

There are a number of general requirements that every applicant for a dealer's license must satisfy as a prerequisite to having a license issued. Prospective applicants are urged to consider these carefully before making application. Satisfaction of these requirements can be costly and time consuming.

1. Motor Vehicle Dealer Applicants

The following items are generally the most difficult or time consuming to obtain:

A. Surety Bond or Irrevocable Letter of Credit

Applicants are required to provide assurance by obtaining either a surety bond (Exhibit 1) or an irrevocable letter of credit (Exhibit 2) issued by a Florida bank in the amount of $25,000. Although a new bond or a continuation certificate is required each year, the assurance provided by the bond or letter of credit remains in force and effect until the statutes of limitations prohibits claims of any nature from being filed against the instruments. This time may vary anywhere from three to five years following the year for which the bond or letter of credit was issued. If during the licensing year the dealership cancels its surety bond and obtains a replacement bond with another firm, this information must be brought to the attention of the Division of Motor Vehicles regional office IMMEDIATELY.

B. Location and Facility Requirements

Proposed location and facilities which would house the licensed place of business must conform with statutory (Law book) and rule (Exhibit 3)

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requirements. Prospective applicants are advised to contact the Compliance Examiner, License and Registration Inspector or Regional Office serving that location and ask for a facilities inspection before committing time and money at a location that may not meet state requirements. (Warning), Check with the local zoning office and verify that the specific address is for the type of business you plan to conduct at that location.

C. Corporate/LLC/partnership information

If a dealership is to be operated by a corporation or LLC it is necessary that a copy of the organizational papers be submitted to DMV along with proof of registration with the Secretary of State of Florida. The corporation or partnership information to be submitted and checked is as follows:

a. Articles of incorporation that have been filed with and have been stamped by the Division of Corporations in the Department of State. It is important that the name of the corporation be filed with the Department of State is identical to what appears on the license application.

b. If corporate officers have been added or deleted submit minutes of the corporation showing those revised corporate officers or directors held accountable for operation of the corporation by the Department of State.

c. If a partnership, although there is no statute that requires a formal written agreement between partners, if one does exist, a true copy shall be submitted with the license application. (Section 15C-7.003, Florida Administrative Code states that a true copy is a complete and accurate photographic copy of a document which reflects all characters, marks and signatures contained in the original.)

D. Fictitious Name Registration

Florida statutes require that any business operating under a fictitious trade name shall register such fictitious trade name with the Division of Corporations in the Department of State. The registration of a fictitious trade name does not establish proprietary right to the fictitious trade name. Others may use the name. Registration simply documents the name under which a business is operating when it is different from the name(s) of the person(s) responsible for operating the business. Consequently, one can determine the identities of the responsible parties through an inquiry on the fictitious trade name. The fictitious name may be filed and paid for on-line at Florida Department of State, Division of Corporation at www.sunbiz.org. The fictitious trade name is only valid for five years and then must be renewed.

E. Proof of Ownership or Lease of Business Location

Each applicant for a dealer’s license must provide proof that the proposed

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location of the dealership can, in fact, be used for that purpose. This requires either proof of ownership of the property, or proof of a lease for the property by the applicant. Such documentation is in addition to the requirement that the applicant indicate the date of acquisition of the property on the license application form.

1. Proof of ownership may be any one of the following:

a. Tax statement; or

b. Deed

2. With regard to leased property the following requirements must be met:

a. A true copy of the lease must be submitted and must contain the signatures of both the lessor and the lessee (i.e., the dealer license applicant). A lease signed by only one party will be rejected.

b. There is no specific form required for a lease document as long as it properly describes the property. The address assigned by the U.S. Postal Service is the preferred method of identifying the property, however if an address has not been assigned, a legal description of the property is required.

c. The lease must be signed by a person authorized to represent the dealer applicant. Normally, this will be a person identified on the application as an owner, partner, corporate officer or director; however, it is possible that the owner may not be a corporate officer. In any event the authority of the person signing the lease must be clear, i.e. the official title or office held.

d. If the dealership is to be a partnership and only one partner owns the property, there must be a lease between the dealership and this partner.

e. If the license applicant is a corporation, the lease must be between the property owner and the corporation, not a person who represents the corporation.

f. If the dealership is a sole owner who also owns the property with a partner, there must be a lease between the dealership and the partner.

F. Fingerprint Cards

Fingerprint cards must be submitted for the owner(s) for sole owner companies, all partners for partnerships, and all corporate officers or directors for corporations listed on the application. See Procedure DLR-05, Obtaining and Processing Fingerprint Cards, for a complete explanation regarding the disposition of fingerprint cards.

G. Federal Employer’s Identification Number (FEIN)

State law does not require the Division of Motor Vehicles to obtain a FEIN from dealer license applicants; however, federal law requires that licensing

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agencies be able to identify a license by a FEIN, if such information is requested. Consequently, dealer license applicants are required to provide their FEIN. Any dealer license applicant who is unsure about this matter should be referred to the U.S. Internal Revenue Service. Forms necessary to apply for a FEIN can also be obtained from Post Offices.

1. If the applicant has no employees other than the owner, a statement to that effect must accompany the application. The application form provides a space for such a response.

H. Garage Liability Insurance

All applicants for licenses as motor vehicle dealers or recreational vehicle dealers must have garage liability insurance in the amount(s) required by law. In addition, any mobile home dealer licensed to sell recreational vehicles must also have garage liability insurance. The garage liability insurance policy should be for the license period, a copy of which must be delivered to the Department at the beginning of each license period; however, we will not reject a garage liability insurance policy that is not for the entire license period.

I. Proof of Required Training

Each applicant for an initial dealer license must provide proof that they have successfully completed the dealer training required by law within the previous six (6) months unless they currently hold a franchise license and have been in good standing continuously for the past two (2) years. This shall be in the form of a certificate issued by the dealer training school.

For mobile home seminars provided by the Department or by a licensed training school, a certificate shall be issued. Every two years an Independent motor vehicle dealers must provide evidence of having completed eight (8) hours of continuing education from a licensed dealer training school.

J. Sales Tax Number

All applicants for an initial dealer license must provide their sales tax number. Applicants, who are unsure about this matter, should be advised that the sales tax number is issued by the Department of Revenue.

K. Documentation of Arrests and/or Convictions

If the license applicant including any partner or any corporate officer or director has been arrested and/or convicted of a felony crime, or its equivalent, has been arrested and/or convicted of any crime associated with motor vehicles, or is facing criminal charges anywhere, additional documentation must be submitted with the license application. In the event of a felony conviction, applicants must submit proof that their civil rights

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have been restored in Florida. If the felony conviction occurred out of the state of Florida, proof of civil rights restoration will be required.

PROCESSING THE INITIAL APPLICATION

Submit the completed application to the examiner/inspector assigned to the area in which your dealership is located. The examiner/inspector will review your application to insure it is complete and all the required supporting documentation is attached. The examiner/inspector will take your application to the regional office where it will again be reviewed and then processed. If everything is in order, a license will be issued. At the same time, the fingerprint card(s) will be processed through the Florida Department of Law Enforcement and the Federal Bureau of Investigation. The Dealer License Section will not give out license numbers over the telephone. If there is an urgent need for the license number you should check with the regional office serving your area.

THE DEALER LICENSE

A permanent license number is assigned to each licensed dealer along with a secret PIN number that changes annually. As long as there is no change which requires a new application, only the secret pin number will change each time the license is renewed. The pin number does not appear on the dealer license, but is supplied separately to the licensee and must be used by the licensee to process title work at the tax collector's office. Thus, a dealer will not be able to process title work or purchase temporary tags or purchase dealer tags from the tax collector's office unless he produces a correct pin number for the current license period.

The pin number is not available to the tax collector on the computer system and cannot be checked or verified by them. The dealer or the dealer representative must present the pin number either verbally or in writing to the tax collector's office.

If a pin number is lost, misplaced or forgotten, a dealer may get it from a regional office of the Division of Motor Vehicles, but only if the request is made in writing on the dealer's letterhead, and specifically names the person authorized to obtain the pin number. Since the pin number is a security feature, this procedure is designed to protect the dealer.

It is only necessary to provide the pin number at the time work is processed at a tax collector's office. The pin number does not have to be entered on dealer re- assignments nor does it have to be put on title work. If the pin number is compromised in any way, and the dealer requires a new one, the dealer will have to apply for a new pin number at the local Regional Office.

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DENIAL OF A DEALER LICENSE

The Department may deny a license to any motor vehicle dealer applicant on any of the following grounds:

A. Failure to meet the qualifications for holding a license. For example:

1) Failure to answer all applicable questions.

2) Failure to provide legible answers on the application.

3) Failure to sign the application.

4) Failure to include the necessary fees.

5) Failure to provide the required surety bond or irrevocable letter of credit.

6) Failure to provide Garage Liability insurance.

7) Failure to attend training and provide a verification form.

8) Failure to register a fictitious trade name, when required.

9) Failure to provide corporate documents, when required.

10) Failure to obtain a Federal Employer's Identification Number, when required.

11) Failure to obtain a sales tax number.

12) Failure to attach a true copy of a written lease, if applicable.

B. Willful violation of any law of this state having to do with dealing in motor vehicles.

C. Willful failure to comply with any administrative rule promulgated by the Department.

D. Perpetration of a fraud upon any person as a result of dealing in motor vehicles.

E. Commission of a fraud or willful misrepresentation in applying for or in obtaining a dealer license.

F. A history of bad credit or an unfavorable credit rating as revealed by investigation by the Department.

G. Conviction of a felony.

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H. Additional grounds for denying any applicant a license as a motor vehicle dealer:

1) When an applicant has made a material misstatement in an application for a license.

2) When an applicant has failed to comply with any applicable provisions of Chapter 320, Florida Statutes.

3) When an applicant or one or more of the principals has violated any law, rule or regulation relating to the sale of a motor vehicle.

4) When the Department has proof of the unfitness of the applicant.

5) When any applicant has engaged in previous conduct in any state which would be grounds for revocation or suspension of a license in this state.

PROCEDURE AND RIGHTS OF APPEAL

Anytime the Department denies issuance of a license for any of the grounds stated in the previous section, written notification will be sent to the applicant advising the applicant of the denial and stating the reason(s) for the denial. Further, as required by the state's Administrative Procedures Act, the Division will notify the applicant that the applicant has twenty-one days from the date of receipt of the letter denying the application, to request a hearing to contest the Division's decision. Within the twenty-one days, the applicant must write the director of the Division of Motor Vehicles to request a hearing. If no such request is received, the Division's decision is final. If the applicant decides to request a hearing, such a hearing will be scheduled at the earliest possible time, giving the applicant the opportunity to explain why the Division should reconsider its decision to deny the license.

Following the hearing, the Division will either confirm its earlier decision denying the license or will reconsider its position and issue the license, assuming that the application is complete and all attaching documentation and fees are attached.

MODIFICATIONS AFTER A LICENSE HAS BEEN ISSUED

The following sections briefly describe the action that a licensee should take to process one of the modifications described. The first three sections below are not really changes but are actually new dealer license numbers and involve a restart of licensing. 1. Change of license type. A change of license type involves a change of the type of business operated by the dealership. For example, changing a franchise motor vehicle dealership (VF) to a

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non-franchised dealership that sells used cars (VI), or changing a motor vehicle auction (VA) license to a used car dealership (VI), or any other similar change of license type, requires the applicant to complete a new application, including payment of an original application fee and meeting all requirements for initial If the holder of a license wants to change the type and obtain a franchised dealer license (VF) , then the requirements for a franchised dealer must be met.

2. Change of Entity A change of entity of a dealership such as changing a sole ownership to a partnership, a partnership to a corporation, or any other similar change requires an initial application, satisfaction of all requirements and payment of fees.

3. Adding a Supplemental Location To add a supplemental location to an existing license, a dealer must complete certain questions on the Dealer License Application and submit all required documentation with appropriate fees. The location cannot be operated until a license has been issued.

4. Changing a Name Any motor vehicle dealer desiring to change the ownership name or fictitious trade name of a dealership must file an application to change the name, accompanied by a $25.00 fee. Motor vehicle dealers must also submit an affidavit stating that there has been no change in majority ownership.

5. Change of Physical Location A licensed dealer wishing to change the physical address of the dealership must complete an application. The appropriate fee must accompany the application for change of physical location address.

6. Change of Mailing Address Any dealer wishing to notify the Division of a change of mailing address may do so anytime during the year by simply filing a modified application. All dealers are advised to file this form if the mailing address changes, to insure that all communications between the Division and the dealer are received by the dealer.

7. Postal Update A dealer must advise the Division when the post office has changed the address of the dealership, even though no move has taken place. A copy of the letter of notification from the postmaster must be provided.

8. Change of a supplemental location to a new location A change of an additional location to a miain location can be accomplished by completing an application and submitting licenses for both the main location and the additional location. Upon receipt, the Division will cancel both licenses and issue a

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new license, at no charge, reflecting that the new main location is the previous supplemental location.

9. Corporate update When a corporation holding any kind of license has a change in corporate officers, the business must report the change in corporate officers by completing the appropriate section of the dealer application, accompanied by a copy of the minutes of the corporate meeting indicating the corporate update. The corporate minutes must include a copy of the letter(s) of resignation signed by the outgoing officers. A fingerprint card and a fingerprint processing fee must accompany the application, for each new corporate officer listed on the application. Filing the application does not require the payment of any fee and the purpose is to keep the Division notified of current corporate officers. Upon receipt, the Divisions records will be changed accordingly. Failure to provide this information may cause confusion and delay in license renewals.

10. Change of Ownership When the sole ownership of a partnership of a dealership changes, it is required that an initial application for license be filed and the business be re-licensed. In the case of corporations, the ownership of the corporation is not necessarily by the officers. Since a corporation is a legal entity unto itself; corporate officers may change without filing for a new dealer license. A change in the majority ownership of the stock in a corporation, requires the filing for a new dealers license.

11. Change of Bonding Company Anytime a dealership voluntarily changes the bonding company during a licensing period, the dealer is obligated to notify the Division by submitting a replacement bond. In order for a replacement bond to be accepted it must meet all the requirements of a valid surety bond and must have a beginning date that overlaps the ending date if the bond being cancelled to ensure that the dealership is covered at all times. Failure to notify the Division of the voluntary change in bonding companies could result in disciplinary action being taken.

12. Change in Garage Liability Insurance Company Dealers in motor vehicles (including motor homes) are required to have and maintain garage liability insurance coverage during the licensing period. If a dealer voluntarily decides to change companies during a licensing period, the dealer must notify the Division of Motor Vehicles, in writing of the new company and policy number.

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KEEPING AND MAINTAINING A LICENSE

1. Bond Cancellation

Occasionally a surety company will cancel a surety bond issued to a dealership. When this happens, the surety company notifies the Department that it will cancel or terminate its liability on a bond on a specific date. The Department then notifies the dealer that the bond will be canceled at the end of a thirty day period. During that time the dealer is given the opportunity to either negotiate with the same bonding company for reinstatement of the bond or to seek a replacement bond from another surety company, or obtain an irrevocable letter of credit from a bank. In any event, by the expiration of the thirty day period, a new bond or the letter of credit must be secured and in force without any time lapse between the termination of the old bond and the effective date of the new bond. If the dealer does not or cannot obtain a replacement bond or reinstatement of the original bond or a letter of credit prior to the expiration, the dealer must cease doing business and the license is revoked. Although the Division does notify the dealer of this procedure, the responsibility is on the dealer to obtain the surety coverage. In the event of license revocation, an initial licensing process, including application, fees, and supporting documentation would be required.

2. Abandoned Location

Sometimes a dealership, because of losing a lease or out of a desire to change locations, will close a location for the purpose of looking for a new location. In such instances, the Division of Motor Vehicles must be notified of this activity by the dealership. The Division cannot know, without being told, that a dealer may be looking for a change of location or may simply be on vacation.

When a representative of the Division attempts to contact a dealer and finds no business activity at the location, no inventory and no vehicles on display, no personnel available on location to be contacted by the Division, the telephone is either disconnected or not being answered, no response to an inspector's/examiner's business calling card, utilities disconnected, or in some cases, notices are posted on the location that the property is being advertised for sale or rent, or any other facts that would indicate that the dealer has closed and abandoned the location permanently, it may be concluded that the dealer has abandoned the location. In such circumstances, a report will be prepared by an inspector /examiner requesting the license be revoked because the dealership has been closed and the property has been abandoned. It is not the Division's desire

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to put any dealer out of business, but the Division will not allow a license to be retained when there is no dealership at the licensed location. Before a license will be revoked under these circumstances, due process notification will be provided by certified mail. However, if a dealer is not receiving mail, the dealer may not be notified that the Division will revoke the license. It is the dealer's obligation to notify the Division in writing, of any temporary closing or change in address. If a change of address is not properly applied for, a new license applied for, and a new license issued reflecting the new location, it is likely that a dealer's license will be revoked based on the abandoning of the previous location. Should that happen, the dealer will be required to file an initial application for a new license and meet all current qualifications required of a new license.

3. Bankruptcy

A dealership undergoing either a Chapter Eleven reorganization proceeding or a Chapter Seven liquidation bankruptcy proceeding, may retain its license during the course of the bankruptcy proceedings and may continue to operate as a licensed dealer. However, the bankruptcy proceedings does not protect a dealer from all of the operations and licensing requirements imposed on any motor vehicle dealer. The bankruptcy proceeding does not protect the dealer from penalties of unlawful conduct nor does it permit a dealer to operate a business in violation of licensing or operational laws. The surety bond or irrevocable letter of credit remains in effect, and claims can validly be made against those bonds or letters of credit, for violations that occur after the petition for bankruptcy has been filed.

GOING OUT OF BUSINESS

Anytime a dealer intends to voluntarily go out of business, it is the obligation of the dealer to notify the Division, in writing, of the dealer's intent to terminate its business. Such notification must include the date that the licensee intends to terminate its operation. Either at that time, or subsequently, the licensee is obligated to submit its license to the Division for cancellation. The dealer must also submit any dealer tags and temporary tags and temporary tags in its possession for cancellation and refund, where appropriate. Unless and until a dealer notifies the Division in writing and action is taken to actually cancel the license, the Division continues to hold the licensee responsible for activities occurring under the authority of that license. a dealer may not relieve itself of liability by unilaterally deciding its license is no longer to be used. The license remains in force and effect until it is canceled by the Division at its central headquarters in Tallahassee. Once a dealer decides to go out of business, the dealer should dispose of any inventory in a timely fashion, prior to ceasing its operation and return all dealer license plates and temporary tags to the Division of Motor Vehicles.

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LICENSE RENEWALS The one page renewal application form (Exhibit 14) will ordinarily be mailed to each dealer at least sixty days prior to the expiration date of the current license. There is an obligation placed on a licensee to submit the renewal application in a timely fashion to ensure that the new license is issued prior to the expiration date of the current license. All renewal applications must be received in the regional office of the Division of Motor Vehicles on or prior to the expiration date. Postmarks will not be accepted. Independent dealers (VI) must also include a continuing education certificate for a day of study from a certified school every two years as per statute. The renewal application should only be used if there are no changes to be reported to the Division, other than minor things such as a postal update or mailing address change. If any other change is to be reported or noted such as a criminal conviction, a change of physical location, a change in ownership, or a request for a change of license type, the long form application must be used, even at renewal time. When there are no deficiencies or errors in the paperwork submitted, it ordinarily takes just a few days to renew the license. However, to insure that licenses are renewed in a timely manner, the law requires that an application for renewal must be received by the Division thirty days prior to the expiration date of the current license. The law provides for late penalties and delinquent fees for renewal applications submitted past the expiration date of the previous license, but only for forty-five days. In the case of a motor vehicle dealer license, the late penalty is $100 over and above the renewal fee of $75. If the license is not renewed with a delinquent fee within a forty-five day period after the expiration date, a new application is required which must be accompanied by proof of attending a one day training program and the $300.00 initial license fee.

The successful processing of a renewal application depends on the completeness of the application including the attachment of all necessary documentation. For example, all dealers must submit continuation certificates or newly issued surety bonds or irrevocable letters of credit, covering the new licensing period and reflecting the effective renewal date, and, where applicable, certification or continuance of garage liability insurance.

TRANSFER OR ASSIGNMENT OF LICENSE Dealer licenses issued by the Department are not transferable or assignable. The state issued license may not be considered part of a buy/sell agreement of a franchised dealership. A license does not automatically get transferred by a court order directing the change of ownership of a licensed dealer. In such cases, the transferee, assignee, buyer, or other person(s) receiving the benefits of the dealership, are required to apply for a license in their own individual or business name.

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Prohibition No licensed motor vehicle dealer shall authorize or knowingly permit or allow any person, employee, agent or representative to use the dealer's license identification number to effect a sale of a motor vehicle, a title transfer, or a registration transaction for the sale of a motor vehicle wherein the purchaser of that motor vehicle was not given notice that the sale, transfer or registration was not made by a licensed dealer.

The Florida Certificate of Title

Certificates of Title were first authorized by the 1923 Florida Legislature and became effective July 1, of that year. Certificates of Title were issued to each owner of a motor vehicle with provisions for showing evidence of any lien. When a person sold his vehicle, the certificate of title was endorsed to the buyer to show transfer of ownership. The title then went to the State Comptroller for a new certificate of title, issued in the name of the new owner. The primary purpose of the certificate of title was for auto theft prevention. The certificate of title fees collected were deposited into an Auto Theft Fund. The certificate of title became the legal document of ownership.

On August 1, 1948, a new certificate of title law became effective. This law required that certificates of title issued represent a complete abstract of title, including current mortgage status. To reflect this, every change of ownership and/or change in lien status was recorded in the records of the Motor Vehicle commissioner, with a new certificate of title being issued for each change. Through this law the Florida Legislature mandates that the Division of Motor Vehicles, maintain an accurate record of ownership of all the motor vehicles owned and operated in this state. The certificate of title provides the means by which this information is acquired.

In 1957, the Florida legislature revised the Sales Tax Law to include motor vehicles. The law provided that no certificate of title could be issued without evidence of payment of the applicable sales tax, unless the transaction was sales tax exempt. In the case of a retail sale by a licensed motor vehicle dealer, the amount of the sales tax collected on the transaction must be reported in the reassignment section of the title and on every application for certificate of title.

Many changes in title laws and rules have occurred over the years, resulting in changes in the appearance of the certificate of title and the procedure of applying for and issuing certificates of title. When certificates of title were first issued in 1923, the entire operation was performed manually in a central location. Accessing information about owners and vehicles was a time consuming process. Today, with he use of modern technology, there are 242 Tag Agencies throughout the state, processing title applications on-line with the state FRVIS computer network, updating records as they are validated. Retrieving information from the system is accomplished in a more timely and accurate manner.

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FEDERAL LAW REVISED

In 1987, the Federal Odometer Law was revised, requiring the transferor and lessee of motor vehicles to make written disclosures to transferees and lessors concerning the odometer mileage and its accuracy. In addition, the revised law required all states to issue motor vehicle certificates of titles on secure documents and to incorporate a Federal Odometer Disclosure Statement in each re-assignment section of the title, conforming to the requirements of the Federal Law.

The Florida Legislature enacted the Florida Odometer Fraud Prevention and Detection Act in 1989, to become effective as of April 29, 1990. Since this date, Florida has been issuing certificates of title that comply with the requirements of the Federal Law. These certificates of title are known as conforming titles. All certificates of title issued by Florida prior to April 29, 1990, do not conform to the requirements of the federal law and they are referred to as non-conforming titles. Florida Odometer Law now parallels the Federal Odometer Law and provides for the following:

1. That certificates of title shall contain warning statements about federal and state law regarding odometer disclosures.

2. That certificates of title shall contain forms for the transfer of certificate of title and forms for odometer disclosure statements which conform to federal rule.

3. That certificates of title shall contain dealer reassignments and odometer disclosure forms and provides that when all reassignment forms on the certificate of title have been used, dealers may use a separate dealer reassignment form which is to have two carbon copies, one of which is to be submitted to the department within five business days after the transfer. This section also provides that dealers maintain odometer disclosure records for a period of five years after the date of sale and furthermore provides that requirements of the subsection apply to certificates of title which do not contain the required forms.

4. That upon transfer or reassignment of a certificate of title, the transferor shall complete the odometer disclosure statement and the transferee shall acknowledge the disclosure by signing and printing their names in the space provided. This section also provides an exemption for motor vehicles which are ten years old and older (on January 1 ), motor vehicles with a gross vehicle weight rating over 16,000 pounds and motor vehicles which are not self propelled. New motor vehicles that have not been sold to the first retail purchaser and are being wholesaled to another new car dealer, are exempt from the odometer disclosure requirements.

5. Florida Law prohibits a person from signing an odometer disclosure statement as both transferor and transferee unless the certificate of title is being physically held by a lienholder or is lost or destroyed and a secure power of attorney is given. In a case like this, a transferor may give a secure power of attorney to his transferee for the purpose of the odometer disclosure.

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6. That the department shall provide space on the certificate of title for separate dealer disclosure statements and for motor vehicle auctions to make notations.

7. That auctions make certain notations on certificates of title and on separate odometer statements.

Electronic Titles… An electronic title is a title that exists only in electronic form on the DMV database instead of being printed on paper. The plan is that ultimately you will see fewer and fewer physical paper titles in the hands of vehicle owners or lienholder once everything is done. During Phase-in of electric titles the normal dealer will be basically unaffected. Paper titles will be the usual thing, so nothing is changed in how to do title work. But, when a new car dealer sells a vehicle for the first time and there is an ELT registered lienholder, the MSO (manufacturer's statement of origin) will be submitted to DMV with all the normal paperwork for getting a title. Instead of printing a title on paper DMV will simply record it electronically in the state's computer system. The records will show that the title is being held electronically for the lienholder. Then, when the lien is satisfied, the lienholder will notify DMV and the title will be flagged electronically and will now be held for the next ELT lienholder in line or for the entity that satisfied the lien. If the mailing address is out of state, a paper title will be printed and mailed to that person. Lien holders will continue to be allowed to enter a mail-to address when someone other than the owner (such as a dealer) satisfies a lien. The state will send a congratulatory letter to that person advising him that if he lives in the state of Florida he can leave the title in an electronic status or he can request a paper title be printed instead (at no charge) through his local county tax collector’s office or through the DMV website. Owners will not need to request a paper title if they trade their vehicle into a Florida dealership. The dealer will be able to verify that they are the owner of the vehicle and that the title is electronic through the department’s website. All the forms that are needed to title and register a motor vehicle in the State of Florida are available at the Tax Collectors Office, free of charge, courtesy of the Division of Motor Vehicles. A licensed Motor Vehicle Dealer may also order the forms direct from the Division of Motor Vehicles, Bureau of Motor Carrier Services, Neil Kirkman Building, Room. A-122, Tallahassee, FL 32399-0500.

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PROCESSING TITLE AND LIEN WORK

1. Dealer To Apply For Title

Under the laws of the State of Florida the obligation is on every dealer who sells motor vehicles to apply for transfer of title or for duplicate title on behalf of the purchases. Under no circumstances, if a vehicle is to be titled and/or registered in Florida, is the dealer permitted to give the paper work to the customer and advise the customer to apply for the title. the obligation is the dealer's and the Division holds the dealer to that responsibility. The only exception exists if a purchaser intends to immediately remove a purchased vehicle from the state of Florida for the purpose of titling and registering it in another state. The paperwork may then be given to the purchaser for processing in another jurisdiction. (Use form DHSMV 82040 to apply for a title.) (Use form DHSMV 82101 to apply for a duplicate title.) A dealer processing titles and registrations for vehicles sold from licensed supplemental locations must use the correct suffix (example A lot, B lot) of the location on all title and registration work processed through a tax collector's office or tag agency.

2. Title In Possession

Any time a dealer offers a motor vehicle for sale, the dealer is required to have a title or a Manufacturer's Statement of Origin (MSO) in the case of a new motor vehicle, or have other reasonable indicia of ownership in his possession. The law defines other reasonable indicia of ownership as:

A. Copy of a properly executed consignment sale agreement (Exhibit 46) along with a power of attorney form (DHSMV 82995) filled out and signed by the owner of the vehicle.

B. A photocopy of a certificate of title held by a floor planner.

C. A copy of a canceled check satisfying a lien for a trade-in. A purchase order or installment sale contract describing a vehicle traded. A power of attorney form (DHSMV 82995) filled out and signed

D. A copy of a duplicate or lost title application DHSMV 82101 A power of attorney form (DHSMV 82995) filled out and signed

The law requires that the title, manufacturer's statement of Origin or other reasonable indicia of ownership be in the possession of a dealer from the time of acquiring the vehicle until the time of disposing of it. It is, however, also unlawful for a dealer to possess a vehicle with an "open" title (one that has not been duly assigned or transferred by the seller (consignor) to the dealer (consignee).

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Dealers who purchase and sell vehicles with bank drafts (Exhibit 18) only, are not only violating the law for not having possession of duly assigned titles or other reasonable indicia of ownership specified by law, but are also jeopardizing the status of their licenses because the Division of Motor Vehicles holds the dealer responsible for complaints involving sales of vehicles under those circumstances.

3. Transfer Within 30 Days

The statutes require that a dealer actually apply for the transfer of title and registration on behalf of a purchaser within 30 days of the date of purchase or date of delivery. If the title was not available, the dealer must have applied for a duplicate title. Once a duplicate title is issued, the dealer must then apply for transfer of the duplicate to the purchaser within 30 days. If the time frames are not met, there is a statutory late fee assessed. The dealer's license may also be subject to administrative sanctions.

4. Late Penalty

Any person, including a dealer, who fails to transfer title within the 30 day requirement, as specified by law, must pay a late penalty of $10. at the time of applying for transfer. Governmental agencies are not exempt from this requirement. When a dealer fails to act within the required time period, the late penalty cannot be passed on to an ultimate purchaser.

5. Customers Who Will Title And Register Out Of State

The only exception to the requirement that a dealer apply for title on behalf of an ultimate purchaser is when the purchaser intends to title and register the vehicle in another state. In that case, the dealer must give the purchaser all the necessary paperwork to apply for title and registration out of state. The dealer may issue one 30-day temporary tag which will allow the purchaser to drive the vehicle to the state in which it will be registered and titled. The fact that the vehicle is to be titled in another state, however, does not exempt the purchaser from paying or the dealer from collecting the applicable sales tax due on the sale of the vehicle. The Department of Revenue can provide further information and forms needed by customers to ensure credit for taxes paid.

