Is Your Website Provider Watching Your Back?

As I read through dealer websites, I’m often surprised at how many advertising violations I find. You would think that website providers would make sure that this doesn’t occur, right?

You should never assume that the company that creates and maintains your website follows all the laws and regulations governing advertising compliance. State advertising laws vary and the responsibility for compliance lies with the dealership, not the vendor. Here are some examples of what I’ve run into and issues to look for:

• Disclaimers - Website providers sometimes include boilerplate factory disclaimers on inventory pages that identify vehicles by a specific VIN and price, such as:

o “Advertised vehicles are subject to actual dealer availability. Certain vehicles listed may not be available, or may have different prices.”

o “Pricing and availability varies by dealership.”

o “Prices do not include dealer charges, such as advertising, that can vary by manufacturer or region, or costs for selling, preparing, displaying or financing the vehicle.”

o “Images displayed may not be representative of the actual trim level of the vehicle.”

o “Information provided is believed to be accurate but all specifications, pricing and availability must be confirmed in writing (directly) with the dealer to be binding.”

While these types of disclaimers may be appropriate when advertising a model line, they probably shouldn’t be associated with specific vehicles. Advertised vehicles that are identified by VIN are subject to prior sale, but they certainly should not be subject to “different prices”. You should also determine which charges are allowed to be excluded from an advertised price in your state.

• Check to determine if all necessary disclosures are present on your site. For example, “advertised prices exclude tax, government fees, etc.” Again, do not assume that your website provider is utilizing language that is acceptable in your particular state or including all of the required disclosures.

• Be sure that all disclaimers are clearly and conspicuously displayed and not buried away in a difficult-to-find link elsewhere on the site.

• If payments, downpayments or interest rates are advertised, make sure that all of the proper Truth in Lending and state disclosures are included.

• Ensure that lease programs are properly disclosed. Many factory national lease programs contain generic information that may not be sufficient or appropriate in your state.

• Some states require that vehicle history, such as prior rental or demonstrator, is disclosed on vehicle advertisements. Does your website provide a way to include these disclosures?

• Ensure that vehicles are promptly removed from the website after they have been sold. Some sites are linked to the dealer’s DMS and will remove sold units automatically, while others require vehicles to be removed manually. Sold units should always be removed promptly to avoid potential bait and switch advertising claims.

It’s never a bad idea to have your website thoroughly reviewed by a compliance professional. Remember, advertising violations can be easy for regulators to spot and difficult to defend against.

Updated Privacy Notices Due By Year End

On December 1, 2009 the federal agencies responsible for administering the Graham-Leach-Bliley Act (“GLBA”) and the Fair Credit Reporting Act (“FCRA”) issued revised regulations that financial institutions, including auto dealerships, may use to meet the new privacy notice requirements under the Acts. The focus of the revised regulation is on a new Model Form that will make it easier for consumers to understand how financial institutions collect and share information about consumers. The regulation provides a safe harbor provision for institutions that use the model form exactly as written.


Use of the new model form is not required. Dealers may develop their own updated Privacy Notice but they must ensure that their notices comply with all of the requirements of GLBA and the Privacy Rule. The benefit of the using the Model Privacy Notice is that, if completed as required by the instructions and delivered properly; it will provide a safe harbor for compliance. In order to take advantage of the safe harbor protection, dealers must begin using the new model form by December 31, 2010.

The Privacy Rule applies to car dealers who:

• Extend credit to someone (for example, through a retail installment contract) in connection with the purchase of a car for personal, family, or household use;

• Arrange for someone to finance or lease a car for personal, family, or household use; or

• Provide financial advice or counseling to individuals.

Fortunately, compliance should be reasonably easy. The agencies have developed a Privacy Notice Online Form Builder to assist in creating your new notice. Following are links to the Form Builders:

http://www.federalreserve.gov/newsevents/press/bcreg/privacy_notice_instructions.pdf

http://www.ftc.gov/privacy/privacyinitiatives/PrivacyModelForm.pdf

You Can’t Fix It If You Don’t Measure It

If your sales staff told you that they had a 50% closing ratio, would you take their word for it? I suspect not – you would probably track all of their opportunities to determine the true percentage. Most dealerships measure a vast number of items on a daily basis. After all, you can’t manage what you don’t measure, right?


How about the level of compliance and ethical behavior in your dealership? Is that something you measure or do you just take everyone’s word for it? Have you really thought about how your staff is conducting itself in these areas? Is it possible that some of these thoughts are floating around?

“We’ve always done it this way – haven’t been caught yet”

“Hey, if we get sued, that’s what insurance is for.”

“Compliance is not in my pay plan. I’ll do whatever it takes to make a decent paycheck.”

Sure, you can bury your head in the sand and hope for the best, but is it really worth finding out the hard way that you were mistaken, or that your customers are not being treated the way you expect?

Instead, why not follow a few simple steps?

1. Audit your operation to determine where you really stand.

2. Have your staff properly trained in all aspects of legal compliance.

3. Once trained, have them sign a code of ethics which will not only help protect the dealership, but let everyone know that the organization is serious about compliance and ethical behavior.

These steps are easy and far more affordable than the costs associated with lawsuits, regulatory actions and, most importantly, hits to your valuable reputation. Don’t find out the hard way that your operation isn’t as clean as you thought it was.

Excuses Are Like…

Many of the big money, big publicity compliance meltdowns in the auto industry have been the result of vehicle financing issues. Remember the Gunderson Chevrolet news clips showing the management team being convicted and sent to jail? Being a fearless bunch, some F&I folks still walk a fine line when it comes to compliance. Maybe it’s because no one ever showed them a better way?


Becky Chernek of Chernek Consulting, Inc., who is one of the finest F&I trainers in the industry, was kind enough to share some feedback that she received from F&I managers when discussing ethical sales practices in her seminars.

"Never happened before, not going to now."

"Just a bunch of hype for car dealers to buy into."

"We love Becky, but don't pay too much attention to the regulations; she will get to the meat & potatoes."

"Yeah, the minute we implement that policy you might as well shut our doors."

"I know you learned it this way...but this is the right way to do it if you want to make some money."

"Payment packing is legal if you tell the customer afterwards what products they bought."

"I just tell the customer that the payment to include the service contract is only $5.00 difference."

"Consistent pricing? What about the nonprime customers?"

"What do you mean you can't backdate a contract, we do it all the time."

"So what if we give the customer a raise? That's just how we do it here."

"We always use in-house rebates - how else do you a get loan bought."

"Hey, we sell cars here... its up to finance to get them bought... YoYo deals? 50% of our business is that way."

"No way am I telling the bank this customer is $5000 upside down. Itemize what?"

"Base payment is loaded, that’s just how we do it here."

"I love the idea of getting the customer in the "yes" mode but let's not do that with confirming the true buying numbers that will only confuse them more."

"The interview that is just a waste of time and it doesn't serve any purpose... slows me down."

"When we cancel a policy I don't have to give the customer back the profit just the cost?"

Becky went on to say, “Transparent selling is easy... reduces charge backs, keeps the money on the books and a customer coming back for life…what's so darn hard to understand?”

That’s a great point Becky makes. Whatever happened to good old-fashioned principles like salesmanship and value-building? Do you really think dishonesty is the only way to make a sale?

