Miscommunication Leads to Issues With E-Contracting in California

FORT WORTH, Texas — Lenders and dealerships doing business in California need to be wary of miscommunication regarding information about e-contracting compliance, experts told attendees at PowerSports Finance 2018.

Dealerships in California claim they have been told by a compliance group that it is illegal to enter into e-contracting in the state, but that’s not entirely the case, John Redding, a partner at Buckley Sandler LLP, explained.

“When I talk to the dealer’s general counsel, they’ll say, ‘Oh, yeah, this group, that’s what they’re saying,'” Redding said. “I’ve talked to the group and they say, ‘No, we’re not saying that. We’re just saying that there are some risks because the California statute says you can’t do a retail installment contract electronically.'”

It isn’t illegal to do e-contracting in California, but there are steps lenders can take to feel more comfortable if they are getting pushback from dealers.

“[Buckley Sandler] has a number of clients where what they’ve done is simply agree to indemnify the dealer to the extent the e-contract is void,” Redding said. “But if you think about it, what you’re essentially doing is eliminating your pullback rights. You still will have within the courts the ability to seek to recover on the collateral, because the courts are not going to allow that to happen.”

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