By Michael G. Charapp
Charapp & Weiss LLP
Last month’s newsletter discussed changes dealers have implemented because of the pandemic and many changes dealers are likely to have to adopt because of the fallout of the 2020 national election. How well do you understand the issues you are likely to face in these turbulent times?
This quiz tests your knowledge on the status of some critical compliance issues for your dealership.
True. Judicial decisions have strengthened the ability of businesses to use arbitration provisions and reap the benefits. Several Supreme Court decisions have supported predispute arbitration.
Unfortunately, limiting or ending predispute arbitration is at the top of the agenda for every consumer and employee advocacy group. For example, a subcommittee of the U.S. House of Representatives just held a hearing on predispute arbitration. We don’t want to suggest bias of the organizers, but the title for it was “Justice Restored: Ending Forced Arbitration and Protecting Fundamental Rights.” There is nothing “forced” about predispute arbitration, since forced arbitration would be ruled unenforceable by a judge or an arbitrator. A consumer or an employee voluntarily enters an arbitration agreement. Whether it will survive a challenge depends upon its terms and how it is implemented. The agreement must be fair and balanced. It must be supported by consideration. When these requirements are observed, an arbitration agreement is likely to survive a challenge.
Predispute arbitration agreements have not yet been outlawed by federal action. A dealer in a state that allows predispute arbitration who wishes to enjoy the protections of predispute arbitration in consumer and employment matters is still free to do so.
False. With the rise of the social justice movement under the Biden administration, dealer finance reserve is likely to come under heavy scrutiny again. While Congressional prohibition of CFPB action will prevent the Bureau from taking action in this area, private litigants, state attorneys general, the U.S. Department of Justice, and the Federal Trade Commission can all enforce equal credit laws. And it is not only finance reserve that will be at issue. Practices in selling voluntary protection products are not only potential subjects of legal action by these enforcers, the CFPB is not prohibited from investigating VPP practices. It was doing so before the change in administrator of the bureau during the Trump administration.
If your dealership is not using a fair lending program and a program for sale of voluntary protection products that requires offering finance rates and VPPs at uniform pricing levels, with deviations for nondiscriminatory reasons and with results you can review and for which you can take corrective action for non-compliance, you are not adequately protecting your dealership. The Fair Lending Program and the Program for Sale of Voluntary Protection Products published by the National Automobile Dealers’ Association are comprehensive programs your dealership should implement and follow.
True. Advertising enforcement will continue to be a cornerstone of actions against car dealers by the FTC. Compliance with the Truth in Lending Act and the Consumer Leasing Act are critical because both laws are clear. If an APR is only available for loans of limited duration, that must be disclosed to meet the general requirements of the FTC Act that terms and conditions of offers must be fully disclosed. If the limitation is a trigger term (for example, “up to 36 months”) the duration disclosure then requires the follow-on disclosures. In advertising credit in connection with a motor vehicle, any of the following is a trigger term:
- The amount of the down payment (expressed as either a percentage or dollar amount)
- The amount of any payment (expressed as either a percentage or dollar amount)
- The number of payments or the period of repayment
- The amount of any finance charge.
If you use a trigger term, you then must disclose:
- The amount or percentage of the down payment
- The terms of repayment
- The "annual percentage rate," using that term or the abbreviation "APR." If the annual percentage rate may be increased after consummation of the credit transaction, that fact also must be stated.
False. Under the Truth in Lending Act, the annual percentage rate is not a trigger term. You must make further disclosures under TILA only if an advertisement employs a trigger term.
True. Often dealers seek to equate lease rates to APR and advertise low rates in connection with leases and nothing more. The Consumer Leasing Act prohibits that practice. In advertising a lease rate, you may not use the term “Annual Percentage Rate” or “Annual Lease Rate” or other equivalent term. In addition, if you do advertise a lease rate, the following statement must appear near the rate with no intervening language or symbols: “This percentage may not measure the overall cost of financing the lease.”
False. Spot delivery is another matter high on the agenda of regulators, particularly Federal Trade Commissioners who will soon control the agency under the new administration. Carefully observe customer rights in spot deliveries. If you must take back the vehicle you delivered, you are rescinding the contract. In other words, you are returning the dealership and the buyer to the beginning as if the transaction had not even occurred, to the extent that’s possible. That means not only must the customer give back the car you delivered, you must give back the trade and any down payment. If you do not do that, or you cannot do that, then you cannot “rescind” the transaction.
Virginia has one of the strongest spot delivery laws in the nation. Under the law, spot delivery language required by the Virginia Code must be on your buyer’s order. Compliance with that language will help protect your dealership from claims of unfair spot delivery practices.
False. Having decided that you can rescind, the recovery service could not locate the vehicle. Now what do you do? Often, the decision is made out of frustration. The customer was not candid when he bought the car, or he has not been cooperative in working with the dealership, or he appears to be hiding the vehicle. The first reaction is likely to be “Let’s show him! Let’s report the car stolen.” That is the wrong reaction.
The car was not stolen. You gave the customer possession of the vehicle under the transaction documents. Even a misdemeanor charge of wrongful use may lead to a malicious prosecution lawsuit since the customer is operating on legally issued documentation, even if overdue. Even if you win the suit, the publicity about the events will likely damage the dealership.
The answer is a civil suit to recover the vehicle. The dealership then can quickly obtain a judgment it can use as the basis for discovery from the customer to find the vehicle and to potentially recover damages if the car can never be found or to recover the dealership’s losses for the period the vehicle was withheld.
False. An employee handbook is critical to let employees know what is expected of them and to convey information required by law. A properly designed handbook benefits a dealership. The challenge today will be to keep up with changes in policy by the new administration in Washington. Your handbook is likely to require revisions due to changes in regulations or differing legal interpretations in the next four years.
True. 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 report 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. Credit reports contain critical personal data, and personal data protection will be an even higher priority under the Biden administration.
D. It is more critical than at any other time to use pay plans that protect the dealership. The pay plan simply describes the method for calculating pay due a salesperson. No length of time should be specified, or the plan could be construed as an agreement for employment for a specified time.
There should not be a specific definition of vehicle cost. In any pay plan in which calculation of commissions is based upon sale price over cost, the cost should be determined in the sole discretion of the dealership, and the plan should specifically state that.
A pay plan should never indicate that pay calculations are final. They should always be subject to revision.
False. Under the Biden administration, #MeToo and related movements will have increased influence over enforcement of laws against harassment and discrimination. Retaliation can be a separate violation of the law even if there is no underlying offense. Managers and employees must be well-trained in the company’s policy and process against discrimination and harassment. Every complaint must be taken seriously. When investigating, always warn those with whom you discuss the circumstances leading to the complaint that retaliation is against company policy and can lead to discipline, including termination. Retaliation is the most prevalent category of complaints to the EEOC, according to the agency. Protect the dealership against retaliation claims.
False. The Fair Labor Standards Act will be a law under the microscope for the Biden administration, with frequent and significant changes in interpretation. Enforcement of the FLSA will also be high on the agenda of the Department of Labor. Timecards have always been the best method to know hours worked by employees. For those exempt from premium overtime, like new car dealer salespeople, this will give your office the ability to track earnings to ensure those personnel are paid minimum wage for hours worked. For non-exempt personnel, this will give your office the opportunity to calculate premium overtime properly.