I was fortunate enough to attend a great seminar given by Jim Ziegler a few years back where he taught ethical F&I selling. To be quite honest, at first I was taken aback. Most of the previous F&I training I was exposed to was the “old school” variety. (Of course, I use the word “training” loosely – most of it was “tribal knowledge” from the old-timers). Jim Z, in his inimitable fashion, taught us how to produce big numbers while doing things the right way. No excuses, just salesmanship. And guess what? It works.

Okay, here’s the part where I piss some people off…

If you feel that you need some help becoming a better, more honest F&I practitioner, I recommend that you contact Becky, Jim or one of the other fine F&I trainers out there. But if, on the other hand, you feel that you need to operate unethically and buy into the lame excuses listed above, maybe you’re in the wrong business. Think about it…

Digital Due Diligence

Before the internet, when there were only phone pops, we learned valuable lessons on how to handle calls, such as selling the appointment, creating urgency, not giving shopping numbers and keeping information close to the vest until the customer showed up. It was good advice then and it may be good advice now. But keep in mind that many customer inquiries tend to come online rather then by phone. While the ultimate goal remains the same – to get the customer into the dealership – the rules for execution have become trickier because online communication creates a permanent written record of all interactions with customers.


In addition, many dealers are now utilizing social media as an easy and affordable way to promote their products and services. It’s important to understand that even though it may not require writing a big check, certain social media postings may be considered advertising and proper care should be taken to avoid legal exposure. As we are painfully aware, there are plenty of federal and state regulations that govern automotive advertising. For instance, social media postings that list vehicle prices, payments, downpayments or drive-off amounts may trigger advertising disclosure requirements.

Here’s an illustration of how an online interaction could potentially come back to haunt you. A few days before this past Labor Day, I saw a posting from a dealer on their Facebook page about a Labor Day weekend special that offered zero drive-off leases. During this time period, several competing dealers ran newspaper advertising on similar lease programs with “no money down, zero driveoff, leave your checkbook at home” and so forth. On closer inspection, many of these ads indicated in the fine print that certain fees were due at signing, such as tax, license, doc fees and acquisition fees.

I logged on to the Facebook dealer’s website to check out the actual ad (there were no disclosures on the Facebook posting other than zero drive off). The ad indicated that the customer was responsible for tax and license. I then contacted the dealer online to inquire whether I had to pay for the tax & license or if it was indeed “zero out of pocket”. The dealer representative responded that yes it was zero down, but since it was the last day of the month, I needed to come in before close of business to take advantage of the special lease.

Now, let’s look at some possible outcomes if a customer decided to go to the dealership that night.

If the customer went to the dealer to lease the car and there was indeed no money down required and they gave her the advertised payment, she would probably leave happy and nothing else would matter.

But, if she showed up at the dealership and they informed her that she had to pay other fees to get the advertised payment, a few other things might happen:

1. She might reluctantly pay the fees or roll them into a higher payment. The salesperson’s closing ratio would go up and his CSI would go down.

2. She might leave and go lease a car from another dealer.

3. She might decide to take the written evidence of the transaction to her friendly neighborhood attorney. This could happen the next day or sometime in the future if she decides that she no longer wants the car.

Here are some potential claims that an attorney might make. First, I wouldn’t be surprised if an aggressive attorney would try to make a case for Unfair and Deceptive Acts and Practices (UDAP) for the dealer rep’s little miscommunication about zero down (remember, the customer has an email from the rep that said there was no money required).

Next, the dealer’s Facebook posting stated that they were having a “Labor Day Weekend” sale, yet the dealer rep claimed (in writing) that the sale was over the Tuesday BEFORE the Labor Day weekend. Another deceptive act?

The attorney might also throw in a few advertising violation claims for good measure, such as that the Facebook posting may have lacked some required advertising disclosures and the disclaimer in the dealer’s website may not have been clear and conspicuous enough to be in compliance.

There’s a good chance that an aggressive lawyer would throw all of those nitpicky claims against the courthouse wall to see what sticks. Plaintiff’s attorneys love UDAPs, they can often get multiple damages and attorney fees if successful.

So, here’s my two cents: Be careful what you say; even more careful what you write and if you communicate with customers, it’s not a bad idea to get some training in legal compliance.

Unfair? You Bet it is…

“BUYERS ARE LIARS”.


I don’t think I was in the car business one hour before I heard that catchy little phrase. Sure enough, over the course of my retail career, I suspect I was lied to over and over again by the best of them.

I’m not going to pontificate about what buyers lie about and why – many of us could easily write a book on that subject. Instead I’m going to bring up what I think is an important point – buyers can say pretty much whatever they want without fear of recourse, dealers cannot. Yep, that’s right. Buyers can outright lie through their teeth, but dealers are not allowed to stretch the truth even a little.

Doesn’t seem fair, does it? Well it’s not. All may be fair in love and war, but it sure isn’t fair on a car lot. For the most part, when buyers lie to a dealer, they get to go on their merry old way. But if a dealership is accused of being dishonest with a customer, either by commission or omission, they may end up in a courtroom or worse.

When you look at actual enforcement actions and court cases against dealerships, there is typically one common element – the perception that the dealer was less than completely honest with a consumer. The laws allow for a very broad interpretation of what is considered to be unfair or deceptive. Here are some common examples of accusations by plaintiff’s attorneys and regulators:

• Making false statements or failing to disclose a material facts to a consumer

• Oral promises made to the consumer that the dealer fails to deliver upon

• Misleading statements about APR, such as “You won’t be able to get a better interest rate than this”, when the buy rate is being marked up

• Communicating information in a manner that may be misleading, either by commission or omission

• Adding the cost of an F&I product to a consumer’s purchase agreement or lease without first obtaining the consumer’s express consent to purchase the product

• Informing or suggesting to a consumer that the price of any F&I product is included in the price of the motor vehicle

• Informing or suggesting to a consumer that the sale or lease of a vehicle subject to credit approval is a final or completed transaction

• Altering documents without the knowledge and permission of all parties

• Obtaining a credit bureau without proper authorization

• Failing to sell a vehicle at or below an advertised price, whether or not the consumer knows about the advertisement

• Advertising vehicles with intent not to sell them as advertised

• Misrepresenting discounts in advertising and not disclosing important limitations

• Advertising claims such as "everyone financed," "no credit rejected," or similar claims when the dealer is unwilling to extend credit to any person under any and all circumstances

• Engaging in false or misleading advertising, either orally or by way of media

• Advertising “no money down” or “zero drive off” when there is actually some money needed to achieve the advertised payment amount (such as tax, license, acquisition fee, etc.)

• Representing to a consumer that a vehicle is available for sale when it is not

• Informing or suggesting to a consumer that an F&I product is a required purchase

• Informing or suggesting to a consumer that purchase of an F&I product will increase the likelihood that the consumer will be approved for financing or that financing will be approved on more favorable terms to the consumer

• Increasing the selling price of a vehicle to cover a bank acquisition fee

• Intentionally overstating a vehicle’s value by supplying an incorrect book-sheet or due bill to a financial institution

• Over-allowing on a trade-in, thereby increasing the sale price of the purchased vehicle or failing to properly disclose negative equity

• Misrepresenting the amount of rebates available to a customer

• Engaging in payment packing, i.e. inflating payments, inflating down payments, extending the contract term or in any way disguising the actual charges for goods or services.

