topic Re: Odd Situation with Financing Car for Daughter's Use in Auto Loans

Odd Situation with Financing Car for Daughter's Use

Paula0925 — Tue, 22 Dec 2009 14:40:02 GMT

Hi, everyone - maybe you can help me out here. We decided to buy (and finance) a Jeep Liberty for our daughter's use. Everything was going fine until my husband mentioned that we were surprising her with the car for Christmas. Screeching halt! They insisted that there is a law that says you cannot purchase a vehicle for someone else's use. The driver must be on the financing application, etc. Well, we refused for two reasons: 1) our money and we can do what we want with the vehicle and 2) if she had to complete paperwork, it wouldn't be a surprise! We just didn't want this on her credit report because WE are paying for it - not her.

So my husband changed his tune, and said it was a misunderstanding - the car was for family use. Well, they dug in their heels and refused to finance the vehicle without her on the paperwork. We ended up just paying cash but I'm really frosted here! We've bought four vehicles for her over the years, and no one has ever questioned it. We have several vehicles and we all drive them at various times. And this is our sixth Jeep! Has anyone else encountered this?

Many thanks for any info!

Re: Odd Situation with Financing Car for Daughter's Use

amp0804 — Tue, 22 Dec 2009 15:03:26 GMT

The information they gave you is completely incorrect. It is none of their business who is driving the car its your insurance companies business. If you finance/purchase a car under you and your husbands name and you daughter is driving it makes no difference. I'm sure you would want to let your insurance company know that your daughter will be driving the car or have her insured under an older car you own under your insurance.

Re: Odd Situation with Financing Car for Daughter's Use

Paula0925 — Tue, 22 Dec 2009 15:11:59 GMT

Thank you for the response. Yes, we had informed the insurance company that she would be driving the vehicle. I'm still totally confused by all of this. My husband is calling the dealership this morning to speak with the general manager. At this point, the car is paid in full, but we still don't understand what happened.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Tue, 22 Dec 2009 16:19:33 GMT

Someone at the dealership being a pain. I would have said ok you finance without her or we will go down the road to Joe Bobs Jeep and buy it from him. That would proabably have changed their tune if you took the sale to another dealership. If already bought a mute point now but I would steer clear of their dealership in the future unless the GM makes it right with you somehow. Let us know what happens.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 06:54:30 GMT

@amp0804 wrote:
The information they gave you is completely incorrect. It is none of their business who is driving the car its your insurance companies business. If you finance/purchase a car under you and your husbands name and you daughter is driving it makes no difference. I'm sure you would want to let your insurance company know that your daughter will be driving the car or have her insured under an older car you own under your insurance.

Incorrect.

With varying degrees of intensity across different states, municipalities, and lending institutions, it is illegal for a finance department to finance/title/register a vehicle on one person's name when it has been stated, is known that the vehicle in question will be exclusively used, and or paid for or maintained by another party who is nowhere on the paperwork.

Its called a "straw deal"

Its a huge issue.

If your declarations have lead the dealership to believe its a straw deal they cannot proceed. proceeding can be considered both a criminal and civil violation.

If you are not financing the vehicle, but paying cash it is no problem.

If you are financing the transaction,. then the dealership as adhoc agent for the financial instituion has an obligation to look out for the interests of the banks they use and their parameters of lending.

Once the dealership believes a straw deal is in effect they are stopped, the legal ramifications are too great. It is being party to "fraud."

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 13:07:41 GMT

usmc58555, that is a very enlightening post!

This is something I would have probably argued about at the dealership.

I was watching this thread for a solid answer to this situation, thanks for providing it! I learned something today.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 13:25:40 GMT

However, and generally speaking, when a parent is purchasing a vehicle that will be used by a dependent child, there usually isn't such a stink. The real issue is related to "straw borrowers" such as USMC metioned, which usually means an unrelated or uninterested party acts as the borrower when in fact it is another person who is the borrower and is actually responsible for its use, maintenance, payments, etc.

But in the case where a parent is purchasing the vehicle, will be responsible for the payments and insurance, is related to and interested in the dependent, then the straw borrower provision doesn't have to apply and the lender is merely being overboard and technical.

Straw borrowers are the fraudulent use of credit and and name only, where the income and assets of that person are not actually intended to be relied upon for payment. This is similar to adding an AU to a CC account where there is no legitimate relationship and is solely for the FICO boost and is designed to present a credit scenario to lenders that is not correct, thus is fraudulent in nature, having an intent to deceive.

HOWEVER: there are federal positive identity and use provisions that are not related to straw borrowers, ie: can you say patriot act.

Message Edited by txjohn on 12-23-2009 05:25 AM

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 13:53:35 GMT

txjohn, am I understanding this correctly...had the OP pointed out the distinction (family relationship/dependant status of the daughter) to the dealership, the paperwork for this financing could have proceeded in the parents name only?

