CapitalOne Auto Finance recently started requiring dealers to provide the lender with proof that the vehicle is licensed with CapitalOne as the lienholder BEFORE funding the auto loan. Not only is CapitalOne requiring dealers do this to fund the auto loan, but they are doing it without asking for it on the approval, and they are not sending out funding notices that display the requirement. It is almost like a requirement that is only communicated verbally. Does it violate the dealer agreement that CapitalOne has with its dealers? I would not be surprised if several dealers had their lawyers re-review the CapitalOne dealer agreement over the next couple months to make sure.
Why it is bad for the dealers?
When someone buys a car from the dealer, there are several documents that need to be filed with the state. The vehicle needs to be titled, and an odometer statement is pretty standard. Dealers title the vehicle after lenders fund the deal, and pay the dealers for the contract. Dealers have to wait for the funding of the deal because it is not uncommon for auto lenders to return deals to dealers without funding them. Sometimes the customers employment does not verify, sometimes it is residence, and sometimes it is for some other reason. If the dealer actually licenses the deal with the state and the lender is listed as the lienholder, what happens if the lender does not fund the deal? The answer depends a little bit on who you talk to. Some people say that the customer could end up owning the car, some people say the loan would then be the responsibility of the dealer to collect, and some people just think it is a giant paperwork nightmare for the dealer’s title department.
Why is CapitalOne doing this?
Due to the downturn in the economy, many car dealers have gone out of business. When dealers close down, they do not generally dot all the “i’s” or cross all the “t’s”, and it costs money to do things like license vehicles, and put warranties on the vehicles. A lot of lenders lost a lot of money because of business relationships they had with dealers that went belly up. When the vehicle is not titled with the lender as leinholder, and the lender cannot collect the money from a dealer that went bankrupt, it is a financial and legal nightmare for the lender.
I can understand why CapitalOne is doing what they are doing, but I feel they are going about it all wrong. It would be a little different if they had actually required the dealers to sign an addendum to the dealer agreement, or if we had some sort of documentation that shows an accurate list of all the requirements to fund a deal, but as of right now, we do not have it.