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6. Proof of Insurance

In order for a dealer to successfully apply for a transfer of title into the name of a purchaser on a vehicle sold, the dealer must apply for registration of the vehicle simultaneously or have the purchaser sign an affidavit to the effect that the vehicle will not be used on the public roads, streets and highways of the State of Florida. In order to successfully apply for the registration at the time of applying for title transfer, the dealer must produce a copy of the purchaser's proof of the minimum insurance required by Florida Law. This is generally in the form of a copy of the insurance identification card or a properly completed Insurance Affidavit, form DHSMV 82330 (Exhibit 43)

7. Accounts Receivable Lot (ACR Lot)

Some dealers may choose to provide financing to customers who purchase vehicles from them. This type of dealership is commonly referred to as an ACR lot, or a "Buy-here Pay-here" lot. In order for the dealer to meet the statutory requirements, the title to a vehicle sold must be transferred to the purchaser with a lien recorded in favor of the dealer. In this way, if it becomes necessary, the vehicle can be repossessed by the dealer. A dealer is not permitted to delay the title transfer until the vehicle is paid for. The thirty day title transfer requirement applies whether or not the vehicle has been paid for in full. Any dealer that writes finance contracts at his place of business is required to be licensed by the Department of Banking and Finance of the State of Florida, and failure to do so may carry severe penalties.

8. Lien Recording

The proper way to ensure that a purchaser pays any outstanding balance owed a dealer on the purchase of a vehicle is by applying for transfer of title and recording an outstanding lien on the vehicle. The lien must be satisfied before the purchaser owns the vehicle free and clear. In Florida, a lienholder may retain possession of a title issued by the Division until the lien is satisfied and only then will a clear title be issued in the name of the owner. The process of recording a lien guarantees the protections of law to each party involved in the transaction.

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9. Wholesale Transactions

a. Drafts

Often, the ownership of a motor vehicle, recreational vehicle, will pass from one licensed dealer to another without being sold to a private individual. Such transactions between licensed dealers are called wholesale transactions. In Florida, it is a common practice for dealers to buy and sell vehicles from each other on a wholesale basis using drafts (Exhibit 18), payable at some time in the future by a financial institution. Usually it takes several days or longer for a draft to clear a bank or financial institution from which payment is to be made. Technically the draft system does not comply with the statutory requirement that a duly assigned title or other indicia of ownership must be in the possession of the owner of a vehicle from the time of acquiring the vehicle until the time of disposing of that vehicle. This means that, even in wholesale transactions, a completed title must accompany the transaction. Although the Division of Motor Vehicles recognizes the existence of drafts, the Division holds licensees responsible for obtaining and disposing of titles or other indicia of ownership along with the vehicles they buy and sell, as required by law.

b. Title Reassignments

In wholesale transactions, the process of transferring ownership from one dealer to another, without requiring the actual issuance of a new title in each dealer's name, is by a process called reassignment. The reassignment is a form which, when completed, represents the transfer of ownership of the vehicle. Reassignment forms are found on the reverse side of manufacturers' statements of origin (M.S.O.), certificates of origin, certificates of title ( Exhibit 16 ), and on separate forms. There are two types of separate forms in use. One may be used to reassign vehicles that are exempt from federal odometer disclosure requirements. ( Exhibit 49 ). The other is a secure reassignment form to be used when all the reassignments have been used on a title and with non-conforming titles in order to document odometer readings in accordance with federal law. ( Exhibit 37 ).

c. Auctions: Special Provision

Dealers who are licensed as motor vehicle auctions, holding a license prefixed with the letters VA, are given special consideration by the legislature recognizing that auctions generally provide a forum for sellers to dispose of vehicles through the bid process. Since auctions are not considered buyers or transferees or sellers or transferrers in this auction process, Florida law exempts auctions from the need to complete reassignments unless an auction owns the vehicle.

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In lieu of completing the reassignment, the auction simply includes the auction name; address and dealer license number in the appropriate spaces provided on the title certificates and reassignments. (Exhibit 16) This information indicates that the vehicle was sold through the auction and that the auction is in the sequence between the seller and the next buyer. Any dealer that may be acting as an auction but holds an independent motor vehicle dealer license (VI) must complete dealer reassignment forms on all transactions. Auctions may sell recreational vehicles.

10. VIN Verifications

Any time a used vehicle is to be titled in Florida for the first time, a form must be completed which verifies that the public vehicle identification number on the vehicle is identical to that on the paperwork accompanying the vehicle and by which a Florida title will be sought. Licensed Florida dealers, law enforcement officers, Florida notaries public, Florida DMV Inspectors/Examiners and Tax Collector employees may verify the VIN and attest to its accuracy by completing the VIN verification form. ( DHSMV 82042 or DHSMV 82040 ) If the vehicle is from out of the country, a DMV officer must do the inspection.

11. Odometer Readings

On all certificates of titles issued in the state of Florida since 1983, it is required that the correct odometer reading at the time of transfer be recorded on the front of the title. The law further requires that upon a transfer of ownership of any vehicle, the seller must enter the current odometer reading and the date on which it is read in the appropriate space on the reverse side of the Certificate of Title. Dealers are also required to enter odometer readings each and every time a vehicle is purchased or sold. Space is provided on dealer reassignment forms to enter this information. In addition to the state requirement, federal regulations require licensed motor vehicle dealers to obtain from the seller, on the purchase of any motor vehicle, a federal form called an Odometer Disclosure Statement which must be accurately completed and which must indicate the mileage on the vehicle at the time of acquisition. In addition, every licensed dealer must complete an Odometer Disclosure Statement at the time of selling or disposing of a vehicle. Federal regulations require dealers to keep both the acquisition Odometer Disclosure Statement and the sale Odometer Disclosure Statement in their file for a minimum of five years. Florida's conforming title certificate, secure power of attorney and secure dealer reassignments comply with federal regulations and contain the necessary odometer disclosure information.

12. Fast Title Service

Assuming all paperwork is complete and accurate, the time it takes to have a title issued and returned to an owner or lienholder by mail is relatively short.

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However, since moving final approval on title applications to the Tax Collector level, normal title processing has greatly improved the turn around time for titles. Normally a title will be issued within five work days of the time the application is received in the Bureau of Title and Registration.

13. Services of County Tax Collectors

All title and registration work to be processed by dealers of motor vehicles, in the state of Florida, will be processed through a county tax collector's office or one of the tax collector's branch agencies commonly referred to as tag agencies. The tax collectors serve as agents for the Department of Highway Safety and Motor Vehicles for accepting and processing title applications and issuing registrations in the field. The tax collector generally does not issue titles. Most titles are issued centrally by the Department in Tallahassee. Except for the fast title service, all dealers must process all paperwork through the tax collector. The Division of Motor Vehicles will not accept applications for titles or registrations directly through the mail or in person. All such inquiries are referred to the tax collector's office. The system that has been designed not only expedites the processing of all applications fairly and equally, but insures that the work processed is complete and accurate. The tax collectors' employees are well qualified and trained in the legal and procedural requirements for completing necessary paperwork to process title and registration applications. These highly skilled employees can provide answers to most questions that are asked and, when answers are not readily available, they know who to contact to get correct answers as quickly as possible.

14. DMV Procedures Manual

The Division of Motor Vehicles publishes and posts on the internet a comprehensive procedures manual which spells out, in detail, the procedures and requirements for the various title and registration processes. The manual is free to examine and download at DMV’s website and is periodically updated.

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PROCESSING REGISTRATIONS

1. Applying For Registration

As a general rule, a dealer will make application for transfer of the registration into the purchaser's name at the same time as application is made for transfer of the title. Both processes must be accomplished within 30 days of the date of sale/delivery of the unit. The only situation in which a title would be applied for by a dealer without simultaneously applying for registration, would involve a case where a motor vehicle or recreational vehicle is not to be driven or is not capable of being driven from the dealer's lot, in which case a non-use affidavit would accompany the title application. This will be discussed in more detail below.

A dealer processing titles and registrations sold from licensed supplemental locations must use the correct suffix (example: A lot, B lot) of the location on all title and registration work processed through a tax collector's office or tag agency.

A. Proof of Insurance

Any time a dealer sells a motor vehicle the law requires the dealer to apply for title and registration on behalf of the purchaser. As part of this responsibility and as a condition of titling and registering a vehicle, the applicant must produce proof that the owner of the vehicle carries at least the minimum insurance required by law, which in Florida is personal injury protection (PIP) and $10,000 of property damage liability insurance. No application for transfer of title or transfer of registration will be accepted in this state by any tax collector's office or by the Division of Motor Vehicles unless it is accompanied by either proof of insurance or a non-use affidavit. A dealer may not be relieved of the responsibility of transferring title and registration in a timely manner, as the statute requires, simply because the dealer failed to obtain, or the purchaser failed to provide, the necessary proof of insurance. The Division places the responsibility on the dealer to obtain this information.

B. Non-use Affidavit

If a vehicle purchased from a dealer is not to be driven but is, for example, to be transported on another vehicle or is purchased only for parts and will not be operated on the streets and highways of Florida, it need not be registered, provided the purchaser signs a non-use affidavit. In such a case, a title will be applied for without registration. Dealers must understand that the affidavits are not completed by the dealer but by the purchaser and the non-use affidavit is not to be used in lieu of obtaining proof of insurance from the purchaser. Thus, a dealer may not accept a non-use affidavit completed by a purchaser and then allow the purchaser to drive the vehicle

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off the dealer's lot. In such a case, perjury has been committed and the dealer is a party to that violation. Similarly, a dealer may not accept a non- use affidavit from a purchaser and then issue a temporary tag to a vehicle which will be driven from the dealer's location. Again, there is an obvious case of perjury to which the dealer is a party.

C. License Plate Rates

The rates charged for license plates are based on a 12 month registration, which, for motor vehicles begins on the first day of the owner's (purchaser's) birth month, with the exception of company owned vehicles that use the month of June; trucks weighing over 5,000 pounds, truck-tractors, semi- trailers and buses use a December birth month. However, license plate tax rates may be prorated in certain instances and are calculated from the month the vehicle is purchased or subject to registration. A license plate rate chart is available from the Division of Motor Vehicles and tax collectors' offices which will permit a dealer to calculate the fee due on any particular vehicle.

D. Charging Excessive Fees

Certain fees are established for license plate rates depending on the birth month of the purchaser, the type of vehicle purchased and the month in which the vehicle is purchased. Title fees are established by law or rule of the Department. In any event, the title and registration fees applicable to a particular type vehicle sold by a dealer are easily determinable. A dealer is not permitted to charge title and registration fees in excess of those allowed by law. Any excess charges imposed by a dealer are in violation of the statute and may subject the dealer's license to administrative sanctions imposed by the Division. It is often more convenient for a dealer to simply process the application for title and registration as a new vehicle without transfer, but when this occurs, the inventory of metal tags available statewide is seriously depleted.

2. Transfer of Registration.

License plates issued to private passenger cars and light weight trucks weighing 5,000 pounds or less, are transferable and interchangeable without any additional tax, transfer fee or refund providing proper application is made and applicable service fees accompany the application. At any time that a transaction occurs in which a tag may be transferred, the Division holds the dealer responsible for insuring that a transfer is made rather than applying for and issuing a new tag for the newly purchased vehicle. It is often more convenient for a dealer to simply process the application for title and registration as a new vehicle without transfer, when this occurs, the inventory of metal tags available statewide is seriously depleted.

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In addition, if there is a considerable period of valid time left on the registration , the act of issuing a new plate, when a transfer would otherwise be proper, causes the customer to lose money. Additionally, failure to transfer a tag when it would be appropriate, subjects the dealer and the customer to the " new wheels on the road" initial registration fee. Complete the Notification of Transfer of Registration License Plate form and give it to the customer, as proof of the transfer of license plate. ( Exhibit 19).

Normally, proof of insurance is not required when transferring a current license plate from a vehicle being disposed of to a newly acquired vehicle. The law provides that such transfer does not constitute a new registration and therefore, the necessity of requiring proof of insurance is not applicable. There is one exception however. If such transfer is made during the last three months of a registration tax period and the owner is paying for the following new twelve month registration, then proof of insurance would be required.

To process a transfer of a license plate, a dealer should acquire from the purchaser the registration on the car being traded in. This will expedite the processing of the transfer of registration.

3. Issuance Of Temporary Tags

The law permits a dealer to issue a temporary tag to the purchaser of a vehicle. Electronic Temporary Registrations (ETR) are required for all issuers of temporary license plates. Dealers may use a third party provider, tax collector, or license plate agency for their ETR transactions. Temporary tags issued by dealers (Exhibit 21) are valid for no more or less than thirty days from the date of issuance and no person may be issued more than two temporary tags for use on any one vehicle. A temporary tag should not be sold for use on any vehicle unless the owner can produce proof to the dealer that the owner has at a minimum, the insurance coverage required by Florida Law, which is personal injury protection and $10,000 property damage liability. If such proof can be established but the registration has not been processed within the first thirty days and a metal tag obtained for the purchaser, a second temporary tag may be issued. However, Florida Law does not allow a dealer to issue more than two temporary tags to the same vehicle and the same person. However, if there exists circumstances justifying a third temporary tag, the customer should contact the Tax collector's office (tag office) and request a third temporary tag. A temporary tag may also be provided to a resident of another state who purchases a vehicle in Florida and intends to transport that vehicle to their home state for proper titling and registration. Dealers may issue pre-printed temporary license plates only when a system outage occurs or for a trailer weighing less than 2,000 pounds. For these reasons, dealers should keep a limited stock of pre-printed temporary license plates. When dealers issue pre-printed temporary license plates for reasons of a system outage, they must notify the department within 24 hours of doing so on a form provided by the department.

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PRIVILEGES

1. Purchase And Use Of Dealer Plates

A. Who May Use

Properly licensed dealers in motor vehicles or recreational vehicles are entitled to obtain such dealer license plates as may be necessary to conduct their businesses. Mobile home dealers who also sell recreational vehicles may obtain and use dealer plates in connection with the sale of recreational vehicles. Those who are licensed and deal exclusively in mobile homes are not entitled to procure or use dealer plates. Motorcycle dealers may obtain 4 x 7 inch motorcycle dealer plates to be displayed on motorcycles and motor scooters under the specific conditions set forth below. Full size dealer plates may be obtained for use on trade-in motor vehicles.

B. When Dealer Plates May Be Used

Dealer plates may be used on vehicles which are operated in connection with a dealer's business; on vehicles while being used for demonstration purposes, with or without a representative of the dealer in the vehicle; on vehicles which are in transit to or from a dealer's place of business; on vehicles loaned, without compensation, to a customer by a dealer while the customer's vehicle is being repaired by the dealer; on vehicles, such as service trucks, used by a dealer for hauling equipment or commodities, or making service calls, where compensation is not a consideration; and, on vehicles owned by the dealer while in inventory and for sale.

C. When Dealer Plates May Not Be Used

Dealer plates may not be used on service trucks used for hauling or making service calls for compensation, on parts or supply trucks calling on retail or wholesale trade, on tow trucks or auto carriers. A licensed wholesale motor vehicle dealer does not have the privilege of using dealer license plates.

D. Replacement

Dealer plates may be replaced if the originals have been destroyed, lost or stolen, provided that the dealer has reported such loss to a law enforcement agency prior to the issuance of a replacement plate. Although a use tax must be paid by a dealer for each plate obtained, the use tax is not required on replacement dealer plates.

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E. Registration Periods

The registration periods for dealer license plates run concurrently with the dealer license period.

F. Misuse/Abuse

Misuse or abuse of dealer license plates can result in severe sanctions being taken against a dealer's license. The use of a dealer plate on the car of a member of a dealer's family, when the vehicle is truly not in inventory and for sale, but, rather is being used without paying taxes or license fees, is a violation of the motor vehicle laws as well as the sales tax laws of the state. A dealer plate may not be used for the purpose of testing or driving a vehicle, to determine whether a dealer wishes to purchase that vehicle. In essence, the use of dealer plates must be confined to those purposes specified, authorized and described in paragraph (b) above.

2. Purchase and Use of Temporary Tags

A. Authority to Purchase

Dealers licensed to sell motor vehicles are authorized to purchase temporary tags from a third party provider approved by DMV, tax collector, or license plate agency as outlined previously in the section of this manual titled "issuance of temporary tags".

B. Limitations on Issuance

A dealer may only issue temporary tags for vehicles sold retail by the dealer or to move vehicles in the dealer inventory to and from an off site sale location. Tags are not transferable between dealers, and may not be bartered or sold between dealers and may not be used more than one time. Violations of these restrictions may result in severe administrative sanctions being taken against a dealer's license. Temporary tags are valid for thirty days from the date of issuance and no person may be issued more than two temporary tags for use on any one vehicle. Temporary tags may no longer be displayed in the rear window of a motor vehicle but must now be mounted on the outside of the vehicle. A temporary tag may not be issued unless proof of the minimum amount of insurance required by Florida law is provided.

If application for title and registration has not been processed within the first thirty days because of an outstanding application for a certificate of title or a duplicate title and a metal tag has not been obtained for the purchaser, a second temporary tag may be issued.

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Anyone applying for a registration for a motor vehicle in the State of Florida, must provide proof of the minimum amount of insurance required by Florida Law. Because civil liabilities may incur, dealers are strongly urged not to become a party to allowing an uninsured motorist to operate a motor vehicle.

A temporary tag may also be provided to a resident of another state who purchases a vehicle in Florida and intends to transport that vehicle to their home state for proper titling and registration.

C. Misuse/Abuse

The most common instances of misuse/abuse of temporary tags occur when a dealer has been inattentive to the responsibilities and legal requirements of selling motor vehicles. The Division continues to hold dealers responsible for their conduct and will impose severe sanctions on any dealer who misuses or abuses temporary tag or dealer tag privileges. Even though fines may be levied against a dealer's license, suspension or revocation of the license may be imposed. The Division may also deny the licensee the privilege of purchasing and issuing temporary tags or dealer tags, which may have a severe impact on a dealer's business.

3. Accessibility to Title and Registration Records.

One of the privileges accompanying a dealer license is the dealer's ability to obtain title and registration information from the Department's computer data base. Although the system is not yet sophisticated enough to allow dealers to have direct access to computer terminals, there are established procedures for verifying owner of record, unsatisfied liens on file with the Division and duplicate titles issued and date the last duplicate title was issued.

4. DMV Customer Service

The Division of Motor Vehicles has a Customer Service Section that will provide information from the data base for licensed motor vehicle dealers. A licensed dealer may access the data base up to 50 times a month or up to five times a day, at no charge. Simply call the Customer Service Section at 850-617-2000. Give them the title number or the vehicle identification number and they will provide the dealer with the information he needs.

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5. Tax Collector Tag Talk

Every dealer should check with the local Tax Collector and inquire about their Tag Talk system. This is the best method for accessing the Division of Motor Vehicle Data Base. If the Tax Collector in your area has this system he may charge a small annual fee to use the system. Usually their fees are very nominal and are assessed to help them defray the cost of the system. The Tag Talk system will provide the caller with the information they are seeking, verbally and by FAX. The data base can be accessed by title number, vehicle identification number, license number or decal number. It is really the most efficient system for accessing the data base.

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RECORDS KEEPING

1. Requirements

Florida statutes require that an applicant for a motor vehicle dealer license certify that the location where the business is to be conducted provides an adequately equipped office space where the applicant can, in good faith, carry on such business and keep and maintain books, records and files necessary to conduct such business. The law also requires records to be available at all reasonable hours for inspection by the Department, any of its inspectors, or other employees.

Dealers must keep a record of motor vehicle transactions, in such form as prescribed or approved by the Department.

A. At a minimum, records must be kept of the purchase, sale or exchange of any motor vehicle including the following:

1. The number and date of issuance of a temporary tag.

2. The date of a title transfer, the title number, state of issue.

3. The alleged owner or person from whom such motor vehicle was purchased or received.

4. The name and address of the person to whom the motor vehicle was sold or delivered.

5. A complete description of the vehicle including year, make, model, vehicle identification number, engine number, or such other numbers or identification marks as may be found on the vehicle, and a statement, if necessary, indicating that an identification number on a vehicle has been obliterated, defaced, or changed.

B. Although authority exists for the Department to prescribe or approve the form in which records are maintained by dealers, the Department has chosen to specify the data elements that must be maintained but to only suggest, rather than mandate, a specific format for records maintenance. (Exhibit 28&29)

C. A licensed dealer must have a certificate of title duly assigned by the owner to the dealer for each vehicle offered for sale by the dealer. If a dealer has made proper application for a certificate of title or duplicate certificate of title in accordance with statutory requirements, possession of the title is satisfied.

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A duly assigned certificate of title must have the following information entered in the appropriate spaces where provisions are made for such information on the title form:

1) Name and address of the dealer or purchaser.

2) The selling price and date of sale, if sold to other than a licensed dealer.

3) Indicate if a five or six digit odometer, enter the odometer reading.

4) The date the odometer was read.

5) An indication the odometer reading is not the actual mileage or if the mileage exceeds the mechanical limits of the odometer.

6) The signature and the printed names of the transferee/s and the transferor/s.

7) The seller's address.

8) Auction information, when applicable.

D. A motor vehicle dealer is also required to provide a customer or purchaser with a copy of a written odometer disclosure statement and all dealers must provide their customers with a copy of any bona fide written, executed sales contract or agreement of purchase connected with the purchase of a motor vehicle. These requirements include the following types of documentation:

1) An odometer disclosure statement.

2) A sales contract.

3) A purchase agreement.

4) A finance contract.

5) An insurance contract.

6) A warranty agreement.

7) Any other agreement relevant to the motor vehicle transaction.

2. Inspections

The Department, through its representatives, makes periodic inspections to insure that appropriate records are being kept. Dealers are required to keep accurate records on every vehicle purchased or sold, the status of titles on every vehicle in the dealer's possession and being offered for sale and, complete and accurate records on all temporary tags in the dealer's inventory or those that have been issued. Dealers are also required to keep accurate records of all dealer tags purchased by the dealership so that each tag and the person to whom it is assigned for use can be easily and readily identified.

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Normally, records inspections are conducted by compliance examiners or licenses and registration inspectors in the Bureau of Filed Operations, but there are occasions when an inspection may be conducted by a uniformed or plains- clothes-man law enforcement officer with the Florida Highway Patrol.

Any representative of the Department of Highway Safety and Motor Vehicles have equal authority to conduct records inspections.

Dealers are required to cooperate and assist by providing all information requested. Following a routine inspection, a licensee will be given an opportunity to correct any discrepancies found. a follow-up visit by the inspector/examiner will ensure compliance.

A dealer who fails or refuses to cooperate by withholding records or failing to maintain records is subject to a fine or the suspension or revocation of his/her license. In addition, such failure or refusal constitutes a second degree misdemeanor and subjects the dealer to arrest.

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Handling and Disposition of Consumer Complaints

1. Department Philosophy

The Department and the Division are charged by law with the responsibility to investigate and resolve complaints filed by consumers against dealers. The Division takes this responsibility seriously and has committed extensive resources to its complaint program. The entire field staff of the Division of Motor Vehicles, which includes personnel in the Bureau of Mobile Home and Recreational Vehicle Construction and Bureau of Field Operations, are responsible for the processing and investigation necessary to resolve complaints.

The Division does not make any assumptions of responsibility or liability when a complaint is filed. The Department attempts to assist in the resolution of complaints in an equitable manner.

The Division has established three objectives which clearly outline its philosophy regarding consumer complaints, the relationship between consumers and dealers, and the relationship between dealers and the Division. Those three objectives, in order of priority are:

a. Resolve complaints.

b. Gain the cooperation of a dealer through the process of education to ensure that violations of statutes and rules administered by the Division will not be repeated.

c. Impose administrative sanctions on dealers who violate the laws administered by the Division, if cooperation of the dealer is not forthcoming.

2. How Complaints are Received

The procedures of the Division require that complaints be submitted in writing. They may be submitted either to the Division's office in Tallahassee or through any of the Division's field offices. Once received, the complaints are carefully reviewed to determine if the Division has jurisdiction over the issues raised. If not, the complaint and the complainant will, whenever possible, be referred to another agency that may be in a better position to assist the consumer. If the review process indicates that the Division does have jurisdiction over the issue or issues raised by the complainant, the case will be assigned for processing.

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3. Processing of Complaints

When a determination has been made that the Division has jurisdiction: Consumer complaints will be assigned by the regional office to the inspector or examiner serving the area in which the dealership against whom the complaint has been filed is located.

An inspector or examiner with the Bureau of Field Operations and Emissions will contact the dealer or the dealer's authorized representative and hand deliver or mail a copy of the complaint along with a letter advising the dealer that a complaint has been received. The cover letter to the dealer will have space for the dealer to sign and date acknowledging receipt of the letter. The dealers signature on the letter does not constitute admission or acceptance of any blame or responsibility for the contents of the complaint, but, merely acknowledges receipt.

Depending on the exact nature of the complaint and the related investigation, the dealer may not be the initial point of contact and may not be consulted until the investigation is almost complete.

4. The Investigatory Process

In attempting to determine what happened and to resolve complaints, inspectors/examiners of the Division of Motor Vehicles will be asking dealers and their employees questions concerning the particular transaction involved and will certainly be asking to see records involving the transaction.

It is expected that dealers will cooperate with the Division's personnel in any way possible and provide whatever information is requested so that the complaint can be quickly resolved to the satisfaction of all parties. Inspectors and examiners of the Division have been specifically trained in conducting investigations involving complaints and may be asking very pointed and probing questions of a dealer or dealer's employees. Again, it is expected that the dealer will be cooperative in providing the requested information.

5. Unresolvable Complaints

Situations will arise where both the consumer and the dealer claim that their position is right and thus find themselves at extreme opposite view points. When the Division of Motor Vehicles is unable to mediate a satisfactory compromise, it may be left to the parties to seek legal assistance in resolving the matter. However, the Division will take all appropriate steps to assist all parties to achieve a reasonable resolution to all complaints.

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The most important thing the Division needs to resolve a complaint, is documentation to substantiate the positions of both the dealer and the consumer when there is disagreement. The Division will not resolve a complaint, close a complaint, or accept as factual, on the strength of promises or words alone, that something has been done or will be done. The Division insists on specific documentation to support each finding of fact in a complaint investigation and will accept nothing less before resolving a complaint. When such documentation cannot or will not be produced, it must be assumed that it does not exist.

The appropriateness of situations leading to administrative actions depends on a number of factors including: the nature and seriousness of the violation; the number of previous similar violations; any previous administrative action; other violations committed by the dealer; total previous history of the dealers compliance with requirements and the cooperativeness of the dealer in resolving complaints, producing records, and correcting problems.

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Administrative Disciplinary Actions

1. Division Philosophy

It is the policy of the Division of Motor Vehicles that, when appropriate, administrative disciplinary action should and will be taken against licensed dealers. A dealer should keep in mind that the Division's primary goal in complaint cases is to assist in the satisfactory resolution of complaints. Administrative action, designed to sanction a dealer who violates the laws and rules, is only secondary in importance to resolving complaints and will only be used if it is determined by the agency that the dealer's cooperation cannot be obtained in any other manner.

2. Sanctions Available

Sanctions available to the Division which may be levied against any licensed motor vehicle dealer for violations of the statutes or rules administered by the Division include:

a. Fine up to $1000 per violation.

b. A suspension for either a definite period of time or indefinitely.

c. A summary suspension which may be imposed by the Director of the Division of Motor Vehicles, to protect the public, in very serious cases.

d. Revocation of the dealer's license.

e. Criminal charges.

3. Examples of Administrative Action Cases

The following is a partial list of some typical situations which have resulted in administrative actions being filed against motor vehicle dealers:

a. Dealer convicted of a felony.

b. Failure to transfer title.

c. Failure to transfer titles within the time frame specified by statute.

d. Failure to disclose the rebuilt status of a vehicle.

e. Falsifying title application documents.

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f. Possessing open titles.

g. Failure to obtain a license before beginning operation of a supplemental location.

h. Selling a used car as a new car.

i. Failure to keep proper records.

j. False advertising.

k. Misuse of temporary tags by issuing more than two to the same person for use on the same vehicle.

l. Misuse of dealer license plates.

m. Allowing an unauthorized person to use a dealer license number.

n. Fraud in a consignment sale by failing to transfer title to the buyer and/or failing to pay the seller.

o. Failure to honor written sales contracts.

p. Perpetration of fraud.

q. Advertising and selling vehicles with improper model year designation.

r. Fraud in making application for a dealer license.

s. Altering vehicle identification numbers.

t. Odometer tampering.

u. Failure to possess titles to vehicles from the time of acquiring vehicles until the time of disposing of such vehicles.

v. Failure to return deposits.

w. Selling stolen vehicles.

x. Manufacturing park trailers in violation of standards.

y. Manufacturing RVs that fail to meet code standards.

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aa. Selling red tagged recreational vehicles.

bb. Failure to return deposits on contingency contracts.

cc. Failure to maintain requirements for licensure by issuing dishonored checks for license fees.

dd. Failure to pay off floor planned vehicles.

ee. Selling a vehicle on which a VIN plate has been removed.

ff. Overcharging title and registration fees.

gg. Forging lien receipts.

hh. Altering Manufacturers Statements of Origin and titles.

ii. Selling a vehicle without a valid emissions inspection within 90 days prior to sale.

Administrative Complaint Processes

If the facts warrant, an administrative complaint will be prepared and submitted to the Director for signature. An administrative complaint is a legal document which contains the specific actions alleged to have been committed by the dealer, the specific statutes and rules violated, and notification of the dealer's right to a hearing. This document is signed by the Director.

If the case revolves around such serious violations that, to allow the dealer to continue in business while awaiting a hearing on the charges may be detrimental to the welfare of the public, the Director may require that the administrative complaint be accompanied by an Order of Summary Suspension which immediately suspends the dealers right to do business, pending the outcome of a hearing and the issuance of a final order. Orders of summary suspension are issued very sparingly and only in cases where allowing a dealer to remain in operation may cause irreparable harm (loss of money) to the public who may continue to purchase vehicles from the dealer. Most such cases involve fraudulent practices.

Once signed, a copy of the administrative complaint is sent to the dealer by certified mail. The dealer is then given twenty-one days from receipt of the complaint in which to request a hearing. If no request is received in that time period a final order is prepared for the Director's signature. The order will be

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based on the totality of information available to the Division, which is generally that information contained in the investigative file and the administrative complaint.