Re: Odd Situation with Financing Car for Daughter's Use

Paula0925 — Wed, 23 Dec 2009 15:07:51 GMT

My thanks for explaining what was happening. We have had further discussions with the dealership, and have found that the sales staff is livid with the finance department for this behavior. I believe you are correct in that the finance department assumed it was a straw deal, and simply wouldn't budge on their position. We've bought three other vehicles for her over the years. In all three of those instances, she test-drove the car, decided she wanted it, and then we did the paperwork to purchase it. So each dealership was well aware that the car was being purchased for her use. This time, we did the transaction without her knowledge as a Christmas surprise. I did NOT want to comply with their demand that she be placed on the financing deal. We are pursuing it with higher levels of management locally, and I have also contacted the senior vice president of sales for the entire U.S. Yes, we already have the vehicle and the financing is old news now. But we believe that the rudeness and poor business relations from that finance department should be looked at closely.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 15:11:14 GMT

@Anonymous wrote:
txjohn, am I understanding this correctly...had the OP pointed out the distinction (family relationship/dependant status of the daughter) to the dealership, the paperwork for this financing could have proceeded in the parents name only?

depends on a lot of factors:

is the child an in school dependent

is the child based out of the parents address

what does the financial institution involved think/do/have policy on.

your 18 yo son living with you while going to school is one thing, your 22 yo daughter that is going to pick the financed vehicle up for christmas and take it from Ohio to Arizona and use it exclusively there, with it never coming back to Ohio is completely different.

Something was said, at some point, that triggered a F/I guy to be wary of this deal.

A dealership makes money buy selling cars, not by doing paperwork and denying the sale.

In TXJOHN's poinrts, you also have to consider the reason for the parents buying the car, if the person the car is being bought for has bad credit, could not get the loan on their own, going through a divorce or legal issues, there could be actual aspects of true fraud on the transaction.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 15:27:07 GMT

@Paula0925 wrote:
My thanks for explaining what was happening. We have had further discussions with the dealership, and have found that the sales staff is livid with the finance department for this behavior. I believe you are correct in that the finance department assumed it was a straw deal, and simply wouldn't budge on their position. We've bought three other vehicles for her over the years. In all three of those instances, she test-drove the car, decided she wanted it, and then we did the paperwork to purchase it. So each dealership was well aware that the car was being purchased for her use. This time, we did the transaction without her knowledge as a Christmas surprise. I did NOT want to comply with their demand that she be placed on the financing deal. We are pursuing it with higher levels of management locally, and I have also contacted the senior vice president of sales for the entire U.S. Yes, we already have the vehicle and the financing is old news now. But we believe that the rudeness and poor business relations from that finance department should be looked at closely.

in my state, salesmen are licensed and finance people are licensed separately. Finance has a stricter license protocol then sales. You cannot sell or do fianance without your state license.

in fact at many point in a deal I was prohibited from talking to a customer about in depth finance repercussions/processes/procedures as legally a salesman only I am not a finance guy and am not allowed to act like one.

the finance department, since they actually contract the deal, not the sales staff, if found knowing participant to a straw deal:

1- can be fined

2- criminally prosecuted

3- civily prosectuted

4- lose their license to contract vehicles in that state.

Since a "straw deal" is against the procedures set by the lenders the dealership works with, and the finance guys are "agents" for the banks, in most cases a F/I guy being found knowing party to contracting a straw deal is grounds for immediate termination as well.

Something was said somewhere in this transaction, perhaps innocently that raised a red flag.

Its like this:

Guy looks old mid to late twenties, he goes into the bar down the street from where he lives and gets served without being carded. Every day. never causes a problem, always pays and is a regular.

One day he casually tells the bartender his 21st birthday is six month from now. Bartender pulls the drinks immediately and refuses to serve him. Now that the bartender knows he cannot serve him even though he has for 8 months. (in this case it was never less illegal cause the bartender did not know, I am simply trying to illustrate my point) Guy goes "What changed? bartender says "Now I know and you cannot un-ring a bell."

Once something was said that brought up the thought of straw deal, the transaction was flagged.

Re: Odd Situation with Financing Car for Daughter's Use

Paula0925 — Wed, 23 Dec 2009 15:30:24 GMT

"Something was said, at some point, that triggered a F/I guy to be wary of this deal.

A dealership makes money buy selling cars, not by doing paperwork and denying the sale.

Yes, you're correct! We did mention that it was a surprise, which probably raised the alert. But at no time did we intend to circumvent any laws or financing concerns. The car remains in our name, on our insurance. She lives with us. We have several vehicles, and each of us drives whatever strikes our fancy or need.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 15:40:48 GMT

Got it! Thanks for the clarifications, usmc58555.

As much as I read these boards, I am still amazed at the things I don't know. The range of knowledge members here have is absolutely incredible!

Re: Odd Situation with Financing Car for Daughter's Use

amp0804 — Wed, 23 Dec 2009 18:37:24 GMT

Usmc did in fact make a good point adding to my original post but I did not want to go into such detail as he did

What my original point is for example im going into a dealership to finance a car so my daughter/son has something to drive i do not need to walk

into the dealership announcing that. The car is going to be insured and registered in my name then I go to my insurance company and insure my daughter/son as a driver under my policy.

