Tuesday, December 27, 2011

Legal Lessons to be Learned from the TrueCar Discussions

As the TrueCar debate rages on, one thing is certain: there is going to be increased scrutiny on auto sales practices by a number of state regulatory agencies. While TrueCar has a number of challenges to overcome and may be forced to alter their business model, the real concern is how these legal issues may affect dealers. Several state authorities have indicated that they will hold dealers responsible for any violations. It’s important that dealers are aware of these issues and protect themselves accordingly.

Brokering – TrueCar has been accused of operating as an illegal broker in some states due to their method of compensation (i.e. charging a fee for the sale of a vehicle). What has also come to light is that some states may also consider other common lead-provider compensation arrangements to be illegal as well. For instance, the Virginia Motor Vehicle Dealer Board has indicated that "motor vehicle dealers may only compensate an unlicensed third party vendor by flat payment structure (e.g., per month) rather than per sale, per referral, or any other transactional basis". As an example, they stated that "a monthly fee tied to the number of consumers who submit their contact information to the dealership via a vendor’s website...would appear to be in violation of Virginia law in that any search that resulted in a sale would mean that the dealer has compensated an unlicensed individual in connection with the sale of a motor vehicle." Does this mean that paying a lead provider a fixed amount per lead (a common arrangement) is not allowed in Virginia or some other states? Maybe.

The lesson to be learned here is that is important for dealers to have their legal counsel scrutinize vendor contracts and ensure that they are compliant. It’s conceivable that some vendors are either not aware of state prohibitions or are trying to fly under the radar. TrueCar altered their compensation program in Virginia last year in an attempt to comply with state brokering prohibitions, but apparently is still out of compliance.

Advertising – It’s been noted that TrueCar’s current advertising practices run afoul of certain states’ regulations. It remains to be seen if TrueCar will be able to adjust their adverting accordingly to comply, but there’s a lesson to be learned for dealers. A number of complaints have been published by TrueCar customers about dealerships failing to honor advertised prices, attempting to add additional fees, and alleged “bait and switch” tactics. While these accusations may or may not be true, it’s a good reminder for dealers to ensure that their staff members fully understand and follow state and federal advertising guidelines. Advertising violations can be quite serious and the potential penalties are substantial. Once again, state regulators have indicated that they will be taking a closer look at dealerships since being made aware of the TrueCar model. It’s a good idea to train employees on advertising rules of the road and hold them accountable for strict compliance.

Privacy – The TrueCar discussions have also brought into question the sharing of dealers’ DMS data with vendors. It’s vitally important for dealers to ensure that their privacy policies accurately reflect their actual practices in sharing of consumers’ Personally Identifiable Information (PII). Many dealers have boilerplate privacy policies that may state that they do not share PII with non-affiliated parties. If vendors are accessing DMS data from the dealership, that statement may not be true. The Federal Trade Commission and state regulators have been taking an increasingly aggressive stance against companies that fail to follow their own privacy guidelines. It’s time for dealers to dust off their privacy policies and adjust them if necessary.

The good news is that the regulators have given fair warning that they’re going to be looking closely at these issues. The increased legal scrutiny on dealerships may be an unintended consequence of the TrueCar debate, but at least the dealers that are paying attention won’t be blindsided.

Friday, December 9, 2011

Have You Read Your Website Privacy Policy Lately?

Dealerships typically collect a great deal of personal information from their website visitors through contact forms, online credit applications, etc. What many businesses don’t realize is how vitally important it is to properly handle any Personally Identifiable Information (PII) collected from consumers through their sites.
So what’s the big deal about privacy policies? Our website provider takes care of that, right?
Not necessarily. In researching dealer websites recently, we looked at a random sample of privacy policies on 12 dealer sites from around the country. What we found was…interesting:

·         2 dealers had no privacy policy link on their sites (both were in states where it’s required by law)
·         1 dealer had only the website provider’s privacy policy published on its site (won’t do the dealer much good if there’s a legal claim against them)
·         2 dealers had only the manufacturers’ policies published on their sites (same as above)
·         1 dealer had a privacy policy with another company’s name on it (need to make sure you customize those templates!)
·         3 dealers had the same policy that they hand out to consumers who apply for credit at the store (NOT the same thing as an online privacy policy)
·         2 dealers had identical boilerplate policies provided by their website provider – not a problem, unless the policies don’t truly reflect the dealers’ actual processes. For instance, the policies state: “Subscribers to our e-mail services (or any other feature/service found on our Web site) will not receive unsolicited e-mail messages from us”. If the dealers decide to launch an email marketing campaign to these website visitors (which is legal as long as they adhere to CAN-SPAM regulations), they could be in danger of violating their own policies. Federal and state regulators can take action against companies that fail to comply with their own privacy policies or otherwise misrepresent their information management practices. And of course, there is the real possibility of substantial private lawsuits.
·         1 dealer had a nicely-written, personalized policy (good job!)

While posting a privacy policy on your website is not yet required by federal law, it looks like it will be soon. There are several bills pending in Congress that address online privacy, such as the Commercial Privacy Bill of Rights Act of 2011, and full disclosure tends to be a common element. Some states already have laws on the books mandating online privacy policies. For instance, if you’re collecting personal information from any California residents, state law requires you to conspicuously post a privacy policy on the site and strictly comply with its provisions.

