I have written in the past about indirect lending. See Back to Basics, Continued - Let’s Talk About Purchasing and Taking Assignment of Retail Installment Sales Contracts and my more recent post Dentons - Back to Basics, Continued — Let’s Revisit Direct Lending and Indirect Lending. But, it has been some time since I discussed the importance of the master agreement between the credit seller and the assignee finance company.

Any program that involves the continuous purchase of contracts from credit sellers should include a well written master dealer agreement. This is the agreement that sets forth the basic terms of the transaction between the dealer/credit seller, and the finance company/assignee. 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.
• Recourse Obligation. Sometimes the recourse requirement is set out in the separate contract-by-contract assignment language, rather than in the master dealer agreement.
• Indemnification. It is usual and customary for the parties to address making one another whole in the event of beach 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 and look for. 

Please Note: This is the two hundred-fortieth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.