• Knowingly delivering a vehicle where the lender or lessor will not approve the consumer for financing according to the terms set forth in the installment sales or lease contract, with the intention of re-writing the contract at a later date

• Failing to properly disclose deferred down payments

• Knowingly misrepresenting a vehicle’s prior history or condition, either by commission or omission

• Forging documents

• Knowingly misrepresenting a vehicle, products or the terms being offered

• Falsifying, or allowing to be falsified, any information on a credit application

• Knowingly allowing a consumer to participate in a “straw purchase”

• Misrepresenting the scope or extent of coverage under a service contract or warranty


It’s more important than ever to be very careful when dealing with customers. Plaintiff’s attorneys are constantly on the prowl for cases and regulators recognize the political capital in going after dealers. There’s just no upside to being accused of lying.


The good news is that you can feel free to lie to car salespeople in your spare time.

Unhappy Car Buyer Gets 110,000 Views on YouTube

I was browsing through the website of a prominent dealer-chasing law firm this morning (I know, I have weird hobbies), and came across a posting about a dealer with a link to a YouTube video. This dealership is part of a good-sized group that is very well-regarded in the area. As I am personally acquainted with this dealer group, I can attest to their integrity and dedication to customer satisfaction. So, when I clicked on the YouTube link, I expected to see another unconvincing customer with a bad case of buyer’s remorse. Well, I wasn’t disappointed – the customer bought a cheap older car and expected it to run like a brand-new Mercedes.


Not surprisingly, the video attempted to make the dealership look terrible and completely at fault. But here’s the thing - this video wasn’t an amateurish clip of a customer ranting and raving, it was obviously professionally done. So well done in fact that I suspect most consumers viewing the video would find it believable.

Then I noticed the view count on the video. Just short of 110,000 views so far, most of which are from the last month or so. Needless to say, I was astounded! One car deal, one customer, one dealership, over 100 thousand views? No way, this has to be a mistake.

Sadly, it’s no mistake. Here’s how it happened:

The video was produced by a consumer group who naturally had an agenda of their own. While the customer’s initial complaint was that the car had problems and he wanted his money back, a good portion of the video dealt with how the customer was saddled with an unfair arbitration agreement by the dealer. Now, according to the clip, the poor customer can’t get his day in court, has had to wait years for his arbitration hearing, has little or no chance of winning in arbitration because it’s skewed towards the dealer, and all kinds of other nonsense.

The arbitration issue is what caused this video to go viral. Consumer groups and plaintiff’s attorneys have been lobbying against arbitration agreements for years. This is just another sneaky way to promote their agenda. There are now links to this video on consumer sites, legal blogs, you name it. The worst part is that the video shows up on page one when you Google the dealership or search on YouTube. It’s just a darn shame.

Your Customer’s Perception Is Reality

I get it. It’s tough out there. Customer access to information on the internet continues to squeeze margins. Dealerships are just trying to make a buck in a fiercely competitive marketplace. You have to do whatever it takes to stay ahead of the competition.

I also get that some may view compliance as unnecessary, overrated, annoying, a waste of time and money, and downright harmful to profitability. These are perceptions and as they say, perception is reality.

Some employees may be tempted to step over the line ethically when trying to make a deal. After all, the chances of getting caught are pretty slim, right? That’s one way of looking at it. Another way is to ask yourself what’s really more important in the long run - flying under the radar or satisfying your customers? In my view, when it comes to compliance and ethical behavior, the true payoff is customer satisfaction and retention. It really comes down to one simple premise - your customer’s perception is the only reality that should matter.

“We have to advertise aggressively and do whatever it takes to drive traffic to the dealership.”
Customer Perception – “I hate the way you advertise. Why is it that the deal is never what it seems? Like when you advertise a car for $7,000 and when I get there I find out that the $7,000 is only the up-front payment for a pre-paid lease and the residual is $11,000. Why can’t you just advertise the real price with no tricks?”

“Customers make ridiculously low offers. If we don’t pack the payments they won’t feel like they got a deal. It’s all part of the game.”
Customer Perception – I hate that damned “four-square” thing you do! It really tempts me to do something uncivilized with your green sharpie. I didn’t come here for a shell game – I came here to give you the opportunity to give me real numbers and perhaps sell me a car. If I didn’t like your car, I wouldn’t be here - why do feel it is necessary to play games with me?”

“If a customer is willing to pay more than the ad price, I’m not going to talk him out of it."
Customer Perception – “It’s ridiculous that you have multiple prices. Why is it that you advertise one price on the internet and a different price on the lot? Why must I have to try to negotiate down to the price that you have already advertised? I’m not Inspector Closeau – I just want a fair deal and don’t want to be treated like an idiot because I failed to turn over every rock to find your “best” price.”

“Whatever you do, don’t sell the ad car, it’s a big loser. Get the customer down here and switch them to something we can make money on.”
Customer Perception – “I saw an advertisement for a great price so I called you and asked if the car was still available. You told me ‘Yes, c’mon down’. When I got there a short time later, I was told ‘the car was sold last night but don’t worry, we’ll give you a great deal on something else’. Why did you lie to me?”

“The only reason we advertise those loss leaders is to get people on the lot. No way am I going to sell a car and lose money.”
Customer Perception – “I tried to buy a car at the price you advertised in the paper and you told me that the ad was a mistake and the real price is higher. I don’t believe that for a second.”

“We need to close the customer at the highest payment possible so we can make some money."Customer Perception – “You told me that the service contract and other accessories were included, but when I read my contract I see that you charged me thousands more.”

“This customer is credit-challenged, she’s lucky to get approved at all.”
Customer Perception – “You told me that the bank won’t finance me unless I pay a higher price for the car and I buy a service contract to “protect the loan”. I’m willing to pay a higher interest rate, but I don’t think it’s fair that I have to pay more for the car too.”

“Your customer’s debt-to-income ratio sucks. We need to give him a raise and hope the bank doesn’t stip for income.”
Customer Perception – “You lied about my income on the credit application and told me not to worry because the bank won’t ask for proof. What else are you lying about? And what happens if the bank calls me, do you expect me to lie to them too? It doesn’t seem like the right thing to do.”

“That’s the perfect car for your customer. Do whatever it takes to send her home in it.”
Customer Perception – “You told me that the car I bought is a ‘one-owner creampuff’, then I find out that the ‘one owner’ was Hertz Rent-a Car! Why did you lie to me? I still might have bought another car from you if you had told me the truth.”

“I’ll over-allow on the trade to make them happy, just close them at this payment.”
Customer Perception – “You told me you would pay off my trade then I found out you added thousands to the price of the car I bought. I would have sold the car myself if I knew you were going to charge me more.”

“We need get rid of those grounded demos.”
Customer Perception – “I was told that the car I bought was new and had a full factory warranty. When I asked why it had 7,000 miles on it, I was told that the manager drove it back and forth to work. Then I found out that a good portion of the warranty was used up.”

“If a customer asks about that painted fender, just say it was key-scratched and repaired.”
Customer Perception – “When I asked you if the car have ever been in an accident, you said it hadn’t. Then my neighbor, who runs a body shop, checked out the car and told me tells me that it’s been wrecked.”

“Let’s just roll the deal. Once they fall in love with the car and show it to all of their friends, they’ll re-write at a higher payment.”
Customer Perception – “You told me my loan was approved, and then you called me back and told me that I need to put more money down and agree to a higher payment or you’ll take the car back. I never would have taken the car home if I knew this was going to happen.”


