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Many consumer finance companies have “indirect lending” programs. I wrote about indirect lending—actually the purchase and sale of installment sales contracts here.

Any program that involves the continuous purchase of contracts from dealers should include a well written master dealer agreement. This is the agreement that sets forth the basic terms of the transaction between the dealer and the finance company. The more important terms include:

• The Purchase Price. Of course, the agreement between the parties should document the price to be paid for assignment of the contract by the dealer to the finance company. If there is to be paid a premium or a discount from par value (generally the Amount Financed is considered par value), that concept can be addressed in the master dealer agreement; or that agreement may instead provide that the parties will negotiate the purchase and sale of installment sales contracts on a contract-by-contract basis.
• Representations, Warranties and Covenants. This is the section in the agreement wherein the dealer promises certain elements about the installment sales contracts to the finance company. Generally, representations, warranties and covenants include matters of fact. This section may or may not include a covenant against the debtor’s default for a specified period of time. (This concept is often addressed in a separate “Recourse” section as well.) In any event, there are representations and warranties about the accuracy of the transaction of the installment sale between the dealer and the consumer.
• Repurchase Obligation. This section of the master dealer agreement sets forth the terms and conditions of repurchase by the dealer from the finance company if the dealer breaches a representation, warranty or covenant. This is an important section to both parties as it is the basic remedy for deals that don’t turn out as intended.
• Indemnification. It is usual and customary for the parties to address making one another whole in the event of breach under the agreement.

There are countless other terms and provisions included in a master agreement for the purchase and sale of installment sales contracts. But, these are the basics to consider.

Practice Pointer:  Dust off your form dealer agreement. Make sure that you have covered all of the bases.