Within the twenty-one day period, the dealer may request either an informal hearing or formal hearing. If the dealer notifies the Director of the selection of an informal hearing, such a hearing will be scheduled by the individual who serves as the Division's hearing officer. When scheduled, the dealer will be sent a document called a Notice of Informal Hearing, which informs the dealer of the date, time and place of the hearing.

An informal hearing generally takes the form of an informal discussion during which the dealer is given the opportunity to explain his or her side of the allegations contained in the complaint. Rules of evidence and procedure are normally not followed. Informal hearings generally last one to two hours. Following the conclusion of the hearing, the hearing officer will prepare a Final Order for the Director's review and signature.

If a dealer requests a formal hearing, the case is sent to the Division of Administrative Hearings, a division in the Department of Administration. That division assigns a hearing officer to the case. The hearing officer schedules the hearing and presides over it. The hearing is formal in nature, like a court trial. Rules of evidence and procedure are closely followed. A court reporter is present for the proceedings. Both the dealer and the agency are normally represented by attorneys. When the hearing is concluded, the hearing officer has ninety days in which to prepare and submit a Recommended Order to the agency. The Recommended Order contains the hearing officer's findings of fact, conclusions of law and recommended action. All parties are given ten days in which to file exceptions to the Recommended Order. The Director of the Division of Motor Vehicles then issues a Final Order. The Final Order issued by the Director, whether resulting from a formal or informal hearing, may provide for any of the sanctions described earlier or may result in a complete dismissal of any charges against the dealer.

All dealers are expected to adhere to the directives required in the Director's Final Order. Should a dealer not agree with or accept a Final Order issued by the agency, the dealer has the prerogative of appealing the decision through the courts.

Judicial Actions

It is the policy of the Division of Motor Vehicles that any person, firm, business or organization which or who is unlicensed to buy, sell or offer for sale motor vehicles under conditions which would require such person, firm, business or

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organization to be licensed under the statutes regulated by the Division of Motor Vehicles, be prohibited from doing so by whatever legal means are available.

Generally, the Department has available two mechanisms for insuring that persons do not violate the motor vehicle licensing laws. The first is through the filing of a complaint and the issuance of an injunction by a circuit court in the area where the activity is occurring. This has been and will continue to be used by the Division as an effective means of prohibiting unfair competition with those dealers complying with the licensing laws. The second mechanism is through the filing of a deceptive and unfair trade practices case as a cooperative effort between the Division and either the local state attorney's office or the office of the Attorney General, Consumer Section, Economic Crime Litigation Unit. The penalties associated with an unfair and deceptive trade practice case can include cease and desist orders and fines up to $5000 per violation.

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CHAPTER 15C-7 MOTOR VEHICLE DEALERS

15C-7.002 Motor Vehicle, Mobile Home and Recreational Vehicle Dealers' Records; Maintenance Requirements; Accessibility; Retention; Penalties

15C-7.003 Application for License; Requirements for Office, Display Space and Operation; Denial, Suspension or Revocation; Implementation

15C-7.004 Special Requirements for the Licensing of a Franchise Motor Vehicle Dealer 15C-7.005 Unauthorized Additional Motor Vehicle Dealerships - Unauthorized Supplemental Dealership Locations

15C-7.002 Motor Vehicle, Mobile Home and Recreational Vehicle Dealers’ Records; Maintenance Requirements; Accessibility; Retention; Penalties.

(1) Purpose and Scope. This rule prescribes and defines the elements of motor vehicle, mobile home, and recreational vehicle dealer records and the standards for maintenance, accessibility and retention of required records.

(2) Definitions. The words or terms as used in this rule, shall have the following meanings: (a) “Dealer” includes any person, any franchised, independent or wholesale motor vehicle dealer as defined in Section

320.27(1), Florida Statutes, or any mobile home dealer or recreational vehicle dealer as defined in Section 320.77(1), Florida Statutes.

(b) “Records” means the compilation of all written documents containing prescribed data relating to the acquisition and disposition of vehicles, the status of certificates of title, and the purchase and sale of temporary tags. Data may be maintained by means of electronic storage but the source documents shall constitute the records for purposes of this rule.

(c) “Acquire or acquisition” means the purchase, exchange, gift or reassignment of a vehicle by which ownership passes to a dealer.

(d) “Dispose or disposition” means the sale, exchange, gift or reassignment of a vehicle by which a dealer relinquishes ownership.

(e) “Vehicle” means a motor vehicle, mobile home, or recreational vehicle, as the context of the applicable rule requires. (3) Each dealer shall establish and maintain a written record of each vehicle acquired by and disposed of by him. (4) Each dealer shall establish and maintain a written copy of each odometer disclosure statement received when a

vehicle is acquired and each odometer disclosure statement issued by him upon disposing of each vehicle, as required by Title IV of the Motor Vehicle Information and Cost Savings Act of 1972 (Pub. L. 92-513, as amended by Pub. L. 94-364 and Pub. L. 100-561) and by Part 580, Title 49, Code of Federal Regulations.

(5) Each dealer shall have either made application for a certificate of title or a duplicate certificate of title as required in Chapter 319, Florida Statutes or shall have in his possession one of the following indicia of ownership or proof of right of possession for each vehicle from the time he acquires each vehicle until the time he disposes of each vehicle:

(a) a duly assigned certificate of title, (b) In the case of a new vehicle, a Manufacturer’s Statement of Origin is issued to or reassigned to the dealer, (c) A consignment contract between the owner and the dealer along with a power of attorney from the owner to the

dealer authorizing the dealer to apply for duplicate certificate of title and assign the title on behalf of the owner, (d) A certificate of right of possession issued pursuant to s. 319.36, Florida Statutes, (e) A court order awarding title of the vehicle to the dealer, (f) A salvage certificate of title, (g) A photocopy of a duly assigned certificate of title being held by a financial institution as collateral for a business loan

of money to the dealer (“floor plan”), or (h) A cancelled check or other documentation evidencing that an outstanding lien on a vehicle taken in trade by a

licensed dealer has been satisfied and that the certificate of title will be but has not yet been received by the dealer. (6) Except as otherwise noted below, the record on each vehicle shall contain the following data elements: (a) Vehicle identification number or motor number, (b) Date acquired, (c) Method of acquisition, (d) Name and address of seller, (e) Manufacturer,

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(f) Year, (g) Model, (h) Odometer disclosure statement upon acquisition (not applicable to mobile homes), (i) Previous jurisdiction of title, (j) Title number, (k) Indication if vehicle is rebuilt, (l) Documentation on changed, altered, or defaced VIN or motor number, (m) Temporary tag numbers, (n) Temporary tag issue dates, (o) Name and address of purchaser, (p) Date of issue of recreational vehicle seals, (q) Identification of vehicle that is issued a recreational vehicle seal, (r) Recreational vehicle seal numbers, (s) Date of disposition of vehicle, (t) Method of disposition, (u) Odometer disclosure statement upon disposition (not applicable to mobile homes), (v) Date of application for title transfer. (7) Records may be formatted in any fashion consistent with the requirements of this rule. The records of vehicle

acquisition and disposition shall be ordered or arranged in such a manner as to permit access and location by two or more of the following: vehicle identification number (VIN), stock number as assigned by dealer, buyer’s name, date of sale.

(8) Manual or electronic data relating to a specific vehicle shall be posted to the records of the dealer on a timely basis. (9) Dealers shall maintain records of temporary tags purchased and issued. The record shall be arranged by a listing in

numerical order of each tag purchased and sold. The record shall contain the tag number, the date purchased, the name of the party from whom purchased, the date sold, the name of the party to whom it was sold, the vehicle identification number of the vehicle for which it was issued, the issue date and the expiration date.

(10) Under Section 320.27(9), Florida Statutes or Section 320.77(5) and (12), Florida Statutes, as applicable, the Department is authorized to deny, suspend or revoke a dealer license for failure of any dealer to maintain records in compliance with this rule, or failure of any dealer to provide to the Department reasonable access to records maintained by the dealer, or failure of any dealer to render to the Department any requested assistance in accessing, searching, locating or translating any record.

Specific Authority 319.17, 320.11 FS. Law Implemented 319.21(1), 320.131, 320.27(9), 320.77(5), (12) FS. History–New 9-24-90.

15C-7.003 Application for License; Requirements for Office, Display Space and Operation; Denial, Suspension or

Revocation; Implementation. (1) Purpose and Scope. The purpose of this rule is to provide requirements for completion of the application for a motor

vehicle dealer’s license, to provide requirements for the place of business, including offices and display spaces of motor vehicle dealers, and to provide requirements for the operation of a motor vehicle dealership.

(2) Definitions. (a) The words or phrases: Department, person, franchised motor vehicle dealer, independent motor vehicle dealer,

wholesale motor vehicle dealer, motor vehicle auction, motor vehicle dealer and motor vehicle broker as used in this rule shall have the meanings ascribed to them in Section 320.27(1), Florida Statutes.

(b) The words or phrases as used in this rule shall have the following meanings: 1. Applicant – The business on behalf of whom a natural person signs an application for a motor vehicle dealer’s license

in the space designated for the applicant’s signature. 2. Barrier – Any permanent structure that separates or marks a boundary. 3. Corporate Officer – The president, vice president, secretary, treasurer, or director of any organization incorporated

under the laws of Florida or any other state. 4. Display Space – The unoccupied land, or space within a building, at a place of business, on or within which a motor

vehicle dealer displays motor vehicles for sale.

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5. Rental or Lease Agreement – A written contract with specific terms and fees between a motor vehicle dealer and a property owner which conveys to the motor vehicle dealer rights to occupy specified property.

6. Office – A structure of a permanent nature where the business of dealing in motor vehicles can be conducted. 7. Residence – A structure where a person or persons are domiciled or actually live. The definition also shall include, but

not be limited to, structures such as tool sheds, storage sheds or free standing or attached garages located on the same property as the residence or located within a common enclosure or boundary which surrounds the residence.

8. True Copy – A complete and accurate photographic copy of a document which reflects all characters, marks and signatures contained in the original.

(3) Applications for Motor Vehicle Dealer’s License. (a) All applications for motor vehicle dealer licenses shall be on the form HSMV 84011, Application for a License as a

Motor Vehicle, Mobile Home, or Recreational Vehicle Dealer (Rev. 6/88), hereby adopted by reference. (b) All applications shall be complete in all details and shall be signed by the applicant. (c) All applications shall have attached all documentation and endorsements necessary to substantiate the applicant’s

compliance with the requirements of Section 320.27(3), Florida Statutes, and this rule. Such documentation or endorsements shall include:

1. Proof that the applicant owns the place of business and the date it was acquired, or, in the case of lease or rental, a true copy of the written rental or lease agreement signed by the property owner and the applicant.

2. Designation of the name under which the dealership will operate. 3. If the dealership is to operate in a corporate capacity, a true copy of the corporate charter, minutes of the corporation’s

meeting at which the corporate officers were designated, and a certificate of good standing from the state in which the business is incorporated.

4. If the business is to operate as a partnership, a true copy of any partnership agreement. 5. A surety bond or an irrevocable letter of credit prescribed by Section 320.27(10), Florida Statutes, in the amount of

$25,000. An irrevocable letter of credit must be issued by a bank authorized to do business in this state. A surety bond for a franchised motor vehicle dealer shall be submitted on form HSMV 84702 Bond-Franchise Motor Vehicle Dealer (Rev. 9/86), hereby adopted by reference. Independent and wholesale motor vehicle dealer and motor vehicle auction surety bonds shall be submitted on form HSMV 84713 Bond-Independent Motor Vehicle Dealer (Rev.9/86), hereby adopted by reference. An irrevocable letter of credit for a franchised motor vehicle dealer shall be submitted on form HSMV 84253 Franchise Motor Vehicle Dealer Irrevocable Letter of Credit (Rev. 9/86), hereby adopted by reference. An irrevocable letter of credit for an independent or wholesale motor vehicle dealer or motor vehicle auction shall be submitted on form HSMV 84252 Independent Motor Vehicle Dealer Irrevocable Letter of Credit (Rev. 9/86), hereby adopted by reference.

6. A statement completed and signed on form HSMV 84254 Garage Liability Statement (Rev. 8/89), hereby adopted by reference, that garage liability insurance of the type and in the amounts prescribed in Section 320.27(3), Florida Statutes, has been obtained, including the name and address of the insurance company and the policy number.

7. A declaration as to whether or not the applicant, any partner or any corporate officer or director has been found guilty of any felony or offense in any jurisdiction which would be a felony if committed in Florida, or has been found guilty of a violation of any motor vehicle law in any jurisdiction (other than traffic laws) and a complete certified copy of the court records pertaining to any such conviction.

8. If applicant is to act as a franchised motor vehicle dealer, the requirements of Rule 15C-1.008, F.A.C., must be met. 9. Verification that the applicant or one or more of his employees has attended and completed a training program for

motor vehicle dealer license applicants within the six months preceding filing of an initial application as prescribed by Section 320.27(4), Florida Statutes.

10. Two positive print photographs of the proposed licensed place of business. The photographs shall be a minimum of 3'' × 4'' in size. One photograph shall depict the exterior of the dealership from a distance to clearly show two (2) sides of the building, one side of which shall be the public entrance into the dealership. The second photograph shall show the remaining sides of the building which will house the dealership. At least one of the photographs must reflect the area to be used for display of vehicles/units offered for sale, if display space is required.

(4) Requirements for Office Space. (a) Each licensed motor vehicle dealer shall maintain an office as part of his place of business. The offices of motor

vehicle dealers shall conform to the following standards: 1. No office shall be operated from or maintained in any residence.

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2. The office must be in a permanent structure at the licensed location. In the case of an office trailer, the office must be anchored or tied down as required by Rule 15C-1.010, F.A.C.

3. Each office shall have a minimum of 100 square feet of interior floor space exclusive of any hallways, closets or restrooms and a minimum 7' ceiling.

4. The office must be clearly separated from any other business which is being operated in the structure or building which houses the dealership.

(5) Requirements for Display Space. (a) Each licensed motor vehicle dealer shall maintain a display space as part of his place of business. (b) Such display space shall be for the purpose of displaying motor vehicles offered for sale by the motor vehicle dealer

and shall conform to the following specifications: 1. The display space of each licensed motor vehicle dealer will be of a sufficient size to store and display all vehicles

offered for sale. The display space may be located within a building. 2. Display spaces shall be under the exclusive control of the motor vehicle dealer and shall not include an area or space

set aside for customer, employee or general public parking nor shall it include any public right-of-way. 3. Display spaces shall be contiguous to the dealership office or shall be situated so as to allow easy access by dealership

customers. 4. Display spaces, whether outside or inside a building, shall have immediate and direct access to a public street or

highway or be situated on property, owned or leased by the dealer, to which public access has been granted. 5. Display spaces shall physically be divided from any other motor vehicle dealer’s display space by a permanent barrier

no less than three feet in height and erected in such a manner as to clearly distinguish one dealer’s display space from another dealer’s display space.

(6) Requirements for Operation. (a) Each licensed motor vehicle dealer or his designee shall be available to consumers and the department during regular

business hours. (b) The business of a motor vehicle dealer must be the principal business conducted at the licensed location. (c) Licenses are not transferable and may not be transferred by any means by the licensee to a second party. Dealerships

may be operated by agents or employees of the licensee; however, the licensee shall be responsible for the operation of the dealership.

(d) To insure availability of the licensee, the following standards must be met and maintained by each licensee. Each dealer:

1. Shall post hours of operation in a clear manner at or near the main entrance to the dealership office on a placard, sign or by other durable means.

2. Shall maintain the posted hours of operation. 3. Shall provide the department with all information and telephone numbers necessary to contact the dealer. Information

and telephone numbers shall be provided in writing to the Division of Motor Vehicles Regional Administrator. 4. Shall insure that information and telephone numbers required in the preceding subsection are current and correct. 5. Shall make his dealership records available to inspection by the department during reasonable hours. 6. Shall be familiar with the obligations and responsibilities of a motor vehicle dealer as provided in Chapters 319 and

320, Florida Statutes; shall be knowledgeable of the procedures necessary to assign, transfer or apply for title to a motor vehicle and of the requirements and procedures necessary to transfer or apply for registration of motor vehicles.

7. Shall make every reasonable effort to resolve, in an equitable and expeditious manner, all complaints which have been filed against him.

8. Shall, upon revocation or suspension of his license: a. Surrender the license to the department, b. Surrender all dealer registration plates assigned to him to the department, c. Surrender, for refund, all temporary tags purchased by him, and d. Cease operation of the business. 9. Shall notify the department in writing of a permanent closing or cessation of business at the main or any licensed

supplemental location. 10. Shall have a permanent sign identifying the dealership at its place of business. Such sign shall clearly identify the

dealership and shall use lettering or other graphic representation of sufficient size and color so as to be visible and readable at

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a distance of 50 yards from the public right-of-way serving the dealership. 11. Shall maintain a location address for the place of business which is assigned by the United States Postal Service. 12. Shall report any change of address to the department and shall receive approval for any new place of business prior to

relocating the business. (7) Prohibitions.

No licensed motor vehicle dealer shall authorize or knowingly permit or allow any person, employee, agent or representative to use the dealer’s license identification number to effect a sale of a motor vehicle, a title transfer, or a registration transaction for the sale of a motor vehicle wherein the purchaser of that motor vehicle was not given notice that the sale, transfer or registration was not made by a licensed motor vehicle dealer.

(8) Under Section 320.27(9), Florida Statutes, the department is authorized to deny, suspend or revoke a dealer license for failure to comply with the requirements of this rule.

(9) Standards for Implementation. (a) This rule shall be fully applicable to all applicants for motor vehicle dealer’s licenses whose applications are received

on or after the effective date of this rule. (b) Persons licensed as motor vehicle dealers on the effective date of this rule shall comply with the requirements for

office space and display space not later than the time of application for renewal of license for the third renewal period following the effective date of the rule. The requirements for business operation as prescribed in subsection 15C-7.003(6), F.A.C., shall be applicable to all licensees upon the rule’s effective date.

(10) All forms mentioned in this rule may be obtained free of charge from the Department by contacting any License and Registration Inspector or any Regional Office of the Bureau of Licenses and Enforcement, Division of Motor Vehicles. Addresses and telephone numbers are available from the bureau, Room 308, 2900 Apalachee Parkway, Tallahassee, Florida 32399.

Specific Authority 319.27, 320.011 FS. Law Implemented 319, 320.27 FS. History–New 9-24-90.

15C-7.004 Special Requirements for the Licensing of a Franchise Motor Vehicle Dealer. (1) Purpose and Scope. The purpose of this rule is to provide guidelines and standards for the filing of a notice of intent

to establish an additional point franchise motor vehicle dealer license and to establish the requirements for filing a preliminary application for a franchise motor vehicle dealer license. The rule addresses the requirement for notifying potentially affected dealers of their rights and provides for the handling and disposition of advanced letters of commitment either protesting or not protesting the establishment of a dealership. The rule further provides time frames within which certain actions must occur, clarifies the conditions for licensing a supplemental location and for the relocation and reopening of existing dealerships. The rule also specifies the manner and time frames for the reporting of minority recruitment efforts.

(2) Definitions. (a) The words or terms “Department”, “line-make”, “dealer”, and “minority dealer” as used in this rule shall have the

meanings ascribed to them in Sections 320.60-.70, Florida Statutes. (b) As used in this rule, the following words or terms shall have the meanings ascribed herein: 1. Applicant – means a business seeking a license as a franchise motor vehicle dealership. 2. Contiguous county – means a county having a point of common boundary with another county. Boundaries of

counties which meet at a diagonal across the intersecting lines shall be deemed to be contiguous. 3. Licensee – means a motor vehicle manufacturer, importer or distributor. 4. The terms petition, complaint, notice of protest, and letter of protest are interchangeable. 5. Principal investor – means any person, firm or entity having a ten percent (10%) or more financial interest in a

proposed dealership. In the case of a publicly held corporation, principal investor shall mean the individuals or entities who manage the corporation.

6. Specific location – means a sufficiently identified piece of property that can be described by a physical location address assigned by the United States Postal Service or by a legal description, or both. In those instances where an address is

unavailable, the legal description shall refer to generally known public streets and highways, including the distance from the nearest major cross street, for example: “North side of U.S. Highway 301, 1.3 miles east of intersection with State Road 60.”

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(3) Filing of Licensee’s Notice and Applicant’s Preliminary Application. (a) Simultaneously with the filing of the notice by the licensee required by Section 320.642(1), Florida Statutes, the

applicant, which is not currently a licensed dealer at the proposed location, may file a preliminary application for a franchised motor vehicle dealer license on form HSMV 84011, Application For A License As A Motor Vehicle, Mobile Home or Recreational Vehicle Dealer, which is hereby adopted by reference, furnished by the Department. The filing of a preliminary application is optional but if filed the application shall be completed in the same manner as a final application, except that the following items are not required at the time of the filing of the preliminary application:

1. The physical inspection report of the facility completed by the Department. 2. The surety bond or irrevocable letter of credit. 3. Evidence of garage liability insurance. 4. Evidence of completion by a dealership representative of the training offered by the Department. 5. Evidence of registration for sales and use tax purposes with the Department of Revenue. 6. A true copy of the lease of the property on which the dealership is to be located, if applicable. 7. Evidence that a Federal Employer’s Identification number has been applied for or obtained. (b) The following items must accompany the completed preliminary application: 1. A copy of the articles of incorporation to show that the corporate name has been reserved (if the business is to operate

as a corporation). 2. Fingerprint cards for all owners/partners/officers/directors whose names appear on the application. 3. The initial application fee. (c) If the notice by the licensee proposes to add a line-make to a dealership not previously franchised for that line-make,

the licensed dealer shall, simultaneously with the filing of the licensee’s notice, file an application on form HSMV 84011, Application For A License As A Motor Vehicle, Mobile Home or Recreational Vehicle Dealer, which is hereby adopted by reference, provided by the Department to amend its license to add that line-make to its license.

(d)1. If the notice by the licensee proposes a supplemental location to a currently licensed line-make dealership, the dealer shall, simultaneously with the filing of the licensee’s notice, file an application for a supplemental license on form HSMV 84011, Application For A License As A Motor Vehicle, Mobile Home or Recreational Vehicle Dealer, which is hereby adopted by reference, provided by the Department in accordance with Section 320.27(5), Florida Statutes.

2. A supplemental license shall not be required of a dealer who desires to add to or expand its dealership to a contiguous piece of real estate. For the purpose of determining whether a piece of real estate is “contiguous” with any other piece of real estate, as the term “contiguous” is used in Section 320.27(5), Florida Statutes, intervening streets, highways, utility easements, drainage and stormwater canals, retaining ponds, and other similar public ways, shall not be considered, provided the parcel of real estate on which the added or expanded place of business is to be located is not more than 200 feet from the existing and licensed place of business. Parcels of real estate separated by limited access highways, navigable waterways or privately owned real estate shall not be considered “contiguous” for purposes of this rule. A dealer who adds to or expands a business under these circumstances shall notify the dealer license section of the department, in writing, of such activity.

(e) A notice by the licensee may not be amended in any manner which alters the specific location of the proposed dealership, nor may a preliminary filing of an application be amended to be inconsistent with the specific location contained in the notice. Alteration of a specific location requires the filing of a new notice and a new preliminary application.

(4) Application for Reopening or Successor Dealership, or for Relocation of Existing Dealership. (a) If the license of an existing franchised motor vehicle dealer is revoked for any reason, or surrendered, an application

for a license to permit the reopening of the same dealer or a successor dealer within twelve months of the license revocation or surrender shall not be considered the establishment of an additional dealership if one of the conditions set forth in Section 320.642(5), Florida Statutes, is met by the proposed dealer.

(b) An application for change of address by an existing dealer under this section shall be filed on form HSMV 84712, Application For Change of Location (Address) Of Dealer In Motor Vehicles, Mobile Homes or Recreational Vehicles, which is hereby adopted by reference, provided by the Department. The dealer shall indicate which provision of Section 320.642(5), Florida Statutes, if any, it contends exempts the proposed location from consideration as an additional dealership.

(c) An application for a dealership intended as a successor dealership shall be accompanied by a letter from the licensee clearly stating that the applicant is intended as a successor dealership and shall identify the prior dealership to be replaced.

(5) Notice to Existing Dealers. (a) The notice transmitted to existing dealers in accordance with Section 320.642(1), Florida Statutes, shall include a

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general description of the requirements and instructions for the filing of petitions, complaints or notice protesting the establishment or relocation of a dealership including the address of the agency clerk designated for this purpose; and the date on which the notice was published in the Florida Administrative Weekly.

(b) If the notice by the licensee proposes a relocation of an existing dealership or reopening of the same or of a successor dealership which does not qualify under one of the exemptions contained in Section 320.642(5), Florida Statutes, notice shall be published in the Florida Administrative Weekly and mailed to all licensed dealers in compliance with Section 320.642(1), Florida Statutes, and this rule.

(6) Filing of Petitions or Complaints by Existing Dealers. (a) Petitions or complaints protesting the establishment or relocation of dealerships may be filed only after the

publication of the notice required in Section 320.642(1), Florida Statutes. (b) Petitions, complaints or notices protesting the establishment or relocation of a dealership must be filed with and

received by the agency clerk not more than thirty calendar days from the date notice is published in the Florida Administrative Weekly.

(c) Any petitions or complaints, or correspondence indicating any intent to file or not to file a petition or complaint, which are filed prior to publication of the notice shall be returned to the sender.

(7) Hearing and Post-Hearing Procedures. (a) Upon receipt of a petition, complaint or notice protesting the establishment or relocation of a dealership, the

Department shall transmit the petition or complaint to the Division of Administrative Hearings within the time specified in Section 120.57(1)(b)3., Florida Statutes. The Department shall request that hearing, pursuant to the requirements of Section 120.57(1), Florida Statutes, or other proceedings necessary for the disposition of the petition or complaint, be conducted with respect to all issues contained in Section 320.642, Florida Statutes.

(b) Upon the issuance of a recommended order by the Division of Administrative Hearings, the parties shall have 20 days to file exceptions to the recommended order with the Department. Thereafter, the Department will issue a final order determining whether the proposed additional or relocated dealership shall be approved or rejected. If approved, the final order shall state that the license sought by the applicant shall be granted upon compliance with all other applicable provisions of Chapter 320, Florida Statutes and this rule.

(c) The issuance of a final order with respect to the issues provided in Section 320.642, Florida Statutes, shall not constitute a finding by the Department that the applicant complies with the other requirements of Chapter 320, Florida Statutes.

(d) If the proposed additional or relocated dealership is approved, construction on the dealership shall begin within twelve months of the date of final order. The applicant must complete construction and finalize its preliminary application for license within twenty-four months of the date of the final order. This period may be extended by the Department for good cause.

(e) For the purposes of computation of the time limits imposed by this section, the filing of an appeal of the final order shall toll the running of the times provided until the final disposition of the appeal, including disposition of motions for rehearing or petitions for review to the Supreme Court of Florida. The filing of an appeal shall not interfere with the issuance of a license, if sought by the applicant, unless a stay is issued pursuant to applicable law.

(f) Finalization of the application shall consist of furnishing all information and documents not required to be filed with the preliminary application.

(8) Transfer, Assignment or Sale of Franchise Agreements. (a) Subsequent to the notification by a dealer to a licensee of a proposed transfer of a franchise as required by Section

320.643, Florida Statutes, the proposed transferee may file a preliminary application with the Department. (b) This preliminary application shall fulfill all requirements of the final application with the exception of the provision

of a copy of the franchise agreement between the proposed transferee and the licensee, a forfeiture statement by the transferor, an acceptance statement by the transferee, and the surrender of the license of the selling dealer.

(c) The Department shall immediately commence processing the application and, upon completion of processing, shall indicate to the proposed transferee whether its license will be issued if the licensee approves the transfer and the transfer is consummated between the selling dealer and the transferee.

(d) If the application complies with all requirements of law, it shall be issued, upon the consummation of the transfer, and the provision to the Department of:

1. A copy of the transferee’s franchise with the licensee;

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2. A forfeiture statement by the selling dealer; 3. An acceptance statement by the transferee; and 4. The license of the selling dealer. (9) Computation of Sales. For the purpose of computing sales in compliance with Section 320.642(3)(a)3. and Section

320.642(3)(b)2., Florida Statutes, the thirty-six month period shall be deemed to expire on the last day of the month preceding the month in which the notice of the licensee is published in the Florida Administrative Weekly.

(10) Minority Recruitment. (a) At the time of applying for the renewal of a manufacturer, distributor or importer license, the licensee shall file an

annual report with the Department of its efforts to add new minority dealer points. The report shall include a description of difficulties encountered in attempting to add new minority dealers under the provisions of Sections 320.60-320.70, Florida Statutes. The report shall be submitted on form HSMV 84020, Annual Report on Addition Of Minority Dealer Points, which is hereby adopted by reference, provided by the Department and shall accompany the application for renewal.

(b) No renewal application shall be processed nor any license issued unless and until the minority recruitment report is submitted to the Department in the form prescribed.

(11) Agency Clerk. The agency Clerk for the filing of all documents under Sections 320.60 through 320.70, Florida Statutes, shall be the supervisor of the Dealer License Section, Room A-312, Neil Kirkman Building, 2900 Apalachee Parkway, Tallahassee, Florida 32399-0635.

(12) Forms. All forms mentioned in or required by this rule may be obtained free of charge from the Department by contacting any License and Registration Inspector or any Regional Office of the Bureau of Licenses and Enforcement, Division of Motor Vehicles. Addresses and telephone numbers are available from the bureau, Room 308, 2900 Apalachee Parkway, Tallahassee, Florida 32399.

Specific Authority 320.011, 320.69 FS. Law Implemented 320.27(5), 320.60, 320.61-.70 FS. History–New 10-14-91, Amended 11-17-98.

15C-7.005 Unauthorized Additional Motor Vehicle Dealerships - Unauthorized Supplemental Dealership

Locations. (1) An additional motor vehicle dealership, as contemplated by Sections 320.27(5) and 320.642, Florida Statutes, shall

be deemed to be established when motor vehicles are regularly and repeatedly sold at a specific location in the State of Florida for retail purposes if the motor vehicle dealer transacting such sales:

(a) Is not located in this state, or (b) Is not a licensed motor vehicle dealer franchised for the specific line-make, or (c) Is a licensed motor vehicle dealer franchised for such line-make, but such sales are transacted at a location other than

that permitted by the license issued to the dealer by the Department. Such sales are not subject to this rule, however, when a motor vehicle dealer occasionally and temporarily (not to exceed seven days) sells motor vehicles from a location other than the motor vehicle dealer’s licensed location provided such sales occur within the motor vehicle dealer’s area of sales responsibility (except a motor vehicle dealer who may be deemed a licensee under this rule).