This article is intended as food for thought. You may agree or disagree. One final thought though - a consumer law firm or attorney general’s perception of the above scenarios probably wouldn’t be pretty.

Getting Customers on the Lot Without Crossing the Line

Many complaints and legal actions against auto dealers are the result of the way vehicles are advertised. According to a joint survey by the Consumer Federation of America (CFA), National Association of Consumer Agency Administrators (NACAA), and North American Consumer Protection Investigators (NACPI), the number one consumer complaint has been misrepresentations in advertising or sales of new and used cars.


Advertising violations are also a ripe target for regulators and consumer attorneys. To give you an idea of how dealer advertising is on the radar, consider the opinion published by the New York State Attorney General’s office: “This office's review of current car ads has revealed a widespread pattern of deception and the use of materially false or misleading representations by some dealers. Rather than truthfully informing consumers, all too many ads appear designed primarily to confuse and mislead them. Such unscrupulous dealer ads are costly traps for unwary car buyers and are unfair to those dealers who compete on the basis of forthright and truthful advertising”. You may also recall that in 2007, Bill Heard Chevrolet was faced with a $50 million deceptive advertising lawsuit by the Georgia Governor's Office of Consumer Affairs.

Many dealers run into trouble with their advertising when staff members or outside vendors are not aware of the countless federal and state laws that regulate advertising. Here are some practical tips on how to avoid advertising violations:

• Never assume that advertising agencies or representatives know all the laws and regulations governing advertising compliance. This is particularly true of companies based in other states, such as internet and direct mail providers. State advertising laws vary and the responsibility for compliance lies with the dealership, not the advertising agency.

• Be aware of all advertising that your staff participates in. If your internet manager is advertising online (including social media!) or your used car manager is placing Auto Trader ads, it is important that they are properly trained and that all advertising is inspected before it is run.

• All advertising, whether printed, broadcast, internet or otherwise, should be in plain language, clear and conspicuous and non-deceptive. Deception can result from direct statements in the advertisement or from reasonable inferences that may be drawn from an ad, or from disclaimers that contradict, confuse, unreasonably limit or materially modify a principle message of the advertisement. Deception may also result from the failure to clearly and conspicuously disclose any material facts, including limitations, disclaimers, qualifications, conditions, exclusions or restrictions. Advertising is considered deceptive if “members of the public are likely to be deceived” or the advertisement has a “tendency or capacity to mislead the public”.

• Be sure that everyone understands that Bait & Switch is a commonly-cited advertising offense and must be avoided. The FTC defines Bait & Switch advertising as “an alluring but insincere effort to sell a product or service which the advertiser in truth does not intend or want to sell. Its purpose is to switch consumers from buying the advertised merchandise in order to sell something else, usually at a higher price or on a basis more advantageous to the advertiser.”

• If you are not sure about an advertisement, you should have it reviewed by a qualified professional – it may end up costing quite a bit less than a legal action.

• Be conservative in your advertising and understand that your intent is not relevant as far as the law is concerned. If an ad is deemed deceptive, an advertiser has liability regardless of whether there was an intent to deceive. A dealer has the duty to investigate the accuracy of any statements made in advertising.

Can Modern Solutions Protect Against Old School Practices?

Much has been written about Automotive Online Reputation Management and, fortunately, there are a number of companies and consultants now available to assist dealers in getting a handle on this crucial subject. Reputation and customer satisfaction is of the utmost importance to dealers and there is little doubt that many negative online postings are either questionable or do not reliably portray the true culture of the dealership.


However, I believe that a dealership’s reputation is difficult, if not impossible, to manage when certain staff members do not operate ethically and resort to “old school” deceptive practices. Looking through some of the sites that rate dealers, I found some interesting examples:

• A dealer reviewed on one of the sites has dozens of negative posts about bait and switch, refusal to sell at advertised prices and other questionable acts. I was a bit surprised at the volume of negative feedback and I have to wonder who’s watching the store. But fear not, the brilliant perpetrators of all of this negative feedback had a plan. They simply added some positive posts to the site, which of course were exposed as coming from the dealership’s IP address. So much for that idea. How does this dealer defend against various staff members allegedly lying to customers and then trying to cover it up? It’s sure not going to be easy.

• A post on another site accused the dealer of deceptive adverting. Now, I long-ago realized that some customers have tendency to misread advertisements, so, in order to give the dealership the benefit of the doubt, I looked up the ad on their website. Well, sure enough it was questionable at best and went astray of state advertising regulations. The people who wrote that ad may be patting themselves on the back for bringing customers across the curb, but at what cost? The customer not only did not buy from the dealer, but also gave a glowing review and recommendation of the competitor who ended up earning their business. Undoubtedly, there are many people who are going to read that review about the dealer’s advertising practices but how does the dealership defend itself? They could claim that the ad wasn’t deceiving but the state’s attorney general might not agree. Does the dealer really want to open that can of worms?


• The next dealer was accused of payment packing by the finance department. According to the post, the customer attempted to rectify the situation by returning to the dealership to discuss the issue but apparently received no satisfaction. After the customer posted the negative review, a customer relations rep from the dealership responded with a nice apology and offers to help – so far, so good, (although it was 21 days after the original post). Here’s where it goes downhill – the next post comes from an “anonymous” employee of the dealership who proceeds to berate the customer by accusing him of posting fraudulently. The employee stated that the customer’s issue couldn’t have happened; the company is wonderful, etc. “Anonymous” actually remarked that the customer should be “ashamed of himself” and “should be man enough to discuss his concerns and not hide behind a fraudulent posting.” Is it just me or is this the worst possible way to try to handle a negative review?? Eventually, the GM got involved and the problem was finally rectified to the customer’s satisfaction (I guess it was a real customer with a real complaint and not a fraudulent posting?). The customer very graciously posted an update about the resolution, but also responded about the employee that attacked him and called him a liar. The question that comes to mind is this: What has more significance in the mind of someone reading this review - that the dealership ultimately handled the complaint or that someone in the dealership raked the customer over the coals for complaining in the first place?

There are a number of excellent firms that specialize in Online Reputation Management and I highly recommend that dealers consider utilizing their services. But it important to realize that while these companies do an outstanding job, it may not be possible to mitigate the damage caused by ethically-challenged personnel. The first and most important step in managing one’s reputation is having zero tolerance for bad behavior by employees.

The New Breed of Shakedown Lawsuits

It seems like dealers just can’t catch a break when it comes to lawyers and lawsuits. Back in 2004, California businesses won a hard-fought battle against “shakedown” lawsuits with the passing of Proposition 64. Previously, the law had allowed any party to sue a company regardless of whether the plaintiff was directly affected. For example, lawyers were able to review car dealer ads in the newspaper, spot a violation of the Vehicle Code and file a lawsuit against the dealer, without any client who was misled. Proposition 64 restricts private lawsuits against a company only to those where an individual is actually injured by and suffers a financial loss due to an unfair, unlawful, or fraudulent business practice. It also provides that otherwise only public prosecutors may file lawsuits charging unfair business practices. Of course, this was a tremendous blow to greedy attorneys who specialized in these shakedown lawsuits.

Unfortunately, many dealers are still falling victim to other types of class action lawsuits that are no less mind-boggling. It should come as no surprise that these cases typically end up with the allegedly wronged consumers getting little or nothing while the attorneys collect a fortune.

