Florida is one of the top states for buying and riding powersports vehicles, which is why finance companies should pay attention to Ally Financial‘s proposed settlement involving overcharging for purchase options on leased vehicles.
On June 18, Ally Financial agreed to settle for $19.7 million for a 2014 class-action lawsuit alleging the lender overcharged or permitted auto dealers to overcharge consumers who sought to purchase leased vehicles at the end of term. The court will hold a hearing on Oct. 11 about whether to grant final approval to the settlement; its decision could impact how lessors — both auto and powersports — operate in Florida.
“At the moment, the big development for anyone who is doing leasing should look at Ally’s proposed settlements of the purchase option claims,” David Gemperle, partner at Nisen & Elliott LLC, told Powersports Finance. “Particularly since Florida is the worst state for this kind of stuff and Florida is a big powersports state, that’s what I’m tracking. Is the settlement going to get finalized and approved by a court, and then how is everybody going to react to it?”
A typical lease agreement will include purchase options, which allow the consumer to buy the vehicle at the end of term. Part of the benefit of including these options for lenders is that it gives more assurance that they will make the collateral whole and won’t have to depend on an auction to make a profit. Avoiding the dealership is certainly one way to mitigate risk, but Florida laws make that difficult.
“In Florida, to sell that vehicle to the lessee, you need a dealer license, and it’s difficult to get a dealer license in Florida,” Gemperle said. “At least in Florida, a lot of companies send the consumer back to the dealer, at which point, the dealer does whatever it wants to do because it’s kind of out of your control and they will often charge fees that were not disclosed on the original lease.”
Lessors may want to consider “limiting the purchase options” if they believe there is potential liability in Florida and other states where they would need the dealer involved, Gemperle added.