Good afternoon everyone.  I want to talk about problems. Uh, we all have them and I want to encourage everyone if you’ve got a problem, that you don’t know how to solve, call me. I may be able to help. I won’t run the meter on you just to take a phone call.

So feel free to reach out.  If I don’t know the answer, I might know somebody, in my network who does know the answer. So, always feel free to reach out either by email or telephone or whatever’s convenient for you. So let’s talk about how to prevent problems and there’s no better topic than to talk about the Federal Trade Commission because the Federal Trade Commission has many different triggers and things that they’re looking for. So, I recently sat through a presentation where they talked about the different things that the FTC is looking for. I thought that was worth talking about today.

Of course, if you have any questions about it, feel free to call me after. So the first thing, and I talk about this time, is advertising. If you aren’t auditing your advertising for compliance with FTC regulations, and self-checking, then by the time the FTC walks into your dealership or into your business, they already have leverage over you because you’re not following the advertising regulations.

So the advertising regulations have what’s called trigger terms. On example of a trigger terms is if you have a payment, then you also have to state the APR. You also have to show much down payment you have to have, what the monthly payment is, the term of the loan and whether that is plus the taxes and processing fee. While we’re on the topic of processing fee, some states have processing fees, some states have “doc fees” so make sure whatever the law states, that you use that verbiage on the disclaimer on your website.

Is in accordance with the law of your state. Oftentimes I can, uh, audit websites and that is different. Um, there’s no, the, the website doesn’t comport to what the state law is, so that’s the first thing that you need to look at. Um, after you look at the tr the trigger terms next, and I see this mistake on many, many websites is there’s no asterisk next to the sales price that ties the disclaimer at the bottom of the page, um, or next to it, uh, to the, to the, uh, to the sales price.

So there must be some way for a customer to know that the sales price does not include the taxes, the licenses, the processing fee, the doc fee, whatever it’s called in your state. And it’s not good enough to say, well, everybody knows that. The advertising guidelines, including ones distributed by NADA, are very clear about how to advertise.

The advertising guidelines say that asterisk as well as the disclaimer has to be clear and conspicuous. But if that asterisk isn’t clear and conspicuous while tying it to the disclaimer, then those taxes and processing fees are considered included into the sales price that you’re advertising. So that’s roughly $3,000 per car, right?

By the time you put your processing fee and the sales taxes in, it’s a lot of money, and that’s potential class action exposure. And because it’s  class action exposure, the numbers get big very quickly, right? So $3,000 times 300 cars is $90,000, right? And that’s just for one month. And then it’s multiplied by however many months that the statute allows that to go on.

And typically, most dealerships only have a million dollars of what’s called Truth in Lending coverage. This would be potentially a Truth in Lending issue, depending on the exact parameters and the exact specifics of the claim. But if you don’t have more than a million dollars of coverage, then potentially you’re exposed to this peril without additional coverage.

So this is a very serious thing, and the FTC uses this non-compliance as leverage against you. It starts with the FTC sending out subpoenas, asking for information and asking to look at deals. They’re going to look at your selling practices and exactly how you’re selling vehicles.

So, as I’ve said before, problems come on two legs. Problems start with either customers or employees, and typically they’re disgruntled. And one way that they get disgruntled is if you have a price on your website that shows one thing, but when they show up, you say, oh, well that was the “that price.”

There really are no acceptable reasons for this. The advertised price is something that everyone should be able to get if they walk in, which also includes that you can’t stack rebates (i.e. that you can’t actually get several rebates all together as they are not compatible.)

This means a customer cannot qualify for a first time buyer’s rebate with a rebate where they are trading in the same brand, for example. Now, it’s possible that could happen, but not likely.  Make certain, if you stack rebates on a new car and no human being can actually take advantage of the offer, then that’s considered false advertising. You open up the possibility of your getting sued for what’s called UDAAP or unfair deceptive abusive acts and practices. And UDAAP claims potentially open you to exposure of triple damages and punitive damages depending on what state you’re in and what those laws dictate.

So be really careful about that rebate stacking cause that’s something the FTC looks for, as well. Further, they’re looking for compliance with the Equal Credit Opportunity Act or ECOA to ensure your dealership is treating everyone the same.

And so whatever finance markup that you create, whatever that is, should be the markup that you use on everyone, including the protected classes.  You are also supposed to have consistent pricing on your aftermarket products that you sell in F&I.

So there are risks to not doing that, and that’s, that’s when we get into the conversation of risk mitigation. And what are the risks for selling those products at different prices? And, and obviously one of them is that you are found to be guilty of discrimination against protected classes is, which is why the FTC recommends that you sell all of your products for the same price.

The FTC has made it very clear in recent years that they do not like these aftermarket products that we sell in F&I.  If you have disgruntled customers who say that you baited and switched them on the sales price or on aftermarket products, and they complain to the FTC, and if the FTC can clearly see advertising violations on your website, then you may be creating your own problem.   If you have questions about this, please feel free to reach out and I’ll look at your specific website. Complaints are where problems start. For example, complaints were the reason that Napleton Automotive, in the Midwest was fined $10 million.  According to the FTC press release, the problems started with upset customers. Likewise, according to the FTC press release, Passport Automotive, which was fined $3.3 million. The FTC has really picked up its enforcement activity  significantly over the past couple of years, as have the Attorneys General.