Here are some recent examples of class action lawsuits in California:

• A Toyota Dealer failed to properly disclose an “Optional DMV Electronic Filing Fee” on leases that were assigned to Toyota Motor Credit Corporation and charged the fee without the customer’s knowledge or consent. It is believed the case affects over 50,000 persons who leased vehicles from over 60 Toyota dealerships in the last five years. (We’re talking about a $28 fee).

• A dealership settled a class action suit where a customer alleged that when she was called back to the dealership to sign a new contract to purchase the same vehicle, the dealership dated the subsequent contract the same date as the original contract, thereby causing undisclosed charges. Members of the class, believed to be up to 500 customers, will receive up to $1,400 for valid claims.

• A class action lawsuit that consisted of all persons who executed a Retail Installment Sale Contract with the dealership that included in the “Cash Price of Motor Vehicle,” on the contract the cost of insurance. The Court awarded members of the Class a refund of all of their payments, as well as having the option to rescind their contracts.

• A suit where the Class consisted of all persons who purchased a used vehicle from the dealership for personal use and were charged “California Tire Fees” even though the dealer had previously paid the tire fees to the seller of the tires at the time the dealer purchased the tires. (Tire fees are $1.75 per new tire).

• Another Class consisted of all persons who purchased a diesel vehicle from the dealership for personal use and were charged a smog fee and a smog certification fee.

• A lawsuit where the Class consisted of customers who made a deferred down payment, and whose RISC does not disclose that some portion of the down payment would be deferred until a later date.

• Another action naming all persons who purchased a used vehicle for personal use that was not equipped with new tires, but who were charged a California Tire Fee.

• A Class was defined as all persons who executed a Retail Installment Sale Contract for the purchase of a vehicle for personal use where registration and licensing fees were not properly disclosed.

• Another Class including all customers who were not properly notified within ten days of the execution of their purchase contract that the dealer was exercising its contractual right of rescission.

• Customers who signed a Retail Installment Sale Contract that failed to separately itemize the amounts paid for license fees and registration/ transfer /titling fees on the retail installment sale contract. (Are they kidding? The dealer did not overcharge the fees, but simply did not split them up!)

• A class action settlement was reached on behalf of all consumers who purchased undisclosed prior rentals, entitling class members to $1,000 refunds from the dealership.

• Another class action that involves the failure of the dealer to disclose the itemization of capitalized cost in the precise manner required by law.

You may be thinking that since you have your customers sign an arbitration agreement you don’t have to worry about class-action lawsuits, right? Well, in two recent cases, a law firm successfully defeated motions to compel arbitration in backdating and deferred down payment class actions. One of the Courts held that the customer could not waive her unwaivable rights under the Consumers Legal Remedies Act, which included the right to bring a class action lawsuit. The other Court held that the arbitration clause was procedurally and substantively unconscionable.

Although the cases above are all from California for illustration, be assured that there are attorneys in every state finding ways to exploit dealers. In many states, a plaintiff suing under the state consumer protection laws does not need to prove that the dealer intended to defraud the consumer in order to make out a case. The lack of any element of intent on the part of the dealer not only lowers the bar for proving liability, but also makes the case more susceptible to treatment as a class action.

What’s really sad about all of this is that most of these lawsuits have nothing to do with unfair or deceptive practices on the dealer’s part. The lawyers are simply taking advantage of mistakes and oversights. Take tire fees for example. These fees are often mistakenly charged because the dealer’s DMS isn’t programmed to differentiate between new and used tires. If an employee inadvertently overcharges the fee, it is not retained by the dealer, but sent to the state. So, does that mean that California and the dealer are in cahoots in defrauding the poor consumer? And how about the need to separately itemize the amounts paid for license fees and registration/transfer/titling fees? C’mon, that’s just ridiculous.

The good news is that exposure to these types of lawsuits is avoidable. It is important for dealers to review their company policies and practices and ensure that all employees are properly trained. It may also be a good idea to have a highly-qualified second set of eyes on every deal. Personnel can get very busy and may overlook important details when trying to move customers through the sales process in a timely fashion.

It’s a shame that dealers have to contend with these issues. It’s tough enough trying to stay afloat without the sharks circling.

AutoSuccess: The Podcast

AutoSuccess: The Podcast It might not be fun, but educating your staff about legal compliance can make the difference between happy customers and employees and business-threatening lawsuits. On episode #132, we speak with Jim Radogna, President of Dealer Compliance Consultants about some of the obvious and less-than-obvious benefits to educating your staff on legal compliance.

Dealers Suffer Either Way with the Brownback Amendment

First, I’d like to go on record as saying that I sincerely believe that the Brownback Amendment is a good thing. The last thing auto dealers need is more regulation. Most dealerships are highly ethical and provide a great service to the public by helping provide affordable auto financing. NADA, as usual, is doing an outstanding job of lobbying for dealers’ interests.


Unfortunately however, the media spotlight this amendment has received has once again brought negative attention to the auto industry. Any way you look at it, the President of the United States, the U.S. Military and numerous consumer groups are fundamentally stating the auto dealers can’t be trusted. That’s never a good thing.

Whether we like it or not, it’s difficult to deny that there are unscrupulous dealers out there who do indeed prey on consumers – often they run small lots close to military bases. This is unfortunate but should not be a reflection of the industry as a whole because these sleazy operations represent just a tiny percentage of auto dealerships in this country.

It’s the other end of the spectrum that is far more concerning. Take for example, the late, great Bill Heard Chevrolet. Here was a dealer group that was in business for almost a century, had 14 big stores, did over $2 billion in annual sales, and employed 3500 people…hardly a corner lot next to a tattoo parlor.

Before they went out of business, Bill Heard was battling all kinds of accusations, lawsuits and regulatory actions - including forgery, deceptive advertising, credit fraud, identity theft, sexual harassment, and just about anything else you can think of. Once the dealerships closed their doors, the media couldn’t say enough about the compliance issues – it was instant national news. Besides the pending lawsuits, hundreds of Consumer Affairs and Better Business Bureau complaints came to light. To add insult to injury, Bill Heard was also cited with labor violations for violating the WARN act after it closed.

Although Bill Heard was a victim of the economy, I can’t help but think that they also suffered the consequences of their own bad behavior in their demise. It’s very sad for the many, many honest, hard-working employees that lost their jobs. As for the few dishonest employees that committed the illegal, unethical acts – they have blemished the entire industry.

 Dealers just don’t need any more bad press.

Can't Blame Them For Doing What They're Told

Back when I was a green-pea salesman, I listened carefully to everything the closers and sales managers said. These guys were good! It seemed that no matter what the customer said, they had an answer. So I listened and learned. When I got my shot and became a closer, I carefully followed my sales manager’s lead. Same thing as I moved up through the ranks – I listened and learned from the old timers. By the time I became a GM, I knew it all, right? Well, not exactly. Any of this sound familiar?


