In a business as heavily regulated as a car dealership, there are dozens of legal requirements with which employees must struggle daily. Given the wide array of laws, it should come as no surprise that occasionally decisions are made based on erroneous information that “everybody knows.” Many times the erroneous things that “everybody knows” are just wide of the mark, but sometimes they are dangerously wrong.
This article will discuss a number some things that “everybody knows” in the car business that are simply incorrect. If you choose to treat this as a true/false quiz, go right ahead. Here’s a hint: just answer false.
SALES ISSUES
The customer is financing the car so this isn’t a cash deal where we have to report the $11,000 cash downpayment to the government.
False. Dealers are required to report receipt of cash in excess of $10,000 on an IRS Form 8300 within fifteen days of receipt and to notify the customer that receipt of the cash was reported. Sometimes dealer personnel overlook reporting cash received on a financed deal because they don’t view it as a “cash” deal as that term is used in the car business. The vast majority of deals that have led to IRS penalties for non-reporting have been financed deals for expensive vehicles with cash downpayments in excess of $10,000. If you receive cash or cash equivalents such as money orders, travelers checks or cashier’s checks with a face amount of $10,000 or less, which when combined total more than $10,000, report the receipt to the IRS even if the deal is financed.
Even though the customer told us the cash he gave us is drug money, it can’t be a problem because we didn’t take more than $10,000.
False, and really dangerous. While a dealership must only report cash in excess of $10,000 under the cash reporting laws, the dealership has a totally separate obligation to prevent money laundering. Dealer personnel who take funds that they know or should know are the proceeds of an illegal transaction, regardless of the amount and form, can be guilty of money laundering with severe criminal penalties.
The finance company can charge interest when a customer buys a car, so we can take a note for a downpayment and charge interest.
False. Under the Truth in Lending Act, a dealer can accept a note for the downpayment provided it is payable in full before the second scheduled payment. However, if you collect interest or if the note provides for more than four installments, you will violate the Truth in Lending Act. And if you don’t collect the note in full before you assign the retail installment sale contract to a lender, you will probably be in violation of your representations and warranties to the lender making the deal a full recourse obligation.
We gave the customer a due slip for equipment and set up a payable. The customer never returned. We can keep the money.
False, especially if the deal is financed. If the deal goes bad and the lender discovers the vehicle is not equipped as represented, it can treat the transaction as a full recourse deal. Return the amount set aside to the lender with an explanation if the customer does not return to have equipment installed. Even if the vehicle was not financed, if you set up a payable for the equipment and don’t return the amount set up to the customer, the state will expect you to treat the amount as unclaimed property.
The customer overpaid for taxes and tags. We can keep the overpayment as pick up money.
False. Dealers who mark up pass throughs such as taxes and tag fees are likely to be in violation of consumer protection laws. If a customer overpays, refund the overpayment.
All the information the government requires us to make available to potential buyers of new vehicles is on the factory Monroney window label.
False. The federal government requires that dealers display two documents and provide copies to customers upon request. First, the federal Environmental Protection Agency requires that a dealer display comparative fuel mileage guides. Second, the National Highway Traffic Safety Administration requires that comparative insurance guides be on display. The documents can be downloaded online from the federal agency websites.
When we sell a used car with a warranty, we don’t have to give the customer a separate warranty since the information is on the FTC buyer’s guide.
False. The FTC buyers guide is not a substitute for a written warranty document. The federal Magnusson Moss warranty law requires that a dealer provide a separate warranty document.
We advertise to Spanish-speaking buyers using the phrase “se habla Español”. Our state does not have a requirement that we make available transaction documents in Spanish, so we can use our regular English-language used car buyers guides.
False. The FTC Used Car Rule is the one federal requirement for a dealership document in Spanish where transactions are conducted in Spanish. If you advertise “se habla Español”, the FTC will assume that you do transactions in Spanish and will expect that your vehicles will display both English and Spanish buyers guides. And your buyers orders must contain a paragraph in Spanish incorporating the buyers guide into the buyers order.
We try to encourage our salespeople to treat their customers as their own, so we can give them copies of deal paperwork with full customer information for each vehicle they sell.
False, and a bad idea. Under the FTC’s Information Safeguards Rule, the dealership’s customers belong to the dealership, and the dealership has the obligation to protect that information. Providing that information in a form that can be kept by a salesperson and used without the dealership’s supervision and control is potentially a violation of your Information Safeguards policy. And you allow salespeople to have the dealership’s information to take with them if they leave to work for a competitor. Keep control of your customer information. If a salesperson is going to do follow up, provide the information in a format that you can control and retake.