The internet can be a dangerous place when it comes to privacy. Do yourself and your customers a favor by establishing best practices for handling consumer privacy. The first step is to review your company’s privacy policy and ensure that you have a clear understanding of its contents and that it reflects your dealership’s actual practices. The next step is to make sure that it’s published on your website. Finally, review the policy with your employees and vendors to ascertain their understanding. This will help minimize (or hopefully eliminate) breaches due to unfamiliarity on the part of individuals acting on your behalf.

Tuesday, October 18, 2011

The Hidden Danger of Text Message Marketing

Keeping the lawyers at bay used to be a whole lot easier for dealerships. Unfortunately, new technology brings new challenges. A recent high-profile lawsuit involves a large dealer group named in a class-action lawsuit for allegedly failing to honor a text message opt-out request. The suit, launched by a former employee, is seeking damages of at least $500 for each violation. While this may seem like yet another frivolous lawsuit by a disgruntled former employee, the potential for liability to this dealer group is substantial. Several recent text message cases have resulted in multi-million dollar settlements. For instance:

Twentieth Century Fox - $16 million class-action settlement ($200/ phone number)

Simon & Schuster - $10 million class-action settlement ($175/ phone number)

Timberland Company - $7 million class-action settlement ($150/ phone number)

Text (SMS) marketing is subject to a number of federal and state restrictions and the rules are extremely confusing. These regulations can be much more difficult to deal with than telemarketing or email regulations - primarily because many consumers are charged for text messages and the government feels that they should be afforded additional protection against unwanted solicitations. In many cases, the consumer must opt-in (give express permission) before you can legally send them a text message, even if you have an existing relationship with them.

Here are some things you should know before launching a text marketing campaign:

1. You can’t send a commercial text message (solicitation) to a phone number that’s on the national “Do Not Call” (DNC) list (subject to the “established business relationship” and other provisions of the national DNC rules).

2. You can’t send a commercial text message to a phone number that is on your company-specific DNC list.

3. You can’t send any text message whatsoever to a cell phone number – including sales pitches, service reminders, and communications with current customers - using an “automated dialer system” unless you have the consumer’s prior express consent. This may include computers used to send automated text messages (yours or your vendors).

4. In some instances, a text message may also be considered an email and must comply with all of the standard CAN-SPAM requirements (contains your physical mailing address, cost-free opt-out mechanism, etc.). A text message will be considered an email if is sent to an email address – that is, if it has an internet domain name after the "@" symbol (for example: sending a message from your computer to a mobile carrier, such as 10digitmobilenumber@txt.att.net).

5. The CAN-SPAM Act also prohibits sending commercial e-mail messages to wireless devices without prior permission. So, no commercial text message that is deemed to be an email may be sent to a wireless device without express prior authorization. Merely having an "established business relationship" with the recipient is not enough.

Confused yet? Here are some suggestions to help protect yourself against legal challenges:

• Consult your company-specific DNC list before sending a text message.

• Consult the national DNC list and consider whether your messages are based on an "established business relationship," which may provide an exception from the national DNC compliance.

• Determine whether your delivery meets the CAN-SPAM Act’s "email" definition, and if so, whether you have complied with the CAN-SPAM disclosure and opt-out requirements.

• Put a process in place to ensure that all opt-out requests are honored quickly and permanently.

• Develop an employee policy regarding text messaging and educate your staff on proper procedures.

• Appoint an in-house compliance coordinator to monitor text messaging by both employees and vendors.

• Consider instituting a policy of ALWAYS obtaining recipients’ express prior authorization before sending text messages, regardless of the circumstances or method of delivery.

• Always consult knowledgeable legal counsel before launching a text marketing campaign.

• If you use an outside vendor to administer your text marketing campaigns, NEVER assume that they know all the rules and regulations - run it by your legal team first. If you’re writing the check, you’re responsible.

I know - it’s mind-boggling how difficult it can be to deal with these regulations. But just remember - it only takes one consumer (or one employee) to get the legal ball rolling, and it’s certainly not difficult to find a lawyer who’s ready, willing, and able to sue a car dealer.

Sunday, October 2, 2011

Is That IPad Giveaway Legal?

Sweepstakes, contests, and giveaways have become increasingly popular among dealerships. These promotions can be a great way to get word out about your company, increase your social media presence and develop leads. However, entry into a poorly considered sweepstakes or contest can be a trap for the unwary dealer. These promotions are governed by a variety of federal and state laws as well as social networking sites’ terms of service. The FTC receives thousands of complaints from consumers each year regarding the abuse of contest promotions. Failure to follow pertinent statutes and regulations regarding promotions can lead to government inquiries, civil enforcement actions, adverse publicity, and even criminal penalties.

Following is a basic overview of the guidelines for running lawful promotions, but you should always consult knowledgeable legal counsel before starting a campaign. And remember, it’s dangerous to assume that outsourcing responsibility for the promotion to a marketing firm or other service provider will result in a legal compliance. Understanding the rules and running your promotions by your legal team can guard against potential problems and may help shield the dealership from liability.

So, what’s the difference between a contest, sweepstakes and lottery? A "contest" offers prospective participants the opportunity to receive or compete for gifts or prizes on the basis of skill or skill and chance, and which is conditioned wholly or partly on the payment of some value. A "sweepstakes" is any procedure for distributing anything of value by chance (e.g., a drawing). The main differences between a sweepstakes and a contest are that the contest participants must use at least some skill to win the prize and may pay some value to participate in the contest while sweepstakes participants win solely by chance and are not required to pay value.