Sales manager to salesperson: “Your customer has great credit but the bank is going to need more income. I don’t think they’ll ask for proof”. (falsifying credit information)

Sales manager to finance manager: “Listen, these folks are in a hurry. Let’s make them mental owners. Just have them sign a contract real quick and we’ll get the rest of the paperwork done another time. If they leave without signing something, they won’t be back”. (improper disclosure)

Sales manager to salespeople: “Guys, that ad car is a big loser. Switch your customers to something else unless we can make a ton on the back end”. (bait and switch)

Sales manager to finance manager: “Joe’s got this guy committed at $30 a month more then we need. Let’s make some money!” (payment packing)

Sales manager to salesperson: “We can probably get this guy done, but there’s going to be a big bank fee. If he wants that Sentra, don’t mention the ad price. We need to sell it for a few grand more for the deal to make sense. He’ll be happy we can get him done”. (hidden finance charge and failure to sell at advertised price)

Sales manger to salesperson: “It looks like the negative equity is her hot button. Here’s what we’ll do: Tell her that we’ll pay off her trade and get her committed at $379 a month. I’ll just add the negative equity to the price.” (failure to properly disclose negative equity)

Finance manager to salesperson: “Let your customer know that the bank may call her and ask some questions. Make sure she tells them that the car is for her and not her brother!” (straw purchase)

Finance manager to sales manager: “I don’t care if you take a hold check for the downpayment, but the bank isn’t going to go for a deferred down, so we need to show it as cash on the contract.” (failure to disclose deferred downpayment)

Finance manager to used car manager: “We’re over-advanced on that Tahoe deal. I need a book sheet for $15,500. Doesn’t it have premium wheels or something?” (power booking)

Many long-standing dealership practices are not necessarily legal or ethical but often times staff members have no idea they are breaking the law. The vast majority of dealership employees are well-meaning, honest people just trying to earn a living. However, if they have never been properly trained in compliance matters, they may simply rely on doing business the way it’s always been done. Dealers should not assume that employees know all the rules. Education is the first and most vital step towards building an ethical organization. After all, if employees don’t know or understand the rules, how can they be expected to follow them?



Jim Radogna is the President of Dealer Compliance Consultants, Inc., a San Diego, California training and consulting firm.

jim@dealercomplianceconsultants.com

http://www.linkedin.com/pub/jim-radogna/16/499/b14

www.DealerComply.com

When the Going Gets Tough, the Tough Get an Attorney

It’s been a tough couple of years for just about everyone in this business. I suspect there is an exception though – attorneys that specialize in suing car dealers.

It seems that the recent economy has caused a higher than usual amount of disgruntled customers. An example is the customer who can no longer afford his or her car payment and would like to find a way out of the deal. Then there are the folks who got used to trading in their vehicles pretty much at will. No down-payment? No problem. Upside-down? No sweat. Well, as we’ve become painfully aware, those days are over. So, unfortunately, there are customers out there who feel that they got “screwed” by a dealer because they owe far more than their vehicle is worth and actually need money down to trade it in.

Enter the consumer attorney. Just Google “auto dealer fraud” and you’ll see what I mean. Besides the numerous law firm websites, you’ll find several consumer advocate sites which “educate” people about “car dealer scams”. After browsing through a few of these sites, a consumer may decide to call for a “free consultation” or ring up his local attorney general’s office. Not a pleasant thought. An innocent dealer can easily become the target of a government investigation or lawsuit simply because a customer is trying to wiggle out of a transaction.

According to the above-mentioned websites, these are some potentially “fraudulent activities” by dealers:

• Improper contract disclosure and concealing material facts

• Negative equity/Over allowances

• Payment packing

• Backdating of rewritten contracts

• Forced service contracts or “add-on” concealment

• Undisclosed deferred down payment

• Foreign language translations

• Used vehicle disclosures/Misrepresentation

• New/Used/Demo/Unwind misrepresentation

• Forgery

• Fraudulent credit applications

• Improper Contract Rescissions

• “Yo-yo financing” or spot delivery

• Overcharging of fees

• Undisclosed prior vehicle history or damage

• Odometer issues

• Bait and switch advertising

• False & misleading advertising

• Lying about credit scores

• Buy-lease switch

• Straw purchases

• Price gouging or discriminatory pricing

• Failure to sell at advertised price

• Contract re-negotiation

• Warranty fraud

A number of actions also start out as potential lemon law claims. I’ve actually seen freeway billboards for Lemon Law attorneys. The infamous 10,000 RV negative equity case in California began as a service contract dispute on a used motor home. Once the plaintiff attorneys got their hands on the deal jacket, well, the rest is history.

Unfortunately, dealers are more and more frequently becoming the targets of lawsuits, enforcement actions and, of course, the associated negative publicity. Attorneys general in many states identify accusations against dealerships as being their #1 concern, and recognize the political capital in going after dealers.

It’s more important than ever for dealers to dot there “I”s and cross their “T”s when it comes to compliance. Processes should be put in place to ensure that transactions will hold up to legal scrutiny in case of a customer complaint, such as:

• A vehicle history report should be run on all used vehicles to detect potential disclosure problems such as prior rental, damage, mileage, title issues, etc.

• A consistent process should be used for quoting payments, rates, etc.

• Consider having price caps on F&I products.

• Have an extra set of eyes check out all paperwork. If a mistake or oversight is discovered, correct it immediately.

• All employees should be properly trained in both legal compliance and company procedures.

In this environment, it is vital to take compliance seriously and understand that it is downright fashionable to target auto dealers. Let’s not make it so easy for them.

Avoiding Workplace Harassment Claims

Another day, another news story about a sexual harassment lawsuit against an auto dealer. This time it’s the general manager and the GSM versus the receptionist. Allegedly, they were snapping her bra, whacking her backside with a back scratcher, hounding her with come-ons, and sending her inappropriate text messages among other things. According to the suit, the abuse became so bad that the receptionist quit her job after only 6 weeks.


If any of this is surprising to you, simply Google “auto dealer harassment” to get an idea of how common these types of lawsuits are in our industry. You will find many cases of not only sexual harassment, but also racial harassment, age discrimination, etc. The amounts of fines and damages that dealers have been assessed are eye-popping.

In a statement about another case against a dealership, U.S. Equal Employment Opportunity Commission (EEOC) regional attorney John Hendrickson said that it was “amazing that at a time when the auto industry is struggling for survival and women exercise so much influence in the marketplace that anyone would in engage in sexual harassment or show contempt for female customers.”

EEOC Acting Chairman Stuart J. Ishimaru also said in a statement that "sexual harassment and sex discrimination against women in traditionally male-dominated industries, such as the auto industry, are still unfortunate realities."

Harassing conduct is sometimes so commonplace that we often don’t recognize the behavior as being inappropriate. Many people who have been around auto dealerships for any length of time may not be very surprised that this type of behavior exists, while others may feel that these are mostly frivolous lawsuits designed to extort money from dealers. Perhaps the accused were “just kidding around” and meant no harm?

No matter what, the dealer loses. Any lawsuit is a bad lawsuit. Besides the cost of defending these claims, there will likely be immeasurable damage to a company’s reputation. What owner wants the public to be exposed to media stories accusing their dealership of employing harassers or racists?

To help avoid these types of claims, dealership employees should be trained in harassment prevention. Staff members (especially supervisors) need to understand that it is simply not okay to snap bras, whack backsides or use derogatory nicknames in today’s world, no matter what the intention. As far as the law is concerned, harassment depends on how the conduct was received, not on the intent.

Some states, such as California, require harassment prevention training for supervisors. That’s great, but what about the non-supervisory employees? There is often a great of down-time at a dealership, and employees may get bored and tend to “goof around”. Is it harmless horseplay or perhaps behavior that crosses the line? Are supervisors able to monitor their subordinates’ behavior at all times? Are supervisors setting a proper example (bra-snapping)?