(2) For the purpose of this rule, a sale for retail purposes is the first sale of the motor vehicle to a retail customer for private use, or the first sale of the motor vehicle for commercial use, such as leasing, if such commercial motor vehicle is not resold for a period of at least ninety days. Furthermore, this rule shall apply regardless of whether the titles issued, either in this or another state, pursuant to such sales are designated as “new” or “used.”

(3) An additional motor vehicle dealership established in this fashion is unlawful and in violation of Section 320.642, Florida Statutes. A licensed motor vehicle dealer of the same line-make, as the vehicle being sold in violation of this rule, may notify the Department of such violation. The notice shall include motor vehicle identification numbers or other data sufficient to identify the motor vehicles involved. The Department, upon receipt of such notice, shall conduct an investigation, including a determination of the identity of the selling dealer and initial retail purchaser of the motor vehicles involved.

(a) Within 30 days from receipt of a request from the Department containing motor vehicle identification numbers or other data sufficient to identify the motor vehicles involved, the licensee shall provide to the Department, to the extent such information is maintained by the licensee, copies of documents showing the dealer to whom each vehicle was originally delivered, any inter-dealer transfer and the initial retail purchaser as reported to the licensee. Upon a showing of good cause,

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the Department may grant the licensee additional time to provide the information requested under this paragraph. Examples of good cause include, but are not limited to, request for information on more than 100 vehicles, information on vehicle sales which accrued more than 2 years prior to the date of the request, and information which is no longer maintained in the licensee’s current electronic data base.

(b) Within forty days of receipt of notice from the motor vehicle dealer, the Department shall make a determination of probable cause and if it determines that there is probable cause that a violation of this rule has occurred, the Department shall mail, by certified mail, return receipt requested, to the line-make motor vehicle dealership or dealerships involved a letter containing substantially the following statement: Pursuant to Rule 15C-7.005, F.A.C., the undersigned has received a notice that you have allegedly supplied a substantial number of vehicles on a regular and repeated basis, which were sold at a location in the State of Florida, at which you are not franchised or licensed to sell motor vehicles. If these allegations are true, your conduct may violate Florida law including, but not limited to, the above-mentioned rule, Sections 320.61 and 320.642, Florida Statutes. It may also cause you to be deemed a licensee, importer and/ or distributor pursuant to Florida law and subject you to disciplinary action by the Florida Department of Highway Safety and Motor Vehicles, including fines and/or suspension of your Florida Dealer License, if applicable. The Division of Motor Vehicles is putting you on notice, if you are conducting such activity, that you cease and desist such activity immediately. If you fail to do so, this agency will take appropriate action.

(c) If the dealer supplying vehicles in violation of subsections (1) and (4) is not located in the State of Florida, the Department shall notify such dealer in writing that they may be operating as a distributor of motor vehicles without proper authorization in violation of Section 320.61, Florida Statutes, and may be violating Section 320.642, Florida Statutes.

(4) A motor vehicle dealer, whether located in Florida or not, which supplies a substantial number of vehicles on a regular and repeated basis which are sold in the manner set forth in subsection (1), shall be deemed to have established a supplemental location in violation of Section 320.27(5), Florida Statutes, and Rule 15C-7.005, F.A.C. Furthermore, a motor vehicle dealer which supplies vehicles in this manner shall be deemed to have conducted business within the State of Florida and acted as a “licensee,” “importer” and “distributor,” as contemplated by Section 320.60, Florida Statutes, and thus such activity shall constitute a violation of Sections 320.61 and 320.642, Florida Statutes. Furthermore, this paragraph neither imposes any liability on a licensee nor creates a cause of action by any person against the licensee, except a motor vehicle dealer who may be deemed to have acted as a licensee under this paragraph.

(5) Furthermore, no provision of this entire rule creates a private cause of action by any person against a licensee, other than a dealer who is deemed a licensee pursuant to the provisions of subsection (4) of this rule, for civil damages; provided, however, if a licensee fails to comply with the requirements of paragraph (3)(a) of this rule, the Department may bring an action for injunctive relief to require a licensee to provide the information required. No other action can be brought against the licensee pursuant to this entire rule other than a dealer who is deemed to be a licensee pursuant to the provisions of subsection (4) of this rule.

(6) Any franchised motor vehicle dealer who can demonstrate that a violation of, or failure to comply with, the provisions of subsection (4) of this rule by a motor vehicle dealer, or a motor vehicle dealer which pursuant to subsection (4) shall be deemed to have conducted business and acted as a licensee, importer, and distributor, has adversely affected or caused pecuniary loss to that franchised motor vehicle dealer, shall be entitled to pursue all remedies against such dealers, including, but not limited to the remedies, procedures, and rights of recovery available under Sections 320.695 and 320.697, Florida Statutes.

Specific Authority 320.011 FS. Law Implemented 320.27, 320.60-.70 FS. History–New 3-3-96.

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Federal and State Laws Affecting Dealers

Risk Based Pricing rules were created by the federal government to alert consumers to the existence of negative information in their consumer credit reports. This is done so that they understand why their finance terms may be less favorable than those given to some other customers, and so that they may make corrections if the information on the report is inaccurate. Previously, creditors only had to provide a notice (Adverse Action Notice) if they denied a consumer’s application for credit, based in whole or in part on information in a consumer’s report. The new provision covers situations where the creditor does not deny credit, but offers it at materially less favorable terms or increases the APR after reviewing the consumer’s account based on a consumer report. If you do not run a credit report on customers AT ALL you do not need to worry about this rule. This rule does not apply to cash customers, lease customers or when the customer is a business entity. When a credit report is run, a Credit Score Disclosure Exception Notice should be given to the customer as soon as is reasonably possible once the credit score is obtained, but in any event at or before the consummation of the deal. We have designed what we think are reasonable forms for this purpose. A New Patriot Act Privacy Notice Is now required if you want to maintain your “safe harbor” protection for the disclosures required under the Patriot act. A safe harbor is a provision of a law that says that if you follow certain outlined steps and formats you can reduce your potential liability under that law. So, if your notice to your customer follows the act’s new format you can reduce your responsibilities under the act. The Privacy Notice is included for download on our website. Privacy act notices are required on all retail deals, not just financed deals. Adverse Action Notice. For several years now finance companies of all descriptions have been required to furnish Adverse Action Notices when credit applications are rejected. We have provided a sample form for such situations on our website. Criminal Background Checks for Dealers are now required for all dealers or representatives of dealers who access the ETR (electronic temporary registration) system to issue Temp Tags or to transfer hard plates from one vehicle to another. Dealers who began their initial licensing process within the past three years are exempt from this criminal history check requirement for themselves since a background check was done during the licensing process already. But, if you have been a dealer for longer than three years you must get checked again now. History checks cost $24 and are available online from the Florida Department of Law Enforcement website at https://www2.fdle.state.fl.us/cchinet/. At this time there are no plans to repeat the history checks during later years but, of course, you never know. If a dealer does not print Temp Tags himself but instead goes to the tag office and has them do it for him, then he is exempt from the criminal history check requirement. DMV is preparing a form so dealers can prove to ETR providers that required criminal checks have been performed. We will post the form on our web site MVDTI.com when it is available. There are severe penalties for dealership employees who allow unauthorized users to borrow their passwords or identities in order to bypass the system and avoid history checks. DMV expects this system to be fully operational by April 2011. Contact your ETR provider for more information. The Red Flags Rule is now being enforced. If you have not put together a set of identity theft rules and procedures to comply with the Red Flags Rule you should do it now. We have researched the rules and have created what we believe is a set of rules which will work for most vehicle dealers. It is included in the MVDTI.COM website for downloading. To do things properly, you and all of your credit related employees should read the rules and follow them.

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Vehicle Dealers And The Patriot Act

There has been much said and written since the Twin Towers attack. Legislation has been enacted and fine tuned to fit situations that could lead to another such incident. One of those pieces of legislation is the "Patriot Act". Even now it is being fine tuned to offer guidelines to separate industries. The vehicle industry is one of the ones they are still working on. We have been 'shoe-horned' into the classification of "Financial Institutions without a Federal functional regulator". That is quite a mouth full. Believe it or not, for the sake of this act, vehicle dealers, both new and used, are classified as financial institutions... as are pawn shops, travel agencies, boat dealers and a host of other businesses. The main reasons for the Patriot Act are to stop the laundering of money, freeze the assets and actions of certain suspicious people and organizations of people, and to impede terrorist activities. The task is too big for government alone. All of us must do our part to make this work. We are fulfilling a big part of our responsibilities already by filing the form 8300 every time a cash payment or series of cash payments total $10,000. This has been the law for many years, and most (if not all) of us are already in compliance. In the past, you had to send a copy of the form 8300 to the IRS and you had to send a copy of it to the State Department of Revenue. Now a copy must also be sent to the U.S. Treasury (FinCEN). Since we seldom receive that much cash, this is not a problem to be worried about until that situation arises. The major thrust of the Patriot Act (Section 326) is aimed at identifying and freezing the assets of suspected terrorists and their organizations. This is much more involved. First, let me assure you that the bulk of the law is aimed at banks and other Financial bodies that maintain holdings or conduct transactions with or from holdings of these suspected terrorists. A list of such suspected terrorists and terrorist organizations has been provided to us by the federal government. They have also prescribed a guideline which we should use when referencing that list. Section 326 of the USA Patriot Act, in summary, calls for the following: “(1) verifying the identity of any person seeking to open an account, to the extent reasonable and practicable; (2) maintaining records of the information used to verify the person´s identity, including name, address, and other identifying information; and (3) determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency.’ In “plain English’, this means… All Financial Institutions must have a Policy (Customer Identification Program) detailing its Identity Verification Program. All new accounts need to be screened against the list of suspected terrorists and terrorist organizations, as provided by the Office of Foreign Assets Control (OFAC), Department of the U.S.Treasury. Any documents used to identify the new account holder, such as, drivers license, passport, social security card, etc, need to be verified against a third party database to determine that the identity is valid to extent reasonable and practicable. A database of all accounts needs to be maintained that includes the account name, date of account opening, identifying information presented, and the items used to verify the identity. This information needs to be time and date stamped and maintained for 5 years following the closure of the account. Before you get too alarmed, you are probably doing most of this already in your normal course of business. Let us look at the rules step by step to see how we stack up.

First, you probably already have an office manager or decision maker in charge. He is now in charge of any actions that might involve the government. He must setup a procedure for others in the office to follow when dealing with customers and suspicious people. Now here is a new one... you must verify the person's name against a list of suspects. You could buy software from someone and update it almost daily to keep it current and then you would be perfect. Or, you could go to my web site www.MVDTI.com and click on the link to "automotive sites" and then look down the page toward the bottom right and click on "free patriot search". This will do all you need for checking the list. Try it once searching on your own name, and then try it on Osama Bin Laden. You will see the difference (I hope). This service is afforded to you free. You already keep the documents and copies of documents that go into the making of a deal, including driver licenses, credit checks, insurance, rent receipts,

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light bills, etc. Now, they want you to date stamp them and keep them for at least five years. This is no biggie, just keep them in the customer's folder. Essentially, that is it for a vehicle dealer. When you do the check of the purchasers name, do a screen-print and keep your look-up results to show that you checked to OFAC list. You are required to report a true hit, per the instructions. Remember, there is no action required of you other than reporting the match to FinCEN. Don't be a hero and try to be a one person Battalion. Just phone the FinCEN hotline at 1-866-556-3974. They will take it from there but they will probably ask that you do a preliminary Cross-check of the person's DOB, country, etc. to save wasted time for near misses. They are open 24/7. For questions, please contact the Regulatory Help Line for FinCEN at 800-949-2732 or for OFAC at 800-540-6322.

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Background of the Anti-Tampering Law

Over the years, federal emissions standards for motor vehicles have become increasingly stringent. This has forced vehicle manufacturers to develop new methods to decrease tailpipe and evaporation emissions. When emission control devices are removed or disconnected, the vehicle emits high levels of hydrocarbons, carbon monoxide, and nitrogen oxides. Although hydrocarbons are not on EPA's list of criteria pollutants, when combined with nitrogen oxides in the presence of sunlight, ground-level ozone is formed. High-level, or stratospheric, ozone is desirable to filter out the sun's ultraviolet rays. However, ozone near the ground irritates the lungs and respiratory tracts and is very harmful to plant life. Ozone is also a major constituent of photochemical or "Los Angeles" smog.

Federal Anti-Tampering Law The Federal Clean Air Act was amended in 1990 to prohibit anyone from tampering with emission control devices at any time. The Federal Clean Air Act now prohibits for any reason, for any person to remove or render inoperative any device or element of design installed on or in a motor vehicle or motor vehicle engine in compliance with the regulations under this title prior to its sale and delivery to the ultimate purchaser, or for any person knowingly to remove or render inoperative any such device or element of design after such sale and delivery to the ultimate purchaser. What is Tampering? Tampering is defined as the dismantling, removal, or rendering ineffective of any air pollution control device or system which has been installed on a motor vehicle by the vehicle manufacturer, except to replace such device or system with a device or system equivalent in design and function to the part that was originally installed on the motor vehicle. Examples: * Replacing a catalytic converter with a straight pipe or removing the material inside a catalytic converter. * Punching out or enlarging an unleaded fuel filler hole to accommodate a leaded fuel nozzle. * Disconnecting an air pump belt. * Removing or plugging hoses or disconnecting any mechanical portion of any emission control system. * Exchanging an engine without repairing or replacing emission control devices. * Disabling the computer or exchanging the computer PROM chip with another that that does not meet Federal Environmental Protection Agency requirements. The dealer should keep copies of all certifications issued. Exceptions to this requirement are: (a) Sales to dealers by private parties where the dealer elects not to request the certification. (b) Sales by dealers to dealers. (c) First time sales/leases of new motor vehicles meeting federal emissions standards. (d) Lease agreements of 30 days or less.

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(e) Sales for salvage purposes only. (f) Sales, reassignments, and transfers from a vehicle manufacturer, importer or distributor to a dealer holding a franchise agreement. ENFORCEMENT Enforcement of the law as it applies to motor vehicle dealers is carried out by the Florida Department of Environmental Protection and local law enforcement officers. Department of Environmental Protection personnel conduct random inspections of used car lots to see if any of the vehicles being offered for sale have been tampered with. The inspectors will conduct a three-point check on vehicles of model year 1975 through 1980 and a six-point check for vehicles which are model year 1981 and newer. These are the same components that dealers are required to check on the emission control certification statement that is issued at the time of retail sale. Three-Point Check (1975-1980 Six-Point Check (1981 & newer) Unvented Fuel Cap Unvented Fuel Cap Fuel Inlet Restrictor Fuel Inlet Restrictor Catalytic Converter Catalytic Converter Fuel Evaporative System Air Injection System Exhaust Gas Recirculation System The inspector may also ask to see the dealer's records to verify that the emission control certification is being given when a non-exempt vehicle is sold. Any violations found are noted on a Department form and signed by the dealer. The dealer is then directed to respond in writing to the inspector explaining actions taken or planned with respect to each tampered vehicle. The first knowing and willful violation can result in a first degree misdemeanor charge, punishable by a fine of up to $1000 and/or up to one year in jail. The second knowing and willful violation can result in a first degree misdemeanor charge and possible suspension or revocation of the dealer's license. A "knowing and willful" violation is one where it can be proven that the dealer had previous knowledge of the law and did not take any action to correct the situation.

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Red Flags Rule for Vehicle Dealers It seems that a new way to cheat and steal arises every day. Some people spend so much time trying to make a dishonest dollar that if they spent the same amount of time trying to make an honest dollar they would make more money. It appears that "Identity Theft" has become this season's easiest way to make a dishonest dollar. Let someone else do all the work and build a reputation and a fortune.... then, just steal his good name and take as much of his credit potential as possible. Boy, all a good thief has to do is a little "dumpster diving" in the finance company's garbage or maybe do some tricky phishing (fishing for information) from the customer, his friends, his neighbors or his business associates. You don't even have to break a sweat and if you are tricky enough you can find out all the information you need in order to pretend you are someone else. There are many ways of getting valuable information about someone else. The "Red Flags Rule" was designed to make creditors and other merchants aware of some of the ways thieves dishonestly harvest personal information. Then, hopefully information theft can be slowed down or actually stopped. To comply with the Red Flag Rules, merchants are asked to make a program to identify, detect and respond to the indicators of identity theft. The designed program should be approved by management of the merchant's organization, and is to be updated and monitored according to any changes in risk. The first step in the Red Flags program is to identify relevant red flags. The relevant red flags will likely vary from business to business. The regulations actually list 26 potential red flags, but the following 11 are probably more applicable to a vehicle dealer: 1. A fraud alert included with a consumer report. 2. Notice of a credit freeze in response to a request for a consumer report. 3. A consumer reporting agency providing a notice of address discrepancy. 4. Documents provided for identification appearing altered or forged. 5. Photograph on ID inconsistent with appearance of customer. 6. Information on ID inconsistent with information provided by person opening account. 7. Information on ID not matching any address in the consumer report, Social Security number has not been issued or appears on the Social Security Administration’s Death Master File, a file of information associated with Social Security numbers of those who are deceased. 8. Lack of correlation between Social Security number range and date of birth. 9. Suspicious addresses supplied, such as a mail drop or prison, or phone numbers associated with pagers or answering service. 10. The person opening the account unable to supply identifying information in response to notification that the application is incomplete. 11. Person opening account or customer unable to correctly answer challenge questions. Generally you should be consistent in requiring appropriate identification when dealing with new customers and verifying identification on existing customers. Change of address requests should be appropriately verified. You should be careful to prevent and mitigate identity theft. If a red flag is identified then the organization must take appropriate steps to prevent any loss or breach or, at the least, mitigate any damage. Appropriate responses may include: Monitor a customer's account for evidence of identity theft; Contact the customer; Change passwords, codes or other security devices that permit access to the account; Notify law enforcement; or determine that no response is warranted.

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Update your identity theft policy on a regular basis. The policy should be updated at least annually. It is recommended that a senior, high-level manager be assigned direct oversight of the merchant's identity theft program. This person or group should receive regular reports including an evaluation of the effectiveness of the policy, a description of any significant incidents of identity theft and any recommended changes to the policy. It is sometimes difficult to recognize exactly when during the application process the Rule actually applies? It really would apply as soon as you detect a Red Flag in connection with an application. This could occur as soon as you receive an application, for example, if the application appears to have been altered or forged or the consumer’s identification appears to be forged or is inconsistent with the information on the application. Or, it could become noticeable while you are verifying the information contained therein. It is not absolutely necessary to verify a Social Security Number (SSN). But an invalid SSN may be a Red Flag i.e., an indicator of possible identity theft and obtaining and verifying an SSN may be a reasonable means of addressing this Red Flag when beginning an account. The nationwide credit reporting agencies Experian, Transunion and Equifax are required to notify you when an address in their credit file for a consumer substantially differs from the address that you provide for the consumer when you request the credit report. New rules from the federal bank agencies and the FTC require you to confirm the identity of the consumer when you receive an address discrepancy notice from a credit reporting agency. The credit reporting agencies will not identify Red Flags as such on a credit report. However, there may be certain information on a credit report that you determine to be an indicator of possible identity theft and you incorporate into your company program, such as a consumer fraud alert or a notice of address discrepancy. Each credit reporting agency displays an address discrepancy indicator, which typically is simply a code in a specified field. Each credit reporting agency uses a different indicator. In addition, the Guidelines specify that a credit report indicating a pattern of inconsistent or unusual recent activity might be a Red Flag. Your Program should include appropriate responses when you detect a Red Flag. You must assess whether the Red Flag evidences a risk of identity theft, and your response must be commensurate with the degree of risk posed. Depending on the level of risk, an appropriate response may include, for example, contacting your applicant or not doing business with him. You also may determine that no response is necessary.

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Auto Dealers and Gramm-Leach-Bliley

The background of this law is a little confusing. It is my belief that it began as a bill to offer relief to banks, securities firms, and insurance companies from a 1933 Federal law that was enacted to inhibit certain types of financial companies from offering similar types of products or services that were offered by certain other types of financial companies. Thus banks, securities companies and insurance companies could not offer competing lines of products and services that the other offered because federal (and in some cases, state) law prohibited it. As time passed, loopholes were found in the law that would somewhat allow banks to offer certain types of securities and would also allow securities companies to form "non-bank" banks to offer credit cards and other banking products. But, this level of doing business was not enough to satisfy the desires of the financial companies who wanted to do it all with minor limitations. Thus, enters the new "privacy laws". It sounds like a wonderful thing for the people. In fact it is. But... its main thrust is as a bonus to the major financial institutions to allow them to offer many heretofore restricted products and services. Along with this new freedom for banks, security firms and insurance companies comes an accompanying restriction to protect the public's right to privacy when those companies begin sharing information about customers and their private information with related and unrelated companies. If sharing is with unrelated companies, you must give the customer the option to not have his name shared (Opt out) between companies. While the push for this new flexibility came from the big companies, the little ones feel the shock effects. Thus it is that no matter how big or small your company is, the simple act of getting any private information from a customer brings the one who acquires the information under the watchful eye of the GLB act. And, that is not really bad. It is only bad when people try to read more complexity into the act than is necessary. Is this guy a Consumer or a Customer? This question is now important because it determines how you deal with people. A consumer is anyone who stops and looks at your products, whether he buys or not. If in the process of him looking, you ask for and take information about his private life that is not ordinary public information, you have turned him into a customer, no matter whether he buys or not. (In truth, the FTC position is that if you just destroy his application when he does not buy, there is no real need for a privacy notice and he does not really become a customer... I choose to err on the side of caution so I have chosen the position that if you take privacy information you should give him a privacy notice just as though he were a customer.) Customers get Privacy notices... other consumers do not. If the only information you take is readily available from sources such as the phone book or the public DMV data base, that is not private information and thus no privacy notice is involved even if the consumer buys something and becomes a customer. But, if you gather information about him that is not public such as a credit application, he is now turned into a privacy notice receiving customer. Remember, the GLB act does not define a customer relationship solely by the execution of a written contract. Just filling out the credit application is enough. Sale for cash. Since you do not need to take private information to consummate the sale, you do not need to provide a privacy notice. The only information you ask the customer for is readily available in the phone book or the public DMV data base. If you are going to give or sell his information to some other company to solicit him for another product, you have now entered into the world of GLB and should consider privacy and opt out notices. If he informs you that he has an unlisted phone number or that he has requested DMV to not disclose his registration information then that would make his input private and I would offer him a privacy notice. But the normal car dealer who sells for cash doesn't get involved with all of that... therefore he is really no different from the department store that makes a cash sale. No notices required. If you want to err on the side of caution, give everyone a privacy notice and then you really don't care if he has an unlisted number. Third party finance. If you are a car dealer who is acting as the front man for a bank or finance company who actually lends the money, you still have a responsibility to the customer. If you take any credit information from him you are obliged to give him a privacy notice at once (whether he buys or not). If the servicing of his account is then sold to a financial institution then that institution

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will now have a customer relationship with the buyer and you will now go back to having a consumer relationship. Buy-here Pay-here. If you finance your own customers, then you are also a financial institution. When you took a credit application, the consumer became a customer. The customer must be given a privacy notice whether he buys or not. If he buys, you should also send him an annual privacy notice because of the fact that he now has an active on-going relationship. There is no reason for different wording on either the initial notice or the annual one. If you first finance the customer as a BHPH borrower and then sell the contract to another finance company, that finance company now has to send an initial privacy notice within 30 days and then an annual notice because your customer has now become his. The fact that you sold the account now makes him no longer your customer but now he is your consumer again and no additional notices are required. Privacy notice. The FTC provides a sample notice. You must remember that these notices only apply when a customer is a person making a transaction for personal, family or household purposes. If your customer is a business the GLB act does not apply. The privacy notice for financial institutions can be found in the exhibits of this publication. Opt out notices. I believe that dealers who do not sell or give privacy information to unrelated businesses do not have to provide an opt-out notice. The simple function of receiving or providing information to a credit reporting service is exempt, as are normal business activities such as repossession or skip tracing through an outside service that you retained as an agent for that purpose. Also, the answering of an inquiry into the final payoff on a loan may be considered to be necessary to effect, administer or enforce a transaction. That’s a normal business activity and does not need an opt-out notice. Annual mailing of privacy notices. The GLB Act requires that you send the customer an annual statement of your privacy policy for as long as he is an active customer. In a nutshell, that means for as long as he has a balance and is carried on your books. If he pays off his note to zero, or if you write off the balance he is no longer an active customer and does not require a privacy notice each year. The first annual notice for a customer may occur anytime within the year following the sale. After that it must be sent within 12 months from the last annual notice sent. I recommend that since your initial notice was given by hand at the beginning of the loan that a prudent dealer would send all privacy notices at or about the first of December each year include a Holiday greeting in the same envelope. You may as well get in a little good will. The privacy notice can be sent along with other items if you wish but it must be clear and conspicuous, so don't bury it in the middle of some other voluminous report. Sending it in an envelope with a Holiday card would be acceptable.

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Dealer Large Cash Reporting

We are pretty well on the way to becoming a cashless society. Most of us make our major purchases using either credit cards, checks or other bank related instruments. We usually don't like the feel of walking around with a pocket full of money that could become lost or stolen. We would rather pay with a method that resembles cash (such as a check) but not actually have to carry around cash itself. Since the state and federal governments are both aware of these payment tendencies they seem to have concluded that people who still cling to the old "cash payment" technique for large amounts are possibly doing something suspicious. And, naturally the government wants us merchants to do our part and report them to the authorities. Hence the IRS form 8300 was born. Generally, any person in a trade or business who receives more than $10,000 in cash in a single transaction or related transactions must complete a Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. The IRS reports this information to the Financial Crimes Enforcement Network (FinCEN). A transaction may not be sub-divided into multiple transactions in order to avoid the filing of Form 8300. Form 8300 is used by the government to track individuals who evade taxes or who profit from criminal activities. In actuality this form works so well that merchants are also required to mail a photocopy of it to the Florida Department of Revenue, they want to check suspicious people out also. Automobile Dealers may sometimes receive cash payments in excess of $10,000 and are thus required to comply with these filing requirements.

Sometimes, if a person wants to pay cash for a vehicle, the reason for paying in cash might seem suspicious to the dealer. The vehicle buyer appears to be in a hurry and wants to get this over with and just happens to forget his social security number when you ask for it. And, possibly you could take half of the money in cash (keeping it $10,000 or less) and the other half in a check then "you wouldn't have to bother with one of those pesky government forms." This activity is known as “structuring.” The payer is arranging the payment in smaller amounts of cash for the sole purpose of avoiding the cash-reporting requirement. Structuring is against the law. If you are offered a suspicious payment of cash making you feel that something is being avoided, there is a box you can check off on the 8300 form to indicate to the IRS that you believe something was suspicious about this payment. If things seem suspicious to you, you can just file a form 8300, you don't have to wait until it exceeds $10,000.

As a merchant, you must file an IRS form 8300 within 15 days from when you receive cash (or cash equivalents) in an amount over $10,000. The form also must be filled out when you receive cash for a series of related transactions that accumulate to that amount. So if, for example, you sell an expensive vehicle but the customer chooses to pay for it in periodic cash payments for the rest of the year you still have to file the 8300 every time the accumulation of payments exceeds a new $10,000 threshold. In the case of a $41,000 vehicle paid in $5,001 installments of cash you will report him 4 times on multiple 8300 forms.

The 8300 is filed with the IRS and identifies the party from whom you received the cash and the nature of the transaction. The forms also identify the party who received the cash.

The government kind of expands the actual definition of "cash". It obviously includes the bills and coins that we walk around with in our pockets. And it includes currency and coins from any other country. But there are other forms of cash. Cashiers checks are cash, checks that have been certified by the issuing bank are cash, money orders and traveler’s checks are considered cash if they have a face amount of $10,000 or less (If they were over $10,000 they would have already been reported by the issuer to IRS). Transactions between a buyer and a seller that occur within a 24-hour period are related transactions. Transactions more than 24 hours apart are related if the recipient of the cash knows, or has reason to know, that each transaction is one of a series of connected transactions. Related transactions could stretch out for as much as a year.

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If you report a cash transaction in excess of $10,000 on Form 8300 be sure to include the customer's Social Security number or Tax Payer Identification number. If you have requested but are not able to get a number for one or more of the parties to a transaction within 15 days following the transaction, file the report and attach a statement explaining why the number is not included. You should also be sure to tell the individual in writing on your company letterhead by Jan 31 of the following year that you filed a form 8300 on him. This part gets kind of sticky... If he was trying to get away with something he probably won't like knowing that you turned him in. You still have to advise him in writing by Jan 31 according to the IRS. The written notice doesn’t need to be handed to the "cash giver" personally (although you could) and the notice must include the name and address of the company who completed the Form 8300, the total amount of cash involved in the report and a notice that this information has been provided to the IRS.

If you become suspicious even though the amount is below $10,000 you can voluntarily file a form 8300 anyway. And if you do, you still have send the customer a notice by Jan 31. You don't have to tell the customer beforehand that you are filing the 8300. But if you do tell him, be cautious. You could make him angry and worse yet you may give the IRS the impression that you are helping the customer make up a tale of how to "structure" the transaction and avoid the reporting process. And, if you filed the form 8300 because of suspicious activity on the part of the customer you are not even allowed to inform that customer that you did a filing. In all cases, you still have to do the Jan 31 notification.

If a dealer performs sloppily and either neglects to pay attention to large cash transactions or chooses to ignore them he may be posturing himself for an audit. In such case, the IRS will probably audit your checking, saving and/or other financial account statements and deposit slips. This includes actual bank reconciliations and financial analyses from all facets of your businesses. They will also look at all your deal jackets, sales journals, invoices and related reports. I might also add that even though the form 8300 instructions refer to amounts "over" 10,000 I think that if the amount were exactly 10,000 I would still report it just to err on the side of caution. As always, I am not a lawyer, so don't take my word, read the form 8300 instructions for yourself.