To avoid classification as a lottery, which is generally illegal unless run by the state, a sweepstakes promotion must not require an entrant to pay or promise to pay value for the chance to win the prize. This is known as consideration. The most easily identified or typical form of consideration is a requirement of a purchase or payment to enter the sweepstakes. However, in some states consideration may also be found to exist when an entrant must exert substantial effort or time to participate in the promotion. For example, completing a simple entry form or “liking” a page may not be considered steps that involve consideration, but requiring an entrant to fill out a lengthy marketing questionnaire might constitute substantial effort. These determinations vary from state to state, so it’s advisable to get a legal opinion.

The operator of the sweepstakes must treat entries that are not accompanied by orders the same as entries that are accompanied by orders. In other words, someone who purchased a car cannot be more likely to win a prize then someone who didn’t.

Each state has a different set of laws governing promotions, and some states require that sweepstakes offering prizes over a certain value to be registered. This amount can be as low as $500 (Rhode Island). Attention to the rules in all jurisdictions where the promotion will be available is essential.

Many states have passed specific laws or regulations that identify information that must be disclosed to potential entrants. Generally, such disclosures contain a “no purchase necessary” statement, an explanation of entry procedures, the identity of the company conducting the promotion, eligibility requirements, prizes and their estimated value, method of determining a winner, the odds of winning, the beginning and ending dates of the contest, and where a winners list may be obtained. These disclosures must be clear and conspicuous (and that doesn’t mean “see dealer for details”).

To conduct a promotion through a social networking site, a company should comply with the particular site’s terms. For example, Facebook has very specific criteria for running promotions: http://www.facebook.com/promotions_guidelines.php.

So, go ahead and give away that IPad - just be sure to dot your ‘I’s and cross your ‘T’s.

Monday, August 29, 2011

Be Careful When Using Social Media in Hiring Decisions

It’s no secret that auto dealerships have frequently been forced to defend themselves against discrimination claims by employees and agencies such as the Equal Employment Opportunity Commission. As a result, many dealers have instituted comprehensive human resources programs to avoid potential problems. However, new technology brings new challenges.

As the use of social media grows, more and more dealerships are using the internet to screen potential employees. Many managers tasked with hiring find these sites to be particularly helpful because they perceive that this information reflects a more accurate representation of the applicant beyond the interview. This influx of information regarding applicants would seem to be a great way to vet their ability to "fit in" with a company.

While social media may allow employers to learn vast amounts of information about job applicants, hiring managers who even casually use these tools to gather information about a prospective employee could expose the dealership to legal risks. Given the real possibility for inappropriate and illegal uses in the hiring context, organizations need to carefully consider how, if at all, they utilize the sites when screening candidates.

Discrimination Claims - When a job candidate is the subject of a social media search there’s a possibility that the search will reveal information that would be off limits in an interview, such as age or marital status. Hiring managers should be very careful in using private information people are posting publicly to make hiring decisions. An employer's availing themselves of such information could pave the way for allegations of discrimination if the employee or applicant believes that the employer used such information to make an adverse employment decision. A risk may be created that that this protected class information actually is being considered or, even if it is not, putting your organization in the position of having to defend a claim knowing that this information existed on the sites you visited. Risk factors include:

■ Information regarding age, race, religion, sex, disability, or other protected characteristics, such as pregnancy, illness or disability. For example, a person’s Facebook page may disclose their religion. Once an employer knows that information, the fact that the employer knew the potential employee’s religion can be used in an employment discrimination suit.

■ Checking social media or the Internet only on applicants of a certain race or gender.

■ Searching on all applicants, but using the same information differently against one particular type of applicants. For example, if all of your applicants had pictures of themselves of drinking alcohol in public, but you viewed that fact more negatively against females, that could be considered discrimination.

■ Rejecting an applicant based on conduct protected by lawful off-duty conduct laws.

■ Rejecting an applicant because of his or her political activities may violate state constitutional law.

To avoid these legal obstacles, you may decide that it's better to not even collect that information, so you can say that you didn't have access to it. Another procedure would be to have someone other than a hiring manager or decision maker in human resources conduct an online background check of job applicants. The individual who does the online check should avoid sharing with decision makers any personal information about a job candidate that’s not relevant to the hiring decision. This individual should be properly trained to avoid improper access and to screen out information that can’t be lawfully considered in the decision-making process. Having a firewall between the hiring manager and social media information about job applicants makes it difficult for a plaintiff subsequently to contend that the hiring manager discriminated against him or her based on a legally protected characteristic.

Invasion of privacy claims by potential employees - Generally, a potential employee will have a tough time asserting this claim because you need a “reasonable expectation of privacy” and a lot of people keep their social media profiles open to the public. However, it’s clear that if the applicant is using the highest privacy settings and the employer somehow gets past all these barriers, the claim is stronger.

A point to consider is how the hiring manager will obtain access to the candidate's page. Many social media users have some degree of privacy established in their settings. As a result, access to the candidate's page may require "friending" the applicant and the applicant accepting the request. Not a good idea.

Using an outside agency to screen applicants – If an employer uses a third party to conduct searches on job candidates the federal Fair Credit Reporting Act and applicable state law on background checks likely will apply. The Fair Credit Reporting Act governs "employment background checks for the purposes of hiring" and applies if "an employer uses a third-party screening company to prepare the check." Thus, if an employer is using an outside resource to view social networking sites and provide information, the applicant must be informed of the investigation, given an opportunity to consent, and notified if the report is used to make an adverse decision. It’s important to ensure that any company you use to perform background checks follows the correct procedures, and that your employment applications contain the proper notifications.