Most companies have an anti-harassment policy that all employees must sign, although I would venture to guess that the majority of people don’t read it or understand it. Having a policy in place and hanging posters is simply not enough protection for a dealership. Once again, All Dealership Employees Should Be Trained In Harassment Prevention.

Perhaps then the media, the EEOC and employees looking for an easy target to sue, can go pick on somebody else.



For information on convenient and affordable harassment training programs, use this link: http://www.dealercomplianceconsultants.com/hartrain.html

Advertising Compliance – Dodging Bullets

I remember the good old days when I was blissfully ignorant about everything except making the next car deal…


Back in the days when I was a dealership general manager, I couldn’t wait for the next Big Sale, Promotion, Mailer, etc., whatever it took to make things happen. I gladly signed up for whatever “Next Big Thing” my boss was willing to pay for. After all, we had to keep the staff pumped up and the customers coming in, right?

Well, since then I’ve learned a thing or two about compliance and now realize that many of the programs we participated in were questionable at best or downright misleading (and thus, illegal) at worst. I never gave those advertisements a second thought because I figured we paid the program vendors a lot of money so they must be legal and proper, right? And even if the ads were improper, the vendor would be responsible, not us, right? Ah, wrong and wrong.

There was one program that we did that still gives me night terrors when I think about it. I was GM at a dealership that was part of a group in California and I got the word from the corporate office that we signed up for a promotion with a company from another state. It went something like this: the company sent out mailers which were simulated newspaper ads with my picture and all kinds of exciting quotes from me about this amazing sale we were putting on. Now the really exciting part was that these ads were mailed to people in hand-addressed envelopes, so they were more likely to open it. When the addressee opened the envelope, he or she found the “newspaper ad” with a Post-it note stuck to it signed by “J”, an apparent friend of theirs who saw the ad and thought they would be interested.

I have to admit - I loved it! I thought this was a great marketing concept. Everyone knows someone with the first initial J, so it had a certain degree of credibility. Of course, a few customers were a bit savvier and called the dealership to express their disgust with our “sleazy tactics”, but I digress.

At any rate, I was excited, the staff was excited, and, not surprisingly, the promotion did quite well. So, what’s the problem?

Well, the ad was “questionable” in all kinds of ways, such as:

• Proclaimed that the dealer “used $20 million from 20 banks to revive the local credit market during this sale” and that we had a “partnership local banks for a special credit and pricing event” – sorry, but we didn’t have any deals with any banks for any amount of money.

• Stated that these “banks” were offering us “preferred terms that our competitors couldn’t match in this market” – yeah, sure…

• 3.9% APR available on certified pre-owned vehicles – too bad we didn’t have any CPO cars…

• Vehicle payments advertised that virtually no one would qualify for: 60 month financing on an 8 year-old car with $29 down and an amount financed of less than $5,000… Good luck with that. (I don’t know, maybe one of those 23 phantom banks that I allegedly hooked up with would have done that kind of a deal?)

As far as I’m concerned, I - and the dealer - dodged a bullet with that ad. The worst part, of course, being the “I” part. My name, my picture and my “quotes” were all over the ad. Was I potentially liable for any violations? Heck yeah!

Advertising is considered deceptive if “members of the public are likely to be deceived” or the advertisement has a “tendency or capacity to mislead the public”. If an ad is deceptive, an advertiser has liability regardless of whether there was intent to deceive. A dealer has the duty to investigate the accuracy of any statements made in advertising. You should never assume that advertising agencies or representatives know all the laws and regulations governing advertising compliance. This is particularly true of companies based in other states, such as internet and direct mail providers. State advertising laws are very stringent and the responsibility for compliance lies with the dealership, not the advertising agency.

Bottom line: Be careful when advertising. If you’re not sure about an advertisement or promotion, it’s a good idea to have an attorney look it over. It’s probably better than trying to dodge those bullets, or worse yet, getting hit by one.

Jim Radogna is the President of Dealer Compliance Consultants, Inc., a San Diego, California training and consulting firm.

http://www.linkedin.com/pub/jim-radogna/16/499/b14

jim@dealercomplianceconsultants.com

http://www.dealercomply.com/

More Fun from the Fed: Risk-Based Pricing Notices

As if you didn’t have enough rules and regulations in your life…
The Next Big Thing from our friends at the FTC and Federal Reserve is known as Fair Credit Reporting Risk-Based Pricing Regulations.

According to the agencies, “the risk-based pricing notice requirement is designed primarily to improve the accuracy of consumer reports by alerting consumers to the existence of negative information on their consumer reports so that consumers can, if they choose, check their consumer reports for accuracy and correct any inaccurate information. It is meant to complement the existing adverse action notice provisions of the Fair Credit Reporting Act”. How’s that for a mouth full? These rules generally require a creditor to provide a risk-based pricing notice to a consumer when the creditor uses a consumer report to grant or extend credit to the consumer on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through that creditor.

Yep, you guessed it, auto dealers are considered creditors.

Well, we tried…

In seeking an exemption from the rule for dealers, industry associations responded that in three-party financing transactions, automobile dealers are not engaged in risk-based pricing and therefore should not be subject to the requirements of the rules. Although the dealer obtains a consumer’s credit report in a three-party financing transaction, it does so in order to determine which third-party creditors to send the consumer’s credit application, and not to set the terms of the retail installment sale contract. Accordingly, the automobile dealer is not engaged in risk-based pricing because it is the third-party creditor, not the dealer, who analyzes the consumer’s credit-worthiness.

Unfortunately, the regulators disagreed. Thus, automobile dealers that are original creditors in a three-party financing transaction must provide risk-based pricing notices to consumers, in accordance with the rules.

While the rules don’t become effective until January 1, 2011, here’s a short synopsis of what to expect:

• A risk-based pricing notice is to be provided to the consumer after the terms of credit have been set, but before the consumer becomes contractually obligated on the credit transaction.

• The rules apply to the person to whom the obligation is initially payable (also referred to as “the original creditor”).

• The risk-based pricing notice must contain a statement informing the consumer that he or she may obtain a copy of a consumer report, without charge, from the consumer reporting agency identified in the notice.

Because it may be difficult to determine which consumers must receive the notice, the rules also include certain exceptions:
1. When a consumer applies for, and receives, specific material terms.

2. Creditors may provide consumers with a credit score disclosure in lieu of a risk-based pricing notice. This may be good news for California dealers who are already required to provide a credit score disclosure under the Car Buyer Bill of Rights, although the current form may have to be modified to include additional information that provides context for the credit score disclosure.

3. When a consumer has been or will be provided a notice of adverse action under in connection with the transaction.

4. In some cases, a consumer’s credit file may not contain sufficient information to permit a consumer reporting agency or other person to calculate a score for that individual. In those cases, a creditor using either of the credit score disclosure exceptions described above is permitted to comply with the rules by providing an alternate narrative notice that does not include a credit score to those consumers for whom a score is not available.

We’ll keep you posted as the launch date gets closer.

Jim Radogna is the President of Dealer Compliance Consultants, Inc., a San Diego, California training and consulting firm.

Will You Still Love Me Tomorrow?

There are a number of good reasons for operating an ethical and legally compliant dealership, not the least of which is staying out of a courtroom. Perhaps the most important - and most often overlooked - reason is increased customer satisfaction. There are times when an employee may feel that he or she came out the winner by bending the rules a little, but what about the dealership’s reputation? What about the customers who were mislead? It seems like there might be some losers in the game.

