Many of our newsletters have covered various compliance topics. How well do you understand compliance at your stores?
This quiz tests your knowledge on the status of some critical compliance issues for your dealership.
Sales Practices
1. True or False? Arbitration agreements are regularly challenged by plaintiffs’ attorneys. But there are substantial benefits to arbitration— reduced time to a decision, removal of the possibility of a runaway jury, and limited discovery, to name a few. We can still use arbitration agreements for transactions with customers and for employees.
Answer: True. Judicial decisions have strengthened the ability of businesses to use arbitration provisions and reap the benefits. Several Supreme Court decisions have supported predispute arbitration.
Unfortunately, limiting or ending predispute arbitration is at the top of the agenda for every
consumer and employee advocacy group. A consumer or an employee voluntarily enters an
arbitration agreement. Whether an arbitration will survive a challenge depends upon its terms and how
it is implemented. The agreement must be fair and balanced. It must be supported by consideration.
When these requirements are observed, an arbitration agreement is likely to survive a challenge.
Predispute arbitration agreements have not yet been outlawed by federal action. A dealer in a state that
allows predispute arbitration who wishes to enjoy the protections of predispute arbitration in consumer
matters and employment matters is still free to do so.There is one caveat to this answer and it has to do
with sexual harassment cases brought by employees. Congress passed the Ending Forced Arbitration of
Sexual Assault and Sexual Harassment Act of 2021, which President Biden signed into law on March 3,
2022. The Act amends the Federal Arbitrations Act so that “at the election of the person alleging conduct
constituting a sexual harassment dispute or sexual assault dispute, or the named representation of a
class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute
joint-action waver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal
or State law and relates to the sexual assault dispute or the sexual harassment dispute.” Thus, should
any sexual harassment or sexual assault claims be brought against your dealership by an employee,
your employment arbitration agreements no longer govern those actions, and the employee has the right
to bring a lawsuit, or even a class action, against the dealership in federal or state court.
2. True or False? We stopped using the NADA Fair Lending program when the Trump administration entered office in January 2025. We still train our sales and F&I employees that finance rates should be provided to customers on a non-discriminatory basis. Our fair lending training should protect us from lawsuits.
Answer: False. Despite the move from the Biden Administration to the Trump Administration, private
litigants, state attorneys general, the U.S. Department of Justice, and the Federal Trade Commission can all
enforce equal credit laws. And it is not only finance reserve that will be at issue. Practices in selling
voluntary protection products are also potential subjects of legal action by these enforcers. If your dealership is not using a fair lending program and a program for sale of voluntary protection
products that requires offering finance rates and VPPs at uniform pricing levels, with deviations for
nondiscriminatory reasons, and with results you can review and for which you can take corrective
action for non-compliance, you are not adequately protecting your dealership. The Fair Lending
Program and the Program for Sale of Voluntary Protection Products published by the National
Automobile Dealers’ Association are comprehensive programs your dealership should implement and
follow.
3. True or False? We spot-delivered a vehicle to a difficult customer for whom we cannot find a finance source to approve assignment of the RISC. The customer is finally agreeing to return the vehicle. Because of the extra work we had to do, we wish to keep the down payment. We may do so if we can justify our expenses.
Answer: False. Carefully observe customer rights in spot deliveries. If you must take back the vehicle you
delivered, you are rescinding the contract. In other words, you are returning the dealership and the
buyer to the beginning as if the transaction had not even occurred, to the extent possible. That means
that not only must the customer give back the car you delivered, you must give back the trade and any
down payment. If you do not do that, or you cannot do that, then you cannot “rescind” the transaction.
4. True or False? We spot-delivered a car, and we cannot find a finance source to accept the RISC. We also cannot find the customer or the car to repossess it despite diligent efforts to locate them. We can report the vehicle as stolen.
Answer: False. First, dealers must know if they have a statecompliant spot-delivery form or language if their state mandates such, like Virginia and Maryland. Having decided that you can rescind, the recovery
service could not locate the vehicle. Now what do you do? Often, the decision is made out of frustration.
The customer was not candid when he bought the car, or he has not been cooperative in working with
the dealership, or he appears to be hiding the vehicle. The first reaction is likely to be, “Let’s show him! Let’s report the car as stolen.” That is the wrong reaction. The car was not stolen. You gave the customer
possession of the vehicle under the transaction documents. Even a misdemeanor charge of wrongful
use may lead to a malicious prosecution lawsuit since the customer is operating on legally issued documentation, even if overdue. Even if you win the suit, the publicity about the events will likely damage
the dealership. The answer is a civil suit to recover the vehicle. The dealership then can quickly obtain a judgment it can use as the basis for discovery from the customer to find the vehicle and to potentially recover damages if the car can never be found or to recover the dealership’s losses for the period the vehicle was withheld.