Best practices for the use of social media in hiring decisions:

1. Develop a policy on whether or not the hiring manager will search the internet or social media sites in hiring.

2. If you decide to use social media in hiring, do the searches on applicants consistently and in a uniform manner.

3. Make sure candidates are notified, in writing, about the companies use of social media to gather information, e.g., on job applications.

4. Ensure that employment decisions are made based on lawful, verified information. Don’t allow factors to be considered that have no relevancy to job performance, such as race, age, or sexual orientation. They’re all protected statuses by law and using them as criteria for hiring is discriminatory.

5. Follow best practices in identifying a legitimate, nondiscriminatory reason for the hiring decision with the documentation supporting the decision.

6. Prohibit “friending” a potential employee to learn things about them that the general public doesn’t have access to.

7. Discourage supervisors from being social media friends with their direct reports.

Tuesday, July 26, 2011

Does Your Social Media Policy REALLY Protect Your Dealership? (You DO Have One, Right?)

Chances are, since you’re reading this post, your dealership or company is involved in social media. That’s good - it’s hard to imagine how difficult it will be moving forward for organizations that have not embraced social networking. Although Social Media is relatively new (and certainly exciting), its meteoric growth has unfortunately caught the early attention of the legal powers-that-be.

Despite the widespread use and misuse of social networking at work, 45 percent of all businesses still do not have a social media policy. Many of the policies that companies are using do not adequately address potential legal issues. Regulators have been bringing complaints against companies arising from their social media activity, thus, highlighting the need for companies to demonstrate that they are exercising due diligence to promote legal and ethical conduct in the context of social media activity.

No surprisingly, plaintiff’s attorneys have also jumped on the bandwagon. Companies are being sued regularly by employees and others based on social media use. Beyond legal risks, employees can harm a company’s reputation by disseminating controversial or inappropriate comments regarding the employer or its business activities.

There are a number of legal considerations that every company should be aware of when establishing their social media policies and procedures, such as social media use in employment decisions; posting of online reviews, testimonials and endorsements; ‘fake’ and paid-for reviews; advertising on social media; potential overtime claims; harassment, discrimination and defamation claims; copyright and privacy issues; sweepstakes and contests laws; and CAN-SPAM requirements.

It's more important than ever to craft a policy that's both practical and legally defensible. You can protect yourself by insisting that participants in your social media programs comply with the law and training them how to do it. The Federal Trade Commission specifically says these steps may limit potential liability and will be considered in any prosecution. According to FTC guidelines, “The Commission agrees that the establishment of appropriate procedures would warrant consideration in its decision as to whether law enforcement action would be an appropriate use of agency resources. The Commission is not aware of any instance in which an enforcement action was brought against a company for the actions of a single ‘rogue’ employee who violated established company policy that adequately covered the conduct in question.”

So, if you have a social media policy in place, it may be time to dust it off and re-evaluate it. If you don’t have a policy, it’s time to get started. For information on how to easily and inexpensively develop a social media policy that will help build your brand and protect your dealership, follow this link: http://www.dealercomplianceconsultants.com/socialmedia.html.

Tuesday, June 28, 2011

4 Social Media Legal Issues Dealers Can’t Afford to Ignore

It was bound to happen. The tremendous growth of digital marketing and social media was an invitation for government regulation. For instance, the Federal Trade Commission recently updated its truth-in-advertising guidelines, which were last revised in 1980, to address the commercialism of the Web. Federal and state regulators are taking the position that social media is not a loop-hole for deceptive marketing practices and are actively enforcing and cracking down on social media deception. Proper social media ethics are now a matter of law, not just personal preference.

Faking Reviews

The FTC’s updated Endorsement and Advertising Guidelines require companies to ensure that their posts are completely accurate and not misleading, and planting or allowing fake reviews is a violation. The Guidelines are extremely broad and can apply to anyone writing reviews on rating sites, web sites or promoting products through social media sites, including blogs.

There are several companies out there that offer seemingly quick and easy ways to improve your ratings on review sites. Be careful! A Dealership in Texas suffered devastating reputation damage because of the review-posting practices of a company they hired. A customer discovered that suspicious “reviewers” were writing 5-star reviews about all kinds of businesses and dealerships across the nation on the same day. This debacle was uncovered in October of 2010, yet news stories continue to show up on the dealer’s page one search results.

While the above case may be an example of a dealer who unfortunately hired the wrong vendor, an area of real concern is the activity of a company’s own employees. The FTC recently charged a California marketing company with deceptive advertising after it found that the company’s employees were posing as ordinary consumers posting positive reviews online.

Dealers may face liability if employees use social media to comment on their employer’s services or products without disclosing the employment relationship. The FTC requires the disclosure of all “material connections” between a reviewer and the company that is being reviewed. These connections can be any relationship between a reviewer and the company that could affect the credibility a consumer gives to that reviewer’s statements, such as an employment or business relationship. So if employees, friends, family or vendors post reviews to prop up a dealership’s online reputation, they must clearly disclose any relationship they have with the company. In addition, all reviews must be an honest opinion based on a real experience. Reviewers must never endorse a product or service that they have not used personally or create any other form of false endorsement. It’s all about transparency and full disclosure.

