Compliance Triage
This article first appeared in the Defender, a publication of the National Association of Dealer Counsel (NADC). NADC is a nationwide professional organization of attorneys who represent motor vehicle dealers.
Dictionary.com defines “triage” as “the determination of priorities for action in an emergency.” Many dealers believe that they are facing more complex compliance challenges than ever. They are right. Dealers overwhelmed by the challenges because of new government mandates and actions must prioritize to get through the emergency that this flurry of new compliance challenges presents. Just the activities at the federal level are forcing dealers to confront unique issues. Let’s look at just two federal agencies that have stepped up their activities.Consumer Financial Protection Bureau The new Consumer Financial Protection Bureau has been led since its inception by an interim appointee which has affected its willingness to implement wholesale regulatory changes. It has never had direct jurisdiction over franchised motor vehicle dealers. But none of this has stopped the CFPB from moving aggressively to dramatically alter the way car dealers do business.
• In March 2013, the CFPB fired a shot over the bow of big financial institutions. In a memo, it advised the institutions it oversees that they can be held liable for the disparate impact of financing rates on minorities resulting from dealer discretion in credit terms. It warned these financial Institutions to either monitor and control those practices or adopt flat fee compensation practices. According to news reports, the CFPB has launched investigations of sales practices involving F&I products.
• According to news reports, the CFPB has launched an investigation of “high rate” lending for credit challenged individuals.
• Since its inception, the CFPB has been empowered to take, and it has had on its radar, potential actions to limit pre-dispute arbitration for financial institutions under its jurisdiction (some of whom are large buyers of retail installment contracts from dealers), an important tool for dealers and other businesses to protect against extortionate class actions.
Federal Trade Commission
In 2011, the Federal Trade Commission hosted dealer roundtables as part of its factfinding as it considered how it would use its increased authority and funding with respect to motor vehicle dealers granted under the Dodd Frank financial regulation legislation. As a result of the roundtables, it is unlikely that dealers will face substantial changes in their practices as a result of rulemaking for the entire industry. However, the FTC has moved quickly to show that it intends to take enforcement action against individual dealers with the intent of affecting how all dealers operate.
• In 2012, the FTC sued a number of car dealers who used some variation of the claim, “We will pay off your trade no matter how much you owe.” The FTC deemed the ads deceptive.
• Earlier this year, the FTC issued its new guidelines for digital advertising. The guidelines were designed to take into account the fact that consumers may be viewing advertising on hand held devices with smaller Compliance Triage screens, necessitating more thoughtful use and placement of disclosures. The agency emphasized the importance of clear and conspicuous disclosures.
• There are reports that the agency has been sending complaints and proposed consent orders to car dealers over internet advertising of prices and offers that do not adequately disclose the qualifications for meeting the terms of those offers.
• Consumer advocates have long sought to outlaw spot deliveries, and the practice was a major focus of the FTC roundtables. While the FTC is not expected to take action to end spot delivery, dealers can expect that enforcement actions will be taken on certain spot delivery practices deemed abusive such as the failure to return trade-ins and downpayments.
So what should a dealer do?
There is no industry as heavily regulated as the motor vehicle dealer business. A simple listing of the federal laws that affect dealers goes on for pages. And when one adds state laws, the burden becomes even greater. A dealer wishing to avoid the expenses and losses of lawsuits and other troubles resulting from compliance failures must understand the hot issues and must continuously adjust to take those into account. That is the
process of compliance triage. Listing the most serious issues is bound to be somewhat subjective, and they may often differ depending on the state or community where the dealer is located. Here is my list of the top ten questions and suggestions that an attorney representing a motor vehicle dealer should cover with a client.
