According to a recent study by JD Power, customers visit an average of 1.4 dealerships before purchasing a vehicle. As recent as 2005, consumers visited 4.5 dealerships before purchasing. By using the internet to gather information, customers are significantly narrowing the list of potential vehicles they wish to purchase prior to visiting dealerships. Before online advertising, dealers often advertised a limited number of vehicles in print, on the radio, or on television. Now, it is common for dealerships to advertise their entire inventory on their own websites, as well as inventory aggregation websites such as Cars.com or Autotrader. This leads to higher occurrences of pricing errors and disputes arising from selling a vehicle for a price higher than the price advertised online.
The Federal Trade Commission (“FTC”) recently revised the .com Disclosures, which offer businesses guidance on what types of disclosures businesses should include in their online advertisements to avoid claims of unfair and deceptive practices. Disclosures should be “clear and conspicuous,” and placed in close proximity to pricing information or triggering terms such as APR, lease payments, and down payments. If a vehicle is priced incorrectly, a consumer may claim that the dealership’s refusal to honor the posted price constitutes a deceptive practice. Your goal should be to minimize errors occurring, and promptly correcting any errors you find. If you fail to do so, consumers may claim that these errors are endemic of the dealership’s deceptive practices.
If you decide to offer “internet only” pricing, you will have to make additional disclosures in your online advertisements. First, your disclosure should state that the price is only available if the consumer produces something, like a printout of the vehicle display page from your website or the inventory aggregation website. Also consider excluding prior sales, in case a customer purchases a vehicle and later checks your listings to see what the price posted online is. If you do not, your failure to honor the advertised price may be deceptive. This disclosure must be on each vehicle display page, and not only at the bottom of your website’s home page or each department’s webpage. Your pricing online should be realistic; a customer should be able to purchase the vehicle at the advertised price without making additional down payments, having a particular FICO score, financing the purchase through your dealership, or qualifying for rebates that are not available to all customers. Remember, if you provide an inventory feed to a third party website, you will be responsible for errors on the third party’s website. You should review each website to determine whether the disclosures are compliant.
The Federal Trade Commission (“FTC”) has recently targeted dealers whose advertisements are deceptive or who engaged in unfair trade practices. Because businesses from different industries may conduct their affairs in a similar fashion, it is important to monitor actions brought by the FTC against other businesses. A recent enforcement action initiated by the FTC against a medical billing company may have a profound impact on automobile dealers.
Accretive Health, Inc. (“Accretive”), provides medical billing and revenue management services to medical providers throughout the United States. Because of the services it provides, Accretive collects significant amounts of nonpublic personal information on patients. This information includes social security numbers, dates of birth, billing information, and medical records. The laptop of an employee of Accretive was stolen from the employee’s car. The laptop contained twenty million pieces of information on twenty three thousand patients. The FTC alleged in its complaint that Accretive’s practices were inadequate to safeguard against these kinds of thefts, and placed patients’ information at considerable risk. Citing Section 5(a) of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce,” the FTC claimed that Accretive’s practices likely caused “substantial injury to consumers that is not offset by countervailing benefits” and “is not reasonably avoidable by consumers.”
With the popularity of “Bring Your Own Device,” it is easy to imagine a situation where a dealership’s data is compromised in a similar manner as Accretive’s. For example, suppose your employees use their personal smartphones or laptops to access your DMS or CRM. The theft of a smartphone or laptop could allow an unauthorized individual access to consumers’ nonpublic personal information. Without processes in place to safeguard consumers’ data, dealers may face liability for violating several laws, including the FTC Act.
Many dealers are aware of their responsibilities to protect nonpublic personal information from theft or other loss. The Safeguards Rule of the Gramm-Leach-Bliley Act requires dealers to implement processes to safeguard consumers’ information, and make modifications to their processes that are necessary to protect this information. The Red Flags Rule requires dealers to implement and maintain processes to detect identity theft, and make any changes required to improve the efficacy of the processes. Each of these laws has its own enforcement mechanisms and civil penalties. Now, the FTC appears willing to interpret Section 5 of the FTC Act to include data losses, under certain circumstances, as deceptive practices. Unfortunately for dealers, this means that a data loss may trigger liability under the FTC Act, in addition to any liability under the Safeguards Rule or Red Flags Rule.
