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/
Tuesday, March 23, 2010
Wednesday, March 10, 2010
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.
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.
Saturday, March 6, 2010
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.
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.
Subscribe to:
Posts (Atom)