Advertising
5. True or False? When we advertise an attractive APR, we must disclose any qualifiers such as the limit on the duration of the financing, and we must disclose the amount or percentage of the down payment and the terms of repayment.
Answer: True. Advertising enforcement will continue to be a cornerstone of actions against car dealers by
the FTC, even under the Trump Administration. Compliance with the Truth in Lending Act and the
Consumer Leasing Act are critical because both laws are clear. If an APR is only available for loans of limited duration, that must be disclosed to meet the general requirements of the FTC Act that terms
and conditions of offers must be fully disclosed. If the limitation is a trigger term (for example, “up to
36 months”), the duration disclosure then requires the follow-on disclosures.
In advertising credit in connection with a motor vehicle, any of the following is a trigger term:
- The amount of the down payment (expressed as either a percentage or dollar amount);
- The amount of any payment (expressed as either a percentage or dollar amount);
- The number of payments or the period of repayment; or
- The amount of any finance charge.
If you use a trigger term, you then must disclose:
- The amount or percentage of the down payment;
- The terms of repayment; and
- The “annual percentage rate,” using that term or the abbreviation “APR.” If the annual percentage rate may be increased after consummation of the credit transaction, that fact also must be stated.
6. True or False? Under the Truth in Lending Act, if we advertise a low APR, we must also disclose the
amount or percentage of the down payment, and the terms of repayment.
Answer: False. Under the Truth in Lending Act, the annual percentage rate is not a trigger term. You must
make further disclosures under TILA only if an advertisement employs a trigger term.
7. True or False? We have some especially low lease rates. Even though those are like the annual percentage rate, we cannot advertise those as low APR leases.
Answer: True. Often dealers seek to equate lease rates to APR and advertise low rates in connection with leases and nothing more. The Consumer Leasing Act prohibits that. In advertising a lease rate, you may not use the term “Annual Percentage Rate,” “Annual Lease Rate,” or other equivalent term. In addition, if you do advertise a lease rate, the following statement must appear near the rate with no intervening language or symbols: “This percentage may not measure the
overall cost of financing the lease.”
Employment Practices
8. True or False? An employee handbook is dangerous because it lets employees know what their rights are and is viewed as an employment agreement.
Answer: False. An employee handbook is critical to let employees know what is expected of them and to
convey information required by law. A properly designed handbook benefits a dealership and is not
an employment agreement. Your handbook should be reviewed and updated from time to time to remain
current with laws as they change.
9. True or False? We want to run credit bureau reports on employment candidates to make sure they don’t have credit problems. Our employment application contains an authorization to run a credit report on an employment applicant, but we cannot do so based simply on the signature on an employment application.
Answer: True. Don’t assume that policies for running credit reports on customers apply to employment
situations. The rules are different. A dealership can only run a credit bureau on an applicant for
employment if the authorization is based on a signed document that authorizes a consumer report and
an investigative background report and nothing else. That is why if you are using an employment
application that contains an authorization to run a credit bureau report, the application is hopelessly out
of date. Use an updated employment application and a separate form to authorize a credit report. Credit
reports contain critical personal data, and personal data protection will be an even higher priority under
the Trump administration.
10. Choose the Correct Answer. What should be covered in a salesperson’s pay plan?
A. The length of the salesperson’s employment
B. The specific definition of vehicle cost
C. All pay calculations are final
D. None of the above
E. All of the above
Answer: D. It is more critical than at any other time to use pay plans that protect the dealership. The pay plan simply describes the method for calculating pay due a salesperson. No length of time should be specified, or the plan could be construed as an agreement for employment for a specified time. There should not be a specific definition of vehicle cost. In any pay plan in which calculation of commissions is based upon sale price over cost, the cost should be determined in the sole discretion of
the dealership, and the plan should specifically state that. A pay plan should never indicate that pay
calculations are final. They should always be subject to revision. We provide a pay plan checklist in this
newsletter.
11. True or False? An employee filed a claim of harassment. We didn’t violate federal law by
harassing the employee in the first place, so we can’t be found liable for taking action against the
employee for filing a complaint.
Answer: False. Retaliation can be a separate violation of the law even if there is no underlying offense.
