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Auto Dealers & Surprising Facts About the Subprime Market (p. 2)

Posted by Brandes Elitch | Wed, May 28, 2014 @ 10:00 AM

See Part 1 of this series discussing what Subprime is and how it applies to the down payment for purchase of a new vehicle …

Subprime Pitfall

Subprime LendingSo some dealers ask the buyer to give them their debit card number instead, telling them that they will keep the information and debit their account periodically to make up the total amount of the down payment. The dealer who does this may think he is outsmarting the system, since if a debit bounces he can just keep resubmitting it.

In reality this is a very dangerous violation of the Payment Card Industry Data Security Standard (aka “PCI”). It puts the dealership at risk of losing both their credit card account and their depository bank account. They can also be subjected to a large fine by their card processor.  PCI imposes requirements on the merchant to protect cardholder data by implementing strong access controls on personal cardholder information, maintaining an information security policy, and enforcing a vulnerability management program.  If a salesperson writes down the cardholders debit card number to key it in later the dealership would be in absolute violation of the PCI standards and could incur a very expensive problem.  No dealer principal in their right mind would authorize this behavior. 

But the sales technique is sound: dealers close sales all the time by allowing their buyer to make several payments equaling the total down payment. 

Take Sales to Sublime with Subprime and Multiple Check

The right way to do this is to use a multiple check, or hold check, solution. You have the customer write two to four checks, dated today, and you run them through an imager to have each authorized and guaranteed right then and there (if they weren’t guaranteed, the dealer wouldn’t do it because it would be too risky!). 

Because all four checks are guaranteed, they count as a down payment.  With the multiple check program, the consumer doesn’t have to apply for credit and does not pay interest on these checks.  Also, the consumer gets to pick the dates on which the checks are to be deposited, so it is very convenient. 

This way, all parties to the transaction maximize their value, and there are no surprises down the road for anyone! And most importantly, the customer gets to drive off with their new car today.

Auto dealers should ask themselves about the integrity of their down payment process and to help themselves determine if they may be risking PCI violations. CrossCheck’s multiple check program is a perfect fit for dealers who do subprime auto loans.

hold check, multiple check

Topics: Brandes Elitch, Auto Dealerships

Written by Brandes Elitch

Brandes Elitch is Director of Partner Acquisition for CrossCheck Inc. A certified cash manager and accredited ACH professional, he garnered a Master of Business Administration from New York University and a Juris Doctor from Santa Clara University.