Besides the obvious potential damage to a dealer’s reputation, failure to follow these regulations can result in substantial penalties. In recent actions, the New York Attorney General fined a cosmetic surgery company $300,000 for ordering its employees to write fake reviews of its face-lift procedure and the FTC ordered a company marketing instructional DVDs to pay $250,000 for fake reviews posted by the company's affiliate marketers. The FTC has indicated that companies are fully responsible and liable for all inappropriate actions of their employees, their vendors, and any advocates they recruit. Reviewers may also be held personally liable for statements made in the course of their endorsements.

Paying For Reviews

The practice of offering a free oil change or gas card to a customer in exchange for a good survey has long been frowned upon by manufacturers. Because there are no factory gatekeepers when it comes to online ratings, it may seem tempting to offer customers an incentive to post a positive review. The good news is that you can if you want to; the not-so-good news is that the regulations require that any reviewer provided with any form of compensation such as free services, rewards, incentives, promotional items, gifts, samples, or review items, must fully disclose the source and nature of any compensation received.

So, if you pay for reviews and the reviewers fail to disclose their compensation, you may face liability. This is an area where it’s easy to get caught and besides the legal danger, your reputation will likely take a big hit.

Advertising on Social Media Sites

The wisdom of trying to “sell” on social media sites by posting inventory, prices, or payments is an ongoing debate, but the fact remains that many dealers are engaged in this activity in some form. While I have no opinion on the relative merits of whether to “sell or not to sell” on social media, it’s important to note the potential implications of these types of activities.

Despite the fact that social media tends to be a low-keyed, casual type of communication, advertising regulations don’t go away. In fact, The Federal Trade Commission recently announced that it was updating its document Dot Com Disclosures: Information About Online Advertising. The primary focus of the document, which was first issued in 2000, is to inform advertisers that consumer protection laws and the requirement to provide clear and conspicuous disclosures applies to the online world in addition to the offline world.

So, in a nutshell, if inventory is posted or prices/payments are quoted on social media it’s likely that the posts will be deemed to be advertisements and will be subject to state and federal disclosure and truth in advertising regulations. Lack of space is no excuse either. Even if you’re advertising on Twitter and limited to 140 characters, you must include a clear link to any necessary disclosures. A good rule of thumb is to have any information that could possibly be construed as advertising reviewed by upper management or a qualified professional before it is posted.

Social Media Policy

Social media applications such as blogs, social networking, and video sharing have soared in popularity so it’s important that dealers control the information that’s coming out of their business. Policies and procedures should be put in place to spell out how employees are expected to conduct themselves within social media. A social media policy can help take the guesswork out of what is appropriate for employees to post about a company to their social networks.

There are a number of potential legal issues with employees’ use of social media that should be addressed such as the danger of possible privacy, harassment, discrimination or defamation claims. Beyond legal risks, employees can harm a company’s reputation by disseminating controversial or inappropriate comments regarding the employer. However, employer restrictions on the use of social media can be tricky. The National Labor Relations Board (NLRB) recently issued a complaint against an Illinois dealership, alleging that the dealership unlawfully terminated an employee for making critical comments about the dealership on Facebook. While some unprofessional and inappropriate conduct may not be protected, the intersection of social media and the NLRA is an evolving area of the law.

The best way to protect your dealership from legal trouble is by establishing formal social media policies for your staff. Companies often get in the most trouble when they fail to train their employees about appropriate social media use and disclosure. To prevent this from happening, it’s a good idea to create a written social media policy and training program for your company and carefully monitor social media use.

Friday, May 20, 2011

Who’s Writing Your Online Ads?

I recently saw a vehicle advertised on a dealer website that caught my attention. This pre-owned car was advertised as a “CarFax One Owner”. Upon further investigation, I discovered that the “one owner” was a rental car company.

Even though the “one owner” statement may have been technically true, the description of the vehicle blew my mind: “With just one previous owner, who treated this vehicle like a member of the family, you'll really hit the jackpot when you drive home with this terrific car”. (Now I know that Enterprise has been advertising lately that they are a “family company”, but I’m not sure that this is what they had in mind…).

I was intrigued by this statement, so I kept sniffing around. It turns out that the dealership is part of a large dealer group and I noticed that similar statements were advertised on prior rental vehicles in some of their other stores as well. For example:

“This 2010 Elantra is for Hyundai fans that are searching for that babied, one-owner creampuff.”

“From the looks of it, I'd say this car has been garage kept and babied regularly. If only my wife treated me as nice!!!”

So, are these statements just harmless puffery that is intended to make the vehicles stand out? Perhaps, but I can’t help but speculate that representing that a rental car has been treated like a “member of the family”, “babied”, and “garage-kept” might not go over too well with an attorney general, judge or a customer who understandably thinks that “one owner” means one private owner.

Depending on the dealership, online advertising may be handled by any number of people such as a used car manager, internet manager, or perhaps an outside vendor. I realize that whoever wrote these ads may not have knowingly tried to deceive anyone. Perhaps they weren’t aware that the cars were rentals and just relied on the fact that CarFax identified the vehicles as “One Owner”. However, if an ad is deemed to be deceptive or misleading, an advertiser will likely have liability regardless of whether there was intent to deceive. A dealer has the legal duty to investigate the accuracy of any statements made in advertising; therefore it is vital that anyone who is responsible for writing advertisements be well aware of advertising regulations.