PERSONNEL ISSUES
We’re better off if we don’t have written pay plans. That will give us more flexibility when we want to make changes.
False, and potentially expensive. If you don’t have written pay plans, you simply give employees the opportunity to make claims for back pay and attorneys fees based on what they think they were told, what their fellow employees told them, what they heard, etc. In other words, you put yourself at the mercy of what a jury or an arbitrator may believe. Commit pay plans to writing. Just make sure that you include a statement that the pay plan is not an employment contract and does not affect the employee’s at will employment status.
Personnel handbooks just give employees ideas. We’re better off without one.
False. A well written personnel handbook notifies employees about what you expect of them. Far from creating rights, it set standards of conduct, behavior, and performance. It also provides an opportunity for you to make disclosures mandated under federal law such as the Family and Medical Leave Act.
We don’t want to discuss our policy against sexual harassment openly since that will just make employees suspicious and lead to misunderstandings.
False. It is important that employees know where to complain about sexual harassment. The law gives protection to an employer in a sexual harassment lawsuit if the employee fails to report incidents to management so that management could take action to solve the problem. However, where an employee can claim credibly that he or she didn’t know where to complain, the dealer will not be able to rely on this defense. It is important to have a written policy telling employees how they can bring concerns to the attention of management. Have occasional meetings with employees in which you remind them of the process. If you don’t want to explain what constitutes sexual harassment, don’t. But you do need to remind employees that you have a policy against sexual harassment that you view as important and that you can’t help unless you learn of a problem.
When investigating a complaint of sexual harassment, we are better off if we don’t take notes. Those things can be used against the dealership.
False. When the dealership does a thorough job of investigating a claim of sexual harassment and takes reasonable action, that can be the basis for a defense in a lawsuit. If the dealership is called upon to justify the action taken, it will be difficult to do so without adequate notes of the investigation.
Our sales manager is calling the receptionist at home after she accused him of sexual harassment. That’s none of our business.
False. Retaliation is often worse than the underlying problem. In fact, employers have been held liable for retaliation even where the sexual harassment claim was found to be groundless. Retaliatory behavior need not take happen at the work place to be actionable. Take action on any claim of retaliation no matter where it takes place.
We can’t enforce a dress code because we can’t treat male and female employees differently.
False. A policy requiring that personnel dress appropriately for their jobs can reasonably take into account gender differences.
We want to run credit bureau reports on employment candidates to make sure they don’t have credit problems. We can do it based on their signatures on employment applications.
False. Don’t assume that policies for running credit reports on customers apply to employment situations. The rules are different. A dealership can only run a credit bureau on an applicant for employment if the authorization is based on a signed document that authorizes a consumer report and an investigative background report and nothing else. That is why if you are using an employment application that contains an authorization to run a credit bureau report, the application is hopelessly out of date. Use an updated employment application and a separate form to authorize a credit report.
FRANCHISE ISSUES
We have a GM store and our dealer agreement was assumed by the New GM. We will not have the protection of state dealer laws.
False. New GM, as well as New Chrysler, were not in bankruptcy. They bought assets from the predecessor companies that were in bankruptcy. State franchise laws apply to both new companies.
We have to go along with our factory’s demands or they won’t renew our dealer agreement.
False. In almost every state, a manufacturer cannot simply refuse to renew a dealer. A dealer is entitled to renewal unless the manufacturer has cause to terminate the dealer. The failure to go along with the manufacturer’s demands is hardly good cause for termination.
Fighting factory audit results is futile. The auditors know the manufacturer’s policies and programs better than we do.
False. The rules and regulations for sales and warranty compensation are subject to interpretation. A factory auditor will make an interpretation that is most favorable to the factory. A dealer has the right to challenge that and to make its interpretation known. And don’t just assume that the auditors are all-knowing. Many auditors today are former field personnel of the manufacturers who have been moved to audit positions in downsizing. They are inexperienced and sometimes know less than dealership personnel. Don’t be afraid to argue your position in any audit.
When we sell new cars to customers, they can resell them any way they want, and we can’t be responsible.
False, unfortunately. Sales and service agreements of all manufacturers make sale of a new vehicle to a customer the dealer knows will export it a violation of the dealer agreement. In most cases, the result will be a chargeback for all dealer money applicable to the vehicle, and may even mean a loss of allocations for hot models. State laws sometimes provide protection for dealers, but not when dealer staff can clearly be shown to have known that the vehicle was to be exported. Make sure sales personnel understand the manufacturer’s limitations and the applicable state laws about exports.