OMVIC advises interacting with consumers on the following points:
• Does a customer usually trade in a vehicle before paying it off?
• Will the vehicle reliably last the term of the loan based on the customer’s driving habits?
• What is the overall cost of the loan after factoring in the longer borrowing term?
• Does the consumer understand that if the vehicle is stolen or destroyed, his or her insurance company will reimburse the vehicle’s value, not what is owed on the purchase loan?
Failure to disclose the negative-equity risks associated with long-term financing could expose dealers to provincial Consumer Protection Act charges. In Ontario, while there is not yet precedent for such a charge, Mohammed said dealers should familiarize themselves with the regulations that govern unconscionable representation to avoid potential charges and penalties.
Similar risk factors exist in B.C., said Michelle Harrison, director of operations for the Vehicle Sales Authority [VSA] of British Columbia.
“If the right factual circumstances under the Business Practices and Consumer Protection Act exist, the VSA could investigate and potentially administer penalties for an unconscionable act,” Harrison said. “Placing a consumer in a financing arrangement that has a negative-equity component is not in and of itself the unconscionable act.
“The financial disclosures required by the Disclosure of the Cost of Consumer Credit provisions of that legislation require advising a consumer of the financial impact of a credit transaction before they enter into the transaction.”