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NMVTIS (Pronounced nim-veet-iss) Vehicle title branding is the use of a permanent designation on a vehicle's title, to indicate that a vehicle has been seriously affected because of certain peculiar characteristics of its usage or to physical harm having actually been done to it. Sometimes branding is for something as simple as the vehicle having been used in a rental, lease or for-hire environment. In other cases the vehicle may have been in an accident or in a disaster. In the United States, vehicle titles are issued by individual states. Most have implemented a branding scheme to warn subsequent owners about a vehicle's past usage. For instance, maybe it has been severly damaged due to collision, theft or disaster. An extreme example of the use of branding would be associated with the hurricanes that struck the Gulf Coast a few years ago, where there were supposedly 500,000 vehicles damaged by flooding. Multiple states were involved in this disaster and each of the affected vehicles will probably appear in the used vehicle marketplace somewhere as a branded vehicle. The fact that they are branded will reduce their resale values greatly. Unfortunately, the brands and the criteria used to assign brands differ greatly from one state to another. As a result, some dealers have learned to take advantage of the situation by moving a vehicle from a state where it was branded, to a different state where branding is either not done or is not paid the kind of attention it deserves. Thus a branded vehicle can suddenly become unbranded just by titling it in a different state. Removing the brand could, and usually does, raise the selling price of the vehicle greatly. This particular process is referred to as "washing a title" and is often practiced by unscrupulous dealers. Inconsistencies in state laws concerning the titling and branding of automobiles encourage automobile theft and expose consumers to fraud by making it possible to hide information that a vehicle was massively damaged and then rebuilt but not reported in the system.

Insurance companies who replace damaged vehicles when an insured suffers a collision loss are supposed to brand the replaced vehicles as salvage, unless their estimated cost to repair it to its original condition is 80% or more of the vehicle's retail value, then it must be branded as "unrebuildable" thus making it good for parts only. It cannot legally be repaired and re-driven on state roads. Of course, when this happens, the value of the vehicle hits rock bottom. If the insurance company involved were to get sloppy and forget to brand the damaged vehicle title that would make the vehicle sell for a higher value than if the title had actually been branded. Or, if the vehicle did not have insurance such as a privately uninsured fleet or company car it may fall between the cracks and remain unbranded. When these unbranded vehicles are repaired and presented for sale to consumers without disclosure of their true repair history, unsuspecting consumers may be defrauded, paying more than the vehicle is worth and receiving a vehicle that could be unsafe to drive.

Car Theft is extremely Profitable, raking in billions per year. Car thieves take stolen vehicles across state lines and use forged ownership papers that were proper in another state on a different vehicle to the titling agency of a new State. Actually, a thief could just replace the VIN plate on a stolen vehicle with one from a junked car, and then seek a valid title for the stolen vehicle. These activities are possible because most States do not have a quick way of verifying the ownership information presented to them when issuing a new title.

If only there were a way for states to check with one another before they issue a title. Then a VIN that was junked in one state would instantly show up and stop it from being titled in another. Or, if a VIN number was already titled in one state it could not show up in another. And, if a title were branded in one state it could not be washed and come up unbranded in another state. Could you imagine the Billions of dollars we would save in fraudulent titling if the states could just talk to each other?

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Wait! Isn't this where Carfax and AutoCheck come in? Aren't those services the answer when trying to verify the history of a vehicle? The answer is NO, not necessarily. Too much is missed by the services, not because of the services themselves, but because the information they get has so much left out of it. Damaged cars with clean titles can fetch up to $2,000 more than one branded "salvage". Not too long ago, one major insurance company admitted that it sold 30,000 vheicles that were totaled during the previous five years but rather than branding them, they sold them with clean titles for more money. Junk yards and salvage dealers are hit or miss about letting anyone know about their activities so the services don't get all of the available information about their vehicles. No matter how you look at it getting accurate information voluntarily from insurance companies, junk yards and salvage dealers is not as accurate as it should be.

There is a story about some wholesale dealers in the process of buying a bunch of vehicles that were previously wrecked. First, they ran a Carfax report on each of the available vehicles. Then, they bought the ones where the report showed that no accidents or damage had been reported to Carfax. Now, that's shopping for a bargain.

In 1992 Congress decided that it was too easy to fool the titling system in this country because of looseness of reporting and differences in the way things were handled in each state. Stolen vehicles in one state were too easily titled in another. And, cars branded in one state were too easily washed in another. To slow down, or possibly stop these problems, they ordered that a database of all vehicle titles in all the states be made available for everyone's use. They ordered that insurance companies, junk yards and salvage yards report their related vehicle activity at least by the end of each month. The database also has the potential to take information from insurance companies on all cars that have major damage claims, not just totaled cars. The Department of Justice is encouraging insurance companies to give that information to the database. Fines were established for failure to comply. Now it is not voluntary anymore. This was the birth of a national database named the "National Motor Vehicle Title Information System" (NMVTIS pronounced nim-veet-iss). Now, before a title office clerk can create a new title she must look the vehicle up on NMVTIS to assure that the VIN is not already in use in another state or else blocked by a "Certificate of Destruction" issued in another state. Or, maybe the VIN shows that the vehicle involved is a stolen vehicle from another state. The new database will let states crosscheck records with each other catching a whole lot of errors and crooks. All states, insurance companies, and junk and salvage yards are required regularly to report information to NMVTIS. However, NMVTIS does not contain information on all motor vehicles in the United States because some states are not yet providing their vehicle data to the system. This system was delayed, lobbied, boondoggled and slowed by any lobbyist trick available. Finally, though it was put into law in 1992 it was finally implemented in 2009. Seventeen years was a long time to wait, but it should be worth the wait.

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State Sales Tax The DOR (Department of Revenue) has a number of definitions that they use. These definitions are not always as obvious as you might believe. For example, since there is no specific reference in the sales tax statutes to businesses who deal in wholesale only, a wholesale dealer is considered to be the same as a retail dealer under DOR rules. This allows all DOR documents that apply to buying or selling to be used by any dealer no matter whether he is in wholesale or retail. All licensed vehicle dealers must register with DOR. This is done using form DR-1 and must be accompanied by a $5 fee although you can register online for no fee. Out of state dealers must also register, but they do not have to pay the $5 fee. The DR-1 form requires you to indicate if you deal with tires and batteries subject to the solid waste tax fees. If you deal with finance, you should also indicate that you deal in Documentary Stamps. The fiscal year for DOR is July 1 thru June 30. Special rules apply to dealers who collect in excess of $20,000 in sales tax during the state fiscal year. Those dealers must file electronically and must make direct deposits through their company's bank. Dealers who collect in excess of $200,000 in taxes during a fiscal year must prepay sales tax each month during the following year. DOR will tell you when and how this is to be done if it applies to you. Florida has not only a sales tax ... it also has a use tax. If you buy things for your own use in the business such as computers or office supplies you must pay a use tax on them unless you paid sales tax on them when you bought them. Dealers who purchase by mail order from out of state and don't pay the sales tax must voluntarily pay the tax at the end of the month in which the purchase was made. There is a space on the monthly filing form, the DR-15, for this type of tax to be included. Toilet paper, soap, hammers, screwdrivers, test equipment, etc.... all must be reported for use tax purposes. As a word of comfort, things such as wax and Armor-all are not taxable to you if you use them on vehicles that you offer for sale. The reasoning is... if they are wiped onto the vehicle, they become a part of the vehicle and are then considered to be included in the base sales price of the vehicle. Be careful, soap is not considered to be part of the vehicle because it rinses off and does not become a part of the vehicle. If you do wash jobs for the public, there is no sales tax on the transaction... unless you add wax or Armor-all... then, the entire transaction is taxable. The DOR requires that you collect sales tax on your taxable sales and send all collections to them by the 20th of the month following the collection period (by the 19th if you e-file). You must accrue all sales. This means that you must pay the sales tax to DOR now, even though you may not receive the money from your customer until weeks or even years into the future. If you submit your monthly sales tax report on time and all taxes and information are properly documented and paid, you may retain 2.5% of the first $1200 you collect. This means you get to keep as much as $30 each month for collecting, and submitting sales taxes. If you are late, or make a mistake on the forms, you lose your $30. If you have more than one sales location (stores) you must separately register and submit monthly reports for each location. If you wish, you may request permission to file a consolidated or combined return. DOR requires that you display your sales tax registration certificate prominently.

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Normally, DOR can only go back 3 years to audit sales tax records. But if fraud, non-filing or non-payment are involved they can go back further than that. If you sell a vehicle at wholesale, you need a blanket certificate of resale from the dealer who bought it. If you don't have the signed resale certificate in your files, you may be forced to pay the sales tax out of your own pocket. Keep blanket resale certificates for everybody you wholesale to. Likewise, if you sell to a church or other exempt organization you need to keep a copy of their certificate of exemption and verify that the expiration date is still good. DOR no longer issues adhesive Doc Stamps. You must report monthly on a special form and will submit the money directly to DOR. Each person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions, must file Form 8300 and send a copy to the US Internal Revenue Service, a copy to the Florida Department of Revenue and also a copy must be sent to the U.S. Treasury (FinCEN). Keep a copy of each Form 8300 you file for 5 years from the date you file it. Late sales tax reports and payments are penalized at a rate of 10% of the amount due for each 30 day period the payment is late with a minimum penalty of $50. This penalty can go as high as 50%. Also, there is an additional interest penalty of 1% per 30 day period and if you owe penalties or taxes that are over 90 days old they will pile on an additional 10% per month collection fee on top of all the other penalties. Filing a false or fraudulent return or attempting to evade a tax is punishable by a penalty of 100% of such tax or fee. Willfully failing to collect or pay may cost you a penalty of 200%. Don't try to buy time for yourself by sending in the reports but not sending the appropriate money. All penalties and late filing fees still apply and your return will just be mailed back to you without being processed. The state requires that $1 be paid for each new tire that is on a vehicle you sell at retail. Likewise, you must pay $1.50 for each vehicle you sell which contains a New or Remanufactured battery. The simple way to do this, in my opinion, is: If you buy new tires just pay the $1 per tire disposal fee to your supplier and get a receipt. You should have a preprinted statement on your sales order saying that all applicable tire disposal fees have been paid. For batteries, it would now be wise to pay the fee to your supplier just as you did for new tires. This way, you don't even have to worry about the number of vehicles you sold; let your supplier worry about the record keeping. Don't even think about charging these fees directly to the customer, just absorb them. If you feel that you must, however, you should be sure to charge sales tax on those fees. If you sell a vehicle to a charitable or governmental organization, you are not allowed to charge them the fees, but you must still personally pay the fees to the state. There are no fees on a wholesale transaction. If you charge for Dealer Get Ready, Dealer Preparation or Notary and Handling, be sure to charge sales tax on them. Be sure to note on the sales document that a portion of the Dealer Preparation may represent a profit to the seller. Never show Dealer Prep or Notary and Handling on the face of a retail installment contract. Indicate them on the sales order (bill of sale) but if you finance the deal, bury these costs into the cost of the vehicle on the contract. If you are buying a business from someone else you would be wise to request that the seller provide you a Certificate of Clearance from DOR. This is a way to prove that there are no outstanding sales tax obligations owed by the selling dealer. To DOR you are responsible for all outstanding sales tax obligations when you buy a business from someone else.

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If you are renting, leasing or selling new vehicles you should become aware of rental car surcharges and lemon law fees. Most used car dealers are not involved with these types of sales and do not have to be concerned. A discretionary sales surtax is imposed by many counties in Florida at a rate of .5%, .75%, 1.0% or 1.5%. The surtax applies to the first $5,000 of the selling price of each motor vehicle but does not apply to the amount over $5,000. For purposes of applying the surtax, a transaction involving a motor vehicle shall be deemed to have occurred in a county imposing a surtax when the residence address of the purchaser shown on the registration or title document is in a surtax county. At the end of the month, dealers are required to report and remit surtaxes along with their normal DR-l5 sales tax submission. Warranties and Extended Service Agreements are taxable, but they are not included in the total sales price when applying the $5,000 surtax limitation. Please note however, you must still charge the surtax on warranties and service agreements based on the county where the registered owner is located. Dealer prep, notary and handling, federal taxes, freight, and any involuntary insurance products are taxable. Optional insurance products generally are not taxable. Government fees for tag, title, registration, licensing and lien recording are not taxable. A dealers discount at the time of the sale reduces the selling price of the vehicle for sales tax purposes. Manufacturers rebates issued by the manufacturer do not reduce the taxable selling price. A sale to an out of state dealer is not taxable if you have the dealer sign an appropriate affidavit and have it notarized. Sales to exempt entities such as religious, charitable, educational or governmental organizations are not taxable provided a copy of a valid exemption certificate are presented to you at the time of the sale. The fact that a person is employed by an exempt organization does not make him exempt. The sale must be made and registered in the name of the organization. When repairs are made to a customer's vehicle and parts are included in the repairs, sales tax is due on the total charge, including labor. For repairs billed directly to the customer, If no parts are used (labor only) there is no sales tax charged. Oil changes, lubrications, wax jobs, tire repairs are all taxable because parts or substances are used and remain in or on the vehicle. If you sell on a retail installment basis you must pay all sales taxes up front at the time of the sale. Partial refunds are allowed using form DR-95B if the deal goes sour and has to be repossessed or written off. Caution, you have 12 months from the repo or write off date to apply for your refund, or else you lose it. C-corporations must file a Florida Form F-1120 corporate income tax return even if there is no tax due. Subchapter-S corporations must file in their first year only. Sales tax must be collected on vehicles bought and delivered in Florida for titling and registration in another state. Below is a summary of the law pertaining to the collection of that tax. 1. The Florida sales tax on a retail sale of a vehicle to be registered in another state cannot exceed the sales tax that would have been charged by that other state, nor may it exceed Florida's base rate of 6%. The customer must sign DOR form DR-123 promising to register the vehicle in his home state within 45 days. You may give the title papers to him, issue him a 30 day temporary tag and let him leave.

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2. The sale of a motor vehicle is exempt from Florida sales tax if the vehicle will be titled and registered in one of the following exempt states. Alaska, Delaware, the District of Columbia, Hawaii, Iowa, Kentucky, Maryland, Montana, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon and South Dakota. Non-Reciprocal States: Arkansas, Mississippi, Washington and West Virginia. Non-reciprocal states do not recognize taxes paid in Florida and will impose a use tax even though the sales tax was paid in Florida. This means the sale will be taxed in BOTH states (double taxation). Retail sales for export to a foreign country are not taxable if you have the appropriate affidavit signed and get a copy of an export bill of lading showing you as the shipper. However, if your customer takes possession inside Florida you must collect the 6% Florida sales tax.

To determine the tax due for vehicles to be titled in all other states, refer to the list provided below. The word YES or NO beside a state's name indicates whether or not credit is allowed for the amount of any trade-in. Alabama YES 2% for vehicles Arizona YES 5.6% Arkansas YES 6% (Not reciprocal) California NO 7.25% Colorado YES 2.9% Connecticut YES 6% Florida YES 6% Georgia YES 4% Idaho YES 6% Illinois YES 6.25% Indiana YES 7% Kansas YES 5.3% Louisiana YES 4% Maine YES 5% Massachusetts YES 6.25% Michigan NO 6% Minnesota YES 6.5% Mississippi YES 5% cars & light trk, 7% cycles, 3% trk/semi (Not reciprocal) Missouri YES 4.225% Nebraska YES 5.5% Nevada NO 6.5% New Jersey YES 7% New York YES 4% Ohio YES - allowance on new car sales only 5.5% Pennsylvania YES 6% Rhode Island YES (allowance on cars only) 7% South Carolina YES 5% - $300 ceiling Tennessee YES 7% Texas YES 6.25% Utah YES 4.70% Vermont YES 6% Virginia NO 3% - $35 minimum Washington YES 6.8% (Not reciprocal) West Virginia NO 5% (Not reciprocal) Wisconsin YES 5% Wyoming YES 4%

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Motor Vehicle Retail Installment Sales

I. Regulated by: Florida Department of Financial Services

A. Who needs a license. 1. Sellers who take one or more deferred payments. 2. Seller who assigns to any finance company. 3. Interest has no bearing on licensing requirements.

B. Licensing by the department. 1. Types of licenses available for dealers a. Motor Vehicle Retail Installment Seller Business b. Sales Finance Business 2. Initial license application. a. Phone Tallahassee (850) 410-9895 1. Specify Motor Vehicle Retail Installment Seller License

b. Get application from MVDTI.COM, see Automotive sites page

c. Cost, $175.00 per two year period 1. All licenses begin on January 1 of the odd numbered year. 2. All licenses end on December 31 of the even numbered year. d. Multiple locations 1. Within same county, single license only 2. Cross county line, need additional license 3. Renewal (end of even numbered years) a. Notice to renew sent in November of even numbered year. The renewal fee is $175.00. b. Postmarked after Dec 31... Penalty of additional $175.00.

C. Powers of the department 1. Issue licenses a. Penalty for practice without a license 1. Loss of charges and fees 2. Attorney fees and other court charges 3. Guilty of misdemeanor of first degree 2. Examine records a. How selected 1. Random choice 2. Annual selection 3. Consumer complaint 3. Insure compliance a. Issue subpoena for persons or materials. b. Bring action in any court of competent jurisdiction.

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c. Issue cease and desist order. d. Administrative fine up to $1000 per violation. e. Issue order of restitution. 4. Required record retention a. Two years minimum after final entry on customers records.

D. Grounds for disciplinary action. 1. Exceed maximum allowable Interest charge. 2. Improper or illegal contents of contract, disclosures, etc. 3. Excessive or illegal charges (license fees, insurance, etc.) 4. Missing DOC stamps

II. Retail Installment Sales

A. Requirements and prohibitions 1. Actual contract document critical, don't fake it

B. Finance charge limitations 1. All vehicles become one year older at January 1, of each year. 2. Chapter 520.08, F.S. sets limits on maximum interest allowed. a. New (current year) 10% add-on. b. New or Used cars less than 3 years old. 11% add-on. c. Used vehicles 3 or 4 years old. 15% add-on. d. Used vehicles 5 years or older. 17% add-on.

C. Add-on interest techniques explained (using 17% as an example). 1. Law allows $17 per $100, per year, for vehicles over 4 years old . 2. Interest amount is added to principal amount becoming “add-on” 3. Payments do not need to be separated by principal and interest.

D. Early payoffs 1. Rule of the 78ths (a.k.a. Sum of the year's digits). 2. Acquisition fee (currently $25).

E. Refinancing 1. May calculate payoff and issue new note with payoff as amount 2. No need for DOC stamps if amount does not exceed payoff 3. Attach old loan as proof of refinancing.

F. Repossession 1. May repossess own vehicles. (but not advised)

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Finance Licenses for Dealer Activities

Retail installment sales is a large and continuing part of the buying patterns of the American public. Two extremely profitable areas associated with retail installment sales are Finance and Insurance. These two market areas are generally referred to as F & I. Many banks and insurance companies exist to offer lending and insurance services to most sectors of the retail sales industry. It is a crowded marketplace, but it is generally a conservative marketplace, so finance and insurance sources for used car dealers are not as readily available because of the high risk and low dollar volumes of loans.

The Used Car marketplace has historically depended on customers who could buy with cash or could borrow from a lending institution such as a bank or small loan company. Generally, banks do not want to lend money to potentially high risk low-income persons on cars that are over five years old. For a long time, small loan companies provided high-interest finance for this riskier type of borrower. During the past ten years (or more), the borrowing habits of high-risk Used Car customers have migrated from the formal lending institutions to the self-funded independent car dealer who acts as a lender on his own behalf. This new type of dealer is normally known as a Buy- Here-Pay-Here or Tote-the-Note dealer. By Florida law, he can act as a lender charging as high as 30% (APR) interest and can sell retail insurance products (with handsome profit margins) to protect the loan. Most other states have similar laws. This industry is nationwide and in our credit oriented society the Buy-Here Pay-Here industry is here to stay.

Chapter 520 of the Florida Statutes, as enforced by the State Comptrollers Department of Financial Services, dictates the type of license you must have to participate in Retail Installment Sales. If you accept one or more delayed payments for the purchase of a vehicle you need to be licensed. It is quite simple to become licensed, and is not very expensive. The Department makes every effort to send you the specific application form that you request when getting licensed. However, you must be cautious because there are many types of licenses to choose from. The license fee is not refundable and is not transferable, so if you get the wrong one you will be very unhappy. It is your responsibility to assure that you apply for the proper one. If you are a Motor Vehicle Dealer You want the Motor Vehicle Retail Installment Seller License. If you have more than one location within the same county, you still only need one license. If you are a finance company wanting to purchase Retail Installment Contracts from a dealer, you want a Sales Finance Company License. All finance licenses must be renewed every two years. The official license period for licenses begins on January 1 of odd numbered years and ends on December 31 of even numbered years. There is no provision for pro rata or short term licensing. Therefore, you will pay the full license fee of $175.00, regardless of when you submit your application during the licensing period. Renewal notices are mailed in November of each expiring year. The completed renewal form and applicable fees must be received in Tallahassee by December 31, or your license will automatically become inactive. An inactive license may be reactivated within six months upon payment of the renewal fee and a reactivation fee equal to the renewal fee. After six months, it may not be reactivated.

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If you change the principal place of business or branch location of your licensed entity, the Department requires that you notify them in writing.

If you have further questions, just contact the following: 850-488-0357 and ask for the research section. If all personnel are busy, you may be asked to leave your name and phone number. Do not try to get the switchboard operator to answer your questions. You may also write to: Research Section, Division of Finance, Capitol Building, LL-22, Tallahassee, Fl. 32399-0350.

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Miscellaneous Finance Laws and Rules

Even though you do not charge interest, you still must have a Motor Vehicle Retail Installment seller license if you take multiple payments for a vehicle.

To get a Motor Vehicle Retail Installment Seller License you can call the Department of Financial Services at 850-488-0357 and request an application. Be sure to specify that you want the Motor Vehicle Retail Installment Seller License.

Every loan agreement must be signed (not initialed) by both the buyer and the seller.

If you are a dealer who lets a finance company fill out the retail installment contract for you and all payments are made to the finance company, you still must have a Motor Vehicle Retail Installment Sellers License.

Motor Vehicle Retail Installment Seller licenses cost $175.00 and have a two year life cycle, beginning on January 1 of each odd numbered year and expiring on December 31 of each even numbered year. They can not be transferred or pro-rated. If you have more than one location operating under the same name within the same county, you only need one license to cover all locations within that county. If you have a subsequent location in a different county, that location must be licensed separately.

Motor Vehicle Retail Installment Seller license renewal notices are sent out in the month of November of each even numbered year. If your completed renewal application is received in Tallahassee after December 31, you will pay a penalty of $100.00 for being late, in addition to the renewal fee.

Examiners from the Department of Financial Services will sooner or later call on you. They randomly choose to examine some dealers; others are chosen because of their advertisements or signs or because someone pointed you out or complained about you.

For the purposes of finance, all cars get a year older on January 1 of each year, not in September or October when the new cars are announced.

Maximum add-on interest rates are determined by the age of the car:

10% add-on, for new cars that are the current model year.

11% add-on for new cars of prior model year, used cars of current year, and used cars 1 and 2 years old.

15% add-on for used cars 3 or 4 years old.

17% add-on for used cars 5 years old or older.

If you print a contract, and it is hard to read because it is lined-up wrong and prints on top of pre-printed words and lines, be careful. If its hard to read, you could suffer later in court. It has happened to others.

If you repossess a vehicle and the repossession agent charges you a specific amount (say $200), you are not allowed to mark it up when you make the customer pay a repossession fee to get his vehicle back. If you have a sign hanging in your office telling people they will be charged $250 or whatever, as a repossession fee, you had better be able to show that you paid exactly that to an outside repossession agent or you could be asking for trouble.

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Once an Add-on contract is issued, you can not later add extra charges to the loan balance for repairs or bad check charges, etc. If you do, banking and finance will eat your lunch for you. About the easiest way to handle such charges is to setup a separate bucket account to separately hold them. A word to the wise, collect any special bucket amounts as quickly as possible. You can never hold a title hostage because of unpaid repairs or fees if the rest of the note has been paid already.

You may not mark-up the price of tag and title fees. If you charge the customer more than the state charged you, you must have paperwork in the customers file showing that you credited or refunded the difference to him.

The Federal Trade Commission (FTC) (Regulation-Z) requires that your stated Annual Percentage Rate (APR) must be accurate to within 1/8 of a percentage point. That is a tolerance of .125 of a point. That doesn't mean that your customer and his lawyer can't still get you, but it does mean that you will not be slapped down by the FTC if you are a little bit off.

Never confuse the maximum allowable interest rate (17% add-on) as established in Chapter 520, Florida Statutes, for vehicle dealers as being the same thing as an APR. The allowable ADD-ON rate of 17% actually computes out to an APR of about 30%. All finance contracts demand that you state the APR rate and not the ADD-ON rate.

You may NOT show dealer get-ready or notary on the face of a retail installment contract. Even though it seems like the nice thing to do because you are fully disclosing all charges, it will make your contract illegal and you may be forced to refund such amounts plus interest to your customer.

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Related Finance Companies

There are many reasons for setting up two different entities to handle your vehicle sales and your vehicle finance operations. Licensing is quite easy. You need a “Motor Vehicle Retail Installment Seller" license for your dealership and a “Sales Finance” license for your loan company. Both can be obtained from the Florida Department of Banking and Finance for the sum of $175.00 each. When a motor vehicle dealer sets up both a motor vehicle dealership and a related finance company (RFC) there are a number of conditions which should be met to assure that it is an allowable act in the eyes of the Internal Revenue Service ( IRS ). It can be a certain tax saver if done properly and many dealers have begun trying to do this to save on their taxes. Some RFC’s have been created by used car dealers only to reduce or defer the reporting of income. If that is your only reason, you are probably in for a bumpy ride with IRS.

According to a recent IRS publication on the practice of auditing car dealers, there are three main categories that should be examined when looking at an RFC: Economic Reasons, Validity, and Economic Substance.

ECONOMIC REASONS

Provide a credit source for customers. Many customers have little or bad credit and need an alternate finance source. An affiliated loan company can answer this need while focusing the collection function away from the dealership itself, which relieves the sales personnel from a task that is often time consuming. In addition, it will benefit the customer more when an entry shows up in his credit bureau file from a finance company instead of from a used car dealership. It is part of the sizzle that you sell your customer on. Prompt payment will help him establish good credit.

Improve the collection of accounts receivable. Payment schedules may often be on a weekly or bi-weekly basis coinciding with the borrower’s pay-day and many ordinary finance sources will not permit such payment schedules. An RFC can significantly enhance the collection of accounts receivable by permitting convenient pay dates as a convenience to the customer. And, by requiring the borrower/buyer to remit payments to a third party, even though the third party is related to the dealer, it improves collections. It has been the industry experience that when payment is made directly to the dealer, a bad experience with the car often leads to a default on the note for the car. This, in turn, creates a collection problem, and possibly a negative publicity problem for the dealership. On the other hand, if an RFC is involved, experience shows that the customer is less likely to default on the payment.

Prevent adverse publicity on repossessions. Repossession and collection problems are a daily fact of life for buy here/pay here dealers. Creation of an RFC permits a new entity to undertake these actions, and thereby insulates the dealer from bad publicity.

Remove the financial risk of default. The industry deals with a customer base that generally has poor or non-existent credit. The default rate on buy here/pay here notes is substantially higher than on general bank loans. A separate RFC removes the financial risk from the dealership entity and transfers it to the finance company where it can more adequately be handled and allowed for through reserves and other accounting practices.

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Diversification of ownership. Since the financing of used cars is not inherently a part of a dealership, an RFC permits the dealer to begin another company and allow ownership in that specific company to both family and non-family members without diluting ownership in the dealership. This allows the dealer to separate the two businesses and reward certain employees or other individuals with an ownership interest in a segment of the business.

Finance other dealer’s customers. An RFC can be expanded, if desired, to finance unrelated receivables from other dealers as well as those of your own dealership. There is nothing stopping an RFC from functioning like any other normal finance company.

VALIDITY

It is extremely important as to how an RFC is structured and operated. Since the purpose of the RFC is to isolate liability or segregate transactions in a separate entity, the RFC should meet reasonable criteria that identifies it as a separate, valid business.

The RFC should be a separate, legal entity. A separate business entity should exist for each of the two companies. They may or may not have the same ownership and officers.

The RFC should meet all licensing requirements. As said before, both need a finance license under Florida Statute 520. The dealership needs a “Retail Instalment Seller’s License” and the finance company needs a “Sales Finance License”.

The RFC should be adequately capitalized. Each deal (loan) should be treated separately and should be sold (assigned) from the dealership to the finance company. IRS will pay special attention to this activity and if the sale of the loan contract is nothing more than a Journal Entry in the General Ledger at the end of the month, there may be problems. Write a check to satisfy the purchase and show a trail of activity.

The RFC should have its own employees. The RFC should have its own employee(s) and compensate them directly. However, the fact that the RFC and the dealership may elect to use a common paymaster does not indicate, in any way, that the RFC does not have its own employees.

The RFC should obtain and maintain all appropriate local business and similar licenses. Be sure to get a separate occupational license for the RFC. Likewise, state and federal tax forms should be filed separately for the two entities.

The RFC should have a separate Address and telephone number. Both companies may occupy the same office space, but common sense says that there should be separate identification of the two businesses. Separate phones are a good start. A separate mailing address or PO box should be maintained. It is common for the RFC to have an office at the dealership.

The RFC should maintain a separate set of books and records. Generally an accountant will help you with this. Normally, the dealership is setup on an “accrual” method of accounting and the finance company on a “cash” method.

The RFC should comply with all title, lien, and recordation rules. The RFC should be named as the lienholder of titles, and the sales agreements should indicate that the

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vehicle was sold in the name of the dealership. The Retail Instalment contract should be assigned by the dealer to the finance company.

The RFC should notify customers of the purchase of their notes. Be sure to automatically send a notice to your customers informing them that the loan has been reassigned to the finance company. Once more, we want to establish that the two companies are separate.

The RFC and the dealership should have a purchase contract for the receivables. The agreement must comply with the appropriate state law and provide evidence of how the Fair Market Value of the receivables was determined.

ECONOMIC SUBSTANCE

Sales of receivables must have economic substance. To qualify for tax purposes, valid business reasons alone are not sufficient. Fair Market Value (FMV) must exist to show that the values dealt with are representative of what occurs in the industry in a competitive market. If you just arbitrarily set a price, you are probably not going to show FMV and may find that your RFC is denied. The FMV of a receivable or group of receivables will depend on a number of factors, the facts and circumstances of each receivable determining the importance of each factor.