Managers and employees must be well trained in the company’s policy and process against discrimination and harassment. Every complaint must be taken seriously. When investigating, always warn those with whom you discuss the circumstances leading to the complaint that retaliation is against company policy and can lead to discipline, including termination. Retaliation is the most prevalent
category of complaints to the EEOC, according to the agency. Protect the dealership against retaliation
claims.
12. True or False? Salespeople are paid on commission. They don’t have to punch the time clock.
Answer: False. Salespeople still need to earn at least minimum wage for hours worked. Timecards have always been the best method to know hours worked by employees. For those exempt from premium
overtime, like new car dealer salespeople, this will give your office the ability to track earnings to ensure
those personnel are paid minimum wage for hours worked. For non-exempt personnel, this will give
your office the opportunity to calculate premium overtime properly.
General Compliance
13. True or False? Our dealership is located in Virginia and has Maryland customers. One of our salespeople called a Maryland customer to discuss a vehicle they purchased. We don’t use the “quality assurance” recording on outbound calls and our employee did not tell the customer that the call was being recorded. We have now been sued by that customer and want to use the voice recording from that call as part of our defense in the lawsuit. There is no issue using that call because our employee knew the phone call was being recorded and gave consent.
Answer: False. Virginia is a one-party consent state, but Maryland is not—meaning that only the employee at the dealership needs to know that the call is recorded in Virginia to be compliant, but in Maryland, this is a privacy violation because the law requires that both the employee and customer give consent to the call being recorded. While federal law requires only that one party give consent, the following states require the consent of all parties involved in a particular conversation: California, Connecticut, Delaware, Florida, Illinois, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, Pennsylvania, and Washington. Most dealerships’ phone service vendors have a
“whisper” or recording for inbound calls that states, “This call may be recorded for quality assurance or
training purposes.” Thereby, if the person stays on the call, it would be viewed as valid consent from
both parties (so long as your employee knows that you are recording them). For outbound calls, it’s
not always cut and dry whether the “whisper” or recording is present. For dealerships that do business
with customers in those two-party consent states, you need to either have a recording for outbound calls
that states that the call is being recorded or cease recording those calls. Dealers should put their employees on notice that their telephone calls are being recorded.
14. True or False? We are compliant with the FTC Privacy Rule so we are compliant with the FTC Safeguards Rule.
Answer: False. The Privacy Rule and the Safeguards Rule are two different rules that cover different things
and have different requirements. The Privacy Rule governs consumer and customer information
collection and sharing practices. The Safeguards Rule governs how you protect the customer
information you collect and maintain. Meeting the compliance for one does equate to compliance for
the other. The Privacy Rule requires that you provide a notification, to those consumers whom you may or
have arranged leasing and financing through the dealership, of how you will use the information and
certain limitations on disclosure of that information. Personal information collected from cash customers
is not subject to the Privacy Rule. The FTC updated the Safeguards Rule in 2021, which went into effect in 2023. The Rule change requires numerous elements as stated below and should be in effect at your dealership now.
- A Written Information Security Program Including Specific Requirements.
- Designate a qualified individual responsible for overseeing and implementing the
information security program.
- Perform a written risk assessment with specific evaluation and assessment criteria
that identifies reasonably foreseeable internal and external risks.
- Periodically perform additional risk assessments that reexamine the reasonably
foreseeable internal and external risks.
- Design and implement safeguards to control the risks identified in the risk assessment,
including limiting access to data only to those with a need-to-know, encryption, multi-factor
authentication, a log for users, and a 2-year maintenance requirement with safe disposal
of customer data unless an exception applies.
- Testing. Regularly test or otherwise monitor the effectiveness of the critical controls, systems, and
procedures.
- Continuous Monitoring. For information systems, monitoring and testing shall include
continuous monitoring or periodic penetration testing and vulnerability assessments.
- Awareness and Training. Implement policies and procedures to ensure that personnel can
properly use the information security program.
- Regular Updates. Continually evaluate and adjust the security program to address changes.
- Service Providers. Oversee service providers to ensure their compliance with Safeguards
requirements.
- Regular Reports. Require the Qualified Individual to report in writing, regularly and
at least annually, to the board of directors or equivalent governing body.
Last week, the FTC posted updated FAQs for dealers on the Privacy and Safeguards Rules. The FAQs are very informative to dealers and should be reviewed. The link to that post is: https://www.ftc.gov/businessguidance/resources/automobile-dealers-ftcssafeguards-rule-frequently-asked-questions
Gone are the days that dealers could implement all compliance requirements on their own. For best
practices, dealers should be using an outside vendor to assist with compliance needs.