On January 9, 2013 the Federal Trade Commission (“FTC”) announced enforcement actions against nine automobile dealerships over allegations of deceptive and unfair trade practices. The FTC alleged that these dealers violated the FTC Act, which prohibits businesses from making false or misleading statements regarding products and services. The complaints filed by the FTC also included allegations that the dealers violated the Consumer Leasing Act and the Truth in Lending Act by failing to disclose fees, interest rates, and other credit related terms.
Of particular interest is the FTC’s complaint involving a dealer’s advertisement of a purchase price reduced by a down payment. For example, the dealership advertised a 2008 Chevrolet Tahoe for $17,995 and included in the disclosure that the price was “after $5000 down.” Even though the advertisement disclosed that the price was conditioned upon the consumer making a down payment of $5000, the FTC alleged that the advertisement was deceptive because the vehicles “are not available for purchase at the prices prominently advertised” since consumers “must pay an additional $5000 to purchase the advertised vehicle.” Based on anecdotal observation, this practice is far more common than many dealers may believe.
Dealers should closely review their own advertisements to see whether they may be deemed deceptive. If you have advertisements that show a price contingent upon making a down payment, you should avoid making these kinds of offers. If you advertise lease or installment payments, you must make sure that you properly disclose any “trigger terms,” such as APR, duration of the loan, and any additional fees associated with the purchase or lease. Payments that are “No Money Down” must really be no money down. If the consumer must pay more to obtain the advertised payment or price, then the offer may be deceptive.
The Occupational Safety & Health Administration (“OSHA”) recently approved changes to how whistleblowers may file complaints against firms who violate any of twenty-two statutes related to safety and pollution. Previously, whistleblowers could only file complaints by writing to OSHA, calling a hotline, or calling an OSHA regional office. Now, whistleblowers can file complaints online, by using a simple form, which includes descriptions of allegedly retaliatory acts by the business. This seemingly minor change to modernize OSHA’s processes may have dramatic effects on businesses that must comply with OSHA regulations. By simplifying the filing process, many predict that the volume of whistleblower claims will grow dramatically.
How may this affect your business? Now that your employees can file claims online, they may be more likely to notify OSHA of potential violations than they were before. Therefore, you should consider revising your own internal processes regarding OSHA complaints to include these changes and the possibility of additional complaints filed against your business. Your supervisors should know how to respond if employees raise a complaint, and how they should respond to employees who actually file complaints. Even if the employee does not contact OSHA, you should proactively investigate any safety complaints. By actively investigating complaints, you decrease the likelihood of the employee seeking outside counsel because you do not seem interested in rectifying a safety concern. Make sure that your employees are current on all OSHA training requirements and safety regulations, and that the standards required by OSHA are followed. Taking these steps will help you identify and address potential OSHA violations, rectify safety concerns, and respond to employee complaints promptly.
Recently the Federal Communication Commission (“FCC”) enacted new rules and regulations related to the Telephone Consumer Protection Act (“TCPA”), which regulates how companies may contact consumers by telephone. TCPA prohibits companies from contacting consumers via automated dialing systems, either by text or by telephone, without prior express consent of the party called. These rules, effective October 16, 2013, significantly change what constitutes prior express consent.
TCPA now requires firms to obtain prior written consent for auto-dialed marketing or advertising calls and text messages. Acceptable written consent must include clear and conspicuous disclosures that the consumer consents to receiving auto-dialed calls or text messages, including pre-recorded messages, on behalf of a specific seller, and clear and unambiguous acknowledgement that the consumer consents to receive such calls and text messages at the number provided. The company cannot condition the sale of goods or services on the consumer consenting to receive auto-dialed marketing or advertising calls, and the caller bears the burden of demonstrating the consumer consented to the contact. An “opt-in” text reply alone may not meet the new prior written consent required by TCPA. These revisions apply retroactively, so any companies that have received consent prior to the enactment of these new rules will likely have to obtain consent from the consumer again.
Dealers have to be mindful of how these changes to TCPA affect their businesses. First, if you utilize a third-party to solicit consumers via calls or text messages, you must ensure that your vendor complies with TCPA. If not, you may find your business liable for violations of the law (see: “Lithia Faces $2.5 Million Tab For Texting”). Even if you do not use an outside vendor in the aforementioned manner, you may still have to comply with TCPA if you use a device capable of auto-dialing to contact consumers by text or by telephone. It is likely that TCPA’s restrictions encompass computers capable of auto-dialing. So, if you utilize a service such as Google Voice, Skype, or an auto-dialer through a CRM system, you will likely need to obtain prior written consent before soliciting consumers by calls or text messages.
