Prolegomenon and NACA

Consumer Advocates And What's Ahead For Our Industry

Close-up Of Gavel And Car Key On Sounding Block Against Grey Background

A prolegomenon (pro·le·gom·e·non) is a prologue or an introduction as to what may come.  It provides context and background as to what may unfold.  To paraphrase scripture, “Pride goes before destruction and a haughty spirit before the fall.” Remarkably, some dealers embrace the pride and those dealers are met with severe legal consequences.

The car business is both a leader in technological innovation and a social laggard in sociological terms.  “Cultural lag” refers to the sociological hypothesis that culture takes time to catch up with technological innovations.  In spite of tremendous technological innovation the same business practices, that invite legal trouble, remain from the past.

The National Association of Consumer Advocates, or NACA, published a report earlier this year entitled Online Survey: Consumer Harms in Auto Transactions Today. This report could have been issued when the car business offered many vehicles with large V8 engines, rear-wheel drive, and standard transmissions with only a car radio option.  The same unfair and deceptive trade practices continue to be reported, in abundance, to consumer attorneys and advocates.  Consumer advocates often turn to government agencies for solace and legal action. Once upon a time, many of these practices were kept secret by the industry but today these illegal practices are commonly known.

The NACA website explains its organization as follows:

The National Association of Consumer Advocates is a nationwide organization of more than 1,500 attorneys who represent and have represented hundreds of thousands of consumers victimized by fraudulent, abusive, and predatory business practices.

These are the attorneys who specifically sue car dealers and greatly influence regulators.  Behind every class action against dealers is probably a member of DACA.  Their findings, comments, and recommendations should be heeded by dealers.  What can dealers do to avoid these stated observations and advocated remedies?

The Survey participants said that in the past four years they have represented consumers with claims related to:

  • vehicle defects/failure to disclose true car condition (84% of participants);
  • misrepresentations or fraud re: car advertising, pricing, or warranty coverage (78% of participants);
  • deception and/or fraud in financing applications, loan costs (76% of participants);
  • failure to deliver title and/or misrepresentations related to title (67% of participants);
  • spot delivery/yo-yo  financing schemes (63% of participants);
  • false promises and/or deceptions related to add-on products (56% of participants).

It was averred by the Survey that the three major systemic harms visited upon the consuming public were vehicle defects (failure to disclose the truth about the vehicle’s condition), deception (fraud in financing applications and the costs of credit), and other misrepresentations (fraud in advertising, pricing, and service contracts). 

There were other issues identified as consumer problems: spot delivery/yo-yo financing schemes; subprime auto lending debt traps; add-on products; failure to deliver and/or misrepresentations related to title; unlawful repossessions and vehicle tracking, starter interruption, and shut-off devices; abusive debt collection on auto loans; dealer markups on loans; odometer tampering, fraud and/or misrepresentations; unrepaired safety recalls; and e-contract abuse.

NACA’s Recommendations

The following quoted recommendations from NACA, as part of the Survey are, to say the least, daunting:

Vehicle Defects and True Condition

• Create a clear duty to inspect, in states where no such duty already exists, for all car dealers on any car they sell, and require they provide consumers with a detailed report of that inspection including all defects detected.

• Require disclosure of all repairs made in preparation for sale.

• Adopt consumer protective minimal requirements for inspection, safety, and warranty coverage for any vehicle sold as “certified” or by any similar description.

• Provide a universal 3 day cooling off period for car sales.

• Prohibit dealers from waiving a universally mandated “implied warranty of merchantability” including the use of any “As Is” disclosures.  Require disclosure that use of “CarFax” report does not include complete vehicle history.

• Prohibit sales of vehicles with unrepaired safety recalls.

Auto Financing

• Prohibit dealer kickbacks (sic) from creditors, or require disclosure of the interest rate consumer qualifies for, the identity of all potential assignees that received the buyer’s credit application, and the range of available credit options.

• End yo-yo sales (sic). Prohibit the practice of permitting consumers from leaving the dealership with the car until the financing terms are properly finalized and assigned.

• Permit consumers to cancel any add-on products within a reasonable period for a full refund.

• Mandate strict dealer recordkeeping of all consumer-financing activities.

• Create auto finance servicing requirements that would include written notices of default to consumers before repossession, a right to cure the default amount prior to repossession and post-repossession but prior to resale, and a defined list of allowable fees and costs that can be charged to the consumer to cure the default amount post repossession.

• Require mechanism that discloses all states where a car has been titled, such as required participation in a nationwide title database.

Consumer Remedies

• Prohibit arbitration clauses and class action bans.

• Explicitly state that the FTC Holder Rule applies to all entities that have held or currently hold the consumer’s purchase contract.

• Subject all car dealer duties to private enforcement under state UDAP law.

Accountability and Consumer Remedies

• Prohibit arbitration clauses and class action bans.

• Explicitly state that the FTC Holder Rule applies to all entities that have held or currently hold the consumer’s purchase contract.

Conclusion and Soothsaying

A small percentage of dealers continue to engage in these nefarious activities spawning lawsuits, investigations, and continued added regulations.  NACA can, unfortunately, document them.  The childhood saying that a rotten apple spoils the bunch does apply here.  A small number of disreputable dealers encourage federal and state lawmakers to promulgate burdensome regulations. This list of NACA recommendations could expose dealers to enormous liability and substantial added business costs.

One needn’t be a soothsayer or prophet to predict what will happen to a dealer who engages in these illicit practices.   They will be sued.  In addition, onerous regulation may follow.  However, smart dealers, and their associations, will continue to work towards ethical and legal practices to avoid the specter of the prolegomenon.

Terry O’Loughlin, J.D., M.B.A., director of compliance for The Reynolds and Reynolds Company, has nearly 30 years of legal and regulatory experience in motor vehicle-related fields. From 1989-2006, O’Loughlin served with the Florida Office of the Attorney General, investigating and prosecuting automobile dealers, manufacturers, and financing and leasing companies. He led a task force that examined more than 100,000 motor vehicle files and settled with over 1,600 vehicle dealers for more than $15,000,000.00. O’Loughlin helped to draft and served as mediator of Florida’s Motor Vehicle Lease Disclosure Act. He has served as a consultant to the Federal Reserve Board’s Leasing Education Committee and has routinely advised numerous states’ agencies on motor vehicle fraud. Admitted to both the Pennsylvania and Florida Bars, O’Loughlin graduated from the University of Pittsburgh and received his graduate degrees from the University of Dayton.