Bear in mind that even though the dealerships will likely disclose the vehicles’ previous histories at some point, the dealer may still not be off the hook. Some advertising regulations indicate that if the first contact with a consumer is secured by deception, a violation may occur even though the true facts are made known to the buyer before he enters into the contract of purchase or lease.

It’s important to keep these concepts in mind when preparing an advertisement:

• Advertising is considered deceptive or misleading if “members of the public are likely to be deceived” or the advertisement has a “tendency or capacity to mislead the public”.

• Since statements and representations in advertisements are evaluated based on their tendency to deceive, no actual harm to consumers may need to occur for there to be a violation.

• The fact that others were, are, or will be engaged in like practices will not be considered a defense.

• Statements susceptible to both a misleading and a truthful interpretation will likely be construed to be deceptive.

• Puffery is defined as an advertising or sales presentation relying on exaggerations, opinions, and superlatives, with little or no credible evidence to support its vague claims. Puffery may be tolerated to an extent so long as it does not amount to misrepresentation (false claim of possessing certain positive attributes or of not possessing certain negative attributes).

The rules for good advertising are mostly common sense. Make sure your message is clear, truthful, easy to understand, and not subject to multiple interpretations. It’s not just about staying within legal guidelines either. Show your customers that you play by the rules – chances are they’ll thank you for it.

Sunday, May 8, 2011

Reputation Management Is Not Rocket Science

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 got 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. Or perhaps they’re telling thousands of people via social media?

Here are some 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.

Sure, you made the deal. But is it really worth putting the reputation that you have worked years to build at risk? Take compliance and ethical behavior seriously. A commitment to honesty and fair dealing will protect your company, your employees, your customers and, most importantly, your good name.

Thursday, April 21, 2011

Is Zero Tolerance Enough?

A recently filed lawsuit against an auto dealership accused a sales manager of sexual harassment and sexual battery against a salesperson. According to the complaint, the employee was harassed continuously over a ten day period and ultimately quit due to the alleged behavior. The complaint further stated that the dealership should have known what was going on and tried to correct it.

The dealership responded that the claims have no merit; that it has a zero-tolerance harassment policy; and that human resources was not contacted about the situation, as its employee handbook specifies.

I have no idea what the true merits of this particular case are, but it brings to mind what an uphill battle fighting these claims can be.

In some cases, employers may be considered to be “strictly liable” for sexual harassment, meaning that the employer is liable for harassment by an employee or other individual even if the employer did not know about the harassment or acted immediately to stop it. Fortunately, the Supreme Court has recognized a viable defense to this liability. If an employer can prove that it exercised reasonable care to prevent and promptly correct any sexually harassing behavior and the complaining employee unreasonably failed to take advantage of any preventative or corrective opportunities the employer provided or to otherwise avoid harm, the employer may avoid liability for unlawful harassment. Note however, where a supervisor’s harassment includes a tangible employment action (for example, firing the individual); this defense may not be used. An employer is always liable for harassment by a supervisor on a prohibited basis that culminates in a tangible employment action. The Supreme Court recognized that this result is appropriate because an employer acts through its supervisors, and a supervisor's undertaking of a tangible employment action constitutes an act of the employer.

The result in the this case may well come down to whether or not the court believes that the employer exercised “reasonable care” and that the employee “unreasonably” failed to take advantage of opportunities that the employer provided.

Most dealerships have an anti-harassment policy in place that they have all of their employees sign. That’s a great first step, but the questions remain: Have the employees actually read the policy and do they really understand it? Are they really aware of the procedures set forth in the policy to protect them from harassment?

If employees are trained on exactly what to do in the case of harassment (like who to report it to, and so forth) and fail to do so, the dealer will likely be in a better position to defend itself against a claim. On the other hand, if victims of harassment are uncertain about whom to report the harassment to within the company or worse yet, their claims are not taken seriously; they may feel their only recourse is to contact an attorney. That’s when it gets ugly.

The following procedures can be helpful in demonstrating that an employer has taken reasonable care in preventing or mitigating harassment:

• Preparing and adopting an anti-harassment policy and communicating the anti-harassment policies to all employees.

• Clearly communicating that harassment will not be tolerated and clearly explaining prohibited conduct.

• Creating a sexual harassment complaint procedure and explaining the employee’s obligation to report any conduct that may be viewed as harassing.

• Providing every employee with a copy of the harassment policy and complaint procedure, and redistributing it periodically. The policy and complaint procedure should be written in a way that will be understood by all employees in the employer's workforce.

• Making the anti-harassment policy easily accessible via the company intranet, posters, employee handbooks and including it in the new-hire process.

• Providing sexual harassment training to all employees to ensure that they understand their rights and responsibilities.

• Taking any claim seriously and investigating it.

• Taking prompt and appropriate action.

Unfortunately, being a traditionally male-dominated industry, harassment claims against auto dealerships are not an uncommon occurrence. Having a policy in place and hanging posters may not be enough to adequately protect yourself.

Wednesday, April 13, 2011

Learning to Play the Right Way

Much of what employees learn in the car business is from watching and listening to their co-workers. This type of education can be invaluable in many areas such as sales presentation, demonstration, and closing techniques. Of course, it can also lead to picking up bad habits like pre-qualifying customers by appearance or shortcutting the sales process.