An editor of Automotive News recently reported on a seminar held at a F&I conference where the panelist generally endorsed using video cameras to record transactions in the F&I office. There are pros and cons to recording these transactions. While recordings can be helpful tools for enforcing compliance, training staff, and rebutting accusations by consumers of wrongdoing in the F&I office, they can also be the “smoking gun” of unlawful business practices that provide plaintiffs or regulators with the evidence needed to impose costly penalties and damages.
Deciding whether to record F&I transactions takes more thought than merely selecting what equipment to use. Before you get your cameras rolling, you should consider the following:
Will You Record Every Transaction? That one transaction your staff forgets to record could be the one where problems arise. Worse, an employee who is violating the law may selectively record transactions or edit recordings in order to hide any transgressions. If you decide to record your F&I staff, you should consider mandating that every F&I transaction is recorded. If a consumer refuses to be recorded, document the refusal, and maintain adequate records to help reconcile all transactions against ones recorded.
How Does Recording F&I Transactions Fit With Your Coaching And Counseling Processes? You should train your staff on how to record the transactions, including obtaining the consumer’s informed consent. This will require developing a consistent script to use with consumers to obtain consent, and some written document signed by the consumer evidencing consent. You will need to designate who will review the videos and what remedial steps are taken when problems are discovered. Remember, supervisors should not to use the videos in a manner that demeans or humiliates their subordinates. These ‘candid camera’ moments, used at the expense of the employee, could provide ample evidence for an employment discrimination claim.
How Does Recording F&I Transactions Fit With Your Compliance Programs? Laws such as the Safeguards Rule and the Red Flags Rule impact how you record F&I transactions and store the recordings. It is likely that these recordings will capture information protected by state and federal law, such as nonpublic personal information, so you will have to take necessary steps to protect this information, and determine when breaches occur. You will need to amend the documents and records you maintain for compliance programs accordingly.
I recently wrote about the Federal Trade Commission’s (“FTC”) vigorous enforcement of consumer protection and privacy laws against automobile dealers. In these previous enforcement actions targeting dealers, the FTC found that advertisements related to negative equity were deceptive and unfair, and that dealers failed to take adequate steps to safeguard consumers’ nonpublic personal information from tampering via Peer to Peer (“P2P”) networks. Now, two dealers entered into consent agreements with the FTC to settle claims of unfair and deceptive trade practices related to advertisements placed by the dealerships online and in print.
The FTC charged that dealers in Maryland and Ohio “violated the FTC Act by advertising discounts and prices that were not available to a typical consumer…[and] misrepresenting that vehicles were available at a specific dealer discount, when in fact the discounts only applied to specific, and more expensive, models of the advertised vehicles.” The Maryland dealer’s website “touted specific “dealer discounts” and “internet prices,” but allegedly failed to disclose adequately that consumers would need to qualify for a series of smaller rebates not generally available to them.” The Ohio dealer “allegedly failed to disclose that its advertised discounts generally only applied to more expensive versions of the vehicles advertised.” To settle these actions, the dealers agreed to comply with the FTC’s order for twenty years, and maintain records of advertisements and promotional materials for the FTC’s inspection, upon request, for five years.
Once again the FTC demonstrated its willingness to extend protections offered by the FTC Act against deceptive and unfair practices to online advertisements placed by dealers. The FTC’s scrutiny of dealers’ advertisements clearly is not limited to “traditional” media, such as television and newspaper. Furthermore, the Maryland and Ohio dealer used advertising methods (combining rebates and stating a percentage discount from MSRP) that dealers use frequently. Therefore, dealers must endeavor to curtail the use of terms and methods that the FTC has determined are deceptive and unfair.
If you have not done so, you should download the FTC’s “.com disclosures,” which offer guidance on what you must disclose in your online advertisements. Your state’s Attorney General’s office may provide similar guidance. For example, New York’s Attorney General publishes advertising guidelines for New York dealers. While your state’s Attorney General may not have issued guidance regarding online advertising, you should not interpret this absence as carte blanch to advertise however you wish. Each state has enacted its own version of the FTC Act, and many state Attorney General’s closely watch the FTC and adopt it’s posture related to enforcement of consumer protection laws. So, even if your state’s Attorney General has yet to act, chances are that advertisements like the ones cited above may be deemed deceptive and unfair under your state’s law should a consumer or the Attorney General challenge the advertisements.