Nov. 10, 2022
By Michael G. Charapp
Charapp & Weiss LLP
For more than one year after the inauguration of President Biden, the FTC was deadlocked. Set up to have three commissioners from one party and two from the other, the control of the Commission was split 2 – 2. In May 2020, with the vote of Vice President Harris, the fifth Commissioner – reflecting the views of the Biden administration – was appointed by the Senate on a 51 – 50 party line vote. The FTC is now set to aggressively pursue the agenda of Commission’s majority, and it is wasting no time targeting car dealers.
The authority of the FTC over franchised car dealers is not in question. When the CFPB was formed, franchised car dealers were exempted from that Bureau’s oversight. Congress compensated by increasing the authority and the budget of the FTC to oversee franchised car dealers.
What should you do to protect your dealership? We suggest it is time for compliance triage. Dictionary.com defines “triage” as “the determination of priorities for action in an emergency.” Dealers face an anti-dealer enforcement emergency. It is time to understand the FTC’s priorities and focus on compliance with priorities of the newly invigorated FTC.
- Advertising – Just about every FTC car dealer complaint has an advertising element to it. Understand what the FTC is looking for and avoid those problems.
- Selling prices – Like many regulatory agencies, the FTC has been highly critical of pricing over MSRP, especially when the dealer advertised vehicle availability at MSRP but sold the vehicle at a higher price.
- Compliance with the Equal Credit Opportunity Act -- Do you have a Fair Credit Policy? Are you aggressively enforcing it? If the answer to either or both of the questions is no, give immediate attention to this problem.
- Sales of Add-on Products – The Commission has been highly critical of practices used to sell voluntary prevention products. What is your policy on consistent pricing for VPPs?
- New Safeguards Rule – Effective December 9, 2022, all elements of the revised Safeguards Rule must be in place. Are you prepared?
- Credit Reports – A critical aspect of protection of customer’s identities and non-public, personal information involves care in running credit reports. What is your policy?
- Used Car Rule – The Rule itself is nearly four decades old, but it was amended five years ago. The FTC believes that many in the industry are not complying with the revised Rule.
Before we discuss specific steps to protect against FTC action, let’s discuss general steps your dealership should take toward compliance.
- Have a culture of compliance. Compliance starts from the top. So how do you do it?
- Establish a clear policy of full compliance with the law. You want to do what is legal and what is right.
- Train your employees. They must understand how they will act to reach your goals.
- Monitor your employees’ activities. Review car deals and listen to your customers.
- Act where necessary. When employees operate contrary to your policies, solve the problem. Make sure the employee knows what went wrong and why. If the employee’s behavior is over the line, take disciplinary action, including termination, if necessary.
- Have a solid complaint handling system. There is no more important key to a compliance system than handling a complaint before a customer visits an attorney or contacts a regulator and the situation gets out of control. If a dealership gets a complaint, it should be logged in, properly routed to a responsible manager for handling, tracked, and satisfactorily closed. Early money spent to solve a problem is the cheapest money.
Now, let’s talk about some FTC-specific steps.
- Control your advertising. Give attention and require in-store advertising personnel and your advertising agency to know the advertising rules and live by them. Our checklist for federal advertising compliance accompanies this article. Use it.
- Vehicle Offering Prices. Like most regulators, the FTC does not like vehicle pricing over MSRP. Also, like most regulators, it knows there is not much it can do about a dealer charging over Manufacturer’s SUGGESTED Retail Price. Unless deception is involved. A vehicle advertised at MSRP but sold at a higher price is considered by the FTC and other regulators as bait and switch. Even where your manufacturer prohibits advertising at something other than MSRP through its coop program, avoid bait and switch tactics.
- Protect the dealership against the coming attack on dealer participation. What the majority of Commissioners view as unfair pricing of credit for minorities is on the FTC’s radar. Have a fair credit policy, in which the discretion of F&I personnel on rates is eliminated through a set starting point with downward deviations for non-discriminatory reasons and enforce it. We recommend the NADA policy. Adopt it for your dealership and oversee the compliance by dealership staff with its requirements.
- Establish set prices for F&I products. The CFPB believes that its pressure on reserve can lead to attempts to enhance income in other areas. When F&I personnel have unlimited discretion on pricing of F&I products, the CFPB might contend that consumers in protected classes were negatively affected by differing prices for the same F&I products. To combat this, use set pricing for F&I products, with provision for downward deviation for non-discriminatory reasons like those in a fair credit policy. We recommend the NADA/NAMAD/NIADA policy on sale of vehicle protection products. Adopt it for your dealership and enforce it.
- Revised Safeguards Rule. Dealers have less than two months to be sure all elements of the revised Safeguards Rule are in place. The newest FTC Commissioner is an expert in privacy. Expect vigorous enforcement by the Commission.
- Run credit reports when authorized. While the law does not require that a customer sign an authorization, a signed authorization for access to a credit report is the best way to show compliance. Run no credit report without a signed or secure internet authorization. Keep every authorization for five years, even for deals not completed.
- Comply with the FTC Used Car Rule. After nearly four decades, dealer personnel should be familiar with the FTC Used Car Rule. No used vehicle should be offered for sale without an FTC buyer’s guide. See our checklist for compliance with the Used Car Rule accompanying this article.