An area that is frequently learned more by osmosis than by formal training is legal compliance. Dealers often assume that their employees possess adequate regulatory know-how simply because they’ve been in the business for a while. But who taught them the rules? Have they been properly trained in compliance or are they just winging it? It’s important to realize that at some point in their career, many automotive professionals were taught the “old school” way of doing business. Some dealership practices they’ve learned are not necessarily legal or ethical but the employees simply rely on doing business the way it’s always been done. Many of these old school tactics are so common that employees don’t realize how risky they are:

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”.

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”.

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”.

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

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”.

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.”

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!”

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.”

Finance manager to used car manager: “We’re over-advanced on that Tahoe deal. I need a book sheet for $15,500. Book it with premium wheels and sound.”

The vast majority of dealership employees are well-meaning, honest people, but assuming that they know everything they need to about compliance, especially in the current environment, is risky at best. When was the last time you had a comprehensive compliance check-up done? If it’s been a while (or never), now is the time. Once you have identified the areas that are in need of attention, the staff should be properly trained. Education is a vital step towards protecting your business. After all, if employees don’t know or understand the rules, how can they be expected to follow them?

Chances are, you wouldn’t let someone drive your car unless you were certain that they knew how to drive. It makes sense to be just as careful when you’re handing them the keys to the dealership.

Sunday, April 10, 2011

Is Anyone Else Getting Sick of Consumer Attorneys Cashing In?

I’m sure you’ve heard by now about the dealer who lost a class action lawsuit and was ordered to buy back over 1,500 vehicles from customers whose rewritten contacts were backdated. Another big win for consumer attorneys.

Not surprisingly, the news of this devastating decision has led to plenty of Monday morning quarterbacking. Naturally, the consumer advocate contingent is broadcasting that this is just another example of an unscrupulous dealer who got what was coming to him. On the other hand, most people who know anything about the automotive business realize that this was just another example of sleazy attorneys preying on dealerships for technical violations. I mean, let’s face it, how does a dealer even benefit from backdating a contract? Why would a dealer knowingly break the law? Personally, I don’t think they did. I believe that these were innocent oversights.

It just seems to me like many dealers are making it much too easy for these lawyers by not paying enough attention. So, what can you do to avoid this type of exposure? Obviously, it’s important to not backdate any more contracts. That’s a good start, but what about those other potential legal nightmares? You know the ones I’m talking about: advertising violations, adverse action notices, hidden finance charges, privacy policies, information safeguards, overcharging fees, deferred downpayments, prior vehicle history disclosures, falsified applications, power booking, and so on. And don’t forget the new Red Flags Rule and Risk Based Pricing Notices. I bet the lawyers are licking their chops just thinking about those new opportunities.

Enforcement actions against dealers by regulators have been few and far between, so you may think that it’s easy to fly under the radar. Maybe so, but it’s important to understand that you probably have far less to fear from the FTC or an attorney general than you do from a consumer attorney with your customer’s deal paperwork in his hands.

So, you can stick your head in the sand and keep the lawyers fat and happy, or you can be proactive. It’s really not that difficult. If you haven’t had your deals audited lately, audit them. If your staff hasn’t received compliance training lately, train them. If, despite your best efforts, certain staff members don’t take compliance seriously, replace them.

It’s time to stop the insanity and keep the money in your own pocket – the lawyers have made more than enough.

So You Have a Red Flags Program – Now What?

The new federal regulations that went into effect this year have added to the never-ending compliance requirements that dealerships have to deal with. Fortunately, most dealers have found that the Risk Based Pricing Notice and updated Privacy Notice requirements are pretty easy to handle. Utilizing the Credit Score Disclosure exception to Risk Based Pricing Notices and using the New Model Privacy Notices is relatively simple – just a few more forms to add to the pile. The Red Flags Rule is another story.

Red Flags regulations require a dealership to not only be a good citizen, but to be a cop as well. There’s no two ways about it, if red flags are detected during a credit transaction, certain proactive steps are required that will create extra work and slow down the deal process.

Many dealerships are utilizing automated Red Flags programs to help stay in compliance with the new regulations. These programs, such as those available through DealerTrack, RouteOne and the credit reporting services, are excellent and certainly make it easier to navigate the Red Flags Rule. The challenge begins when potential “red flags” are detected by these systems. Unfortunately, this is not an uncommon occurrence. Fraud or active duty alerts on credit bureaus, address discrepancies, multiple recent inquiries, or multiple new accounts recently opened are just a few of the situations that are considered to be identity theft “red flags”.

During compliance reviews in the last few months, we have been paying particular attention to how dealership employees are handling the new Red Flags requirements. Not surprisingly, we’re finding that in many instances when red flags are detected during a transaction, staff members are struggling with what to do next.

For instance, we’ve found a number of situations where the red flags program has prompted that a “high risk has been detected” and that “out of wallet questions are required”, but the questions have not been asked of the customer. While it can certainly be uncomfortable to ask a customer personal questions or request that they supply additional proof of identity or address, it is important that these steps not be avoided. If an identity theft does occur, and the system-recommended steps were not taken, it’s conceivable that the dealership’s exposure to liability will be increased dramatically. The same holds true in a situation where the dealer’s Red Flags procedures are audited by a regulator. Staff members’ proclamations that they had a ‘gut feeling’ that the customers were who they said they were will not likely be enough to satisfy the investigators. The fact that the employees were prompted to follow a particular procedure and failed to do so would almost certainly make matters much worse.