Depending on the facts and circumstances of each dealership, the RFC could be a valid business and should be respected as a separate entity. The issue will be resolved based on the particular facts and circumstances of each taxpayer. A dealer can use an RFC to discount its receivables and have it accepted for tax purposes. Accordingly, the importance of fully developing your RFC carefully cannot be overstated. This information was lifted from the IRS and slightly modified to fit my style of writing. If you follow this outline, you stand a reasonable chance of passing the IRS examinations. But, your own accountant is more knowledgeable about your circumstances, ask his advice. Keep in mind that I am neither an accountant nor an attorney. Consult yours.

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Interest Rates In Auto Finance

If you were to look at a map of the United States you would find an assortment of places containing people and customs that have far reaching roots to other places and other times. No two states have the same laws to protect their citizens. This country is a crazy mixture of laws and rules that change every time you cross a state line. In an attempt to standardize, simplify and clarify the laws pertaining to lending, the legislature of the United States passed a set of laws in 1969 to set-up “Truth In Lending” guidelines to assure that all lenders, no matter where they are located, use the same tools of measurement and disclosure. Terms such as “annual percentage rate” (APR), generally thought of as “Per-diem”, made lenders express their interest rates in terms that allowed comparison to other techniques or styles of finance charges. Now, if a lender gave a low ball interest rate but added costs such as “loan processing fees”, costs of credit checks, or some other credit related cost he must add all of them to the loan interest amount and then recompute the APR so that they are included in the actual costs of borrowing. Full disclosure is now a requirement. The number of payments, amount borrowed, total interest charged, total amount to be paid (including interest), payment amount, and time intervals, have all been addressed by Truth In Lending and must be disclosed appropriately.

Although the Federal Trade Commission (FTC) requires that all interest disclosures be stated in terms of APR, the actual statutes of the state of Florida allow you to arrive at your maximum interest charge using the “Add-on” method of computing interest. Add- on is actually one of the simplest of the interest methods. You just compute the total interest on the amount borrowed without regard to the repayment schedule. Thus, a loan for a thousand dollars for one year at a 17% add-on rate would come to a total of $1,170. If it were for two years, just multiply the one year interest amount by 2. Simply stated, it is $17 per hundred dollars borrowed, per year. Even though, in theory, the customer will have paid back much of the loan before the first year is over, you still get to charge a full year’s interest charge for each of the subsequent years of the loan. This is why Add-on earns as much interest at 17% as per-diem earns at 30.04%. Per-diem charges less interest each time a payment is made because the remaining balance keeps getting smaller.

Add-on not only makes a loan simpler to calculate, it also makes things much simpler when taking a payment. Under “Add-on” you do not need to separate principal and interest when a payment is made. At inception, all interest charges are precomputed and added on to the amount being borrowed thereby creating one balance which includes both principal and interest. The interest is literally added on to the principal so that when a payment is made, there is no need to separate them. Just subtract the payment amount from the outstanding balance and repeat the process each pay period until the entire note is satisfied. There are two added responsibilities when you use “Add-on”. First, you must recalculate the loan to compute an equivalent APR rate because the FTC requires you to disclose your interest rate in terms of APR even when you use “Add- on” methods. Most computer programs designed for finance do this for you automatically. Second, if the customer wishes to pay-off early, you must reimburse any unearned interest amounts corresponding to the periods being paid off early. This is actually quite simple. A pay off of this type is done using “The Rule of the 78s”. Once again, your computer should do this calculation for you. If not, you may purchase a

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book of pay off tables and do them by hand. You must remember that the state dictates the maximum interest rate according to the age of the vehicle. Consult Chapter 520, Florida Statutes, for the exact requirements under the law.

While the maximum interest rate allowed under Chapter 520, F. S., is stated in terms of “Add-on”, you could legally use that method to arrive at an equivalent APR and then actually handle the note as a “Per-diem” or APR type loan. Under this method, you do not add the interest to the principal arriving at one combined balance. You must calculate and disclose the interest being charged for each payment. As payments are made, you simply keep the interest and then whatever principal remains must be subtracted from the outstanding balance, thus reducing the balance each time a payment is made. Eventually the note will decline down to nothing, thus “paying out”. You are not advised to charge an extra late fee for this type of note, but you may charge the appropriate daily interest rate for any days of lateness. At “pay off” time, there is no special calculation such as “Rule of the 78s” to worry about. You simply compute the interest due since the prior payment and add that to the outstanding balance thus arriving at a final “pay off” amount.

Having explained the two most popular methods of charging interest, it naturally brings up the question: “Which method should I use?”. The answer is not always obvious. Fortunately, most dealers are already using the best method for them, namely Add-on. It’s simpler, it maximizes allowable interest, and you don’t need to keep separate track of principal and interest on payments. Florida Independent Automobile Dealer Association (FIADA) Retail Instalment Contract is set-up for Add-on notes. About the only drawback is the fact that you cannot charge additional interest if the customer lateness causes the note to be extended past its normal expiration date. But, you can charge a Late Fee on any payment that is more than 10 days late. This will generally earn much more profit for you than charging interest on a small remaining balance when a note goes past its expiration date. If the customer becomes late early in the life of the note, you may want to re-contract that customer and make his payments more manageable. Otherwise, you should have repossessed the vehicle long ago. There is hardly ever a logical reason for a “large” balance to exist after the normal expiration date of the note. If nothing else, the notice of a late fee tells the customer that you just aren't tolerating his lateness. The FIADA Retail Instalment Contract has a clause in it to advise the customer that he will be assessed a late fee, but it in no way excuses him or gives him permission to do it again. You can still repossess even though you offered forgiveness at an earlier time.

Always remember that no matter which method you use, you still must fully disclose on the contract the exact APR (accurate within 1/8 %) and the amount of interest you are charging.

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Finance Related Questions and Answers

Q. What is APR?

A. APR means Annual Percentage Rate. It is used as the standard measure of finance rates. Federal regulations require that all notes, whether using Add-on, Simple, or graduated (tiered) interest rates must be expressed on the loan contract in terms of APR. The APR is simply the cumulative interest rate charged against the decreasing outstanding balance of the note during its contracted term.

Q. What is sales finance?

A. Sales finance is the chapter of federal and usually state regulations under which the purchase of retail paper by a financial institution falls. The business of Sales Finance is also regulated under the Retail Installment Sales Act.

Q. What is Add-on Interest?

A. The Add-on method of finance. Calculate the interest on the entire amount of the loan for the full term and then add it to the amount of the loan. Payments are made against that total balance and there is no simple distinction between the portion of the payment that applied to principal as opposed to interest. The customers balance declines by the full amount of the payment.

Q. What is Simple interest?

A. Simple interest, known also as per-diem interest, is actually the method of disclosure prescribed by the Federal Truth In Lending Act. We like to refer to this type of interest as per-diem (by the day) interest. To arrive at how much interest to charge for a period, the annual percentage rate is divided by the number of days in a year (365) and then that daily rate is charged on the outstanding balance of the note once for each day that has occurred since interest was last calculated and charged. Under this method, the customers balance begins with the principle amount borrowed, and when he makes a payment the interest for the period of time between payments is deducted from the payment amount giving the principle portion of the payment. His balance is then reduced only by this principle portion giving a new outstanding balance to use as the basis for interest in the next payment cycle.

Q. What is odd days interest?

A. If the first payment due date is delayed past the number of days normally scheduled between payment periods, those excess days are known as odd days. For example, if payments are normally 30 days apart, but the first payment is not due until the 45th day after purchase, there are 15 odd days at the beginning of the contract on which interest and insurance are normally charged. Florida statutes are a little contrary when it comes to ‘‘odd days interest’’. A well programmed computer controls this for you.

Q. What is an acquisition fee?

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A. An acquisition fee is an allowable charge defined in the Retail Installment Sales Act as an amount that can be deducted from any refund of finance charges if a loan is paid off early. This fee is compensation for the lender to offset the cost of processing and handling the paperwork. This assures at least a minimum amount of finance charge even if the loan is paid off in one day.

Q. What is Rule of the 78s?

A. This is the method by which many payoff amounts are calculated in the event of a cancellation, assuming equal monthly payments. It is also sometimes known as the sum of the digits method. On a 12 month note, there are 12 months of risk starting at the first month. At the second month, there are only 11 months of risk remaining. At the third month, only 10... and so on down to the last month which only has 1 month of risk. The sum of the numbers, from 12 down to 1 is equal to 78. Therefore, the interest (or insurance) charged on this note is divided into 78 parts. The first month, 12 parts are earned. The next month 11 parts,etc.

Q. What changes have been made recently to Regulation Z?

On April 6, 1998 the Board of Governors of the Federal Reserve System enacted a final rule amending the interpretation of Regulation Z. The law hasn't changed, just the interpretation of it within the scope of the Regulation Z Commentary. To most of us, this is no big deal. It only affects loans where the trade-in value of a vehicle is less than the amount owed to the prior creditor. Effectively, this means that the new interpretation only kicks-in when the customer is "upside down" on the amount he owes on his trade-in vehicle. This may be thought of as a "lien shortfall". He owes more to his prior finance company than the vehicle is worth so his lien payoff is more than the value of his trade-in resulting in a negative value for his trade-in. Effective October 1, 1998 the down payment (cash + trade) may only be used to reduce the cash price of the vehicle. A negative trade-in value could cause the appearance of an increase in cash price thus causing this new interpretation to kick in. To keep things simple, when you have an upside down trade you should show a value of zero for the Trade-in value and then show the upside down amount simply as an "Amount Paid To Others On Your Behalf". The FIADA contract already has a position under "Itemization of Amount Financed" [line 4(G)] to contain this information. Make sure that you indicate who you are making the payoff "to" and indicate that you are making the payment "for" a lien shortfall and then enter the shortfall amount. This is all that it takes to satisfy the new interpretation. Remember, this is NOT a new law. This is simply a re- interpretation of an existing law. Some finance companies are changing their forms to show more information such as trade-in, lien and the resultant lien shortfall. This is acceptable, but not necessary. The Bill of Sale already shows all trade and payoff information and consequently putting the details on a Retail Installment Contract is repetitious and not required.

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Department of Financial Services Examinations

If you are involved in retail installment finance, you may expect to be visited once each year, unless specific cause exists, by a state examiner from the Florida Department of Financial Services. I have heard dealers say they don't have to worry about this, because they don't charge interest on their loans. That is not true. If you allow a customer to make payments to you over a period of time you are required to have a finance license and you will be examined whether you charge interest or not. Also, whether or not you charge interest, you must purchase Documentary Stamps for your retail installment contracts.

Most Buy-Here Pay-Here dealers are licensed under Chapter 520 Part I, Florida Statutes, (retail installment sales of motor vehicles). If you have questions about licensing, you should call your local office of the Department of Financial Services.

Now, back to the subject of examinations. The state examiner who audits you must operate under specific guidelines as established by the Department of Financial Services. These guidelines originate from Chapter 520, F. S., but are expanded upon by certain Rules of Law. These Rules will generally offer more specific clarification of the intended law, and therefore are valuable to you when you wish to research a specific question or practice. Your local office of the Department of Financial Services, will give you a copy of their booklet, Florida's Retail Installment Sales Act and Regulations, which covers the appropriate Statutes and Rules.

This department does not regulate automobile purchase orders (sales orders), but does regulate finance contracts pertaining to those purchases. This may sound like a play on words, but it is very important that you understand this fact. Your sales order may specify an extra charge for Notary Service or Dealer Preparation and the total amount of the purchase may be increased by these amounts. But, if you were to identify Notary Service and Dealer Preparation on the face of the finance contract as specific charges, you would be in violation and would be forced to rebate those charges and the portion of interest that was charged on those items. In short, you may bury those charges legally into the total purchase price of the vehicle, and show them on a buyers order, but you may not itemize them on a finance contract. If you make this type of mistake and get caught, you will be forced to examine your old deals, and make restitution to past customers.

When the examiner visits you, he will identify himself and will state his purpose. He may just make a cold call by just dropping in, or he may phone for an appointment. If you, the owner or manager, are not present it is not unreasonable for you to advise your staff to ask him to contact you for permission to enter. He could press the issue, but most usually will be willing to set-up a future appointment. You really would be wise to be present during an audit whenever possible. The examiner will first check his records to see which contract was the last one examined at your previous audit. His examination will probably start there, unless there were some loose ends hanging from the last audit that should be checked.

Your finance license must be current and must be hung in a conspicuous place. And, if you are buying or selling contracts to other dealers or lenders, that will be noted and a check will be made to assure that they are also properly licensed.

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A count of the number of contracts in existence during the audit period will be made, and the number of contracts selected at random to be audited will be some percentage of that total number of contracts. The examiner will choose which ones he wants to audit.

Particular attention will be given to the maximum amount of interest allowed by law based on the age of the vehicle. You may make the mistake of considering a vehicle to become a year older just because new vehicles were announced in September or October. This is not how the state allows it. All vehicles, other than current year models, become a year older on January first of each year. Maximum allowable interest rates are specified in Chapter 520.08, Florida Statutes.

A minimum finance charge of $25 may be charged on any motor vehicle retail installment contract.

Documentary (DOC) Stamps must be purchased. Even though Department of Financial Services personnel do not regulate DOC Stamps, they do verify if you are complying with the law that requires the purchase of DOC Stamps. Title, registration and lien fees are allowed only when supported in fact according to official Division of Motor Vehicles fee schedules and receipts.

An acquisition fee of $25 may be deducted from the base interest amount prior to calculating any interest rebate for early payoffs. Rebates are computed as follows: Rule of the 78s for interest, life insurance, Accident and Health insurance. Pro-rata for mechanical or physical damage insurance.

If you sell insurance products, your insurance license must be on display. Each customer who buys insurance must sign to show that he requested that insurance. You may insist that he protects you with insurance, but you may not insist that he must purchase it from you instead of someone else. If an insurance product is cancelled but the note continues on, the interest portion of the note that pertains to the insurance product must be rebated as well as the unearned portion of the premium.

When computing interest refunds, the number of months earned is computed from the first scheduled due date of the contract rather than from the date of origination of the contract. An additional month is considered to be earned when the payoff is one day or more after a scheduled due date. If the contract is paid out prior to the first scheduled payment date, one month is considered earned. Only one month is considered earned at the beginning of the contract, no matter how many days between the contract date and the first due date.

Late charges may be applied on a payment that is over 10 days late at a rate of 5% only if the customers contract lists provisions for such charges. Don't be confused, you may not charge late charges on the entire late balance, only on a specific payment or portion of a payment. Once charged on a payment, you may not charge again on that particular payment even if another 10 days goes by without payment. Never charge late fees on late fees.

The statutes specify certain contents and size characteristics of a finance contract. If you have a home-made version that you are using, be careful that your attorney has properly examined it and that it complies with the law.

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Both borrower and lender must sign. Initials or fictitious names are not adequate for the lenders. The Regulation Z box on the contract must be completed, and the accurate Annual Percentage Rate must be indicated, even though you did your initial interest calculations using Add-on rates. Your APR rate must be accurate to within 1/8 of a percentage point over or under.

The regulations concerning contract extensions and additional interest charges thereon are pretty involved. It is my opinion that you would be better off doing an early payoff of the old note, and then issue a new finance contract. This happens so seldom, it is easy to make a mistake and be chastised later. A new contract is much safer.

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CHAPTER 69V-50

MOTOR VEHICLE SALES FINANCE

69V-50.001 Miscellaneous Charges 69V-50.002 Excessive Charges, Correction 69V-50.005 Insurance Cancellation 69V-50.007 Contracts for Purchase of Mobile Homes in Conjunction with Real Estate Transactions 69V-50.055 Application Procedure for Motor Vehicle Retail Installment Seller License (Repealed) 69V-50.058 Motor Vehicle Retail Installment Seller Branch Office License (Repealed) 69V-50.070 Motor Vehicle Retail Installment Seller and Motor Vehicle Retail Installment Seller Branch Office License

Renewal and Reactivation (Repealed) 69V-50.075 Prepaid Finance Charge 69V-50.080 Calculation of Finance Charge for Contracts Providing for Unequal or Irregular Installment Payments 69V-50.085 Disclosures Required by Section 520.07(3), F.S

69V-50.001 Miscellaneous Charges. Other than the items and charges properly included as part of the cash price as defined in Section 520.02(2), F.S., the following are the only charges permitted to be made by the retail installment seller. All authorized charges are permitted only to the extent they are actually paid, used, or disbursed for the purposes stated.

(1) Charges for taxes, prescribed by law, to the extent same are not included as part of the cash price. (2) Charges for official fees as defined in Section 520.02(9), F.S., and charges for licenses and other fees prescribed by

law. (a) In order to support motor vehicle license charges and liens for perfecting any security interest in the collateral, the

registration form provided by the Department of Motor Vehicles shall be maintained. In addition, the month of birth of the retail buyer must be shown on the face of the contract and the trade-in amount must be clearly described.

(b) Charges for documentary excise tax must be supported by attaching documentary stamps to the appropriate document and canceling or by paying the appropriate amount of tax directly to the Department of Revenue and maintaining documentation necessary to determine compliance.

(3) Charges for insurance purchased by the retail buyer to the extent such charges are not included as part of the finance charge as defined in Section 520.02(5), F.S. The type of such insurance shall be specifically noted on the contract. Vendors Single Interest Insurance (V.S.I.) coverage issued to a contract holder on a blanket form may also be written in addition to the buyer’s physical damage coverage, and a charge made to the buyer provided the contract contains a provision authorizing the contract holder to purchase the V.S.I. coverage. Should the contract holder purchase V.S.I. coverage at the time the contract is signed, the contract holder shall deliver or cause to be delivered to the buyer evidence of insurance at the time the contract is signed and the buyer shall receive a copy of the policy within thirty (30) days from the date the contract was signed.

(4) Charges for other benefits such as service agreements or warranties bargained for and purchased by the retail buyer to the extent said charges are supported in fact. The type of such benefits shall be specifically noted on the contract. The contract holder shall deliver or cause to be delivered to the buyer evidence of such benefits at the time the contract is signed and the buyer shall receive a copy of the policy within thirty (30) days from the date the contract was signed.

Specific Authority 17.29, 520.994(5) FS. Law Implemented 520.02, 520.07 FS. History–Renumbered from 3-6.01 to 3D-50.01 on 8-26-75, Amended 11-1-77, 4-22-84, Formerly 3D-50.01, Amended 7-10-96, 12-8-99, Formerly 3D-50.001.

69V-50.002 Excessive Charges, Correction.

If the sales finance company discovers that, as a result of an inadvertent clerical error or some other unintentional mistake, the finance charge to a buyer is in excess of the amount permitted, or that any other charges in the contract are excessive, it shall immediately notify the buyer in writing of such overcharge. The overcharge, plus any finance charge that may have been assessed thereon, shall be credited to the account balance, and the buyer shall be notified in writing of any reduction of contractual payments. Contracts paid in full containing excessive charges which were not previously given credit should be

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corrected by making a refund to the buyer.

Specific Authority 520.994(5) FS. Law Implemented 520.08 FS. History–Renumbered from 3-6.02 to 3D-50.02 on 8-26-75, Amended 1-10-79, Formerly 3D-50.02, Amended 7-10-96, Formerly 3D-50.002.

69V-50.005 Insurance Cancellation.

When a retail installment contract is pre-paid and said contract contains a premium charge for credit life and/or accident and health insurance, and the holder is agent for the underwriting company, the act of prepayment will be considered to be an act of cancellation of the insurance in accordance with Rules and Regulations of the Office of Insurance Regulation.

Specific Authority 520.994(5) FS. Law Implemented 520.07, 520.09 FS. History–New 4-11-70, Amended 11-17-73, Renumbered from 3-6.05 to 3D-50.05 on 8-26-75, Formerly 3D-50.05, 3D-50.005.

69V-50.007 Contracts for Purchase of Mobile Homes in Conjunction with Real Estate Transactions. (1) When a mobile home or trailer is sold on a motor vehicle Retail installment sales contract, as defined by Section

520.02, F.S., and such sale is in conjunction with a sale of real property on an installment sales contract or agreement for deed, and the terms of such dual sale are combined into one (1) contract or agreement, no part of the terms of sale or the usual and customary closing cost in conjunction with the real estate sale contract shall be combined with the terms of sale and the closing cost permitted under Part I of Chapter 520, F.S., with regard to the motor vehicle sales contract. The terms and conditions of the sale and such closing cost in connection with the sale of the real property shall be itemized and separately stated; and the terms of sale and closing cost in connection with the sale of the mobile home or trailer shall be separately stated, except that the aforesaid terms and cost may be combined in order to arrive at a total cost or indebtedness.

(2) Nothing in subsection (1) above shall prohibit the terms and costs pertaining to the sale of real estate from being on a separate real estate contract nor the terms and costs pertaining to the sale of a mobile home or trailer from being on a separate motor vehicle retail installment sales contract.

(3) The selling price plus closing cost and interest or finance charges on such transaction may be combined into one note and mortgage securing the total indebtedness, provided that the provisions of subsection (1) are complied with.

(4) It is the intent of this rule to assure that the closing cost and finance charges permitted under Part I of Chapter 520, F.S., shall be limited to or computed only on that portion of the contract terms as are directly related to the sale of a motor vehicle as defined by Section 520.02, F.S.

(5) Nothing in this rule shall be construed to avoid compliance by any seller with any other laws, state or federal, which may be applicable to such transactions.

Specific Authority 520.994(5) FS. Law Implemented 520.02(1), 520.07, 520.08 FS. History–New 10-21-75, Formerly 3D-50.07, 3D-50.007.

69V-50.055 Application Procedure for Motor Vehicle Retail Installment Seller License.

Specific Authority 520.03(2), 520.994(5) FS. Law Implemented 120.60(1), 520.03(2) FS. History–New 11-5-87, Amended 5-9-90, 11-11-90, 9-28-94, 8-9-95, 7-10-96, 9-29-96, 12-8-99, Formerly 3D-50.055, Repealed 12-20-07.

69V-50.058 Motor Vehicle Retail Installment Seller Branch Office License.

Specific Authority 520.03(2), 520.994(5) FS. Law Implemented 120.60(1), 520.03(2) FS. History–New 11-11-90, Amended 8-9-95, 7-10-96, 9-29-96, 12-8-99, Formerly 3D-50.058, Repealed 12-20-07.

69V-50.070 Motor Vehicle Retail Installment Seller and Motor Vehicle Retail Installment Seller Branch Office

License Renewal and Reactivation.

Specific Authority 520.03(2), (3), 520.994(5) FS. Law Implemented 520.03(2), (3), 520.994(5) FS. History–New 11-5-87, Amended 11-11-

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90, 12-18-93, 9-29-96, 12-8-99, 12-25-00, Formerly 3D-50.070, Repealed 12-20-07.

69V-50.075 Prepaid Finance Charge.

Any fee designated as a loan processing fee, not to exceed $200.00, on a motor vehicle retail installment contract shall be treated as a prepaid finance charge and disclosed as such pursuant to Section 520.07(2)(a)3., F.S. The loan processing fee together with other finance charges assessed on a motor vehicle retail installment contract shall not exceed the finance charge limitation in Section 520.08, F.S. In the event that the buyer prepays the motor vehicle retail installment contract, the buyer shall receive a prorated refund of the loan processing fee as required by Section 520.09, F.S.; provided, however, in accordance with Section 520.085(1)(c), F.S., if the motor vehicle retail installment contract is a simple interest contract, no prorated refund is required.

Specific Authority 520.994(5) FS. Law Implemented 520.07, 520.08, 520.085, 520.09 FS. History–New 10-17-94, Amended 7-10-96, 12-25-00, Formerly 3D-50.075.

69V-50.080 Calculation of Finance Charge for Contracts Providing for Unequal or Irregular Installment

Payments. (1) For purposes of construing Section 520.08, F.S., the following terms are defined: (a) “Monthly payments” means installment payments substantially equal in amount and payable in successive monthly

increments. Provided, however, that the first payment may exceed one month by as much as fifteen (15) days and the additional finance charge for such excess days may be added to the first payment.

(b) “Unequal installment payments” means installment payments which are not substantially equal in amount. (c) “Irregular installment payments” means installment payments which are payable in other than successive monthly

increments. (2) As indicated in Section 520.08(3), F.S., when a retail installment contract provides for unequal or irregular

installment payments, the finance charge may not exceed a rate which will provide the same yield as is permitted on monthly payment contracts under Section 520.08(1) and (2), F.S., having due regard for the schedule of payment.

Specific Authority 520.994(5) FS. Law Implemented 520.08 FS. History–New 2-10-98, Formerly 3D-50.080.

69V-50.085 Disclosures Required by Section 520.07(3), F.S.

The itemizations required by Section 520.07(3), F.S., may appear on a disclosure statement separate from all other materials, or it may be placed on the same document as the contract or other information so long as it is clearly and conspicuously segregated from everything else on the document. However, contracts will not be required to either repeat or include in the segregated written itemization required by Section 520.07(3), F.S., the disclosures of Section 520.07(3)(f), F.S., relating to the number of scheduled payments, the amount of each payment, and the date of the first payment, if such disclosures are placed on the same document as the contract and made in the contract in compliance with the federal Truth in Lending Act, 15 U.S.C. ss. 1601, et seq.

Specific Authority 520.994(5) FS. Law Implemented 520.07(3) FS. History–New 11-25-99, Formerly 3D-50.085.

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1. Regulatory Agency: Department of Legal Affairs

A. Activities 1. Charged with promulgating rules prohibiting acts or practices which violate Chapter 501 part II of the Florida Statutes.(The Florida Deceptive and Unfair Trade Practices Act).

2. Investigate infractions, administer oaths, subpoena witnesses or matter and collect evidence.

3. Maintain confidentiality of intelligence or investigative information where applicable.

B. Remedies

1. Obtain declaratory judgment

2. Bring civil action on behalf of consumers

3. Civil Penalties not to exceed $10,000 per violation.

4. Order of restitution or reimbursement.

5. Report infractions of other statutes to the appropriate official or agency. .

II Other Regulatory Entities of interest

A. Federal Trade Commission

1. Truth in Lending Act

B. Federal Reserve Board

1. Regulation Z

III. Areas of Major Concern for Dealers

A. At time of sale.

1. Sales (product) Representations based on fact. a. Prior use such as demonstrator, executive vehicle, or known history b. Quality of care c. Prior structural or substantial skin damage d. Warranty express or implied (see F. S. 672) e. May not obtain signatures on incomplete or inaccurate contracts. f. May not require or accept deposit without notice of terms of refund policy in writing.

g. May not add to the cash price of a vehicle any fee or charge prohibited by law. h. May not alter odometer. i. Must disclose actual year and model of vehicle.

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j. Can't unjustly bump price after accepting an order or contract. k. Must disclose profit as part of "delivery get/ready" if you charge for it. l. Must not do any intentional deceptive practice

B. Advertising practices 1. Interest rates must be disclosed in terms of APR (Annual Percentage Rates)

2. Trigger terms (amounts of down payment, payment, finance charge, Number or period of payments) automatically require full disclosure of following: a. Cash price of loan b. The amount of down payment. c. Number, amount and due date of payments. d. APR (Annual Percentage Rate).

3. Bait and switch is not allowed. The dealer may not: a. Refuse to show or sell an advertised item. b. Degrade advertised product to discourage sale c. Show or demonstrate a vehicle that is defective, unusable or impractical for the purpose represented or implied in advertisement. d. Use a sales or compensation plan to discourage selling advertised objects. e. Deliver an advertised product which is defective, unusable or impractical for the purpose represented or implied in the advertise- ment.

C. Warranties

1. Must fully disclose in writing at or before sale any warranty or guarantee, terms, obligations or conditions given by the dealer or manufacturer.

2. Must honor any express or implied warranty that dealer has offered unless properly disclaimed in writing, in a conspicuous manner and in layman's terms.

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Watch Out For Deception

Generally, the second most expensive purchase a person makes during his lifetime is a car. And, since he will probably want a different car every two to five years, the average buyer may have to deal with a car dealer a dozen times during his lifetime.

Certainly, the statutes were intended to make honesty and fair play a part of our lives. Dishonest buying and selling activities should be stopped. But, an intelligent person should always keep in mind that not every seller is a thief, and not every buyer is a saint. To best protect yourself and your reputation, you should learn as much as you can about how to avoid any appearance of dishonesty or deceit.

One of the first remedies attempted against a dealer is that of simply trying to back-out of the sales contract on the basis that the dealer acted deceptively or unfairly. All that has to be done is to prove to the court that you the dealer (or your salesman or closer or your advertising media) made a material representation or omission which is likely to mislead a consumer acting reasonably under the circumstances.

Some of the most frequently cited representations are as follows: Falsely represented a specific material fact. Knew or should have known that a representation was false. Made a representation without knowledge of its truth or falsity.

Even though you or your representative made what you intended to be a totally innocent representation, if it turns out that it was false and the customer parted with his money believing that representation to be true, the contract could be voidable.

Some examples of statements and practices that could be attacked as fraud are as follows:

Discuss the previous usage of a vehicle (little ole lady).

Discuss the quality of care provided by prior owner.

Discuss the regularity of service previously provided.

State that dealer’s mechanic checked it out as OK.

Have blank spaces on signed contract.

Hide or pass-over disclosures meant to inform customer.

Slide insurance on contract without customer knowing.

Expressed warranties (verbal promises) by salesman.

Discuss the ‘‘fitness for a particular purpose’’.

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Buyers Guide Regulations

The federal government has set up guidelines and rules to protect the public from deceptive and/or unfair practices by motor vehicle dealers. This rule defines the usage, wording and size specifications for the ‘‘Buyers Guide’’ window form which must be displayed on all vehicles offered for sale by a dealer. An exact wording of this rule may be obtained from the Federal Trade Commission (16 CFR Part 455). This report is intended to summarize the rule for you but is not intended as a legal opinion or guide.

Since the intent of this rule is to prevent deceptive and/or unfair acts and practices by a vehicle dealer, it would be wise to understand what these terms mean. For purposes of definition, the term ‘‘deceptive’’ act or practice by a dealer includes (but is not limited to) the act of misrepresenting the mechanical condition of a used vehicle, misrepresenting the terms of any warranty offered in connection with the sale, or representing that a warranty exists when in fact it does not. Likewise, the term ‘‘unfair’’ act or practice by a dealer includes (but is not limited to) the act of failing to disclose, prior to the sale of a vehicle, that no warranty exists or the act of failing to make available, prior to the sale, the terms of any written warranty offered in connection with the sale.