Customers often make decisions during a vehicle sale transaction that they come to regret after the “ether has worn off”. Perhaps they read the contract more carefully after they get home or showed it to a relative, friend, neighbor, etc. The customer may notice some imperfections on the vehicle in the light of day and have it inspected by a mechanic or body shop or run a vehicle history report. If there is a concern, some customers will let the dealer know while others will just chalk it up to (bad) experience.

Now, if the dealer is lucky enough to get a chance to rectify the customer’s concern, how will the complaint be handled? Will it be “Sorry, all sales are final” or “You signed the contract”?

What about the customer that doesn’t bother to report the concern? You can be sure they’re telling somebody about the transaction.

Here are examples of after-sale situations that can cause potential customer satisfaction nightmares:

• The customer sees your advertisement for a price lower than was charged for the vehicle.

• The customer discovers additional charges on the contract for items that he or she thought were included in the price of the vehicle.

• The customer discovers that F&I products were sold at much-higher-than-market prices.

• The customer discovers additional charges on the contract for items that he or she never agreed to purchase.

• The customer gets a call from the lender who asks for verification that the vehicle has a sunroof – and it doesn’t.

• The customer discovers that the price of the vehicle was raised to cover negative equity on the trade-in when after being told that the dealer agreed to purchase the trade-in for the full loan balance.

• The customer gets a call from the lender asking for verification of an income amount which is much higher than what was written on the credit application.

• The customer discovers that the vehicle purchased had undisclosed prior damage.

• The customer runs a vehicle history report and discovers that the vehicle purchased was an undisclosed previous rental, a prior demo, flood damaged, etc.

• The customer brings the vehicle in for repairs and discovers that the warranty or service contract coverage or term was misrepresented.

Don’t put your business and reputation that you have worked years to build at risk. Take compliance seriously. A focus on compliance and training will protect your company, your employees, your customers and, most importantly, your good name.

Jim Radogna is the President of Dealer Compliance Consultants, Inc., a San Diego, California training and consulting firm.

Top Ten Ways an Employee Can Ruin Your Day

Question: Where are compliance lapses likely to occur in most dealerships?

1. The F&I office

2. The sales managers’ office

3. The lot

4. The showroom

5. All of the above

In my humble opinion, the answer is a qualified all of the above. The reason I say “qualified” is because in many organizations the answer may be skewed towards the lot and the showroom. Here’s why: it’s been my experience that in most dealerships, management personnel have at least some knowledge of proper legal compliance and ethics, either through training or osmosis. On the other hand, many salespeople haven’t a clue about the laws and regulations that affect our industry. Why should they? Compliance training, if conducted at all, generally occurs only at the management level. Unfortunately, attorneys and regulators don’t differentiate between job descriptions when pursuing a claim against a dealership.

So, here’s my top ten list of ways an employee can ruin your day:

1. “Low-balling” or lying to a customer about the true selling price of a vehicle

2. Intentionally misrepresenting a vehicle’s prior history

3. Intentionally misrepresenting the true advertised price of a vehicle

4. Making promises to a customer with no intention to honor them

5. Aiding a customer in structuring a transaction to prevent a Form 8300 from being filed with the IRS

6. Accessing a credit report without the consumer’s permission or a legitimate business reason

7. Intentionally misrepresenting a vehicle’s warranty coverage

8. Intentionally misrepresenting prior damage to a vehicle

9. Encouraging a customer to participate in a straw purchase

10. Falsifying, or encouraging a customer to falsify, a credit application

Oh, and did I forget to mention workplace harassment and discrimination?

Now it’s not my intention to pick on salespeople. I spent many years selling cars myself and I truly believe that sales consultants have the toughest job in the dealership, bar none. But let’s face it, salespeople are naturally aggressive (at least we hope so). Without proper knowledge, it’s very easy to step over the line legally when trying to make a deal. I know I certainly did many times before I learned the rules. It’s wonderful to have a well-trained management staff, but there’s a good possibility that an uninformed salesperson may make compliance missteps without the management team’s knowledge. After all, salespeople typically spend hours talking with their customers and it’s unlikely that management is going to be privy to all of those conversations.

Here are some recommendations for avoiding a really bad day:

• Train your F&I personnel.

• Train your sales managers.

• Train your salespeople.

• Train anyone in your dealership who regularly talks with customers about buying or leasing a car.

• Train EVERYONE in harassment prevention. Anyone can create a hostile work environment, not just a supervisor.

• Once their training is completed, have each employee sign a compliance Code of Ethics and Anti-Harassment Policy.

Give your entire staff the tools they need to do their job properly and ethically. Chances are, you’ll be glad you did, and so will your customers.


Jim Radogna is the President of Dealer Compliance Consultants, Inc., a San Diego, California training and consulting firm.

Legal Compliance - Who Taught You the Rules?

Back when I was a green-pea salesman, I listened carefully to everything the closers and sales managers said. These guys were good! It seemed that no matter what the customer said, they had an answer. So I listened and learned. When I got my shot and became a closer, I carefully followed my sales manager’s lead. Same thing as I moved up through the ranks – I listened and learned from the old timers. By the time I became a GM, I knew it all, right? Well, not exactly. Any of this sound familiar?

Sales manager to salesperson: “Your customer has great credit but the bank is going to need more income. I don’t think they’ll ask for proof”. (falsifying credit information)

Sales manager to finance manager: “Listen, these folks are in a hurry. Let’s make them mental owners. Just have them sign a contract real quick and we’ll get the rest of the paperwork done another time. If they leave without signing something, they won’t be back”. (improper disclosure)

Sales manager to salespeople: “Guys, that ad car is a big loser. Switch your customers to something else unless we can make a ton on the back end”. (bait and switch)

Sales manager to finance manager: “Joe’s got this guy committed at $30 a month more then we need. Let’s make some money!” (payment packing)

Sales manager to salesperson: “We can probably get this guy done, but there’s going to be a big bank fee. If he wants that Sentra, don’t mention the ad price. We need to sell it for a few grand more for the deal to make sense. He’ll be happy we can get him done”. (hidden finance charge and failure to sell at advertised price)

Sales manger to sales person: “It looks like the negative equity is her hot button. Here’s what we’ll do: Tell her that we’ll pay off her trade and get her committed at $379 a month. I’ll just add the negative equity to the price.” (failure to properly disclose negative equity)

Finance manager to salesperson: “Let your customer know that the bank may call her and ask some questions. Make sure she tells them that the car is for her and not her brother!” (straw purchase)

Finance manager to sales manager: “I don’t care if you take a hold check for the downpayment, but the bank isn’t going to go for a deferred down, so we need to show it as cash on the contract.” (failure to disclose deferred downpayment)

Finance manager to used car manager: “We’re over-advanced on that Tahoe deal. I need a book sheet for $15,500. Doesn’t it have premium wheels or something?” (power booking)

Many long-standing dealership practices are not necessarily legal or ethical but often times staff members have no idea they are breaking the law. The vast majority of dealership employees are well-meaning, honest people just trying to earn a living. However, if they have never been properly trained in compliance matters, they may simply rely on doing business the way it’s always been done. Dealers should not assume that employees know all the rules. Education is the first and most vital step towards building an ethical organization. After all, if employees don’t know or understand the rules, how can they be expected to follow them?

Jim Radogna is the President of Dealer Compliance Consultants, Inc., a San Diego, California training and consulting firm.