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What’s in the fine print?

Hudson Cook examines “valueless warranty case

By Thomas B. Hudson

Last month, we reported that a Pennsylvania Honda dealership reached a settlement that includes restitution for consumers who bought what Pennsylvania Attorney General Josh Shapiro described as a “valueless” warranty product. According to the AG’s press release, consumers paid about $1,000 on average for these warranties, which catered to consumers entering into short-term lease agreements for new vehicles and “had no meaningful value beyond the manufacturer’s warranty that was already included in the advertised purchase price.”

That got me thinking. If the AG’s folks reviewed the warranty documents and picked up this problem, why hadn’t the dealership tumbled to it? Is it possible that no one at the dealership was familiar with the warranty language?

What if all the dealership employees involved in the sale process had been instructed to read these dealership warranties? And what if they had been asked, “Would you buy this product? If so, why? If not, why not? What would be a reasonable price for this product?”

The drill of requiring the dealership employees to actually slog through the text of the documents that describe warranties and other so-called “ancillary products” yields a couple of benefits. First, there’s a real possibility that the employees might identify problems like this one. One or more of them might say something like, “Hold up, now. People with short-term leases don’t get any benefit here.” If the dealership’s management folks listened to those concerns, they might conclude that the dealership’s sales policies needed to be changed to eliminate the possibility that customers were being offered warranties that might be argued to have no value.

Requiring sales folks to know what they are selling by reading these documents could be an effective way of bringing some valuable additional critical judgments to the issue of whether the ancillary products sold by the dealership have value to customers. The process might well identify issues like the ones discussed in this case, and they also might raise questions for dealerships that charge a lot for ancillary products that are of little value to the customers (can you say “etch” protection at $995?).

An extra added benefit is that reading the documents presumably will make the dealership employees more knowledgeable about what they are selling and better able to sell the related products to the dealership’s customers. Never a bad thing.

And there’s one final point. Dealerships are under pressure to up their compliance games but keep expenses down, so they often don’t get their lawyers involved in reviewing their forms, procedures, and operations until trouble arises. That’s not a course of action I’d recommend, but for dealerships that insist on squeezing the compliance penny until Abe yelps, this process has the advantage of not costing anything, at least not unless the dealership asks the lawyers to react to problems identified by the dealership employees.

*Thomas B. Hudson was a founding partner of Hudson Cook, LLP, and is now of counsel in the firm’s Maryland office and the Senior Editor of Spot Delivery. He is a frequent speaker and writer on a variety of consumer credit topics. Tom can be reached at 410.865.5411 or by email at thudson@hudco.com.