July 21, 2026
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
Occasionally, we discuss dealership myths -- things that “everyone knows”, even though they may not be true. Here are some you should consider.
- Dealership personnel communicating with prospects and customers through their own accounts on social media should be encouraged since it is free advertising for the dealership.
Facts: Advertising is a hot issue after the Friday, the 13th letter was issued to the 97 dealership groups from the FTC back in March of this year. Social media messaging by dealership employees can be damaging to the dealership. When the messaging appears to be done on behalf of the dealership, but it does not comply with advertising laws, it can lead to government action or private lawsuits with the dealership as the defendant. Social media messages of prices, terms, or offers constitute advertising. When done without appropriate disclosures and disclaimers, it violates advertising laws. Have a social media policy. It should prohibit discussing prices, terms of sale, or other offers since the dealership has no ability to control the messaging. The post by the employee should have a link to the dealer’s website. The goal of any social media messaging should be to drive customers to the dealer website where offers have proper disclosures and comply with the law.
- Our competitors are advertising used vehicle prices subject to an increase for a separately disclosed processing fee and reconditioning fee. We can advertise a lower used vehicle price if we disclose separately and prominently that the customer must pay a processing fee of $900 and reconditioning fee of $995.
Facts: Advertised prices must be the full delivered cash price including all fees that the dealer charges but for government required fees such as title fee and taxes. When subject to a processing fee, reconditioning fee, or any other dealer fee disclosed in a disclaimer, the ad violates that requirement. A separate fee not specifically permitted by law, such as reconditiong fees are not permitted in states like Virginia and Maryland, will be seen as an unauthorized addition to the doc fee or processing fee in violation of law. Dealers should only be charging dealer permitted fees and those fees shall be included in the most prominent cash price of the advertisement. That price shall be the ceiling and not the floor. Violations can lead to government enforcement actions or private lawsuits against the dealership.
- If a dealership advertises the annual percentage rate of the financing it offers, that is a trigger term and it must make follow on disclosures.
Facts: Simply advertising the annual percentage rate is not a trigger term under the Truth in Lending Act. It is legal to advertise that without further disclosures provided you use either the abbreviation APR or the term “annual percentage rate”. The problem for dealers is that they sometimes qualify the availability of the APR with disclaimers such as “available on financing up to 48 months.” The duration of the financing is a trigger term since trigger terms are: the amount of a downpayment, the amount of an installment payment, the number of installments (term), or the amount of any finance charge. If a trigger term is used, then the following must be disclosed:
- The amount of the installment payment
- The amount or percentage of down payment;
- The number of installments (term); and
- The annual percentage rate.
Failure to comply with the Truth in Lending Act and the Consumer Leasing Act when advertising can be costly. The TILA and CLA disclosure requirements are clear cut, and if the FTC has the dealership on a clear cut violation, the FTC has leverage to seek a dealer’s agreement to violations on less established legal theories.
- The dealership may advertise a price that may deduct a manufacturer program that most people can qualify for such as a geographic incentive for your PMA if the advertisement discloses prominently, in a clear and conspicuous manner, that “not all buyers may qualify” for the price.
Facts: The Federal Trade Commission has made it very clear. The advertisement has to be available to EVERYONE and must be the ceiling. The price cannot include any incentive that is conditional and would change the advertised price.
- Our dealership will not discount retail paper to a finance source unless it is without recourse. That means any losses if a deal goes bad will not affect the dealership. We can be as aggressive in sales practices as we need to get the vehicle across the curb.
Facts: Finance sources are more active than ever to determine why deals go bad. Even though there may not be a legal basis for requiring the dealership to cover the finance source’s loss by forcing a buy back of the deal, that does not mean that the finance source cannot take action. Increasingly, they are interviewing customers. They are asking about sales practices. They are looking at every repossessed vehicle to make sure dealer personnel did not engage in deceptive sales practices. Any deception, especially misrepresentations to the lender, will lead to a bought back deal. When they find dealership practices leading to losses, finance sources may institute policies to interview every customer before they buy a deal, slowing down cash flow. They may simply stop doing business with the dealership. The dealership’s ability to sell vehicles depends on its ability to finance or lease them. PROTECT YOUR FINANCE SOURCES.
- We are eliminating paper in the dealership. We have implemented, as have most dealerships, a fully electronic customer approval application process. The F&I person interviews the customer, enters the information in the computer portal, and submits the electronic application. That is the best practice today.
Facts: One problem that dealers are facing increasingly is the claim that the customer’s income was misrepresented. Sometimes it may be an overeager dealership employee. More often it results from false information by the customer. When the customer is later interviewed by the finance source, do not expect the customer to admit the information he or she provided was false. This problem will always be viewed by finance sources as resulting from improper dealership behavior.
A dealership should have something in the customer’s own writing about his or her income. Even though the dealership has gone to full electronic communication of financial information to finance sources, use a handwritten application, even if it is abbreviated to obtain name, contact information, employer, work address, and income. That way the dealership has the represented income in the customer’s own writing, and the dealership has protection if the finance source contends the dealership engaged in wrongdoing. In the alternative, the customer should be entering the information in the portal themselves, and the dealership should have a process and documentation that confirms that the customer entered the information in the portal themselves.
- Every used car we sell is certified with a manufacturer’s warranty. We do not have to mark the FTC buyer’s guide that we are selling the vehicle AS IS.
Facts: The used car rule makes this practice improper. Under the rule, a disclosure that a vehicle is covered by warranty is only valid if it is a dealer warranty. If there is no dealer warranty, but only a franchisor or third party warranty, the vehicle may only be sold as is or with implied warranties only (depending on state law). The FTC has stated that a dealer may disclose the terms of the manufacturer warranty in the “systems covered” and “duration” area of the buyer’s guide. However, the FTC has stated that it must be clear about the warrantor, meaning that the vehicle must still be sold as is or with implied warranties only unless there is dealer warranty provided with the vehicle.
- Our franchisor has changed the primary market area for which this dealership is responsible. It uses scientific methods to determine this, and we are stuck with it.
Facts: Primary market areas for franchised dealers are designed for the convenience of the franchisor. Franchisors abhor unassigned areas. They will make some dealer responsible for an area, whether or not the dealer has a sales advantage in this area rather than leave it unassigned. They will typically ignore critical issues such as geographic barriers, traffic patterns, model preferences, demographic patterns that affect affordability and desirability of certain brands, and similar critical issues. Most states have statutes requiring performance standards to be fair and equitable. Sales objectives based on a primary market area containing census tracts or zip codes (depending on the manufacturer) where a dealership does not have an advantage or that ignore geographic or demographic factors that may affect the dealer’s ability to sell may be unfair and inequitable. If a dealer believes the primary market area assigned by its franchisor is improperly designed, it may challenge it and request a revision. If the franchisor refuses, the dealer should consider its rights under state law to challenge unfair and inequitable performance standards.
- The dealership’s franchisor is establishing sales objectives to earn performance bonuses for the dealership that increase monthly. It is at a point where the dealership cannot reach the objectives. The dealership has no other recourse except to keep losing money to try to make the unrealistic objectives.
Facts: A sales objective is a performance standard. In a state which requires performance standards to be fair and equitable, an incentive carrot made increasingly difficult to reach by lengthening the sales objective stick may be unfair and inequitable. A dealer that believes its sales objectives are being mechanically increased to simply drive dealership personnel beyond realistic sales limits should request a review. If the manufacturer refuses, consider challenging using rights under state law.