Doing Mailers and Staffed Events? Look Out For These Red Flags

Since my post last week, Trust Me, I’m Your Vendor, I’m happy to say that some automotive marketing companies have reached out for advice on how to protect their dealer clients from advertising violations. This is a very positive step and I applaud them.

That’s all well and good, but dealers need to keep in mind that not all vendors are quite so diligent about protecting their clients from legal exposure. Regulators have made it abundantly clear that they simply don’t like overly-aggressive dealer marketing campaigns. They’ve also indicated that they feel the primary responsibility for advertising compliance lies with the dealership, not the vendor.

Unfortunately, I don’t see that there’s much we can do about it in today’s consumer-centric environment. The reality is that there’s plenty of political capital in chasing car dealers.

The bottom line is that dealerships need to be proactive in protecting themselves. In a perfect world, all vendors would go out of their way to ensure complete compliance with all state and federal regulations - but we’re simply not there yet.

So here’s my contribution to the cause. I’ve compiled a list, from actual enforcement actions, of mailer and staffed event violations cited by regulators. There may be more, but you definitely want to keep an eye out for these Red Flags:

• Falsely representing that vehicles are from sources such as rental car company bankruptcies, bank repossessions, or fleet liquidations when the vehicles sold came from the dealers’ usual inventories.
• Falsely representing that a sale is being sponsored or conducted by a bank, lending institution, fleet, repossession, or liquidation company.
• Using deceptive promotions, including mailers that state “Urgent Recall-Official Notice” or otherwise imply it is from a government agency.
• Misrepresenting the number of vehicles offered at an advertised price.
• Ads that create a false sense of urgency.
• Ads that guarantee credit approval.
• Ads that guarantee a minimum trade-in value.
• Using words, phases or initials in ads that aren’t easily understood by consumers or using a font size that’s difficult to read.
• Staffed Event personnel raising vehicle prices to enable them to offer "better" deals.
• Staffed Event personnel using very aggressive sales tactics designed to maximize profit, not to offer lower-than-usual prices to consumers.
• Staffed Event salespeople and managers illegally selling automobiles without proper state licensure or without state licenses to handle insurance sales.
• Hiding the costs of extra products in payment quotes, an illegal practice called “packing.”
• Adding charges for extra products and services that were not authorized or desired by consumers.
• Negotiating a verbal or informal sales or lease agreement then changing the contract terms without a customer’s knowledge or consent.
• Advertising with the intent to not sell the vehicles as advertised.
• Misrepresenting the amount of and reasons for price reductions.
• Misrepresenting the selling price of vehicles.
• Failing to state the odds of a winning a prize, the value of that prize, and all material conditions required to obtain a prize.
• Advertising “free” merchandise and prizes without adequately disclosing that consumers would need to pay shipping, handling or other fees.
• Failing to properly disclose dealer documentary or other fees.
• Making statements that the dealer could not substantiate through its business records.
• Failing to provide disclosures required by the federal Truth in Lending Act.
• Offering a rebate that is not associated with a manufacturer or failing to disclose material terms in conjunction with a rebate offer.
• Use of simulated checks where prohibited or failing to include voiding language on the simulated checks.
• Failing to disclose limitations related to ability to obtain credit or related to the condition of a trade-in vehicle.
• Advertising “free” merchandise with the purchase of a vehicle.
• Failing to include state-required disclosures.
• Selling vehicles above the advertised price.
• Advertising vehicles that had already been sold, resulting in a “bait and switch” scheme.
• Advertising false savings such as 75 percent off the MSRP on a used vehicle or that vehicles would be sold at 95 percent off the original price without defining the “original price.”
• Statements such as “Your current loan will be paid off NO MATTER WHAT YOU OWE”.
• Making misleading statements about the availability of financing such as “$0 DOWN DELIVERS!
• Failing to disclose conditions or restrictions related to sales offers.

While regulations and “hot buttons” vary by state, keep in mind that attorneys general frequently compare notes with their peers, so you never know when your state’s AG is going to get a bee in his or her bonnet about a new issue. If you see any of the above Red Flags or you’re not completely certain that all statements made are true and not potentially misleading, it’s time to slow down and have the campaign reviewed by a qualified professional.

Remember, if you’re writing the check, you’re responsible. Good luck and good selling!

Jim Radogna Discusses Transparency On CBTNews

Trust Me, I’m Your Vendor

The news broke this week about a Louisiana marketing company that has been permanently banned from automobile advertising and marketing in North Carolina. Since Arizona, Iowa, Kentucky, Maryland, Oregon and Pennsylvania joined North Carolina in bringing the case, there will likely be repercussions for the vendor in other states as well.

On the surface, it looks like a shady operator got his just rewards. I agree and I think that’s good news for the auto industry. But let’s look a little further and see how dealers can be affected by these vendors.

This same marketing company was busted by the state of Washington back in 2007. In that case, the dealer ended up paying almost twice the amount in penalties and legal fees as the marketing company did. In addition, the dealer had to sign a Consent Decree with the Attorney General that stated among other things: “Any violation committed after the date of entry of this Consent Decree of any of the injunctive terms of this Consent Decree shall constitute a violation of an injunction for which civil penalties of up to $25,000 per violation may be sought by the Attorney General”. In other words, any advertising missteps this dealer makes will cost it dearly. This injunction is permanent by the way.

So, the shady operator pays a fine and continues business as usual with other dealers in other states. Meanwhile, the dealer pays through the nose, gets his reputation trashed, and has the AG breathing down his neck forever. Just doesn’t seem right.