You might have heard me mention this before, the former Attorney General in Massachusetts is now the Governor.   She had been active at trying to regulate car dealers and went after a few. The Attorney General of New Hampshire, in December, went after Dan O’Brien Kia and find them $1.25 million.

When these regulators get involved with these dealerships, one of the things that happens is they have the dealership sign a consent order.  In Dan O’Brien Kia, the consent order is for five years, and they also have a compliance monitor they had to hire. And what the consent order dictates is how the dealer has to transact their business.  It’s very clearly laid out.

They have to keep track, for example, of all their advertisements and keep copies of them.  They have to follow the rules of what the consent order says because they entered into it, presumably under the premise that they wouldn’t have to pay more in fees.  That’s what the consent orders are about.  I have seen FTC consent orders up to 20 years.   Imagine you had to sign a consent order that said that your business had to follow certain guidelines until the year 2043. It’s really hard to fathom that you would be required to follow those stringent rules for that 20 years. So these are really very serious things. And the FTCs fines are $50,120 per violation.

Under section five of the FTC Act, they’ve left very loose defining what a violation is.

Of course, if the FTC comes to your dealership for customer complaints or for anything else, they will be looking for your compliance of new safeguard regulations. You were to have implemented the safeguard regulations at your dealership by June 9th, 2023. The Graham Leach Bliley Act goes back to May of 2003. The new regulations passed October of 2021. The original deadline was December 9th, 2022, but they extended it for six months to June 9. And this Act has a myriad of rules and regulations which require your attention. You can check my YouTube channel where I have a one hour program where I go through a lot of the specifics here. I created a roadmap of what to do. In short, you’re required to protect customer data and that’s the whole point of it. So the F TC rewrote the definition of PII, which stands for personally identifiable information. PII now includes your email address, your cell phone number, and of course your address and your social security number and your date of birth.

When a customer puts their information into a service scheduler, because they want to schedule an oil change, then that information is supposed to be encrypted between the service scheduler and when it gets to your service advisor or goes into your CRM. The customer’s email address and cell number should be encrypted both at rest and in transit.

This really complicates things for dealers because of all the various places where data is flowing because of the back and forth information flow to the DMS and to the website. All the vendors that you hire are required to sign agreements stating that they’re going protect customer information and encrypt it.

You are required to have an information security program (ISP). You have to designate a person to be in charge of the program. You still cannot leave pay stubs out on the desks. You should also install door closers in the F&I offices to protect where the PII is kept.

You have to have multifactor authentication, too. These regulations are wide and deep. If the FTC comes in, and you are guilty of any violations, the fines are $50,120 for each violation. It’s very important that if you haven’t started working on these regulations, please start now. If you have any questions, again, feel free to call me on that.

The FTC is also concerned about credit reports and the used car rule. Now on credit reports, remember that in order to comply with the FCRA, the Fair Credit Reporting Act, if a customer comes in and attempts to buy a car, and you pull their credit, you as the dealership are required to send out an adverse action notice, unless you’re financing that customer.  That’s the conservative thing to do.

When a customer comes in to buy a car and you pull the credit report, you as the dealership are required, in my opinion, to send a letter that says, we as the dealership are not financing you. You may get financing from another, another bank or a financial institution, but we are not financing you.  Some dealers say, “but we’re not financing them.”  So, I say, you could finance them if you wanted to.

It’s your choice. It’s your option. You’re the one who isn’t financing it, so you’ve made a credit decision, and so I would encourage you to send out a letter. The fines and penalties for non-compliance on FCRA are incredible.  They are very expensive. And again, you open your yourself up for  class action because people are going to be similarly situated, right? Every customer who walks in and applies for credit is a potential class member. Every single one of those customers is similarly situated. So however many, hundreds or thousands of people come into your store, you open yourself up to that liability versus spending a dollar and a quarter per customer and making sure that you’re covered on this. So that’s the Fair Credit Reporting Act.

Then the used car rule is making sure that your FTC stickers are done properly. And I walk on lots all the time and they’re rarely done correctly. You know, you have to check the right box. If the manufacturer’s warranty is still in effect, you have to check the right box.  If you certify the car, then a used car warranty is still in effect. If you are giving out a warranty, let’s say a 50/50, for 30 days, just checking the box and writing it on the buyer’s guide is not good enough. According to the Magnuson Moss Warranty Act, if a customer asks for a copy of that warranty, you have to be able to hand them a copy in writing. If you don’t, that’s another potential problem.

There are all kinds of potential problems for the FTC to examine, so keep your customers happy. That’s the best way to keep the FTC out of your business. If you have any questions, again, feel free to call me. I’m happy to help and I’ll help you in any way I can.

So, that’s why my company slogan is “We get you out of trouble and keep you out of trouble,” and “navigating risk and solving problems.”  That’s what I have for today. Thanks for seeing things from a Better Vantage Point.