One of the issues that repeatedly plagues dealers is that of the deferred downpayment. Many consumers require the use of a deferred downpayment in order to complete their purchases. However, that presents a host of unique issues for dealers. The most common issues are improper disclosure, collection attempts after the purchase contract has been assigned to a finance company, and what constitutes a deferred downpayment.
Per the Automobile Sales Finance Act (“ASFA”), a deferred downpayment must be separately itemized in the purchase contract and must appear “in the payment schedule disclosed pursuant to Regulation Z.” (Cal. Civ. Code § 2982(a)(6) and (c).) The most recent 553 Retail Installment Sales Contract (“RISC”) provides a proper breakdown of the deferred downpayment. Those items must be disclosed in the Payment Schedule and Paragraph 6(D), both of which are found on the front of the RISC. Oftentimes, a dealer will have the customer sign a promissory note in addition to the RISC. The problem that arises with a promissory note is that a consumer attorney will likely argue that this is a violation of ASFA’s single document rule. (Cal. Civ. Code § 2981.9.) This argument is routinely made even when the promissory note mirrors what is on the RISC. In order to simplify this issue, there is simply no need for a promissory note as the RISC is the promissory note.
In addition to improper disclosure, there also may liability on the part of the dealer where a dealer assigns the RISC to a finance company and then attempts to collect on the deferred downpayment from the customer. In those instances, once the RISC has been assigned to the finance company, the finance company has the sole right to pursue the customer for any default thereunder. Should the dealer take any action to collect on the deferred downpayment, whether it be by way of contacting the customer, repossessing the vehicle, or suing on the contract, those actions could be considered violations of the various debt collection statutes. (Cal. Civ. Code § 1788, et seq. and 15 USCS § 1692, et seq.) In those situations, dealers should speak with the finance company who the RISC was assigned to about collecting the deferred downpayment.
Finally, one of the other common issues facing dealers with respect to deferred downpayments is what constitutes a deferred downpayment. In Nichols v. Century West, LLC (2016) 2 Cal.App 5th 604, the California Court of Appeal for Second Appellate District held that a dealer’s acceptance of post-dated checks, which were not separately listed as deferred downpayments, was not a violation of ASFA. (Nichols at 617-618). However, if a dealer was to err on the side of caution, it would nevertheless be advisable to separately list these payments as deferred downpayments as the court in Nichols noted that it was “arguable that a postdated check could be categorized as a deferred down payment rather than a down payment…” (Id at 617.)
In the end, a dealer would be better served to properly and accurately list the deferred downpayments to be made on the RISC, and only on the RISC, given that the RISC provides all of the necessary information to comply with ASFA.