Don’t Get Caught In a UDAP Trap

Dealers have plenty to worry about when it comes to rules and regulations governing the industry, but perhaps the most harrowing are known as “UDAPs”.

Unfair and Deceptive Acts and Practices (UDAP) statutes are consumer protection laws that address what lawmakers consider to be “unethical” or otherwise “bad” business practices. The Federal Trade Commission Act prohibits unfair or deceptive acts or practices and each of the fifty states and the District of Columbia have enacted consumer protection laws that also prohibit these practices. These statutes have far-reaching implications for auto dealers because they typically provide both for enforcement by the government to stop the practice and individual actions for damages brought by consumers who are hurt by the practices.

Dealers need to be aware that these statues are extremely broad and not only prohibit acts and practices that fall directly under the purview of specific laws, but also any other practice that is determined to be unfair or deceptive to the consumer. A behavior can be found to be unfair and deceptive and thus actionable even though it does not constitute fraud, breach of contract, or negligence under more traditional law. As a result, UDAP claims are a favorite among consumer attorneys – especially those seeking class action lawsuits.

In many states, courts are empowered to award double or triple damages as well as punitive damages and attorney’s fees for UDAP violations. Under many of statutes, courts can also issue an injunction against the defendants from engaging in similar practices in the future. Under almost every statute, some state agency, usually the attorney general, is authorized to pursue the matter even if a consumer does not pursue it.

There are a wide variety of dealer sales, F&I, and advertising practices that may be considered to be unfair or deceptive by regulators or courts. Several of these are well-known, while others may surprise you. Here are some examples of potential UDAP violations:

• “Drip Pricing” which the FTC defines as a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process.
• “Payment Packing” or inflating a monthly payment amount in order to allow room for adding additional goods or services while leading the customer to believe that the quoted payment is for the vehicle purchase only or “base payment”.
• “Yo-yo” Financing” or delivering a vehicle with terms that the consumer will most likely not qualify for, with the intention of having the customer re-write the contract under less desirable terms. Spot delivery has been on regulators’ radar screens lately, so these claims are becoming more common.
• Informing a buyer that financing for the car will not be approved unless the buyer purchases a service contract, insurance or other products.
• Leading a consumer to believe that he or she is purchasing a vehicle when it is in fact a lease.
• Failing to disclose dealer-added accessories on advertised vehicles.
• Leading a consumer to believe that the dealer will be assuming all liability under the lease of a trade-in vehicle, when the dealer intends to only make the final lease payments and assume no other liability, such as excess wear and tear or over-mileage.
• Oral promises made to the customer that the dealer fails to deliver upon. A common misconception by dealership staff is that only written agreements are enforceable and oral agreements are irrelevant once the customer signs a contract. This is simply not the case. Even if the final contract is in perfect form, the transaction can be legally second-guessed based purely on oral, pre-contract communications between the buyer and seller.  Be careful what you say!
• Bait & Switch - The FTC defines bait 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.”
• Failure to disclose known vehicle history, such as that the vehicle was previously used as a rental or demonstrator, was previously sold and returned, suffered damage, stolen-recovered, flood-damaged, hail-damaged, a salvage vehicle, rebuilt or reconditioned.
• Breach of warranty claims - The FTC Used Car Rule declares that it is a deceptive act or practice for a dealer to misrepresent the mechanical condition of a used vehicle, misrepresent the terms of any warranty offered in connection with the sale of a used vehicle, or to represent that a used vehicle is sold with a warranty when it is not.
• Representing that vehicles are new when they are in fact, used.
• Representing that a vehicle is of a particular standard, quality, or grade when it is not.
• Misrepresenting discounts in advertising and not disclosing important limitations.
• Posting false testimonials or online reviews.

It’s more important than ever to be very careful when dealing with consumers. 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 deceptive practices.

10 Advertising Guidelines That Every Dealer Should Be Familiar With

There’s no doubt that the right advertising program can make you plenty of money. But as they say, it’s not how much money you make but how much you get to keep that counts. Auto dealers are a favorite target of regulators hunting for advertising violations and are often blindsided by expensive fines, lawsuits and bad publicity. While the various laws and regulations covering automotive advertising can be confusing, it can be helpful to understand how lawmakers view advertising in general and what triggers their wrath.

1.       It’s all about the big picture. An advertisement as a whole may be misleading although every sentence separately considered is literally true. The key is to make sure your message is clear, truthful, easy to understand, and not subject to multiple interpretations.

2.       Even though the meaning of statements in an ad seems obvious to you, it may still be considered deceptive. Statements susceptible to both a misleading and a truthful interpretation are typically considered to be misleading by regulators. A good example is when the FTC recently cited a number of dealers for ads stating “we’ll pay off your trade no matter how much you owe”. While this statement may be technically true, lawmakers are of the opinion that these ads imply that the dealer will buy the trade for the amount the customer owes, regardless of its real value. Advertising is considered deceptive if the ad has a “tendency or capacity to mislead the public” or from “reasonable inferences that may be drawn from an ad”. It is vital to clearly and conspicuously disclose any material facts, including limitations, disclaimers, qualifications, conditions, exclusions or restrictions.

