There has been a substantial amount of publicity recently concerning backdating retail installment sale contracts. The practice can lead to serious problems.
The problem can arise when a dealership spot delivers a vehicle to a customer who signs a retail installment sale contract that is not approved by a potential assignee on its terms. The dealer will seek to renegotiate the terms with the customer and will ask the customer to sign a replacement RISC. Inserting a date on the replacement RISC that is the same as the date of the original delivery is “backdating”. This can be a federal Truth in Lending Act violation since it will lead to interest for the period prior to the actual execution of the replacement RISC that can be a misstatement of the APR. It can also be a violation under certain state installment sales laws, some of which permit the rescission of an agreement years after it is entered by a customer for a backdating violation.
Most of the publicity about backdating focuses on F&I personnel. Why are they backdating? Have they not been properly trained? Are they not aware of the problem?
Training F&I personnel and making sure that they understand the dangers of backdating are, of course, important. It is also important that management take steps to be sure that the dealer’s computer system is properly programmed to insert the correct date in a revised RISC. Most programming for F&I applications will pre-print the date on the replacement RISC. What date is your computer system programmed to insert into the replacement RISC? Is it the original deal date? If so, you are putting additional burdens on your F&I personnel to make sure that the date is hand changed every time a replacement contract is printed. Management should insure that RISCs are dated the date they are run by the F&I computer application. Then F&I personnel only need to worry about inserting the actual date if the RISC is run a day or so before the customer comes to the dealership to sign the replacement.
Often, backdating is a management problem that can be addressed with proper programming of the dealership’s computer system.