Failure to Secure Vehicle Financing for Dealership Customer: Legal Obligation to Return Down Payment
In Illinois, the Consumer Fraud and Deceptive Business Practices Act (the “Act”) is a powerful enforcement tool designed to address and eradicate unfair and deceptive acts and practices in the marketplace. The Act grants the Illinois Attorney General the power to enjoin such acts or practices and seek penalties and other relief. Section 2 of the Act provides, in part:
“Unfair methods of competition and unfair or deceptive acts or practices, including but not limited to the use or employment of any deception fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact, or the use or employment of any practice described in Section 2 of the ‘Uniform Deceptive Trade Practices Act’, approved August 5, 1965, in the conduct of any trade or commerce are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby.” (815 ILCS 505/2).
The Act also creates a private right of action allowing private citizens to commence a lawsuit to seek redress for wrongs, including actual economic damages or other relief which the court deems proper. Courts can also award punitive damages under certain circumstances involving willful or intentional conduct. (815 ILCS 505/10a).
Significantly, for motor vehicle dealerships, the Act specifically prohibits the failure to refund down payments to customers who fail to secure financing. Section 2C of the Act provides:
“If the furnishing of merchandise, whether under purchase order or a contract of sale, is conditioned on the consumer's providing credit references or having a credit rating acceptable to the seller and the seller rejects the credit application of that consumer, the seller must return to the consumer any down payment, whether such down payment is in the form of money, goods, chattels or otherwise, made under that purchase order or contract and may not retain any part thereof. The retention by the seller of part or all of the down payment, whether such down payment is in the form of money, goods, chattels or otherwise, under those circumstances as a fee for investigating the credit of the consumer or as liquidated damages to cover depreciation of the merchandise which was the subject of the purchase order or contract or for any other purpose is an unlawful practice within the meaning of this Act, whether that fee or those charges are claimed from the down payment, whether such down payment is in the form of money, goods, chattels or otherwise, or made as a separate charge to the consumer.” (815 ILCS 505/2C).
Under the Act, the term “down payment” is broad, and includes all forms of down payment, whether money, goods chattels or other forms. Dealerships are prohibited from retaining any part or portion of the down payment regardless of the reason. This means the dealership cannot keep all or part of the down payment (regardless of form) as a fee for investigating the credit of the consumer, as liquidated damages to cover damage or depreciation of the purchased vehicle, or for any other purpose whatsoever. To do so otherwise is an unlawful practice under the Act, whether a fee or charges are claimed from the down payment, whether the down payment is in the form of money, goods, chattels or otherwise, or whether made as a separate charge to the customer.
This law renders it a violation for dealerships to fail or refuse to return a customer’s down payment when financing was not able to be secured for the purchase of the vehicle. Dealerships in Illinois have been subject to enforcement action by the Illinois Attorney General’s Office for violations of Section 2C of the Act. Additionally, private actions have been successfully waged by consumers against dealerships. (See e.g., Bates v William Chevrolet/Geo, Inc., 785 N.E. 2d 53, 1st Dist. Ill. App. Ct. 2003). In that case, the court rejected the dealership’s arguments stating that the failure to return the customer’s down payment after rejecting her credit application violated Section 2C of the Act. The customer was also awarded damages and attorney fees.
Dealerships also continue to face violations of Section 2C over use of clauses or riders to the buyer’s order or retail installment contract which state that if the dealer is not able to assign the contract to a finance company, upon notice, the customer must return the purchased vehicle and forfeit to the dealership a portion of the customer’s down payment for dealership’s costs of repair or damage. Such efforts have been deemed unlawful attempts to avoid Section 2C. Check your dealership’s transactional documents and consult with your dealership’s attorney to ensure Section 2C compliance.