100 Years of Compliance History
100 Years of Compliance History

The National Automobile Dealers Association (NADA) will be celebrating its 100th birthday in January 2017. Founded in 1916, NADA has been a tireless advocate for dealer interests and was created to respond to regulatory and compliance issues. To place the origin of NADA in chronological perspective, here is a short list of vehicle-related historical facts:

1891: First car accident.

1904: First speeding ticket was written.

1914: First electric traffic light was introduced.

1914: For the first time, the federal budget included money to purchase two vehicles for the President of the United States.

Over the course of this NADA century, the business of selling, financing and leasing vehicles has become complicated. In 1940, for example, a dealer could sell and finance a vehicle using only one piece of paper. Today, it takes approximately 39 feet. The history of the car business is replete with a complex history of the development of compliance law.

A 2014 study conducted at the direction of NADA concluded that federal compliance alone costs dealers an average of $183,000 per rooftop or $2,400 per dealership employee. This large expense is due to the ever-increasing compliance burden which is born from the continual addition of new federal laws. One need only review this chronology to recognize this truth as it relates to financing and leasing vehicles.

Dealers are responsible for following these laws and regulations in addition to many others:

1812: Office of Foreign Asset Control (present form 1950 and 2001)

It’s hard to believe that a law passed during the War of 1812 could have any relevance to the car business. Economic sanctions against foreign states date to this war, when the U.S. administered sanctions against Great Britain in retaliation for the harassment of American sailors. Today, of course, dealers must not engage in business with specially designated nationals (SDNs) pursuant to this same law, which has been extensively revised over these many years.

1914: Federal Trade Commission (FTC) Act

The FTC Act created the Federal Trade Commission. Pursuant to the basic powers granted to the FTC to police unfair and deceptive acts and practices (UDAP), the agency has prosecuted many cases against dealers. Deceptive advertising is a major target. In addition, the FTC has mandated various regulations such as the Used Car Rule (see below).

1926: Federal Arbitration Act (FAA)

All dealers should avail themselves of arbitration. The FAA has been upheld many times in court challenges. Unfortunately, one of the consequences of the Dodd-Frank Act (see below) will probably deny the application of the FAA in cases where the arbitration provision contains a class action waiver.

1958: Automobile Information Disclosure Act (Monroney Sticker)

The lack of disclosure regarding vehicle prices led to this law, which requires vehicles to have a label placed on the vehicle with a manufacturer’s suggested retail price (MSRP) and other information.

1966: Modern Class Actions Rule

Class actions have been available for consumer redress for over two centuries. Every consumer attorney wishes to convert a consumer complaint into a class action as there are large fees involved. However, before the 1960s, consumers had to opt into a class action. Now, consumers must opt out. The modern rule assumes that all affected consumers will wish to join a class action.

1968: Truth in Lending Act (TILA) and Regulations Z and M

TILA had a major impact on how dealers transact business when they execute retail installment sale contracts and lease contracts. Disclosures, calculations, protocols and advertising have all been affected.

1970: Fair Credit Reporting Act (FCRA)

FCRA addresses the entire credit reporting process. Dealers must observe certain protocols for obtaining and using credit reports. As with the ECOA, below, dealers must send adverse action notices for credit declinations.

1972: IRS Form 8300 Cash Reporting Rule

Dealers must account for cash transactions of $10,000 or more and must follow certain legal dictates.

1972: Federal Odometer Act (FOA)

The FOA was passed to provide consumers with disclosures regarding the accurate mileage of the vehicles they are purchasing. Manipulation of odometers in vehicles is strictly prohibited and there are both civil and criminal sanctions for violating FOA.

1974: Equal Credit Opportunity Act (ECOA) and Regulation B

The ECOA’s primary purpose is to outlaw discrimination. Dealers are creditors and must judicially utilize the credit application process and provide adverse action notices should credit not be extended.

1975: Magnuson-Moss Warranty Act

This federal law requires dealers, as sellers, to provide written warranties with their vehicles when a warranty is included in the transaction regarding the vehicle itself.

1975: Holder Rule

This Rule provides that an exact disclosure must be included in a retail installment sale contract which explains that any valid consumer claim or defense which the consumer has against the originating dealer also apply to any assignee of the contract.

1985: Used Car Rule

This rule is truly draconian. When selling a used vehicle, the dealer must post a notice which describes the mechanical condition and any warranty terms which may apply. The font type, font size and the size and color of the paper are exactly prescribed.

1985: Credit Practices Rule

The Credit Practices Rule provides both substantive and disclosure elements for dealer contracts. For example, onerous conditions favoring dealers such as pyramiding late charges or confessions of judgment are illegal.

1991: Telephone Consumer Protection Act (TCPA)

The TCPA was recently revised, and along with other do-not-call laws, restricts how dealers may contact the public. This collection of laws is somewhat involved.

1999: Gramm-Leach-Bliley Act (GLBA)

GLBA requires dealers to implement the Privacy Rule and the Safeguards Rule. Disclosures and internal procedures at the dealership, in maintaining consumer records and sharing them, are strictly addressed.

2008: Red Flags Rule

The Red Flags Rule was created by the FTC, along with other government agencies such as the National Credit Union Administration (NCUA), to help prevent identity theft. However, it didn’t go into effect until 2011 due to industry resistance.

2010: Dodd-Frank Act

The Dodd–Frank Wall Street Reform and Consumer Protection Act is an omnibus act which created the Consumer Financial Protection Bureau (CFPB). The CFPB has extensive powers and a large budget. Richard Cordray, the CFPB’s Executive Director, identified the CFPB’s mission as policing the “Four Ds”: discrimination, deception, debt traps and dead ends. Franchise dealers are not subject to the direct jurisdiction of the CFPB thanks to the lobbying efforts of NADA.

In addition to the federal rules listed above, states have passed acts modeled after the FTC Act and utilize state UDAP authority. UDAP is a very broad and powerful source of authority. Violations of federal law are often considered violations of the state UDAP law even when the federal law doesn’t allow for a private cause of action. In addition, class actions routinely depend upon UDAP, as does the state attorney general.

The states have passed numerous laws over this century, such as the Uniform Commercial Code, retail installment sales and leasing acts, credit repair acts, and so forth, adding considerably to the compliance burden.

In reviewing this chronology, it is obvious that dealers have a very heavy compliance burden to discharge. And, as the century continued, more laws were added on a regular basis. It leads to two questions: Does the benefit to consumers outweigh the cost of this compliance burden? What other laws will be added to this list in the coming NADA century?

Unfortunately for the industry, one can safely predict more regulatory compliance will be added in this next NADA century. Compliance costs are here to stay. Govern yourselves accordingly.