Compliance – A Necessary Nuisance

Over my twenty-four years of either prosecuting dealers, or attempting to protect them from regulators and plaintiffs’ attorneys, I have reached several conclusions:

1. Abiding by federal and state laws isn’t optional.
2. How dealers discharge these regulatory obligations may save them money, time and embarrassment.
3. Observing the law and implementing compliance programs doesn’t have to be expensive or complex. Many good compliance programs, for the most part, can be administered at the dealer level without having to hire a consultant. In other words, dealers have to comply but they can do so intelligently without an inordinate amount of expense.

Over the coming months I will be drafting articles about the most significant compliance issues and requirements, and ways to accommodate them, which, if effectuated, may give dealers plausible defenses should they become embroiled in an investigation or a lawsuit. Even a very slight compliance effort can be a defense. Based upon my experience I will offer some common sense suggestions.

Unfortunately, when consumer complaints are tabulated, complaints about the car business, over the past twenty years, have almost always been the number one consumer complaint according to the Consumer Federation of America. Coupled with the fact that for over the past thirty years, according to the Gallop Organization, car salesmen are the least trusted of all professionals (even exceeding attorneys!). As a result, compliance efforts become all the more important. Dealers are a big target - and certain federal, state and private groups are motivated to take action.

Those groups are very interested in policing your actions. They can cause your store embarrassment and great expense. In fact, some dealers have had to declare bankruptcy or have been incarcerated as a consequence of their actions. Here is a brief overview of these agencies and groups; dealers should monitor and prepare for them just in case.

State Attorneys General

In every state the Attorney General is the greatest threat that dealers face. The Attorney General consistently responds to filed complaints from consumers, other state agencies, now the CFPB - and historically the FTC - and employs the broadest consumer protection statute available: the Unfair and Deceptive Trade Practices Act. It is sometimes referred to as the “Little FTC Act” as it is modeled after the FTC Act, the federal law. Unlike other state agencies, the State Attorney General is rarely limited in jurisdiction. He can initiate cases without complaints and rely upon federal, state and common law. Attorney General investigations attract media attention, and may undo a dealer’s very expensive advertising campaigns in a very short time.

Other State Agencies

The State Controller and the Departments of Consumer Services (often part of the Departments of Agriculture) have specific legal mandates to execute. These agencies often maintain searchable online databases regarding consumer complaints. And they refer cases to the Attorney General’s office.

The State Departments of Motor Vehicles (DMV) also refer cases to other agencies and, generally, have direct review powers. In some states, DMV officials do not need subpoenas to review dealer files, as dealers are a regulated industry. Other agencies need subpoenas to review dealer files. DMV’s only enforce certain state laws however.

State Departments of Revenue also audit dealers and refer cases to the State Attorney General.

Consumer Financial Protection Bureau (CFPB)

One hears a great deal about the CFPB these days. It has vast powers, and its potential for investigating businesses and fining them is truly sobering. However, if you are a franchise dealer you should thank the NADA for excising you from its direct authority. Conversely, some independent dealers and BHPH dealers are within its jurisdiction. Indirectly, the CFPB can affect all dealers by insisting upon what it considers fair lending (the disparate impact theory) and its apparent mandate to deny the application of arbitration. Should dealers lose their opportunity to arbitrate their disputes with consumers, dealers will be facing great legal peril.

Federal Trade Commission (FTC)

The FTC remains armed and dangerous when it comes to franchise dealers. It retains authority over franchise dealers and has expedited rule-making authority, which it can utilize to further regulate your business. Moreover, it has taken recent action against several franchise dealers regarding advertising to serve notice it is watching the industry.

Consumer Rights Groups

Organizations such as the Consumer Federation of America (CFA), Consumers for Auto Reliability and Safety (CARS) and the National Consumer Law Center (NCLC) monitor the automobile industry, often castigating dealer actions. CARS, for example, was successful in advancing the Car Buyer’s Bill of Rights in California. And the NCLC publishes “how to” guide books on how to sue car dealers.

Consumers and Attorneys

Angry consumers resort to their attorneys, who will attempt to make simple complaints into class actions. Even small cases can result in large economic settlements. I recall various Florida cases where the actual damages owed to consumer were only a few thousand dollars, but the final settlements were more than $200,000.

The common element to most of these problems for dealers is angry consumers who take their complaints to a receptive government agency or their attorney. Social media and the internet exacerbate this situation.

Why Believe Me?

For sixteen years I investigated and prosecuted dealers and lenders on behalf of the Florida Attorney General’s office. For my very first case, I was a receiver of a Buy Here Pay Here (BHPH) store in South Florida. I collected the weekly payments; skip traced the deadbeats, attempted repossessions, handled registrations and conveyed the titles in the few cases when the consumers actually paid for the vehicles. It was an interesting experience. When I contacted some of the consumers who decided not to pay for their vehicles, they were quite belligerent and insulting, often challenging me to find them. I developed a great deal of respect for BHPH dealers.

In my other cases, I went undercover as a finance manager upon two occasions, a customer many times and deposed dozens of dealer principals, dealer employees and lenders. I settled with over 1,600 dealers for an amount in excess of $15,000,000 in legal fees, costs and consumer restitution for thousands of consumers. In these efforts, more than 100,000 deal jackets were reviewed. I personally audited more than 5,000 deal jackets. One of my cases even led to the imprisonment of an F&I manager for eight years.

Presently, I work for Reynolds & Reynolds, where I make my best efforts to protect dealers by drafting legally sound documents.

In my future columns I will address the laws and regulations that affect you, and how you can take some simple, effective and inexpensive steps to comply with the law. As attorneys like to write on their demand letters: GOVERN YOURSELF ACCORDINGLY.

DISCLAIMER

This article is not meant to provide you with legal advice. Please consult your attorney for this legal advice.