That was my original point intended. long story short if you never said anything about buying it for your daughter they wouldn't have taken it as if you

were buying it and your daughters name was going to be on it.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 19:52:21 GMT

If the parents purchase the vehicle with cash and give to the child as a gift, they are using solely their own resources to buy the vehicle, regardless of the financial circumstance of the child. If they have the financial capacity, there is no fraud, because there is no intent for the child to ever pay or be financially responsible.

Therefore, legally speaking, if the parents are purchasing the vehicle in all senses, taking total financial responsibility for the loan and insurance, regardless of the child's age or credit, this is not a straw borrower. See my previous post or google straw borrower. A straw borrower is one used to deceive the lender by presenting a proxy borrower who has no real interest in or intent to be financially responsible and is only helping for the approval of the loan, not expecting to be responsible for the term of loan.

However, there are potentially statutes that require a primary driver of majority age to be somehow legally included in the registration and/or titling of the vehicle, which most lenders thus require them to also be on the loan as well....not because of straw borrower, but to perfect their interest and have a matching financial instruments with title/registration.

Another example where there is mandatory inclusion of a non-financially responsible person being listed or included would be that ALL LICENSED drivers registered through DMV records shown at your address must be included in your auto insurance coverage. So when kiddos become licensed, we see increases in premiums because we are rated to include them, mandatory.

If obtaining credit for a loan to give a gift were illegal, where the borrower intends to be financially responsible, then the jewelry business would be gone.

Message Edited by txjohn on 12-23-2009 11:52 AM

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Wed, 23 Dec 2009 20:15:15 GMT

@Anonymous wrote:

If obtaining credit for a loan to give a gift were illegal, where the borrower intends to be financially responsible, then the jewelry business would be gone.

Message Edited by txjohn on 12-23-2009 11:52 AM

In most cases, jewelry purchases are not collateralized loans.

Re: Odd Situation with Financing Car for Daughter's Use

marty56 — Thu, 24 Dec 2009 10:50:04 GMT

@amp0804 wrote:
What my original point is for example im going into a dealership to finance a car so my daughter/son has something to drive i do not need to walk
into the dealership announcing that. The car is going to be insured and registered in my name then I go to my insurance company and insure my daughter/son as a driver under my policy.

When I was 18, my parents listed me on the insurance as an authorized driver on their Volvo and I do not remember that there was a limit on how much I could use the car. Even if there was, it would be difficult for the insurance company to prove that someone exceeded their usage, unless of course they drove coast to coast.

My point is that from the lenders prospective, as long as the car is insured and a person is authorized by the insurance compnay to be a driver, then I dont see how the dealer could have refused the deal. I would buy somehwere else.

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Thu, 24 Dec 2009 13:37:54 GMT

@Anonymous wrote:
@Anonymous wrote:

If obtaining credit for a loan to give a gift were illegal, where the borrower intends to be financially responsible, then the jewelry business would be gone.

Message Edited by txjohn on 12-23-2009 11:52 AM
In most cases, jewelry purchases are not collateralized loans.

Yes, this would vary depending if the credit agreement maintained a security interest in the terms.

However, I was only attempting to differentiate what a true straw buyer is, vs. a benefactor. There is no requirment that a loan for an auto must actually have a lien holder or security interest, however most lenders do to protect their interests.

Straw borrowers are fraudulent, and I agree that where a straw borrower is used, this is a problem, and is wrong. I just do not agree that OP represented a straw borrower by any legal or financial definition.

IMO

Re: Odd Situation with Financing Car for Daughter's Use

Paula0925 — Thu, 24 Dec 2009 14:51:11 GMT

Thanks for the vote of confidence!

Re: Odd Situation with Financing Car for Daughter's Use

Anonymous — Sun, 17 Jan 2010 14:17:10 GMT

I have read this thread with great interest, as I am considering financing a car for my 21 year old's girlfriend to help them out. She would pay us monthly payments equal to the amount we are financing in our name, plus cost of insurance on our policy. I haven't checked with our insurance company yet to find out how much adding her and the car to our policy will cost. My son is in the Coast Guard and lives about 4 hours from us, with his girlfriend. They've been together for about three years and I trust her to repay the loan, but know full well that all kinds of things can happen with 21 year olds in this situation, including that my son and she will move across the country and be even further away from us, or they could break up and I'll never see her again. She has a waitressing job and earns money on tips essentially, and would need a cosigner to get a loan on her own. My son can't cosign because he has only had his car loan for about a year and though he makes good money, he doesn't have the credit history to cosign. We're not willing to cosign due to possible impact on my husband (my son's stepfather) and my credit (which is excellent, in fact, I'm happy to report I hit the 800 mark after filing bankruptcy ten years ago!!!!). Her family is not willing to cosign due to financial issues they have. She wants us to cosign instead of us buying the car in our name, so she can start earning credit in her name,which I understand completely. We found a 2009 Hyundai Accent which we can finance for $200/mo, 60 months, 4.99% interest ($10,000 loan) that has a 5yr/55k warranty. The other option we considered is giving her cash to buy a $3-4k used car, with her making monthly payments to us to repay, but they really don't have the money for repairs if anything major happens, and they could be paying us for a car that they can't afford to fix. Whew! Sorry for the long-winded explanation. What does everyone suggest?????