In a statement about the case, Assistant Attorney General Mary Lobdell said: “Washington dealers need to be upfront and honest in their advertisements and should carefully select the companies they hire to promote their business. All companies that do business in Washington must know and operate in accordance with Washington laws. Both dealers and ad firms can be found in violation of Washington laws if their promotions fail to include all legally required disclosures. Some marketing firms, especially those located in another state, may not be familiar with Washington’s car dealer and consumer protection laws. If these companies use promotions that mislead or deceive interested buyers, both the marketing firm and the dealer may be found in violation of Washington laws.”

It doesn’t surprise me that so many dealerships sign up for these promotions and blindly believe that the vendor is following the law and covering their back. I must confess I was guilty of the same thing back in my dealership days. Perhaps it’s the excitement of fantasizing about how many cars you’re going to sell? I get it – been there, done that.

This post is not meant to villainize vendors. I can attest to the fact that there are plenty of good marketing companies and ad agencies out there that practice due diligence. I work with a number of vendors in reviewing advertisements for compliance before they reach the public. Quite simply, this should not be an option. Dealers should insist that their vendors prove that they are following state and federal advertising regulations every time. It just makes good business sense.

Dealership Defensive Game Plan For The New Year

In many dealerships, the thought of putting together a compliance program is similar to contemplating a diet and exercise regimen: you know it’s something you need to do or eventually it will catch up with you. Like getting in shape, keeping up with regulatory changes can seem like a daunting task – not to mention costly. Many compliance programs on the market are quite expensive and simply out of reach financially for the average dealership. As a result, some organizations end up settling for trying to fly under the radar and hope for the best.

In truth, setting up and maintaining a strong compliance program in your dealership doesn’t have to be difficult or expensive. By following these steps, you can dramatically raise the level of compliance in your organization without breaking the bank.

Get Committed

Ignoring compliance just doesn’t make good business sense. The automotive industry is changing dramatically and will become even more heavily regulated in the future. Dealerships who continue to operate without a focus on compliance will invariably struggle. So what are you waiting for? Make a commitment to establishing a culture of compliance and ethics in your dealership.

Follow the Leader

The culture starts at the top but someone in the organization needs to take up the reins. All too often, an “everyone’s in charge thus no one’s in charge” attitude comes into play where compliance is concerned. In order to avoid this type of situation, it’s a good idea to designate a company compliance officer. Ideally, this will be a senior level employee who reports directly to company ownership.  This person should be made responsible for monitoring all aspects of compliance, and be allowed the resources to learn as much as possible about the state and federal regulations that affect the dealership.

While appointing an in-house compliance officer generally doesn’t entail adding an additional salary, it would be wise to consider some compensation for the employee’s additional duties – this is an important position and must be taken seriously. In larger organizations, a compliance committee consisting of department heads may also be useful.

Assess Your Compliance Level

Dealers should not assume that their employees are well-versed in compliance simply because they’ve been in the business for a while. 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 have no idea that they are doing anything wrong. The vast majority of dealership employees are well-meaning, honest people just trying to earn a living. However, if they have never been properly trained in compliance matters, they may simply rely on doing business the way it’s always been done. Simply stated, assuming that your dealership is doing everything right from a compliance standpoint without verification is risky at best. 

When was the last time you performed a comprehensive risk evaluation? If it’s been a while (or never), this is a vital step. A risk evaluation can be completed either by someone on staff who is well-versed in federal and state regulations or by bringing in outside compliance professionals. The key is to take a base-line reading of exactly what the areas of vulnerability are in the dealership. Forms, advertising materials and deal jackets should be thoroughly evaluated.  Policies, such as Red Flags, information safeguards and privacy should be reviewed. Vehicles for sale should be checked for proper display of Buyers Guides, Monroney labels, etc., and facility signs and notices should be verified. Chances are, you may be unpleasantly surprised by the results.

Get Everyone on the Same Page

Many dealers will send two or three of their top people to a seminar or two each year and hand out the monthly compliance newsletter for the managers to read. While these are great resources, there’s quite a bit more that needs to be done to ensure that the dealership is not at risk.

In many organizations, management personnel have at least some knowledge of proper legal compliance and ethics, either through training or osmosis. On the other hand, many salespeople haven’t a clue about the laws and regulations that affect our industry. Why should they? Compliance training, if conducted at all, generally occurs only at the management level. Without proper knowledge, it’s very easy to step over the line legally when trying to make a deal.  It’s wonderful to have a well-trained management staff, but there’s a good possibility that an uninformed salesperson may make compliance missteps without the management team’s knowledge. After all, salespeople typically spend hours talking with their customers and it’s unlikely that management is going to be privy to all of those conversations. Unfortunately, attorneys and regulators don’t differentiate between job descriptions when pursuing a claim against a dealership.

Some dealers assume that the cost involved in training all staff members is just too high. That is not necessarily the case. Training can be accomplished in-house by your compliance officer or, if that is not practical from a time and preparation standpoint, there are affordable alternatives. While some F&I training programs would require writing a five-figure check to cover the entire staff, there are also outstanding programs available that cost less per employee than a box of business cards and can be completed in a matter of hours.

Monitor your Progress

Once your compliance program is in place and the staff is trained, it is imperative that the compliance officer or committee ensure accountability. Many dealers spend thousands of dollars for compliance audits only to find that the same violations continue to occur shortly after the auditors move on. Employees need to recognize that your compliance program is here to stay and that they will actually be held accountable for their actions. Let everyone know that the organization is serious about compliance and ethical behavior.

Written procedures should be put in place and consistent processes should be mandatory. For instance, everyone should use the same menu; desk deals the same way, etc. In addition, all employees should sign a Code of Ethics upon completion of their training, and mini-audits of deal jackets should be completed on a regular basis. 

There you have it - five steps to getting serious about compliance and protecting your dealership. Sure, it will take commitment and a few bucks, but this plan is certainly achievable for virtually any dealership. It’s just a matter of getting started.