There have been several deregulatory actions by the Trump administration, particularly to reduce the number of regulations affecting businesses and to rein in bureaucratic overreach on employment matters. However, deregulation is hardly the case for federal agencies that carry out Trump administration priorities or have legislative mandates. Here are examples that impact auto dealers.
Immigration and Customs Enforcement. Prevention of illegal immigration was a cornerstone of the Trump campaign. Lately, it has been the most highly publicized and controversial of the administration’s policies. For dealers, the immigration policy translates into enforcement on form I-9. As we reported last month, ICE has initiated 2,280 I-9 audits from October 1, 2017 through May 4, 2018, a dramatic increase from 1,309 I-9 audits for all of fiscal year 2017. Make sure your I-9 procedures are in place.
Cash Reporting. The Trump administration is a law and order administration. The Internal Revenue Service, a critical enforcement agency under the Affordable Care Act, has had several ACA enforcement burdens lifted. The IRS has the time and manpower to investigate violations of cash reporting, a Trump administration priority. Be sure you have a cash reporting procedure in place. You should have a written cash reporting plan. Sales, F&I and general office personnel should know of the cash reporting requirements, particularly what triggers the need for a cash report and how to obtain information from a customer for whom a report will be necessary. You should have in place a dual review policy in your dealership. Not only should frontline personnel and the general office understand form 8300 requirements, there should be a backup to catch missed filings. That can probably be done through your DMS system, but only if your cashiers are coding receipts on the type of consideration.
Harassment Claims. Because of the #MeToo movement, employees are, and employers should be, more cognizant than ever of the possibility of harassment complaints. The Equal Employment Opportunity Commission is. In June, 2018, it filed five harassment actions against employers – a clear signal that workplace harassment will continue to be a priority of the EEOC. These actions were:
A shipbuilder was charged with race and same sex harassment after it allegedly failed to address complaints by a welder of Asian ancestry.
A staffing company faces charges it refused to do anything when women employees assigned to a police department complained they were harassed by being called “prostitutes” and “sluts” and by unwanted touching.
In a Texas company, a supervisor allegedly followed a female custodian regularly into restrooms she was cleaning and tried to force himself on her. She also claims a company vice president subjected her to abuse.
A California franchised restaurant owner allegedly touched and made suggestive comments to women employees.
A construction clean up firm supervisor allegedly touched, harassed, and stalked a female employee.
One of the nation’s largest trucking companies allegedly allowed the sexual harassment and threatening of a female truck driver.
A California printing, mailing and fulfillment company allegedly subjection female workers to ongoing verbal and physical sexual harassment and retaliation.
The Federal Trade Commission is mandated by statute as the federal agency enforcing the laws against car dealers. When the Dodd Frank financial reform act was enacted, Congress made up for exemption of franchised car dealers from CFPB jurisdiction by enhancing the authority and funding of the FTC over them. The FTC has taken actions based on its authority over the last several years. It has filed numerous complaints and obtained consent orders on advertising, spot delivery issues, alleged improper sales practices, and similar practices within its jurisdiction to prevent unfair and deceptive practices. The FTC shows no sign of slowing down in its pursuit of perceived consumer abuses.
Whether it is on TV, on the radio, in a newspaper, or on the internet, each ad must stand on its own with all disclosures in each ad. In price advertising, there must be significant disclosures. The FTC has sued dealers for incomplete disclosures about how a customer can qualify for a price or an offer. Advertising a price and saying “some customers may not qualify” does not cut it with the FTC. Nor is it acceptable to the Virginia Motor Vehicle Dealer Board that has been quite clear that the terms and qualifications of any offer must be disclosed in each ad.
In Virginia, the applicable statute provides that: “the advertised price or credit terms shall include all charges which the buyer must pay to the seller, except buyer-selected options, state and local fees and taxes, and manufacturer’s or distributor’s freight or destination charges, and a processing fee, if any.” The types of fees dealers in other states may be adding are not permitted in Virginia. In addition, dealers in many states endured lawsuits on their doc fees for years. In one state, the litigation is still pending. Virginia solved the issue legislatively by permitting a processing fee when done according to statute. That fee and the electronic titling fee are the only non-governmental fees allowed in a transaction. Adding fees to advertised prices not specifically permitted by state law threatens to reinvigorate lawsuits against dealers for improper fees. There is no winning litigation over fees. Even if a dealer ultimately prevails, it still costs substantial attorneys’ fees and unrecoverable time and effort.
The big change in the used car rule was in how the FTC buyer’s guide is structured. Previously, there were boxes for as is or a warranty. That warranty box now says “Dealer Warranty”. If the dealer issues no warranty, the vehicle must be sold as is. That means you may disclose the manufacturer’s program warranty in the small boxes for non-dealer coverage below the dealer warranty, and you may disclose the terms in the “systems covered/duration” area under the dealer warranty check box if you disclose that the dealer is not the warrantor. But you may not check the dealer warranty box if the dealer is not offering a dealer warranty.
Recent actions on which we have reported have strengthened the ability of businesses to use arbitration provisions and reap the benefits. Action by the Congress in passing, and President Trump in signing, a Congressional Review Act resolution that invalidated the CFPB’s arbitration rule removed the most important challenge to the effectiveness of arbitration in retail transactions. A recent Supreme Court decision invalidating the position of the National Labor Relations Board that arbitration provisions barring class actions in employment situations violate the National Labor Relations Act removed the greatest challenge to use of arbitration provisions in employment situations. These two actions strengthened the hand of business in enforcing arbitration provisions.
As of the publication of this newsletter, there has been no action to change the official Department of Defense Policy that sale of GAP or credit insurance, or cash out financing, subjects the transaction to the Military Lending Act. A transaction covered by the Military Lending Act can lead to severe problems, including rendering the finance contract void. Dealers should still avoid selling GAP and credit insurance, and not do cash out financing, with active duty military personnel and their dependents until something is officially published changing the December 2017 DoD position.
A service member who leases a vehicle, and has a change in circumstances such as a deployment, can cancel the lease. A service member who finances a vehicle while a member of the armed services and has a change of circumstances cannot. That is why many service members come to the dealership specifically to lease a vehicle. Military legal assistance personnel often counsel military personnel to lease vehicles because of this benefit. Converting a military service member who wishes to lease into a retail installment sale contract the member cannot cancel for a change in circumstances can lead to problems for a dealership. There have been lawsuits by service members who have lost the ability to cancel their finance contracts because of a deployment. Even if a dealer can prevail, the lawsuit itself will be expensive to contest and brings a potential of substantial bad publicity in an atmosphere where public policy favors the rights of military personnel.
There is a common misperception that there is some public policy against rollover provisions for similar terms. There is no such policy. Rollover provisions are enforceable. The best thing to do is to avoid a rollover term. Your contract should provide that once your initial term is over, it converts to a month-to-month contract. However, before you sign for an initial term of a lengthy duration, ask why. What is it about your supplier’s business that makes it worthwhile for you to have a long term contract? Insist on a month-to-month contract and if you cannot do that then have an initial term of the lowest number of months you can with a rollover on a month-to-month basis.