Speed Kills!: Be Cautious with Tax Refunds

by Steve Levine | Chief Legal Officer

The saying “Speed Kills” takes on a special meaning during tax season, which is probably the busiest time of year for a lot of you. Your dealership will be crowded with potential buyers, many of whom either have their actual tax refund or the promise of one burning a hole in their pocket. Let’s face it, we’ve sped up the process so much that now we don’t even wait for the customer to get the actual refund. We’re comfortable with the reasonable assurance of a refund. In such a frenzied environment, it’s easy for a dealer to cut corners here and there in an effort to stretch on a few more sales. The vigilant dealer, though, knows that this treacherous legal and compliance climate we live in knows no holiday.

The savvy dealer will remind their sales folks that while they may be operating in a “target rich” environment, they still need to do all of the basic compliance blocking and tackling. “Know your customer” and OFAC laws still apply and dealers can’t speed through them in an effort to close a deal and get their hands on that tax refund before a dealer down the street beats them to it. Dealers also need to pay attention to their adverse action responsibilities, too, because some of those seemingly ripe targets will end up being declined for credit or at least subject to a counter-offer, which may create an adverse action obligation.

The Sales department needs to be reminded that tax refunds often create complex down payment and deferred down payment scenarios, so it’s a good idea to provide some training and even mathematical examples so that contracts don’t need to be re-contracted later. It’s a lousy feeling when the strong sales numbers of February turn into auditor questions in June. Teach your front line folks to be aware of the likely scenarios they will face and give them the tools to be prepared.

In the past several years it seems there has been a proliferation of companies that offer tax refund services and claim to have the ability to help a dealer close more deals and get tax money faster. This all sounds great, but before you slam your foot on the accelerator and “gun it”, you’d better understand the program and get the blessing of your accountant and lawyer, not to mention your software provider, who has to make sure that your DMS supports the structure of your transactions.

Dealers that regularly advertise that a specific dollar amount “down” will get you in a car and “everyone is approved” may create un-intended consequences by layering in a tax refund program. There are numerous ways to trip up, and dealers have many unique nuances to suit their specific business models, so it is wise to do some analysis ahead of time.

Turning attention to the “back end” of the business, tax season is also a great time to make strides in collections and cure some problem accounts. Is your collection department properly incentived to accomplish this in the form of goals and the establishment of key metrics? Have you provided your collectors with training in the form of how to ask probing questions and special talking points built around customers’ tax refunds? Are you confident that your collectors have the tools and knowledge they need to extract every dollar the customer has available? That tax money will be spent; the trick is to make sure that your company is the one getting its hands on the refund.

By all means, sell cars and get as much of that tax money as you can. Put some preparation into tax season ahead of time, and you’ll be well on your way to making this your most profitable tax season ever. Just watch your speed and avoid the potholes on the road to April 15th.

This article is for informational purposes only and is not intended nor should it be taken as legal advice. The author is only licensed to practice law in Texas.

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