For purposes of gaining your attention, I would like to point out that there are extremely severe penalties for intentionally (or unintentionally) violating this rule. The maximum penalty is $10,000 per vehicle sold or offered for sale. Your actual penalty may possibly be smaller, but most probably could be many hundreds of dollars per vehicle even if you just accidentally forget to put a Buyers Guide in the vehicle window. Many dealers have found out the hard way that this is not something to be taken lightly. This law is enforced by the Federal Government and the Division of Motor Vehicles. Although representatives of the federal agency can’t possibly get around to every dealer in the country on a frequent basis, your Division of Motor Vehicles representative will be there on a regular schedule of once or twice a year. Make sure your dealership displays the Buyer's Guide as required.

In its simplest form, the rule requires that before you offer a vehicle for sale to a consumer, you must prepare, fill in as applicable and display in or on that vehicle a ‘‘Buyers Guide’’ window form as specified and described in this rule. A completed copy of the final window form must be given to the purchaser at the time of sale, and a copy must be retained in your permanent files. If the sale is conducted in Spanish, then a Spanish language version of the Buyers Guide must be used. This form is automatically incorporated into the Contract of Sale for each sold vehicle and it overrides any contract provisions that may conflict with it.

Your ‘‘Bill of Sale’’ or ‘‘Contract of Sale’’ must contain the following wording:

‘‘The information you see on the window form for this vehicle is part of this contract. Information on the window form overrides any contrary provisions in the contract of sale.’’

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The rules governing the placement and display of the window form are simple and any deviation from the rules will not be acceptable.

(1) Use a side window to display the form so both sides of the form can be read, with the title ‘‘Buyers Guide’’ facing to the outside. You may remove a form temporarily from the window during any test drive, but must return it as soon as the test drive is over. Note: In early 1996 the FTC ruled that Buyers Guides may alternately be posted on windshields or rear view windows.

(2) The type size, capitalization, punctuation and wording of all items, headings, and text on the form must be exactly as required by this rule. It is probably most wise to trust your state dealers association to provide your forms to you (at a cost of course).

The following are definitions that apply to this subject:

VEHICLE means any motorized vehicle, other than a motorcycle, with a gross vehicle weight rating (GVWR) of less than 8500 pounds, a curb weight of less than 6000 pounds, and a frontal area of less than 46 square feet.

USED VEHICLE means any vehicle driven more than the limited use necessary in moving or road testing a new vehicle prior to delivery to a consumer, but does not include any vehicle sold only for scrap or parts (title documents surrendered to the state and a salvage certificate issued).

DEALER means any person or business which sells or offers for sale a used vehicle after selling or offering for sale five (5) or more used vehicles in the previous twelve months, but does not include a bank or financial institution, a business selling a used vehicle to an employee of that business, or a lessor selling a leased vehicle by or to that vehicle’s lessee or to an employee of the lessee.

CONSUMER means any person who is not a used vehicle dealer.

WARRANTY means any undertaking in writing, in connection with the sale by a dealer of a used vehicle, to refund, repair, replace, maintain or take other action with respect to such used vehicle and provided at no extra charge beyond the price of the used vehicle.

IMPLIED WARRANTY means an implied warranty arising under state law (as modified by the Magnuson-Moss Act) in connection with the sale by a dealer of a used vehicle.

SERVICE CONTRACT means a contract in writing for any period of time or any specific mileage to refund, repair, replace, or maintain a used vehicle and provided at an extra charge beyond the price of the used vehicle, provided that such contract is not regulated in your state as the business of insurance.

YOU means any dealer, or any agent or employee of a dealer, except where the term appears on the window form required by section 455.2(a).

In states where a lemon law or an implied warranty law covering serious problems exists, or where a prohibition exists against ‘‘as is’’ sales of vehicles, that state law overrides the part of the Buyers Guide that pertains to ‘‘as is’’ purchases and in no way

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gives you the right to sell ‘‘as is’’. In Florida, motor vehicle dealers are allowed to sell ‘‘as is’’.

If the vehicle is still under the manufacturer’s original warranty, you may add the following paragraph below the ‘‘full/limited Warranty’’ disclosure:

‘‘MANUFACTURER’S WARRANTY STILL APPLIES. The manufacturer’s original warranty has not expired on the vehicle. Consult the manufacturer’s warranty booklet for details as to warranty coverage, service location, etc.’’

When listing specific systems covered, do not use shorthand, such as ‘‘drive train’’ or ‘‘power train’’. Be specific: interior parts of the engine, transmission, differential, etc.

If you make a Service Contract available on the vehicle you must check the appropriate box on the Buyers Guide.

Be sure to complete all of the areas of the form that call for Make, Model, vehicle identification, etc. You do not have to show the stock number but it is probably wise to do so, just so there will be less chance of getting paperwork confused.

Always include the name and address of the dealer. And in the spaces provided include a name and phone number for the person to whom complaints should be directed.

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What Is As-Is

Any time a dealer offers a four wheel passenger vehicle for sale he is required to post a "Buyer's Guide" so that it can be conspicuously seen on both the front and back by the potential buyer. This is to indicate to the buyer that the vehicle has a warranty or that it has NO warranty. This is no big deal when you are selling new or "almost new" vehicles because they either have a full warranty or they inherit the rest of the warranty period from the previous owner. Even if there is no time left on the original warranty and the dealer made up his own warranty such as a 50-50 warranty where each of you pay half, it must still be in writing and must be shown and given to the buyer. But, it may require a little more planning when you are selling older vehicles where there is no manufacturer's warranty. Dealers have been doing this for untold years using a procedure known as "as is". The funny thing about this is that many of those dealers have no idea what an "as is" disclosure is all about, except that they believe that it takes them off the hook and they are not responsible for any repairs after the vehicle is sold. They never go much deeper into the subject because they believe that it is not necessary.

First, you should be aware that there are two basic types of warranties.... Express.. and Implied. They are easy to tell apart, because express warranties are usually written down and can be reasonably discussed since both parties are looking at the same words of a warranty contract. Implied warranties are not quite as simple. They are not written down in any contract, so one person's opinion may not be based on the same words as another person's. In fact, some implied warranties aren't even mentioned at the time of the sale. The Uniform Commercial Code allows for certain automatic implied warranties on any sale, whether it is a wrist watch or an automobile. The "as is" agreement that dealers prize so much really only applies to and negates implied warranties, the most notable being "the implied warranty of merchantability".

In America, when a person buys a product, there is an automatic "implied warranty of merchantability". Basically this means that when you sell an object that has a purpose, it must perform that purpose. It doesn't mean that it must be perfect, but it does apply to the basic functions of the object. Watches tell time, food is edible, cars run and stop. At the time of the sale, this warranty is automatic, even without a written agreement and even without you doing anything. But in the most of the USA, a customer can sign away his rights under the "implied warranty of merchantability" simply by signing an "as is" disclaimer. The Buyer's Guide is an example of just such a disclaimer. But, that is not where it ends. You have certain responsi- bilities to observe, and a wise dealer is well aware of these responsibilities.

First and foremost, you must indicate on the Buyer's Guide that this is an "as is" sale. That is critical. If you forget to do it, there is NO "as is". Additionally, since courts have shown that any disclaimer must be "conspicuous", I recommend that you not only have him sign the back of the Buyer's Guide, he should also sign a separate "as is" disclaimer, disavowing any and all implied warranties. Be sure to give him a copy of each.

No disclaimer, even the "as is", will protect you from deceptive practices such as concealing fraud or committing unconscionable acts.

Examples of the above deceptive practices are as follows: You can conceal fraud by not explaining disclaimers, rushing through a deal in order to gloss over a disclaimer or by hiding documents from the buyer's sight. An unconscionable act could be done by putting a customer

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in a car that has no brakes.

You must never sell something "as is" and then make repairs free of charge. This negates the "as is" disclaimer entirely. If you are going to make a free repair, at least get a "repair release order" that reconfirms your "as is" relationship before doing the work.

Never show both an "as is" and a warranty agreement on the same document.

Another implied warranty that you should be aware of is the Implied warranty of fitness for a particular purpose. Usually it is a salesman who gets you in trouble with this one He sells a vehicle that he promises will pull a trailer or boat, but it is too light for that purpose. Try to emphasize that you are selling private use vehicles only and do not sell for any purpose other than simple pleasure use.

If, by chance, you do provide the customer a warranty you must be sure to write on the Buyer's Guide what is covered and who will fix it and how much deductible applies for each of the vehicle's systems being covered and for how long does this warranty last. Even if the warranty is a simple 50/50 warranty it must be clearly written on the Buyer's Guide and an agreement should be prepared to spell it all out in detail. A complete list of the major component systems on a vehicle is printed on the back of the Buyer's Guide.

Remember that there is a difference between a warranty and a service agreement. A warranty is included in the price of the vehicle and is not separately charged for. A service agreement is sold for extra money and is separately charged for.

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Used Car Dealer Advertising Practices

State Statutes and Rules directly govern the methods, content and accuracy of your automobile advertising. This covers advertising that is published, broadcast, or even displayed on the vehicle itself. Even the painted prices that you show on the windshields are considered to be advertising. The laws are rather strict, and are generally aimed at trying to stop the con-man or fast-talk artist from taking advantage of the consumer. Unfortunately, the honest dealer must operate under these over- protective rules and may sometimes find himself unintentionally breaking the law even though he was just doing what he thought was fair. A breach of the rules made with innocent intentions may not land you in jail, but it will probably cost you profits, legal expenses, penalties and a general bad image through word of mouth or through the press.

Advertising practices are under the watchful eye of the State Attorney General’s Office. They are required to review and investigate all potential unfair and deceptive trade practices, including automobile dealer advertising and representations which have a capacity or tendency to mislead or deceive the public. Chapter 501, Part II, Florida Statutes and Florida Administrative Code chapter 2-9 are the most active elements of the Florida Statutes/Rules to watch out for. The Attorney General is also responsible for enforcing the Federal Truth in Lending Law. Obviously, you are affected by other Statutes and Rules, but these are the ones that are focused on in this report. As always, when in doubt, consult your attorney. This report is not intended to give legal opinions or advice. It is an effort to familiarize you with potential pit-falls that may be your responsibility. (Other Florida Statutes you may wish to examine are 817.45, 817.41, and 849.094).

The following are some words and practices that you must approach cautiously:

Advertised Price If you advertise a price, you must state the make, model, year, and the commonly accepted trade brand or style name of the vehicle. Advertised prices must include all costs except for taxes, registration, and title fees. This means that the advertised price must already include any charges for notary and handling, dealer get- ready, and delivery costs. Don’t advertise a price, not even on a windshield, and then charge more than that price by adding on notary, get-ready, etc. There are certain exceptions to the above rule when two or more dealers advertise jointly and the ‘‘add- on’’ prices vary between the dealers involved. Then, the advertisement must disclose that the specified items will be ‘‘added on’’ to the advertised price.

Advertised Finance Terms/Payments Even though your actual interest charge may originate from an ‘‘add-on’’ interest rate, any finance rates shown in your advertising must be accurately stated as A.P.R. (Annual Percentage Rate).

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When advertising credit terms (closed-end credit) if you mention any of the following ‘‘trigger words’’:

a. Amount of down payment

b. Amount of any payment

c. Number of payments

d. Period of payments

e. Amount of any finance charge

Then, you must disclose the following items:

a. Cash price of the loan

b. Amount of down payment

c. Number, amount and due date of payments

d. Annual percentage rate.

Deposits If you take a deposit on a specific vehicle, you must give the customer a receipt showing the amount of the deposit, how long you will hold the vehicle from sale to others, and if and under what circumstances the deposit is refundable.

Contracts You may not allow a customer to sign a contract which is not fully completed at the time signed or which does not reflect accurately the negotiations and agreement between the customer and the dealer.

Price Bump If you advertise a purchase price, you may not arbitrarily bump the price when the prospect comes in. If you accept an order for purchase or a contract from a customer, you may not bump the price later unless the bump is for: a) Customer’s trade is damaged or parts are removed after you made your appraisal. b) New equipment is suddenly required by law. c) Increase of a foreign vehicle’s cost is caused by re- evaluation of the U. S. dollar. d) Increase is caused by State or Federal tax rate change. e) New vehicle manufacturer, importer, or distributor provides you no price protection.

Delivery/Get Ready If you advertise a purchase price for a vehicle, you may not ‘‘add- on’’ an extra fee for delivery get-ready. If you sell below the advertised price, or if you sell a vehicle for which the price was not advertised, then you may charge for delivery get-ready as an add-on; but, the total price including the add-on’may not add back up to an amount above the advertised price. A new vehicle dealer may not charge for a pre- delivery service for which the costs will be reimbursed to him from the manufacturer. If you charge for ‘‘delivery get-ready’’, you must include on all documents which contain a line item for such charge the following words: ‘‘This charge represents costs and profit to the seller/dealer for items such as inspecting, cleaning and adjusting new and used vehicles and preparing documents related to the sale.’’ You may attach a sticker to

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the vehicle window to disclose the cost of dealer get-ready and any other costs for added features, showing a bottom line total price of the vehicle; then, you do not need to itemize it separately on the sales order or contract.

Registration, Tag and Title You must not charge more for registration, tag and title than what was charged by the State to you. This is not a profit making ‘‘add-on’’. If you charge more, you must rebate any excess to the customer, or give him credit on his remaining balance if you are financing the deal yourself.

Notary and Handling As a rule, notary and handling are to be treated just like ‘‘delivery get-ready’’. That is, if a total price of a vehicle is advertised, you may not add-on an extra fee for it. If you sell the vehicle below the advertised price, or if you sell a vehicle for which the price was not advertised, then you may charge for notary and handling as an add-on; but, the total price including the add-on’s may not add back up to an amount above the advertised price.

Insurance Added to Contract You may add-on the cost of bonafide insurance and extended service agreement products to the total cost of the loan. You do not have to include the cost of these products in your advertised total price. You should be aware that you have the right to insist that the borrower protect the note with credit insurance, but you may not insist that he purchase the insurance from you. He could purchase it elsewhere naming you as beneficiary or he could name you as a beneficiary of an existing policy.

Bait and Switch Some examples of the illegal act known as bait and switch are: Refusal to show, demonstrate or sell a product offered in an advertisement, using degrading acts or words to discourage the purchase of an advertised item, using a sales plan that discourages your salespeople from selling an advertised item, and advertising a product that is defective, unusable, or impractical for the purpose represented or implied in the advertisement for the purpose of drawing persons in so that they may be offered a different product.

Demonstrator If you call a vehicle a demonstrator or use words of similar meaning to describe it, it must refer to vehicles which have been driven by prospective customers of yours or of another dealership.

Prior use and/or Care If you represent that a vehicle was cared for or used in a certain manner or by a certain type of person in the past, you must have proper information regarding the history to support the claim.

Condition as Advertised You may not advertise a vehicle unless you intend to sell it as advertised. It is illegal to show or demonstrate a product which is defective, unusable, or impractical for the purpose represented or implied in the advertisement.

Free If you advertise items which are free, but which include conditions or obligations, a statement of such conditions or obligations must be set forth with equal prominence and type size of at least half that of the word ‘‘free’’.

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Structural or Skin Damage If you are selling a current model year vehicle which has been structurally damaged or if the ‘‘skin’’ has been patched or repainted, you must disclose it in writing to the customer prior to the sale. If not current year model, you must not claim that there is no history of such damage unless you have inspected the vehicle and can support the claim.

Foreign Language If more than five percent of your gross sales at a single location are negotiated in a language other than English, the law requires that you have a copy of the contract available for that customer translated into his foreign language. It should say: READ THIS FIRST.

Game Promotions If you are going to use a game style promotion, be sure not to charge an entry fee or payment, nor should you require a proof of purchase. If you are going to go ‘‘big-time’’ with the value of your prizes, get an attorney first.

Warranty If you promise (expressed or implied) a warranty you must honor it. A casual statement by a salesman that ‘‘Oh, we will fix that for you’’ can be binding. If there is NO warranty, such disclosure must be made conspicuously and must be in layman’s words. If you make a repair to a ‘‘sold vehicle’’, after you have sold it with an AS-IS WARRANTY, be careful. You may be voiding your own freedom from making other ‘‘assumed warranty’’ repairs free in the future. You should at least get a declaration signed by the customer that he is aware that this does not change the status of his original AS-IS (no warranty) sales agreement. The declaration may not offer you complete legal protection against future repair obligations but it is a good start at documenting your intentions.

Lien if Paid by Check If you sell a vehicle and the customer pays you with a personal check, it is not wise to deliver the vehicle or the title to him until you know that the check has cleared the bank. If, in order to protect yourself, you decide to place a lien on the vehicle until the check clears, you must advise the customer at the time of the sale that you are doing so and get the customer's written authorization to file the lien on his vehicle. And, you must advise him of the procedures and cost to him for having the lien removed when the check clears.

This report is intended as an information piece only and not as legal representations. You should challenge and research for yourself any items that you think may be questionable. You may even wish to present a copy of this report to your attorney for

verification or correction.

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UNFAIR OR DECEPTIVE ACTS OR PRACTICES; VEHICLES

501.975 Definitions.—As used in s. 501.976, the following terms shall have the following meanings:

(1) “Customer” includes a customer’s designated agent. (2) “Dealer” means a motor vehicle dealer as defined in s. 320.27, but does not include a motor

vehicle auction as defined in s. 320.27(1)(c)4. (3) “Replacement item” means a tire, bumper, bumper fascia, glass, in-dashboard equipment,

seat or upholstery cover or trim, exterior illumination unit, grill, sunroof, external mirror and external body cladding. The replacement of up to three of these items does not constitute repair of damage if each item is replaced because of a product defect or damaged due to vandalism while the new motor vehicle is under the control of the dealer and the items are replaced with original manufacturer equipment, unless an item is replaced due to a crash, collision, or accident.

(4) “Threshold amount” means 3 percent of the manufacturer’s suggested retail price of a motor vehicle or $650, whichever is less.

(5) “Vehicle” means any automobile, truck, bus, recreational vehicle, or motorcycle required to be licensed under chapter 320 for operation over the roads of Florida, but does not include trailers, mobile homes, travel trailers, or trailer coaches without independent motive power.

History.—s. 28, ch. 2001-196.

501.976 Actionable, unfair, or deceptive acts or practices.—It is an unfair or deceptive act or practice, actionable under the Florida Deceptive and Unfair Trade Practices Act, for a dealer to:

(1) Represent directly or indirectly that a motor vehicle is a factory executive vehicle or executive vehicle unless such vehicle was purchased directly from the manufacturer or a subsidiary of the manufacturer and the vehicle was used exclusively by the manufacturer, its subsidiary, or a dealer for the commercial or personal use of the manufacturer’s, subsidiary’s, or dealer’s employees.

(2) Represent directly or indirectly that a vehicle is a demonstrator unless the vehicle complies with the definition of a demonstrator in s. 320.60(3).

(3) Represent the previous usage or status of a vehicle to be something that it was not, or make usage or status representations unless the dealer has correct information regarding the history of the vehicle to support the representations.

(4) Represent the quality of care, regularity of servicing, or general condition of a vehicle unless known by the dealer to be true and supportable by material fact. (5) Represent orally or in writing that a particular vehicle has not sustained structural or substantial skin damage unless the statement is made in good faith and the vehicle has been inspected by the dealer or his or her agent to determine whether the vehicle has incurred such damage.

(6) Sell a vehicle without fully and conspicuously disclosing in writing at or before the consummation of sale any warranty or guarantee terms, obligations, or conditions that the dealer or manufacturer has given to the buyer. If the warranty obligations are to be shared by the dealer and the buyer, the method of determining the percentage of repair costs to be assumed by each party must be disclosed. If the dealer intends to disclaim or limit any expressed or implied warranty, the disclaimer must be in writing in a conspicuous manner and in lay terms in accordance with chapter 672 and the Magnuson-Moss Warranty—Federal Trade Commission Improvement Act.

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(7) Provide an express or implied warranty and fail to honor such warranty unless properly disclaimed pursuant to subsection (6).

(8) Misrepresent warranty coverage, application period, or any warranty transfer cost or conditions to a customer.

(9) Obtain signatures from a customer on contracts that are not fully completed at the time the customer signs or which do not reflect accurately the negotiations and agreement between the customer and the dealer.

(10) Require or accept a deposit from a prospective customer prior to entering into a binding contract for the purchase and sale of a vehicle unless the customer is given a written receipt that states how long the dealer will hold the vehicle from other sale and the amount of the deposit, and clearly and conspicuously states whether and upon what conditions the deposit is refundable or nonrefundable.

(11) Add to the cash price of a vehicle as defined in s. 520.02(2) any fee or charge other than those provided in that section and in rule 69V-50.001, Florida Administrative Code. All fees or charges permitted to be added to the cash price by rule 69V-50.001, Florida Administrative Code, must be fully disclosed to customers in all binding contracts concerning the vehicle’s selling price.

(12) Alter or change the odometer mileage of a vehicle. (13) Sell a vehicle without disclosing to the customer the actual year and model of the vehicle. (14) File a lien against a new vehicle purchased with a check unless the dealer fully discloses to

the purchaser that a lien will be filed if purchase is made by check and fully discloses to the buyer the procedures and cost to the buyer for gaining title to the vehicle after the lien is filed.

(15) Increase the price of the vehicle after having accepted an order of purchase or a contract from a buyer, notwithstanding subsequent receipt of an official price change notification. The price of a vehicle may be increased after a dealer accepts an order of purchase or a contract from a buyer if:

(a) A trade-in vehicle is reappraised because it subsequently is damaged, or parts or accessories are removed;

(b) The price increase is caused by the addition of new equipment, as required by state or federal law; (c) The price increase is caused by the evaluation of the United States dollar by the Federal Government, in the case of a foreign-made vehicle;

(d) The price increase is caused by state or federal tax rate changes; or (e) Price protection is not provided by the manufacturer, importer, or distributor. (16) Advertise the price of a vehicle unless the vehicle is identified by year, make, model, and a

commonly accepted trade, brand, or style name. The advertised price must include all fees or charges that the customer must pay, including freight or destination charge, dealer preparation charge, and charges for undercoating or rustproofing. State and local taxes, tags, registration fees, and title fees, unless otherwise required by local law or standard, need not be disclosed in the advertisement. When two or more dealers advertise jointly, with or without participation of the franchisor, the advertised price need not include fees and charges that are variable among the individual dealers cooperating in the advertisement, but the nature of all charges that are not included in the advertised price must be disclosed in the advertisement.

(17) Charge a customer for any predelivery service required by the manufacturer, distributor, or importer for which the dealer is reimbursed by the manufacturer, distributor, or importer.

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(18) Charge a customer for any predelivery service without having printed on all documents that include a line item for predelivery service the following disclosure: “This charge represents costs and profit to the dealer for items such as inspecting, cleaning, and adjusting vehicles, and preparing documents related to the sale.”

(19) Fail to disclose damage to a new motor vehicle, as defined in s. 319.001(9), of which the dealer had actual knowledge, if the dealer’s actual cost of repairs exceeds the threshold amount, excluding replacement items.

In any civil litigation resulting from a violation of this section, when evaluating the reasonableness of an award of attorney’s fees to a private person, the trial court shall consider the amount of actual damages in relation to the time spent.

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Independent Motor Vehicle Industry Trends

A. Evolution of the Motor Vehicle Industry.

1. History of Automobile Sales a. Henry Ford and the assembly line 1. Toy for Rich and Nearly Rich 2. Middle class and poor left out 3. Few roads... poor reliability b. Automobile caught on 1. Roads built 2. Banks began loaning to higher class borrowers 3. Even through the 1920s and 1930s lower classes had no cars

2. Follow the money. a. Four classes of borrowers 1. "A" class paper... wealthy, owners, good history, good income 2. "B" class paper... Well off, managers, good history, good income 3. "C" class paper... Blue collar, clerical, service, lower income 4. "D" class paper... Poor credit or low income b. Bad money pushes out good money 1. Original low rates to good risks 2. Risk and Reward... the story of economics 3. State allows higher rates for auto loans c. High rates push out low rates 1. HFC, Family Finance... loan companies high rate up to $600 2. Cost of vehicles went higher than limits for high interest loans 3. Buy-here-pay-here loan technique created 4. Banks still ignored this segment of market... high risk d. State and Federal Taxes and Fees immediately payable 1. Sales taxes, Doc stamps, battery/tire fees due at time of sale 2. Federal Income Tax due on profits on accrual basis

3. Evolved lending techniques. a. Leasing as offset to high costs. b. Special finance. c. Factor financing with residuals

4. Evolved selling techniques. a. Mega dealers. 1. 600 to 1000 vehicles on display 2. Clean, well lit lots 3. No hassle window price stickers 4. Personable non-commission salesmen 5. Warranty on all sales... (fear of buying headache)

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6. Trade estimates formalized, no games or over allowances b. New car store used car department 1. Reaction to competition from mega stores a. Special finance sources b. Start own Buy-here-pay-here plans c. Copy gimmicks of mega stores d. Second time around leasing e. Franchisers (Chrysler, GMC, Ford) tighten warranty transfers c. Easy lending. 1. Special finance sources available 2. More use of credit bureaus by small dealers (CBI, TRW, TransUnion

B. Industry Response to Evolution.

1. Lower down payment requirements. a. Automatic cash problem. b. Upside down is normal. 2. Guarantees and give a ways. a. Warranty and extended service.. b. Free exchange. c. Side-notes for repairs. 3. Provide easier credit. a. No credit or bad credit are accepted. b. More collectors hired.

C. Where are we headed?

1. Survival of fittest 2. Warranties and extended service more prominent 3. Heavier attention to leasing 4. Rising and falling of Special Finance Companies 5. Improvisation of lending techniques.... lower down, balloons, semi-lease

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A Brief History of Lending in America

Around the beginning of 1900, unsecured and/or risky loans were not available to blue collar and low income workers. Those who had a reasonably high income or who owned property or had good equity in personal possessions could just go to their local banker and borrow money at a reasonable rate.

Because laws existed to limit interest rates and control the world of finance and banking, it was not cost effective for banks to make small, unsecured loans to low income customers. Interest rates were (and still are) fixed by law, and any attempt to charge more than the legally allowed interest rate fell under the Usury Laws and was punishable by loss of license, fines, and/or prison terms. Yet, if you charged the same interest rate to a high risk customer that you did to a low risk customer, your losses (defaults) ate up your profits. In addition, the overhead cost of paperwork and handling that was required to administer a high risk loan was too expensive when compared to the same interest rates on a loan to a low risk customer who would probably borrow more money, for a longer time, with a much greater prospect of repaying the loan.

Those in the lower income brackets were forced to go elsewhere to borrow money or obtain credit. Usually, the options were grossly unfair and extremely costly. There were merchants who would ‘‘run a tab’’ for you, but the cost of their merchandise was generally much higher than what you could have found on the open market if you had cash. This was a form of hidden interest charges, but it was so common that it was totally overlooked. Still, this was probably the best deal in town if you needed help.

The old phrase ‘‘I owe my soul to the company store’’ has been made famous in song and verse over the years. The real truth of it will probably never be understood by future generations because of easy credit and competitive prices that exist today. Many factories set up ‘‘company stores’’ to make clothing and food-stuffs available on credit to their employees. The idea was sound, and in general was admirable. But, easy credit can turn some customers into greedy spenders just like easy profits can turn some merchants into greedy sellers. A little bit of both crept into this market place and soon people were living from week to week just to make enough money to pay last weeks shopping bills.

But, if you were in a low income status, you did not have to go to a local merchant or a company store, you could go to a loan shark and borrow money for a week, a month, or some other short term for extremely high interest rates. These types of loans were not generally secured by property or value. They were secured, most often, by body parts. ‘‘You no pay...you lose your legs’’.

In an effort to solve the problems that low income borrowers faced, Federal and State governments began passing laws to make it easier and more reasonable for them to obtain loans. The ‘‘Uniform Small Loan Law’’, ‘‘The Model Consumer Finance Act’’, and ‘‘The Truth-in-lending Simplification and Reform Act’’ are just a few of the literally thousands of laws that are on the books today to regulate the lending industry. Every state has some special twist or interpretation of the law that makes it just a little

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different from the others. This is probably a natural thing because of the differences in backgrounds and way-of-life in small agricultural states as opposed to highly populated, ‘‘Big City’’ oriented states. From State to State people’s life styles are different, and therefore each State’s approach to protecting their people is different. This doesn’t become a problem unless you go to live or work in a different State than the one you are used to doing business in. And, Heaven help you if you conduct a lending business in more than one State at the same time without plenty of research and study.

Retail Installment Sellers, Buy-here Pay-here Auto dealers in particular, have a tough battle when it comes to extending credit to a prospective buyer. Will he leave town (skip) and not pay? Will he treat the merchandise poorly and then leave it on the road abandoned? Will he die, or get sick and not be able to pay? Will he wreck it and then say ‘‘it is yours now, mister’’? Will it end up in some garage with towing and storage charges building up each day just waiting for the dealer to come bail it out? Will it be stolen or set on fire and then forgotten? Will some simple mistake or oversight on the Sales Contract make the State or Federal Agency come down on the dealer and make him give refunds or pay fines? With weekly payments and a lot of cash changing hands the paperwork is tremendous, the possibility of errors and internal theft is scary. It is a risky business, and its one that the banks steer away from because of the headaches and low overall profits.

So, the next time someone complains about the high interest rates charged on a Retail Installment Contract don’t even think about making excuses or apologies. You are filling a need that has historically been neglected or abused. You have higher risks, so you must have higher rates to cover them. When you consider where high risk borrowers used to be, we have come a long way.

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The Drain On Funds

By selling vehicles on an installment basis, dealers often find themselves short of funds. A dealer can sell a boat load of vehicles and suddenly find himself very broke. When a vehicle is sold on an accounts receivable basis, the dealer still has to go buy another vehicle at wholesale to replace the one that was sold. If he doesn’t, he will soon run out of inventory to show and sell to the public. Unfortunately, customer down payments seldom equal the amount of investment that the dealer had in the car that was sold. Thus, a dealer can be very rich on paper, but poor as a church mouse in his bank account.

To make matters even worse, even though the dealer has not seen a penny of profit, and may even be faced with a loss if the customer fails to pay, the government still wants him to make believe that he made all of the profit right now at the time of the sale. The Federal Tax Laws of December, 1987 forced dealers to accrue and pay income tax on sales income at the time of sale rather than recognize the income only when customer payments are received. This has forced dealers to pay taxes on money that they will not receive until one or two years later, or may never see... creating another drain on the dealer’s available cash.

Customer down payments are an immediate help to the dealer in recovering his costs on an accounts receivable sale. The more down payment he can get, the less exposure to loss he has, and the more money he has to buy replacement inventory. The size of the potential down payment available from a customer has slowly been eroded by many new requirements.

