What is a Retail Instalment Contract (RIC)?

RIC is a version of indirect lending. For example, a consumer goes to a dealership to buy a car. The car is selected, and it is time to finance it. The finance managers would run the credit application and scrub it against various different lenders that they have access to. When they run the credit, the consumer has a grace period of six months as per FICA requirements. The score will not be affected for 30 days, and they’re going to be deduped. 

This is when the deduplication period steps in, meaning all inquiries in a similar industry, such as auto loans, mortgage loans, student loans, etc. have to report because the Fair Credit Reporting Act (FCRA) mandates that. Once the score is calculated, all inquiries within the 45 days will be counted as one inquiry. 

When the dealer runs the application through various banks and lenders, some lenders will accept, and some will decline. There are terms associated with it; the rate, monthly payment, and how much the bank pays the dealer to buy that contract. These things occur behind the scenes of which the consumer is not privy to. 

Usually, dealers have specific lenders they turn to, which provide good terms for the consumers. The RIC is then assigned to the lender with or without the recourse. It depends, as every transaction is a different recourse. This means, if there is an issue with the vehicle or the contract, the lender can send it back to the dealer who has to deal with it. Once the lender buys the contract, they are stepping into the shoes of the dealer. And after this, an undisclosed problem with the car arises, or if it was a fraudulent purchase, the lender cannot claim a distance from the problem. 

What is an auto loan?

An auto loan is more of direct lending. For example, a consumer receives a piece of solicitation in their mailbox from the credit union, offering an auto loan at 2.34% interest. The consumer opts for this by going to the credit union and getting loan approval. This way, they have their financing and do not rely on the dealer’s contacts.

Vehicle dealers are not the most prominent advocates for auto loans as they make the most money through financing with the lenders. Hence, the dealers try to convince the consumers that they can offer them a better rate, and it is entirely up to the consumer to accept or decline the offer. 

Some examples of indirect lenders are Santander, Wells Fargo, Credit Acceptance, Ford Motor Credit, and Ally Bank. Some examples of indirect lenders include One Main, Westlake, Lending Tree, and most credit unions and small community banks. They provide direct financing to the consumer via auto loans. 

The most crucial detail to note about the lender stepping into the dealer’s shoe is the FTC holder rule, where the holder of the consumer credit contract is subject to all claims. The lender is primarily responsible for anything that went awry during the transaction; if the dealer did not disclose that it was a salvage title or the car was in a wreck. 

Some of the keywords to look out for as a consumer would include irregular body gaps in frames or wider gaps where they should not be mismatched paint, the vehicle does not align, a mileage discrepancy, and many more. This is when the consumer would want to look at the contract and check if anything was disclosed beforehand. The best thing a consumer can do is get the car inspected to assess damages and request a vehicle delivery report, a Carfax report to check if the vehicle was in any accidents. If the consumer finds out that the vehicle was in an accident and this was not disclosed, then the consumer has a better argument to get the lender to remove the repossession from the report and collect some damages. 

This is usually common in smaller dealerships as opposed to big dealerships. This does not mean that it will not happen in the big ones as everyone makes mistakes. But it is more likely for car damages not to be disclosed to the consumer in the smaller ones. 

Furthermore, if the vehicle is titled as a lemon, rebuild or salvage title, flood, or the miles on the title are not actually on the odometer, then the consumer has a case. If the dealer delays the title, there may be some fraudulent aspect to the car. If the consumer drives off with the vehicle and has signed the RIC, received the title, and then found out it’s a salvage title, there is quite a good case for the consumer. The claim would go to the lender, and the consumer may get some monetary compensation for the damages plus interest.

What should lenders do in the case of repossession?

Firstly, if a consumer had their vehicle repossessed and the repossession act where the lender hires a repo company to go get the vehicle, and during the process, there was a breach. Perhaps the car was in the garage, and the repo opened the garage and basically violated the privacy of the property and took the vehicle out. Secondly, another example is if an argument breaks out unprofessionally, it would be a violation in terms of hos the repossession was handled because specific laws require how the repossession is supposed to be handled. 

Moreover, lenders are required to give a notice of intent to sell within a reasonable time before they sell. Typically, this is a 10-day notice or a 10-day letter. In this notice, some things have to be identified in those notices. The notice must identify the lender and explain how the vehicle will be disposed of or sold. It must also notify or advise that the consumer has the right to an accounting report. 

The consumer has the right to question and request further documentation to verify how they arrived at the number. This would be a deficiency balance. If it is sold at an auction or is going to be sold at an auction, they need to notify the consumer of the time and place of the said auction. Hence, the actual consumer would even have a slight chance of redemption to get their vehicle back. 

If it is a private sale, the notice must notify the consumer of the date after which the sale will occur. So if they will sell it on the 10th of the month, the notice will mention that on the 11th, the vehicle would have been sold. These items must be on the 10-day notice. When disputing the repo, the one thing to do is to ask for this information and the original contract to verify if it is a RIC, as the FTC holder rule is to be on there. 

If the 10-day notice is not sent out, the law states that the deficiency balance is null and void. There can be investigative work done to look for the notice to verify the key things it must include; the identity of the lender, how the vehicle is going to be disposed of or sold, advise about accounting reports, auction or private sale details. 

It is essential as a consumer to know that there are rights after repossession. Indeed, if there is a deficiency balance, that credit will stick the consumer with the balance. There can be a lot of issues that can turn up with the vehicle. There is a possibility to get the item removed from the credit report if anything is amiss.