Training is a mandatory requirement of the FTC’s Red Flags Rule. Employees should be well-trained in all aspects of the company’s Identity Theft Protection Program and features of any automated Red Flags systems, including the proper procedures necessary if Red Flags are detected. The training should explain the spirit of the law as well. It is important that staff members understand that the Red Flags Rule requires employees to be proactive in attempting to prevent identity theft and that any shortcuts taken in the process can create extreme liability to the dealership.

Even the best Red Flags program is not infallible. Chances are that an experienced identity thief will succeed despite a dealership’s best efforts. That’s okay. As long as the company can show that they have performed their due diligence and did not take any shortcuts, their exposure will likely be lessened dramatically.

Sunday, February 20, 2011

When Little Complaints Become Big Problems

The vast majority of dissatisfied customers who threaten to call an attorney never do. For the few that follow through, the results can be devastating. While it’s true that many customers’ complaints have little or no merit, there can be a real danger if the wrong plaintiff’s attorney gets involved.

You may be thinking “we have lawyers of our own and insurance for that sort of thing, so bring it on”. Well, here’s the problem: many lawsuits that stem from seemingly insignificant complaints snowball into massive class action cases based upon other issues entirely. There are a number of plaintiffs’ attorneys out there who are absolutely brilliant at turning dealer oversights or technical violations into class action lawsuits. For instance, one dealership’s failure to honor its promise to swap rims on a vehicle resulted in a class action lawsuit for backdating rewritten contracts where the court ordered that the over 1,500 class members could elect to return their vehicles and rescind their contracts.

Let’s face it, most common consumer vs. dealer lawsuits or Lemon Law claims don’t pay big attorney fees, but class action lawsuits do. It doesn’t matter if the customer’s complaint is valid or if they have actually suffered any real damage; these attorneys simply want the opportunity to get their hands on your files. A Missouri dealer group recently settled a documentation fee class action lawsuit for over $8 million. The attorneys alleged that the charges constituted the “unauthorized practice of law”. Ridiculous, yes, but the attorney fees totaled $675,000.

Other lawsuits have begun from mechanical issues, alleged misrepresentation of a vehicle’s condition, lies or unkept promises, undisclosed prior damage or vehicle history, payment packing claims, failure to honor warranties or service contracts, you name it. They’ve ended up becoming class action claims for improper disclosures, overcharging of fees, improper contract rescissions, undisclosed deferred downpayments, backdated contracts, etc.

Even if class action status is not pursued or granted, attorneys often seek unfair and deceptive acts and practices claims for technical violations by painting a picture of “the greedy dealer profiting from the poor, unsuspecting consumer”. Believe me; it’s not that tough to sell to most judges and juries, and the ultimate cost to the dealership is often substantially more.

The good news is that these lawsuits are avoidable. Most customers will not seek out an attorney unless they feel that they have no other choice or feel that they are being ignored or mistreated by dealership personnel. Two things that are virtually guaranteed to enrage a customer are unreturned calls or being treated in a confrontational manner by staff members. Many potential legal issues can be avoided by simply responding to customer complaints and perhaps offering a goodwill concession.

All customer concerns should be addressed promptly by qualified personnel, regardless of their perceived validity. It’s vitally important that care be taken when communicating with customers – their attorney may use what you say against you. Many times a customer will contact an attorney after they have felt that they were being ‘bullied” into signing a new contract or threatened with repossession, legal action or consequences to their credit rating. It’s a good idea to have customer complaints reviewed by your legal counsel or compliance officer to make sure that all your ducks are in a row.

Finally, check your ego at the door. While it may be distasteful to let an unreasonable customer “win” when you feel you’ve done nothing wrong, it makes good business sense to take a step back and examine the potential downside. Once an attorney gets involved, your chances of working out the problem directly with the customer diminish greatly. At the end of the day, does it make more sense to give in to the customer and move on with life or dig in your heels and risk a devastating lawsuit?

Sunday, January 30, 2011

You Can Train Me Now or You Can Train Me Later

Employee training can cost a lot of money. Not training your employees can cost even more. In lawsuits, courts and regulatory agencies sometimes impose after-the-fact training requirements in addition to large monetary penalties. Consider these actual cases:

A dealership faced a wide range of complaints, including failure to disclose material defects and misrepresenting sales and extended service contract prices, and was ordered to pay $1.5 million in restitution to victims, plus $300,000 to the state Department of Consumer Protection. As part of the settlement, the dealer also agreed to initiate a mandatory education program for all its employees within 60 days of the settlement, instructing employees on state consumer protection laws.

A jury awarded a $14.4 million wrongful death verdict against a dealership that performed a faulty tire repair and failed to take the tire out of service, leading to a rollover crash that killed a couple. As a condition of the post-verdict settlement, the dealer agreed to implement a training program to better train its technicians about safe tire repair practices to improve consumer safety.

The Equal Employment Opportunity Commission (EEOC), entered into a $1.5 million settlement of a sex and age discrimination lawsuit with an auto dealership. Along with the monetary penalty, under a consent decree the dealership must provide current employees with four hours of EEO training annually and new hires must receive such training within ten days of employment.

The EEOC reached a $700,000 settlement of a national origin, religion and racial discrimination lawsuit against another dealership. According to the Consent Decree resolving the case, the dealership is required to hire a presenter approved by the EEOC to provide annual training to all of its managers and supervisory personnel on all aspects of Title VII.

What’s that old expression about closing the barn door after the horses are out?