3.       Disclaimers in themselves won’t always protect against advertising violations. A disclaimer must not contradict, confuse, unreasonably limit, materially modify a principle message, or substantially change the meaning of any advertised statements. Your disclosures should be made in a clear and conspicuous manner to minimize the possibility of misunderstanding by the consumer public. Be sure that all disclaimers are clearly and conspicuously displayed and not buried away in difficult-to-read fine print or a difficult-to-find links on websites.

4.       Despite your best intentions, you may be held accountable for advertising errors. If an ad is deemed deceptive, an advertiser has liability regardless of whether there was intent to deceive.

5.       Be aware that advertising laws apply to all forms of advertising, including radio, television, print, electronic, direct mail, flyers, billboards, showroom and other dealership displays, and the Internet (including social media).

6.       There’s no safety net in the “but everybody does it this way” mindset. The fact that others were, are, or will be engaged in like practices will not be considered a defense in a legal action.

7.       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. For instance, in the above example with the “we’ll pay off your trade no matter how much you owe” ads, the dealers were found to be in violation even though they disclose that negative equity is added to the amount financed at the time of sale.

8.       Regulators frequently cite dealers for advertising violations even though there are no customer complaints. Since statements and representations in advertisements are evaluated based on their tendency to deceive, no actual harm to consumers need occur for there to be a violation.

9.       Bait & Switch advertising is a hot button with lawmakers and must be avoided. It is unlawful to advertise for sale any vehicle that the dealer does not intend to sell because the true intention is to switch the customer to another vehicle.  No customer should be encouraged to not purchase the advertised vehicle, nor should there be any acts attempted by the sales staff to prevent the sale.

10.   Don't forget your digital marketing. Websites, videos, email, and even social media are considered advertising mediums and may be targeted by regulators. In fact, the “we’ll pay off your trade…” violations were found on the cited dealers’ websites and YouTube videos by the FTC. Don’t assume that your website provider is utilizing language that is acceptable in your particular state or including all of the required disclosures. Check to determine if all necessary disclosures are present and clearly and conspicuously displayed on the site.

Depending on the dealership, advertising and marketing may be handled by any number of people such as sales managers, internet staff, or a marketing department. Any employee involved in advertising should be properly trained. In addition, you should never assume that advertising agencies or vendors 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. The primary responsibility for compliance lies with the dealership, not the vendor. According to the law, a dealer has the duty to investigate the accuracy of any statements made in advertising.

If you’re not sure, don’t guess! It makes sense to have your advertisements reviewed, and edited if necessary, by someone knowledge before publication. It may cost a few bucks, but it’s a small price to pay.

Harmless Horseplay? Maybe Not

In my opinion - even in this age of awareness - there are an alarming number of harassment and discrimination lawsuits being filed against car dealerships. “What? In this day and age? Sorry Jim, that’s a thing of the past – everyone has policies against harassment these days”.

I wish I could agree, but all you have to do is Google “auto dealer harassment” to see that I’m not delusional (although, it’s been known to happen).

It doesn’t help that car dealerships are a favorite target of government regulators (and of course, employment attorneys). For instance, EEOC Acting Chairman Stuart J. Ishimaru 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”.  In another statement, 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.” 

See what I’m saying?

It’s not just sexual harassment either. Federal and state laws and court decisions indicate that conduct can become illegal when an employer, supervisor, co-worker, customer, or vendor engages in unwelcome verbal or physical conduct against a person because of their race, color, creed, ancestry, national origin, citizenship, religion, age (40 and over), disability (mental or physical), sex (whether or not of a sexual nature and including same-gender harassment and gender identity harassment), arrest or conviction record, marital status, sexual orientation, retaliation or military status. In the month of August 2012 alone, I found news stories for dealership cases involving national origin discrimination, sexual harassment, racism, retaliation, and same-gender harassment.

Having spent many years as a dealership employee, I’ve come to believe that one of the reasons why our industry is so frequently targeted is because of the long-standing dealership culture itself. Let’s face it – car folks tend to be bold, aggressive, competitive, high-spirited – you name it.  Conduct that may be considered to be harassment or discrimination is sometimes so commonplace in dealership environments that people often don’t recognize the behavior as being inappropriate.

Think about it - have you ever witnessed dealer personnel swapping dirty or ethnic jokes or perhaps badgering a co-worker with sexual innuendo? How about inappropriate material being emailed or displayed on computers and mobile devices? Perhaps you’ve noticed that high-performing individuals are given a bit more slack when it comes to their behavior? Have you ever witnessed a supervisor either ignore potentially harassing behavior by a subordinate or just lightheartedly suggest that they be careful what they say?

