When I recently discussed compliance issues with some F&I managers, one of them asked if what we were discussing was required by a regulation or if it was a “best practice.”
Initially, I answered the questions until it became apparent in the asking was a different agenda. I asked why the distinction made a difference. Our conversation was pretty sunny until I asked that question, and then things got grey fairly fast.
“Grey” as in when someone asks a compliance person that question, there is usually some other agenda at play behind the question. An agenda that generally requires paid legal advice to ride the edge of or circumvent a compliance issue.
Such “requirement or best practice?” questions usually arise when discussing the sale of ancillary products, the use of menus, and how a particular sales process works.
When the question is which regulation requires the cash price of a particular product be placed on the menu, the answer is none. The answer to which regulation requires use of a menu is also none. Nor, mostly, is there any regulation defining what products you can sell out of the dealership.
In response, as an attorney and compliance professional, I have one question: In this day and age of regulatory enforcement, government intervention, attorneys general actions, and the reign of class action lawyers, why are you even asking the question?
Less is no longer more in our industry. Fewer disclosures generally result in more issues down the road. Forget about the old “buyer beware.” The new mantra in automotive sales and finance is “seller beware.”
We are now are operating in the age of regulation, and unfortunately, many regulators are siding with consumer advocate groups. Even having the information in the contract is no longer a failsafe for the seller, because the government deems most consumer contracts too difficult for Johnny Consumer to understand.
So what do you need to do?
- As a seller, did you dot all the i’s and cross all the t’s?
- Are your Truth in Lending Act (TILA) disclosures clear and accurate?
- Have you inspected the previously driven vehicle?
- Do any statements regarding the condition of the vehicle contradict its history and prior damage?
- Did you disclose the true cost of ancillary products to the customer, and in a meaningful and understandable fashion?
- Does the benefit the consumer derives from the product bear some reasonable basis to the cost?
For the most part—except for the need for accurate TILA disclosures—none of the items listed here is guided by specific regulation. Instead, they are regulated by government agencies using what has become more powerful than most regulations.
The Federal Trade Commission (FTC) uses unfair, deceptive, and abusive acts or practices (UDAAP). The Consumer Financial Protection Bureau (CFPB) has relied extensively on UDAAP, and attorneys general and plaintiffs’ attorneys use similar state statutes. For example:
- The FTC clarified this year that biweekly payment products are iffy at best, and unfair and deceptive when they provide little benefit to consumers, or cost more than any savings they provide.
- The CFPB has used UDAAP to levy millions of dollars of fines and consumer redress on banks for the sale of add-on products deemed of little use or benefit to consumers by the agency. In dealers’ financial services, the agency found the sale of service contracts and GAP unfair and deceptive. The issue had nothing to do with the products themselves, but with the way they were sold and pricing disclosed.
- The attorney general office of New York has used its UDAAP power quite a bit of late, entering into consent decrees with a number of dealerships for what the state attorney general deemed abusive sales tactics, including failing to properly disclose the cost of ancillary products.
Many of these cases could have been avoided if the businesses considered best practices in the marketing and sale of products. Some best practices to consider:
- Disclose the actual cash price of the product, not just the monthly payment. Yes, I am aware the cash price is stated on the contract, but consumers are no longer required, thanks to the CFPB, to look that hard at anything they sign.
- If you are selling a product you consider basically worthless, UDAAP may apply.
- Review your products and know what the exclusions are before you sell them to someone who will never benefit.
- If you’re worried the product cannot be sold if all the details and cost are disclosed, don’t sell it.
So, we’re back to where we started. If someone asks if something is a regulation or a best practice, then that person is likely taking a shortcut to a sale that could cost the dealership significantly more than the profit gained.
Best practices go beyond compliance with regulations. They protect you from claims of unfair, deceptive, abusive acts, and practices, and will build better overall customer satisfaction.
David R. Missimer, [email protected], is general counsel for Automotive Compliance Consultants Inc. He spent 28 years in private practice as a litigator representing lenders, auto dealers, and numerous other entities and individuals. He has worked with dealership compliance issues since 2003 as co-founder of Automotive Compliance Consultants. He is a member of the National Association of Dealer Counsel, American Financial Services Association, and National Automotive Finance Association.