Dealerships have become subject to increased regulation and enforcement, particularly in the areas of consumer advertising, consumer finance and consumer privacy. I recently posted an article to this blog entitled: Auto Dealer Arranged Financing: 51 Laws a Dealer Must Know. You can read the full article here.
Most dealers recognize that the legal landscape has changed. While consumer litigation and associated class actions persist (and the incidence of class action litigation has increased over the past few years), federal regulatory authorities are the new player in town and they are joining with the Department of Justice and local authorities to enforce compliance with federal and state laws. Indeed, on March 26th, the Federal Trade Commission (FTC) and 32 law enforcement partners announced the ongoing results of Operation Ruse Control, a nationwide and cross-border effort which has thus far resulted in over 250 enforcement actions (187 in the U.S.) as well as six new FTC cases. The FTC cases have included allegations of deceptive advertising, auto financing application fraud, odometer fraud and deceptive marketing of car title loans. In addition, and for the first time since receiving expanded authority over auto dealers under the Dodd-Frank Act, the FTC has taken two enforcement actions involving F&I product add-on charges. Examples of F&I product add-ons include service contracts and extended warranties, guaranteed automobile protection (commonly called GAP or GAP insurance), credit life and disability insurance, road service, theft protection, undercoating and payment programs. The six new FTC cases include more than $2.6 million in monetary judgments. The sweep follows on the heels of the FTC’s Operation Steer Clear campaign against 10 dealerships in 2014.
“The clear message is that across this country, and indeed internationally, law enforcement agencies are on the lookout for deceptive and illegal practices by auto dealers, and will take whatever action is necessary to protect consumers,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection.
The majority of dealers take their compliance obligations very seriously as non-compliance can result in consumer litigation, regulatory enforcement actions and lender repurchase claims as well as the payment of actual damages, statutory damages, monetary penalties and fines, injunctive relief and potentially punitive damages and criminal fines. Negative publicity is a virtual certainty as well. Those striving to comply with the myriad laws regulating the dealership industry are (1) appointing a Consumer Regulatory Compliance Officer; (2) integrating an Advertising, Sales and F&I Manual (with federal and state specific policies and procedures) into their Compliance Management System (CMS); (3) providing regular training to their staff on those policies and procedures; (4) auditing compliance with those policies and procedures; and (5) monitoring legal and regulatory changes. A well planned, implemented, and maintained compliance program will prevent or reduce regulatory violations, provide dealership cost efficiencies and is just sound business. If the FTC comes knocking on your dealership door, you should not only be able to tell them what you are doing, but also show them what you are doing to comply with the laws. If your CMS does not specifically address the 51 laws and regulations cited in my article as well as the practices which have historically produced the greatest amount of consumer litigation and regulatory actions (call me and I’ll tell you what they are – I’ve defended dealerships in litigation alleging each one), your compliance program is not a true CMS – it is inadequate.
This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2015.