Unfortunately, many companies have found out the hard way that “just kidding around” with no harm intended is not a viable defense. As far as the law is concerned, harassment depends on how the conduct was received, not on the intent. According to Robert A. Canino, Regional Attorney of the Dallas District Office of the EEOC, "An employer should never assume that it can hide behind a 'horseplay' defense. To do so is to trivialize what can be offensive and degrading conduct toward employees who don't find it amusing. There is no free pass for employers who fail to prevent or correct such offenses on the stereotypical premise that 'boys will be boys'."

Here’s another reality: employees that may actively participate in the “horseplay” or staff members that seem to have no problem with business as usual can become a dealership’s worst nightmare sometime in the future – especially if their employment is terminated. There are a number of savvy attorneys who are ready, willing, and able to assist disgruntled employees with harassment/discrimination claims.

Perhaps many of these claims are frivolous. But whether an accusation has merit or not, the dealer typically 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?

So what’s the answer? Most dealerships have an anti-harassment policy that all employees must sign, and 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? Are supervisors consistently enforcing these policies?

Having a policy in place and hanging posters is simply not enough protection for a dealership nowadays. Training dealership personnel in harassment prevention and holding them accountable for proper behavior is no longer an option.  Employees who receive harassment training are more likely to understand that there are boundaries that must be observed in the workplace and more importantly, realize that there can be serious personal consequences for harassment.

If a comprehensive harassment prevention program hasn’t been a priority in your dealership, I suggest that it’s time to get serious.

Is Your Job Worth Going To Prison For?

If this doesn’t make you think about how your dealership does business, I don’t know what will.

News broke this week about a dealer and 9 of his employees that were indicted by a federal grand jury for conspiracy to commit wire fraud as a result of deceptive advertising, fraudulent sales practices, and falsely reporting sales to the manufacturer. Besides the owner of the dealership, the GM, GSM, finance manager, 2 sales managers, BDC manager, and others were named. The indictment claims that these individuals conspired to "devise a scheme and artifice to defraud and to obtain money from the purchasers of automobiles by means of false and fraudulent pretenses, representations and promises, and for the purpose of executing such scheme utilized interstate wire communications" (specifically, deceptive and misleading radio and television ads). The document also accuses the defendants of cheating lenders by using "false job and income information on various credit applications" for customers.

According to the media stories, each defendant faces up to 20 years in prison if convicted.

This debacle began in 2006, started to unravel in 2008, and resulted in regulatory actions by the state, lawsuits by over 500 customers, and ultimately the bankruptcy and closure of the dealerships. Understandably, the dealer paid a steep price for these shenanigans. But here’s where it gets ugly – 4 years later the federal government has decided to go after the dealership’s employees as well.

Do I have your attention yet?

There’s no telling if this grand plan was the dealer’s brainchild or was cooked up by creative sales department personnel. It doesn’t really matter – they’re all in hot water now. So these employees, who obviously moved on with their lives after the dealership closed, are now facing devastating consequences.

Think about it, even if these guys and gals get off - was it worth being criminally charged, having their reputations ruined, paying legal fees, losing their livelihood and likely having to change professions, and who knows what else?

You may be thinking that this dealership engaged in a really outrageous ad campaign that would never happen at your store – and you’re probably right. It’s likely that your dealership doesn’t engage in ridiculous marketing campaigns like this dealer did – most wouldn’t even consider it. But understand this: the legal climate has dramatically changed and the government is showing in no uncertain terms that they are fed up with deceptive practices at auto dealerships.

Automotive compliance experts have been saying this for quite some time and perhaps now more people will begin to pay attention: the good old days of trying to fly under the radar or considering fines a cost of doing business are behind us. The game has changed and car dealerships and their employees who choose to step over the line have a bullseye squarely on their backs and are at great risk.

Here’s some food for thought:

·         If you think that only your employer is responsible for any illegal activities that occur at the dealership and you are not – you are mistaken.

·         If you think that since your competitors also engage in deceptive practices you have a valid defense – you are mistaken.

·         If you think that a fine or a slap on the wrist is the worst that can happen for unethical or illegal practices – you are mistaken.

·         If you think the government only goes after “really bad operators” – you are mistaken.

·         If you think that fudging a credit app or lying to a customer is OK because “we’ve always done it this way” – you are mistaken.

·         If you think that this will never happen to you – I hope you’re right.

If there’s any questionable activity happening in your store - like deceptive advertising, “creative” credit application completion, payment packing, bait and switch, yo-yo financing, or whatever – you may want to look closely at your dealership’s culture and consider what could happen if the government decided to investigate your store. The downside is worse than ever.

So I ask again, is your job worth going to prison for?

Good luck and good selling.