The Attorney General, Recession, and You

Directly above shot of a businessman standing in front of illegal or legal text written on road.

Business periodicals have been commenting upon which industries will be most affected by, what appears to be, the impending recession. As with the real estate industry, the car business is one of those key industries that may suffer the most. Revised estimates of new vehicle sales in 2020 may be as low as 13 million vehicles versus 17.1 million vehicle sales in 2019. The following outcomes are predictable for this potential recession:

• Consumer demand deteriorates
• Vehicle prices decline
• Dealers alter their business practices
• Pay plans for salesmen and finance managers are affected
• Dealers, salesmen and finance managers may turn to nefarious sales practices, such as false advertising and sales deceptions, in attempts to maintain sales and grosses.
• State attorneys general become more vigilant regarding consumer harm.

In times of economic stress
State attorneys general have learned that during periods of economic stress and natural disasters consumer complaints increase regarding issues such as consumer fraud and price gouging. Consequently, state attorneys general organize their task forces for these contingencies. Attorneys general identify industries where there may be problems for consumers. The car business is always a prime target.

National Consumer Protection Week
Every March, the Federal Trade Commission convenes the National Consumer Protection Week that is a paean to consumer rights and identifying the alleged reprobates in consumer transactions. Numerous federal and state agencies, especially offices of state attorneys general, issue press releases about the top 10 complaints filed that year. In all cases, and in all years, dealer complaints either are at the top of the list or are in the top three complaint categories posted.

For example, the Illinois Attorney General’s Office reported that of its top 10 consumer complaints in 2019, three of the 10 categories were related to cars: used vehicle sales (second place), vehicle repairs (ninth place), and new vehicle sales (tenth place). If they had been added together, vehicle complaints in Illinois would have been in first place by a wide margin.

As a corollary to these attorney general annual listings, the Consumer Federation of America (CFA), a consumer rights organization, also posts an annual report indicating the top 10 complaints filed annually with state and local agencies. Complaints against car dealers have been at the top of this list for the past several decades. The CFA is assisted in this report by another consumer rights organization, NACPI (North American Consumer Protection Investigators).

The CFA’s most recent report from July 2019 stated the following:

Top 10 Complaints in 2018
These are the complaints most frequently cited as the top problems reported to state and local consumer agencies last year.

1. Auto: Misrepresentations in advertising or sales of new and used cars, lemons, faulty repairs, auto leasing, rentals, and towing disputes.

To augment this matter, the Gallop Organization issues an annual report about America’s most trusted and least trusted professions. Nurses have been the most trusted profession for the past 18 years as 84 percent of the public rates them high or very high in honesty in ethics. In last place in 2018 is the Congress with only 8 percent of the public trusting Senators and Congressmen and 58 percent of the public viewing their ethics as either low or very low. In second to last place were car salesmen who also achieved an 8 percent rating in public trust and a rating of 44% for low or very low ethical practices. Over the past 40 years, the automobile industry has been in last place or second to last place in this Gallop Survey.

Why does this matter? These lists and polls encourage enforcement agencies to target these industries and professions, especially in times of economic challenge.

Attorney general rips off car dealer
In offices of state attorneys general all across the country, prosecuting attorneys and investigators joke about investigating and suing car dealers regardless of fault. In other words, they reason, nothing can ever go wrong with identifying a dealer for an investigation even if the dealer is innocent of any wrongdoing. No newspaper or television station will ever criticize an attorney general for wrongly taking action against a dealer.
Many years ago, this writer attended a conference where the Oregon Attorney General gave the keynote address. This attorney general lamented the fact that he wanted to prosecute important cases about various matters such as antitrust. However, he quickly learned that the media preferred reporting cases about consumer fraud far more than any other subject did. Consequently, being not only an elected official but also a politician, he said that he then focused on consumer complaints and consumer affairs. In other words, dealers would be prime candidates.

How to be a target
During times of financial challenge, dealers may be tempted to skirt compliance practices and be more aggressive with their advertising and sales practices. Moreover, absentee dealer owners may trust their general managers to protect their interests, but these general managers may be enticed, as well, to exploit subterfuge in advancing sales. Exacerbating this potential problem would be to attempt to reduce costs by eliminating various business protocols such as compliance efforts. A recent quote from the former second-in-command at the U.S. Department of Justice, Sally Yates, summarizes this challenge regarding budgetary concerns conflicting with compliance demands: “If I think back on any major corporate fraud case from the almost 30 years that I was at DOJ, you can trace most all of those to a failed corporate [compliance] culture issue.” Minimizing or eliminating compliance efforts during a recession would be a grave mistake. This is the route to becoming a target.

The two quickest ways for dealers to attract the attention of an attorney general’s office is for consumers to file complaints and for dealers to advertise falsely. These two failings account for over 70 percent of investigations against dealers. It only takes a few consumer complaints to trigger an investigation. Offices of attorneys general receive many more complaints than they can ever resolve. They must choose which ones to investigate. Being a car dealer, and having a few complaints filed against them, may trigger such an investigation. Advertising cases are the easiest cases for attorneys general to make. Reviewing advertisements in newspapers, television, radio, periodicals, and websites can be accomplished readily. False advertising is a favored target for offices of attorneys general.

Investigations and settlements can be quite costly in terms of fines, legal expenses, consumer restitution, and bad public relations. Dealers can avoid being a target by having a trained compliance officer and maintaining their compliance procedures.

Compliance officers to the rescue
Some dealers may be surprised to learn that two federal rules already require dealers to have a compliance officer: the Safeguards Rule and the Red Flags Rule. Even if federal law did not require such a person, wise dealers would have already appointed a compliance officer since dealers are some of the most regulated businesses in America. They need someone to oversee their legal responsibilities, in-house. Compliance officers can administer issues, such as advertising and sales practices, without the dealer needing to resort to third-party consultants, attorneys, or accountants, at much greater expense.
It should be emphasized, again, that compliance officers are a cost efficient way to address compliance requirements and the potential for risk. The most cost efficient way to avoid compliance problems is for a dealer to have this highly trained person guarding his business.

Quite significantly, compliance officers can redress the primary impetus for an attorney general to investigate a dealer, which is consumer complaints. If consumers complain to the dealership the compliance officer may resolve these complaints before they are filed with the attorney general’s office, thereby staving off any potential investigation.

Government agencies, such as offices of attorneys general, do not have mercy on wayward businesses during recessions. It is a sobering fact that should not be dismissed by the dealership community.

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.