Environmental impact laws make it mandatory that dealers pay fees to the State when replacing tires or batteries on vehicles. Also, if the purchased vehicle is not replacing an existing vehicle in a family, another fee is collected by the State. Supposedly the customer is the one who is paying these fees, but in actuality whatever money the customer pays for these fees is just that much less that he can make available to the dealer as a down payment.

In a move that further reduced the amount of customer down payment available, the State enacted a new tightening of the insurance laws for drivers. Florida, wisely enacted a Financial Responsibility Law that forces all car owners to purchase and maintain at all times Personal Injury Protection (PIP) and Property Liability Insurance. Prior to the new law, owners only had to have insurance on the day they registered their vehicles, then the insurance could be lapsed without penalty. Because of this new law, buyers have less down payment to offer when purchasing cars because they must buy insurance for six months instead of the old-world technique of buying one month’s worth and letting it lapse. This higher cost of insurance puts another drain on the purchaser’s available capital.

To make matters worse, all lenders certainly want the borrower to protect his vehicle in case of an accident, fire, theft, and similar catastrophes. Asking the customer to buy this coverage for ‘‘Comprehensive and Collision’’ insurance to protect the lender’s interest

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in the car can become almost a laughing matter. Many customers who purchase this type of insurance do so by taking out yet another loan through an insurance company or agency. Then, they fail to make the payments on the insurance, and the insurance is then cancelled. The dealer has the right to repossess the vehicle under these circumstances, and many dealers do. But, the reality is that a dealer is put in a tight spot where he is damned if he does repossess, and he is damned if he doesn’t. The customer usually didn’t even want the insurance in the first place and probably would personally have preferred to take the risk of loss rather than pay the extra money for the ‘‘expensive’’ insurance products. In actuality, if a major loss does occur, the customer will most likely never finish paying off the loan even though his intentions at the beginning may have been honorable. Then, the dealer really faces a drain on funds. A busted car with probable towing and storage charges levied against it.... with no payments coming in from the customer.

Now, since prepaying taxes, paying environmental fees, facing stricter insurance requirements, and in general just trying to survive in the world has not entirely made it impossible to keep on going, the friendly insurance agent decides to stick his hand into the goodie bag. The customer, needing to buy insurance, takes a trip to an automobile insurance agent. Once he arrives, he discovers that he is probably a ‘‘high risk’’ and must pay extra for his insurance. Then, rather than just being sold insurance, he is sold a membership in a motor club and if the customer still has some money left, he is sold an accidental death and dismemberment insurance (AD&D) policy. The costs for these extras must be paid ‘‘up-front’’ by the customer. The state will not allow them to be financed like an insurance premium. So, the customer has another hundred dollars or so taken out of his pocket immediately, and the required insurance is then financed on a monthly payment basis. A large portion of customers never finish paying for the required insurance. But, the motor club and the AD&D was paid up-front. The commission on required insurance is very low, so the agent didn’t lose a lot of money when the policy was cancelled for non payment. But, the commission on the motor club and the AD&D is sometimes as high as 90%. And, that is almost never cancelled. So, the agent made his money, and maybe even illegally kicked-back some of it to the dealer’s salesman who recommended that the customer go see that particular insurance agent.

Once more, the dealer faces another drain in the money available from the customer as a down payment. To make matters worse, If the customer’s insurance is cancelled and he is involved in an accident the registration for the vehicle may be suspended. Then, since he can’t drive it, there is a reasonable chance that he won’t make his payments on it either.

There are a number of things that a dealer can do to protect himself from some of the bad things that can happen to him when a customer has an accident or gets into a legal problem with a Buy-Here Pay-Here vehicle. First, always insist on seeing proof that the lender has been named on the Comprehensive/Collision insurance policy as a lien holder and as a loss payee. At the time that you do the Retail Installment Contract, you could ask the customer to sign an insurance Power of Attorney to allow you to file claims and collect claim money if the customer is unavailable (especially good on repossessions).

TRENDS 109

Alternate Finance Sources: Factor Financing

Industry need:

1. Source for financing low-income used car buyers to enable Dealers to recover as much cash as possible up-front in order that the dealer has enough money to immediately restock inventory for more inventory turns.

How Factoring Operates:

A dealer sells a used car for $2500. The customer has $500 to use as a down payment. This leaves $2000 to be financed. The dealer sends the customer to a Finance Company. A note is signed by the customer who promises to make regular $50 weekly payments for one year, repaying the $2000 plus interest, plus the cost of Credit insurance. The title to the car is held by the finance company as collateral until the note is entirely paid back. The credit insurance is sold to protect the lender, the dealer, the customer and the family of the customer.

In years past, customers had to have a pretty stable income and had to show a reasonable history of repaying loans before a lender would accept them as a risk. Buy-here-pay-here dealers have generally loosened the credit requirements and have enabled people who have less impressive income and poor or non-existent credit to qualify for a loan by buying a vehicle and making payments to the dealer himself or to a companion loan company usually under the control of the dealer. This has proven to be a very successful way to do business. But, this type of business requires quite a lot of money to stay in operation. If the customer could pay enough down payment to cover the dealers costs and his overhead, then the dealer would soon be rolling in money if all the customers paid in a timely manner. Unfortunately, with taxes, registration, impact fees, mechanical repairs, emission control repairs, commis- sions, and the cost of getting another vehicle to place in inventory for the next potential customer the dealer goes upside down on almost every vehicle. On paper, he looks rich. In his bank account he can be extremely poor. If the dealer has plenty of cash, he can operate this way and will eventually have a stable business. If he does not have enough cash available, he could be so successful that he will soon be bankrupt because he cant continue to operate without ready cash to pay his bills, his help, and his taxes.

One way to get some quick cash on these types of deals is to let a finance company lend the money to the customer and then have the customer make his payments to the finance company. That is how it works with banks. But, banks only want the cream of the crop to make their loans to. In fact, some banks don't even want to deal with many used car dealers.

Factor finance lending institutes may be a positive way to solve this problem. They will generally lend to higher-risk customers. But, they will usually only advance a portion of the funds immediately to the dealer, and will give him the rest of his funds each month as the customer makes his scheduled payments. The amount advanced is usually enough to cover the dealers immediate costs, and then the profit portion of the deal can be recognized each month as the customers payments are received by the lender and then shared with the dealer.

An example of how this might work is as follows:

Assume that a customer has given the dealer a down payment of $800 but needs to borrow $2000 to buy the vehicle that he has chosen at the dealership. The dealers actual out of pocket costs for inventory, commissions, taxes, etc. may be $1800 and hopefully the profit may be represented by the rest. Of the $2000 the customer needs to borrow, $1000 is what is needed to just break even right now. This is out of pocket money. What makes this type of financing most interesting is as follows: The finance company may give the dealer $1000 of the $2000 loan immediately at the time of the sale. This will give the dealer a reasonably adequate cash

TRENDS 110

flow to re-stock his inventory, but will not give him his profits. Then, as the customer pays the finance company his payments each month, the company will send one half of the principal portion of that months payment to the dealer. Thus, as the finance company is paid, the dealer will also be paid. If the deal goes bad, the finance company owns the title. They have the option ofreselling the car themselves or they can invoke dealer recourse and give the car back to the dealer providing that the dealer refunds all of the money that was advanced to him at the beginning of the note, less any principal recoveries that may have received during the life of the note. With proper collateral protection (LSI) insurance on the vehicle, the dealer can put it back on the line and sell it again, starting the cycle all over again. Even if the deal does become a repossession, the dealer had the use of the finance companies money for quite some time. And, since the finance companies only business is lending and collecting money, they probably would do a better job of getting people to pay than a normal dealer would.

There are many variations and options to this method of factor financing, and a dealer would be wise to study the different options and get advice from his accountant and his attorney before beginning. There are many dealers in business today who can testify to how this type of financing has kept them alive when the need for cash was enough to choke the life out of them.

DEALER OPS 111

Independent Used Car Dealer Operations

A. Basic requirements.

1. Capital

2. Management knowledge and ability

3. Product knowledge

4. Awareness of competition

5. Marketing and sales

6. Image and type casting

B. Getting started.

1. The business

a. Locating the lot

b. Business name

c. Type of organization

1. Proprietor

2. Partnership a. Standard partnership b. Limited partnership

3. Corporation a. "C" corporation b. "S" corporation

c. LLC

2. Licensing

a. Types of dealer

1. Retail dealer

2. Wholesale dealer

b. Types of licenses

1. DMV

2. Banking and Finance

3. Insurance (credit)

4. City/County (Occupational license)

3. Surety bond

4. Insurance protection

DEALER OPS 112

a. Garage Liability and PIP (required by law)

b. Garage keepers (Other people's vehicles in your care)

c. Dealer Open Lot (Comp and Collision on vehicles in your inventory)

d. Worker’s Compensation (protect employees injured while working)

e. Owner Landlord and Tenant (cheaper way to satisfy landlord's lease)

f. Property Coverages (non-vehicle) 1. Building and contents 2. Your personal property 3. Personal property of others

g. Umbrellas

h. Employee Group health

i. Pensions

5. Record keeping

a. Federal 1. Payroll 2. Income (profit/loss)

b. State 1. DMV 2. Banking and finance 3. Insurance commissioner

c. Local/city

6. Accounting

a. Taxes 1. Federal 2. State a. Sales tax b. Doc Stamps c. State income tax d. Property tax e. Local optional Sales Tax (Surtax) f. Tangible property tax g. Intangible property tax h. Battery and Tire Fees

C. Getting third party finance (banks & lenders).

1. Types of lending plans

2. How to shop for lenders

3. Selling the deal to a lender

4. Recourse and repossession

DEALER OPS 113

D. Getting started in lending (buy-here pay-here)

1. Capital

2. Licensing

a. Statute 520 1. Motor Vehicle Retail Installment Seller 2. Sales Finance (loan company) b. Statute 516 (not generally used by dealers)

E. Personnel

1. General Manager

a. Sales manager

1. Salespersons

2. Salesclerk

3. Finance and Insurance (F&I) Representative

b. Business manager

1. Bookkeeper

2. Cash clerk

3. Title clerk

4. Collection agent

c. Service manager

1. Labor a. Shop foreman b. Service adviser (estimator) c. Mechanic d. Lot person

2. Materials a. Parts manager b. Parts clerk

d. Buyer (vehicle purchasing agent)

F. Outside services

a. Accountant or CPA

b. Attorney

c. Computer/consultant

d. Title service

e. Drive away service

f. Repossessor

f. Repossessor

DEALER OPS 114

Ways Of Getting Financing

Lack of operating capital is a problem that often stops a lot of dealers from being successful. Those who go ‘‘belly-up’’, usually just ran out of money and had no ability to borrow more. Debt financing, the activity of borrowing money to pay off debts and keep a business operating, is the usual way for a business to grow or survive when the owner needs additional funds. If you are an established business with consistent earnings and a proven track record of repayment, you should have very little trouble borrowing money. If you are less fortunate, or if you are a business that has existed for less than three years or so, you probably would have trouble borrowing from standard finance sources. Your options usually limit you to either signing personally (mortgaging your home and property) or to selling your assets (inventory or accounts receivable) at a loss far below actual market value. Then, you could take on a silent partner (usually pretty noisy when the profits are low) and lose some of the control of your business. Some of the methods of financing that are available are outlined below: Personal Investment This type of funding is very obvious. You can invest all of your savings, your friend’s savings, and you can personally mortgage and borrow on any and all of your worldly goods. This is how most business begin, and this is how a lot of personal bankruptcies and family arguments originate. If you weren’t lucky enough to be allowed to choose your own parents so you could inherit a fortune, you probably have already done this method of financing. Debt Financing This is a fancy way of saying ‘‘borrow from the bank’’. If you have sufficient credit worthiness to get a loan, this is the simplest way to get funding. You will probably have to sign personally to guarantee the note unless your business has a good long-term track record. One of the biggest drawbacks to this type of funding is that you must pay periodic payments of principal and interest even if you don’t have the income to do so. Of course, it could give you a little better understanding of how your buy-here pay-here customers feel when they are late paying you. Leasing Agents There are companies who act as a middleman to a bank or lender to arrange financing for businesses such as yours who wish to acquire certain new types of equipment. If you are considering purchasing office equipment, heavy equipment, or computer gear and are thinking about paying cash, you may wish to get a lease agreement on the equipment and use your available cash to operate your business. Public Stock Offerings Many businesses raise funds by selling stock in the corporation to the general public. This method is very complicated, time consuming, and very expensive. It is possible, but highly unlikely that a small business person will be able to successfully start a business in this manner. Usually investors will only buy-in to companies with proven track records or at least with a large supply of liquid assets or cash on hand. If you think you may want to investigate this option, contact an investment banker or an attorney who is knowledgeable in the field of securities because both the state and federal governments have strict rules and regulations on the subject. Private Stock Offerings Certain federal and state laws may be worked around by limiting your stock sales to a limited number of investors, in a limited geographical

DEALER OPS 115

area, for a limited amount of money. Rules exist outlining how you may solicit for investors, what information you make available to them, and what terms and agreements you make with them. It is not as complicated as it sounds, but you still should allow your attorney to guide you if you want to try this method. This allows you to raise funds, but not face the requirement of making monthly payments of principal and interest like you would have to do if you just borrowed the money. Venture Capital There are many sources of investment capital, including banks, private investors, corporations, pension funds, insurance companies, and private investment partnerships. There are investment companies who specialize in specific industries and will make small, medium, and sometimes extremely large investments in individual businesses. Investment capitalists demand ownership of a portion of the business, usually occupy a spot on the board of directors, and generally become involved with the actual management decisions of the business. You must be aware though, that they usually are looking for a safe, high-yield investment that can be sold within a few years for a sizeable profit. They generally are not just looking to make a little bit of interest and then be bought-out for what they paid to get in. Suppliers and Trade Credit Some parts houses and suppliers will allow you to ‘‘run a tab’’ until the end of the month, allowing you to pay by statement instead of by invoice. This can buy you some time, but is really just a form of short-term financing. Consignment There are some wholesalers or ‘‘consignment dealers’’ who have allowed some dealers to put vehicles up for sale without paying until the vehicle is sold. This is a form of floor planning that is hard to find, but is nice to have when building an inventory. The responsibility for care, custody and control of the inventory is on your shoulders and would impact your insurance and security obligations. Floorplanning Some finance sources will advance funds to you so that you may increase your vehicle inventory. They assume control of the title to the vehicle, and you assume control of the vehicle itself so that you can display it for sale. You generally must pay interest monthly on the total amount of the floorplan balance and must immediately pay-off the balance on each vehicle the instant it is sold. If you are selling buy-here pay-here vehicles, your down payment may not even be enough to payoff your floorplanner so you could ‘‘go backwards’’ in your cash position even though you made a sale. If you play ‘‘hanky-pankY’’ with your floorplanner and neglect to pay him when a vehicle is sold, you could be in for a hard time. He could consider you to be in default and could demand payment on all sold and unsold vehicles immediately, pushing you into bankruptcy. While this technique is usually used by New Car Dealers, it is sometimes done by used car dealers as well. Even though you may have to sign a personal guarantee and also surrender the title, it may be worth it. You may want to approach your banker or someone with available money that they wish to invest for a safe high-yield return and suggest this type of loan activity. Factoring There are some lenders who function like a small loan office, lending money to your customer using the vehicle as collateral. Your customer will sign a note just as though he were borrowing from a bank or finance company and will make his payments directly to the ‘‘factor’’ finance company. The finance company will pay you a portion of the amount the customer needed to borrow to buy your vehicle, then the company

DEALER OPS 116

will pay you a portion of the principal payment each month as your customer makes his payment to the finance office. You get part of your money now, and the remainder as it is paid by your customer. If your customer defaults, you are required to accept recourse, take back the vehicle, and give back any unrecoverable money that was advanced to you by the finance company. This is a way to get some immediate cash to replace sold inventory and you can also duck some of the headaches of collecting payments. You don’t make any interest income, but you do get funds available immediately to buy more inventory and pay operating expenses. Third Party Finance Everyone is familiar with the fact that a customer could go to his bank and borrow the money to buy a vehicle from you. This type of financing goes one step beyond. Instead of the customer going to his own bank, you select the bank for him. You take his application, send it to the bank, and then actually complete the loan agreement yourself using the bank’s own contract form. For this, you not only get paid immediately, but you may also receive a commission (reserve) on the amount of interest that the bank earns off the note. You may or may not be faced with recourse if the note goes bad. The age of the vehicle and the credit worthiness of the customer are big items in determining whether the loan will be granted. Don’t just ignore this source of funding because you heard that nobody wants to buy ‘‘used car paper’’. There are many lenders who are willing to buy, as long as you don’t try to bury them and the customer by selling scrap iron at platinum prices. Sale of Assets You can obviously sell off some of your assets such as furniture, property, and inventory. However, you could also sell off part of your existing accounts receivables. There are a number of companies who are willing to analyze your list of accounts receivable customers and will buy some or all of your accounts for a reduced percentage of face value. Selling at a discount can get you a quick influx of cash to be used as you see fit right now. You lose the future income from accounts receivable accounts that you sell off, but you (depending on your agreement with the finance source) may never have to face a repossession or collections headache again. If you only have a small quantity of accounts, you may want to sell off some to free up some money for operating expenses and inventory. Once you have a large base of accounts receivable accounts, it may be worth your while to think about selling off some of them to pay those nasty taxes that you had to pay because the government expects you to pay tax on profits before you ever make a profit. Government Backed Loans The federal government has many plans that allow businesses with limited credit to borrow at reduced rates of interest. Some of the loan plans are: Small Business Administration Loan, Disabled veterans loans, Vietnam-era veterans loans, Handicapped Assistance loans, Minority business loans, etc... There is a lot of paperwork, but there may be help there for you.

DEALER OPS 117

Buy-Here Pay-Here Market Concepts

Retail installment sales is a large and continuing part of the buying patterns of the American public. Two extremely profitable areas associated with retail installment sales are Finance and Insurance. These two market areas are generally referred to as ‘‘F&I’’. Many banks and insurance companies exist to offer lending and insurance services to most sectors of the retail sales industry. It is a crowded marketplace, but it is generally a conservative marketplace so finance and insurance sources for used car dealers are not as readily available because of the high risk and low dollar volumes of loans.

The Used Car marketplace has historically depended on customers who could buy with cash or could borrow from a lending institution such as a bank or small loan company. Generally, banks do not want to lend money to potentially high risk low-income persons on cars that are over five years old. For a long time, ‘‘small loan’’ companies provided high-interest finance for this riskier type of borrower. During the past ten years (or more), the borrowing habits of high-risk Used Car customers have migrated from the formal lending institutions to the ‘‘self-funded’’ independent car dealer who acts as a lender on his own behalf. This new type of dealer is normally known as a ‘‘Buy-Here-Pay-Here’’ or ‘‘Tote-the-Note’’ dealer. By Florida law, he can act as a lender charging in excess of 30% (APR) interest and can sell retail insurance products (with handsome profit margins) to protect the loan.

Chapter 520 of the Florida Statutes, as enforced by the State Comptroller’s Division of Banking and Finance, dictates the type of license that a dealer must have in order to engage in retail installment sales. It is quite simple to become licensed, and is not very expensive. All retail installment sales licenses must be renewed every two years.

The Motor Vehicle Retail Installment Sales statutes (520.08) dictate the limitations on interest that may be charged on vehicles according to the age (class) of the vehicle. Please be aware that when determining the class of a vehicle, you must use the year in which the sale is made as a reference point to determine its age. Even though new vehicle models may be announced by the manufacturers as early as September, of the prior year, you must consider January 1 of each year as the reference point for determining a vehicle’s age. Always use the class that is most favorable to the customer if you feel that a vehicle could qualify under more than one class. The following rates were in effect at January 1, 1996:

Class 1. Any new current year vehicle (10% add-on). Class 2. New vehicles not in class 1 or vehicles not over two years old (11% add-on). Class 3. Used vehicles not over four years old (15% add-on). Class 4. Used vehicles over four years old (17% add-on).

DEALER OPS 118

Repossession Check List

Getting ready to do business.

A. Forms and paper-work.

You will probably never need to use all of the forms listed below, but they have all been listed so that you will be aware of their existence.

1. Retail Installment Contract.

a. Co-buyer or guarantor

b. Description of Security

c. Insurance requirements clause

d. Acceleration clause

e. Collection/attorney fees and costs

f. Assignment clause

g. Liabilities after repossession clause

h. Late charge clause (careful)

2. Notice to Co-signer Form

3. Default Agreement Form

4. Insurance Verification Form

5. State title Forms involving liens

a. Application for Title (lien section)

b. Notification of Lien Form (if lien filed later)

6. Ten Day Letter

7. Workout Agreement Form

8. Demand Letter

9. Demand for Possession Letter

10. Letter to Debtor Regarding Inventory

11. Inventory Affidavit for Personal Effects

12. Debtor’s Affidavit Renouncing Rights and Collateral

13. Proposal of Dealer to Retain Collateral

14. Debtor’s Agreement to Waive Right of Notice of Sale

15. Notice of Public Sale of Vehicle

16. Notice of Private Sale of Vehicle

17. Record of Sale of Collateral & Application of Proceeds

B. Choosing a Repossession Agent

DEALER OPS 119

1. Licensing (get copy of licenses)

a. Class-E for all Agents

b. Class-EE for any trainees

c. Class-R for agency itself

2. Insurance (get copy of certificate of insurance)

a. Minimum $300,000 Combined Single Limit Policy

1. Comprehensive general liability for:

a. Death

b. Bodily Injury

c. Property damage

d. Personal injury

2. False arrest,.detention or imprisonment

3. Malicious prosecution

4. Libel

5. Slander

6. Defamation of character

7. Violation of the right to privacy

b. Get promise of notification of policy change/lapse

3. Storage location

a. Security for vehicles held

1. Fence

2. Guard (optional)

b. Office for storage and pickup of personal property

1. Reasonable hours and access for client pick-up

4. Network for recovery in distant cities/states

5. References from current clients

C. Setting-up To Do Your Own Repossessions

1. Don’t.

2. If you insist anyway, see above section on insurance

Selling on the Installment Plan

A. The paperwork

1. Have buyer and co-buyer (co-signer) sign contract

DEALER OPS 120

2. Notice to co-signer form (if applicable)

3. Default agreement form

4. Insurance affidavit form

5. Fill-in lien info on State Title Application form

B. The Closing

1. Advise borrower of your policy regarding defaults

a. Days late on pick-up payments

b. Days late on regular payments

c. Get proof of Comp/collision insurance

1. See insurance card

2. Phone agent and verify

d. Get proof of PIP & PD (10,000) state required insurance

e. Explain what happens if insurance cancels or lapses

2. Give borrower a payment schedule or payment coupons

DEALER OPS 121

A Guide to Repossession Terms

Acceleration... Most loan contracts specify that if the borrower defaults on the terms of the agreement, the lender may demand immediate (accelerated) payment of the entire principal balance of the loan, along with any accrued interest charges from inception date of the contract through the day of default and any other additional charges such as collection expenses as of the date of default.

Bankruptcy... There are a number of types of bankruptcy that a person or company may utilize under the U.S. Bankruptcy Code. The most probable filings are: Chapter 7... for companies and/or individuals whose assets are being liquidated to pay creditors; Chapter 11... for companies seeking to reorganize while under bankruptcy court protection from creditors; and chapter 13... for individuals who are working out a repayment of debts while protected against creditors. In any event, if you even think that your client has declared bankruptcy, contact your attorney before you start to repossess anything.

Breach of Contract Suit... A form of repossession whereby the lender brings action against the borrower in county or circuit court to recover his secured collateral and any expenses or damages caused by the borrower’s breach of contract. This is a more formalized method of repossession and is not as easy or as quick as a simple ‘‘hook-it and run’’ type of repossession. It is a necessary evil method to be used if the borrower contests the repossession. You may even have to get a ‘‘writ of replevin’’ in order to regain possession of the vehicle prior to the completion of the law suit. Court costs, Replevin Bonds, attorneys, and cost of your time all add up to make this an expensive method of recovery.

Conversion... Any intentional conduct which unlawfully deprives another of his property permanently or for an indefinite time is considered to be an act of conversion. Even acquiring possession under the mistaken belief that one has the privilege to do so may be an act of conversion. Penalties for conversion range from simple reimbursement of expenses plus reasonable compensation for inconvenience, all the way to forced payment of the full value of the property plus interest and expenses.

Deficiency Judgement... A court order demanding that a person who is in default of a contract must pay to the injured party the amount of loss suffered in excess of the value recovered from selling the repossessed collateral. Demanding and collecting are two different things. Even with a judgement, it is usually hard to collect from a low-income, non-property owner in default. The paperwork, legal fees and risks of an overly consumer oriented court make suits for deficiency judgements a lot of time and trouble for a small lender.

Inventory of personal items... Recovery agents are required by law to make an inventory of any personal items found in or on a repossessed vehicle. A copy of this inventory list must be signed by the persons who actually seized the vehicle. Debtors must be notified of the location of personal property and how it can be reclaimed in a timely manner for a reasonable fee. The responsibility for storing and returning such items belongs to the repossessor and may not be delegated to the dealer.

DEALER OPS 122

Lien... A legal notation of a lender’s security interest recorded on a title to goods or property to enable a lien-holder (lender) to maintain his legal rights of ownership to property which he has contractually entrusted with another until all terms of the lending contract are properly satisfied. In the case of Retail Installment contracts for automo- biles, the lien must be recorded as part of the application for title to the vehicle at the time of sale or by means of filing a ‘‘notification of lien’’ form with the State if the lien was not filed at the time of initial sale or transfer.

Replevy... To take possession of disputed goods or property subject to a commitment to submit the dispute to a court and surrender the property if the court so decrees. A ‘‘Writ Of Replevin’’ is a civil court document that formally allows the taking of goods or property under the rules of replevy. There is usually a special Replevin Bond that the dealer must buy, along with court fees and attorney fees in order to even begin a replevy action. This is not the cheapest or easiest way to do a repossession, but it is a last resort technique in disputed cases.

Repossess... The simple dictionary definition is: to possess again. In truth, there is nothing simple about it. A more likely definition is: the act of retaking (recovering) an object of collateral as a remedy against the failure of a party to honor its contractual obligations (usually non-payment).

Repossession Agent (outside)... Any outside repossession agent or agency must be licensed by the State and must be insured by an admitted insurance carrier. You should have on file a copy of the Agent’s class-E or class-EE license, a copy of the Agency’s class-R license, and a copy of a certificate of insurance from the Agency’s insurance company with specified limits of at least $300,000.

Repossession Agent (self)... If a lender uses himself or his own employees to repossess a vehicle, there is no special need for licensing, but the insurance requirements and the lender’s exposure to liability make it a very poor gamble. It is far wiser to contract with a licensed, insured outside repossession agent wherever possible.

Sixty-percent rule... If a borrower has paid 60% or more of the amount borrowed on a note and a repossession occurs, the lender is required to sell the vehicle within 90 days and must refund any excess proceeds from the resale of that vehicle to the borrower. To determine ‘‘excess proceeds’’ from the sale of a repossessed vehicle, the lender is allowed to deduct actual costs of repossession and collection, clean-up and preparation for sale, direct sales costs, the deficiency amount from the repossessed note and any costs incurred in satisfying any other liens against the vehicle.

Ten-day-letter... Once a vehicle has been repossessed, the taker must send a letter by certified mail to the borrower and co-signer if applicable, that the vehicle has been repossessed. The letter must also indicate the total balance owed, additional costs of collection, the location where payment can be made, and the location, date and time of the bid sale where the vehicle will be sold. A total of at least ten business days must be allowed from the date of the mailing to the day of the sale. Don’t overlook this letter.

Tort... A legal term to describe a section of law which relates to a situation where someone has sustained a loss or harm as the result of some act or failure to act by another. A loose definition is: A civil wrong, wherein one person’s conduct causes a compensable injury to the person, property, or recognized interest of another, in

violation of a duty imposed by law. Even the courts can’t formally define the word Tort, but most court cases that a dealer is involved in will fall under this category.

Trespass... An actionable wrong against another’s person, property or rights. A repossessor may not commit a trespass in order to recover a vehicle, but the usual laws of trespass are very cloudy when it comes to recovering a vehicle from a debtor who has signed documents at the time of purchase allowing the lender and/or his agents to enter his property to retake the vehicle if default occurs. It is safe to say, however, that you may NOT break into a fenced area or a building to do a repossession In short, you can’t damage or destroy someone’s property to get to a vehicle. It is similarly unwise to continue a repossession if the debtor or his agent appears ready to resist physically. You are better off to bide your time and grab the vehicle while it is at a grocery store, at work or at any other easy access location.

Vicarious Liability... Liability imposed on someone who is absent of any fault on his own part for a harmful act committed by another who is acting on his behalf or with his express or implied permission. In many cases, you are responsible for harmful acts committed by your employees, repossession agents and other independent contractors acting on your behalf. This is the section of law that allows an injured party to look beyond the person who actually caused them harm to find someone with ‘‘Deep Pockets’’ to draw into the law suit to assure the availability of higher insurance or personal wealth limits against which a claim can be made.

Cybernetic Computer Corporation has authored a comprehensive Car Lot software package. A free demonstration disk of the Cybernetic Car Lot system is available from your instructor, or by calling our office at 561-697-9000.

The software operates with all Windows-compatible printers. This software will help you: • Log in and track your inventory, including

improvement expenses • Print 'As Is' stickers, window stickers showing

features of the vehicle, title jackets, etc. • Sell your vehicles, including wholesale as well as

retail deals • Perform all calculations including interest and

Florida local-option taxes; print all paperwork and contracts for cash, 'buy-here pay-here' and bank-financed deals

• Print all paperwork required for title work and other state requirements

• Maintain an accurate Accounts Receivables for financed deals tracking all payments and lateness; automatically print late notices and add late fees

• Print due-today and late status reports to assist collections activities

• Print a profit analysis for each vehicle sold • Print month-end inventory, sales (including sales

tax form), cash receipts, accounts receivables, and draft/floor plan status reports, and report account status information to credit bureaus

Basic Car Lot Software

$39 per month

Complete Car Lot Software

$59 per month

Networked Version $69 per month

Windows XP, Windows Vista and Windows 7 compatible

DSI Agency

The Car Dealer’s Source for Bonds and Garage Liability Insurance

Call us TODAY for

fast, economical quotes

(800) 841-6261

Visit our web site at www.dsiagency.com

Retail – Wholesale – Buy Here Pay Here – Third Party Finance

Cybernetic Computer Corp. (561) 697-9000