Two July Reports from the Opposition

In July, two significant reports were issued that seriously reflect upon the automobile industry. They were the Consumer Federation of America’s (CFA) 2019 Consumer Complaint Survey Report and the Federal Trade Commission’s (FTC) Buckle Up: Navigating Auto Sales and Financing. Both of these reports underscore problems and solutions in the industry.

Don’t worry dealers, you’re still number one

There is no industry that applauds itself more than the entertainment industry. The Oscars, Emmys, Grammys, Tonys, and so forth, are endlessly televised as though it’s truly important and the public really concerns itself with these insipid awards. Two “stars” appear on the stage, exchange a few jests, and then open the envelope announcing the award for the best someone in some category such as portable toilet cleaner on the televised broadcast. The live audience, then, explodes with false appreciation. The car business suffers through a similar process although it’s the annual survey produced by the Consumer Federation of America (CFA), in conjunction with over 30 consumer protection agencies nationally. The CFA report collects data concerning the most filed consumer complaints and ranks them. The CFA has done so for many years and, as always, the tabulation of complaints places the automobile business in the top rank of all consumer complaints. For example, the car business was in the top slot in 2010, 2015, and 2018, and probably, for the other years in between. There is a reason for this placement which will be addressed below. The report also provides recommendations to consumers that dealers may wish to consider as part of their business protocols.

The July CFA’s press release began as follows: Nation’s Top Consumer Complaints – July 27, 2020  |  Press Release: Washington, D.C. — Problems with car sales and repairs and home improvement and construction once again topped the list of complaints reported to state and local consumer agencies across the country, according to an annual survey by [sic] Consumer Federation of America (CFA).

Top Ten Complaints in 2019
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, deceptive financing practices, defective vehicles, faulty repairs, car leasing and rentals, towing disputes.

2. Home Improvement/Construction

3. Retail Sales

4. Landlord/Tenant

5. Credit/Debt

6. (Tie) Communications: Services

7. Health Products/Services

8. Utilities

9. (Tie) Fraud: Household Goods

10. Internet Sales

CFA consumer recommendations

The CFA Survey provided consumers with the following recommendations:

• If there is a problem with the car you bought and the dealer can’t find the cause, get a second opinion from another dealer or independent mechanic.

• But the best way to protect yourself (if purchasing an “AS IS” vehicle) is to have the car checked out by a mechanic you trust before buying it to look for problems that might not be obvious to you.

• Get its previous history (if purchasing a used car) so you’ll know what you’re bargaining for.

• When you buy a car, get any promises the dealer makes in writing in case there are any questions later about the terms of the deal.

Reputable dealers probably could oblige consumers with any of these recommendations. For example, providing consumers with a Carfax, allowing consumers to take a used vehicle to their mechanic for evaluation, and carefully completing the documents and allowing consumers to review them at the signing ceremony, are all reasonable business compliance practices. These types of practices not only engender goodwill but they also protect dealers from disgruntled customers who might otherwise file complaints against the dealer with the state or their attorney.

The failure of the CFA survey
The car business is immense and straddles many industries. The problem with this survey is that it lumps together many disparate vehicle businesses whose only commonality is that they deal with vehicles. Franchise dealers, used car dealers, BHPH dealers, rental car agencies, wreckers, and repair shops vary significantly in their product offerings and services. To collect complaints relating to each of these separate business operations, and place them together for a survey of this nature, is somewhat misleading.

Buckle up – Dealer prosecutor playbook
The Federal Trade Commission’s (FTC) Buckle Up report builds upon the FTC’s many years of interacting with the car business. The FTC has been investigating and prosecuting the car business for many decades for practices such as misleading advertising, lending falsification, “yo-yo” financing, deceptive add-on fees, and privacy and data security issues, among other practices. It has hosted workshops, publishes a consumer blog with articles on buying, and financing a car, covering topics such as spotting deceptive car ads, understanding trade-ins and negative equity, and what to expect from financing negotiations. The FTC also maintains a business blog with guidance for the industry on deceptive and unlawful practices to avoid, and helpful tips for compliance with the law. As the industry develops, the FTC also monitors emerging trends that might affect the consumer experience. Dealers should track all these FTC articles and programs. These topics are the potential infractions for which dealers may be cited.

The Buckle Up report identifies the types of compliance infractions that may lead to prosecutions by the FTC and state attorney general’s offices. Dealers should be especially careful in complying with the laws associated with these topics. They are the hit list and there were six topics posted:
1. Auto advertising
2. Negotiating a price
3. Negotiating financing terms
4. Ancillary products and services (add-ons)
5. Reviewing and signing the documents
6. Renegotiation of financing

The report summarized the concerns regarding these topics with the FTC’s recommendations:

Auto advertising
Advertisements with misleading financing terms (as well as those with deceptive price and discount offers) remain a concern. Dealers should make only accurate and non-misleading advertising claims to consumers, advertise terms that are actually available, and clearly and conspicuously disclose material qualifications or limitations on any advertised deal.

Negotiating a price
Given the length and complexity of auto sales and financing transactions, discussing the “out-the-door” price of the vehicle (the total price, before financing, including taxes and fees), before discussing financing, could help avoid confusion.

Negotiating financing terms
Consumers may not know they can negotiate the APR and other financing terms. Consumers should try to negotiate the lowest APR to save financing costs, just as they would negotiate price and other finance terms for the car. Generally, consumers have the opportunity to negotiate their APR and other financing terms with the dealer, unless they have been offered special incentives or if their credit is heavily impaired.

Ancillary products and services (add-ons)
Given that consumers may not understand that add-ons are included in their contracts, how much they are paying for them, and what benefits they provide, it is important for dealers to think carefully about how add-ons are promoted. (Note: The FTC utilizes the terms, “ancillary products” and “add-ons.” The preferred term is “voluntary protection product” and dealers should use this preferred term.)

Reviewing and signing the documents
The FTC notes that the signing ceremony is a long and complex transaction. However, despite the length of the transaction, the FTC contends that the review is rushed with information overload. Apparently, some consumers suffer from a misapprehension that the deal is non-binding.

Renegotiation of financing
Remarkably, this report doesn’t criticize spot deliveries. The FTC recommends that consumers shouldn’t be forced to re-contract for the vehicle should the assignment fail. Moreover, it’s recommended that dealers carefully explain the spot delivery process and have consumers sign spot delivery forms.

Dealers should bolster their compliance efforts to identify where they may be vulnerable regarding these six topics. These topics will be the subjects for prosecution in the coming years, by not only the FTC, but state agencies and private plaintiffs. The Boy Scout motto comes to mind: Be Prepared.

Conclusion
Dealers need to always recognize that they are a legal target for prosecution due to the size and breadth of their industry. However, by recognizing what consumer advocates and investigative agencies identify as questionable practices, and recommended protocols, dealers can limit their liability exposure extensively.

Terry O’Loughlin, J.D., M.B.A.
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.