Is Your Dealership Ready For Changes To The Telephone Consumer Protection Act?

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.

Auto Dealer Indicted For Illegally Structuring Cash Transactions

On June 13, 2013 a federal grand jury charged a dealer in Ohio with illegally structuring bank deposits to avoid IRS reporting requirements.  The 26-count indictment alleges that the dealer “made multiple cash deposits in amounts less than $10,000 on the same day or consecutive days” in order to avoid filing a Form 8300.  The dealer faces penalties of up to five years in prison for each count, while the business faces penalties up to $50,000 for each count.

This case illustrates that the authorities remain vigilant in monitoring cash transactions and prosecuting individuals and businesses that violate reporting requirements.  You should take cash reporting requirements seriously, and establish safeguards so that your employees will not only report cash transactions that exceed $10,000, but also detect efforts by others to avoid reporting requirements by making several smaller cash transactions.  Here are several things to remember when evaluating your dealership’s cash reporting processes:

  • Report cash down payments on retail installment sale contracts and lease agreements:  Many people incorrectly believe that a business does not have to report cash down payments made as part of a retail installment purchase or lease.  The IRS penalizes many businesses that fail to report cash amounts included in down payments that exceed reporting requirements.  Avoid these penalties by reporting cash and cash equivalent amounts above the reporting threshold used as down payments on installment purchases and leases.
  • Add up the cash equivalents and report:  Businesses often ask if they have to report consumers that use a combination of cash and cash equivalents, or a variety of cash equivalents, that, when combined, exceeds $10,000.  The answer is that you should report these transactions.  Remember, the IRS considers forms of payment such as cashier’s checks, traveler’s checks, and money orders as equivalent to cash.  So, if you have a combination of cash and cash equivalents, or no cash but an assortment of cash equivalents, that exceed $10,000, report this transaction to the IRS.
  • Your accounting office should not be only department responsible for compliance:  The accounting office will need the help of your sales staff to report cash and cash equivalents on the Form 8300.  For example, the Form 8300 asks the identity of a person in addition to the buyer who provides cash.  The accounting office may not have this information if it is not gathered by the sales staff at the time of the sale.
  • Don’t delay in notifying consumers that you filed a Form 8300 with the IRS:  While the law allows businesses to wait until next January to notify consumers of the Form 8300 filing, you should try to notify the consumer sooner.  The earlier you send the notification, the earlier you may be alerted to suspicious activity by the consumer, like providing the wrong mailing address to your staff.
  • Cash transactions involving $10,000 are not as rare as they used to be:  As vehicles have become more expensive, transactions involving amounts greater than $10,000 are more common.  As these transactions become more commonplace, your staff may become complacent.  Check with your DMS to see what reporting you can create that identifies transactions that you should report so you can create another safeguard should employees miss a transaction.
  • Know all of your customers, not just the ones that trigger cash reporting requirements:  The United States Criminal Code, and most state criminal codes, prohibits transactions where the business knows, or should know, that funds used in the sale came from criminal activity.  If you have reason to believe a consumer or your employees structured a deal to avoid cash reporting requirements, you should report such activity to the authorities, even when the transaction ultimately does not occur.


How Mobile Phones Fit Into Your Compliance Processes


In a few short years mobile phones have become ubiquitous in both our personal and professional lives.  Modern smartphones allow businesses to communicate rapidly with consumers and help employees work together effectively.  Mobile phones on the market today can send and receive emails, upload media to social sites like Facebook and YouTube, and capture high quality images and video, among other capabilities.  As more and more employees use cell phones, whether they use personal devices or ones issued by your business, it is imperative that your processes address how employees are permitted to use these devices.  Here are a few issues to consider regarding employees and cell phone usage at your business:

Distracted Driving:  Many states, such as New York and New Jersey, penalize drivers who are caught operating a motor vehicle while communicating via text messaging.  These prohibitions are generally aimed at preventing “distracted driving.”  Your business may incur liability if employees injure others or damages property while operating one of your dealership’s vehicles and text messaging.  OSHA may fine your business if an employee is injured in this manner based on your dealership’s obligation to provide a workplace free of serious hazards.  In order to mitigate potential liability from personal injury lawsuits and OSHA fines arising from distracted driving, your employee handbook should clearly communicate your dealership’s policies against distracted driving.

Sensitive Data:  Mobile phones used in conjunction with business activities are covered under federal and state laws that address privacy and fraud prevention, like the Safeguards Rule of the Gramm-Leach-Bliley Act and the Red Flags Rule.  If your employees receive nonpublic personal information on mobile phones, your compliance processes must include how you safeguard this information and what steps your business takes to monitor employee use of this information.  Laws such as the Safeguards Rule and the Red Flags Rule require businesses to conduct ongoing evaluations of processes and implement changes when they find shortcomings.  Do not forget to include mobile phones in your review of your compliance efforts.

Personal vs. Private Use:  There are several issues that involve employees’ use of mobile phones that blur personal and private use.  For example, does your business provide mobile phones or do you allow employees to BYOD (Bring Your Own Device)?  If you provide mobile phones, are employees allowed to use them for personal reasons?  Do you have ways to remotely lock and erase data contained on mobile phones should employees lose them?  Are employees permitted to use their personal mobile phones to act on your company’s behalf, such as posting content to the dealership’s social media websites or answering leads?  Do you allow employees to receive consumers’ nonpublic personal information on their personal mobile phones?  Do employees use mobile phones to conduct business on behalf of your dealership while “off the clock?”  Each of these questions present issues that your business should address in your employee handbook.

How To Create And Use General Releases Effectively


No matter how sound its processes may be, it is not unusual for a typical dealership to generate customer complaints during the course of business.  Each department of a dealership is like a miniature business and some departments, such as the service department, involve hundreds, if not thousands, of transactions with customers each month.  Many dealers seek to resolve complaints by offering customers some form of consideration for their troubles, whether the consideration takes the form of discounts for future visits or merchandise.  Whenever you offer customers something in order to satisfy their complaints, you should consider asking them to sign a general release.  If you do not, consumers may be undeterred from suing you even if you gave them something in order to resolve the complaint.  While general releases cannot stop consumers from initiating lawsuits, they usually discourage plaintiffs’ lawyers from agreeing to take the case and may help resolve any lawsuit quickly and in the dealership’s favor should the consumer chose to file a lawsuit.

Here are a few tips for creating and using effective general releases:

  • Keep It Simple:  An effective general release does not need to be several pages long.  Depending on the circumstances involved in the complaint, the body of the general release may only be a paragraph long and, with signatures, contained on one sheet.  Along with length, your general release should be clearly written in plain language that is easy for people outside the legal profession to understand.
  • Clearly Identify the Particulars:  Your general release should clearly identify the parties to the release, the date of the release, the nature of the customer’s complaint, and what the dealer provided to the customer to resolve the complaint.  If your dealership provided merchandise, future discounts, money, or anything else to the consumer, the general release should clearly state what the customer received and in what quantities and amounts.
  • Provide Something New to the Customer:  In order for a general release to be effective, you must provide something beyond what your dealership and the customer agreed upon.  For example, suppose your dealership delivered a vehicle to a customer and later had to rescind the deal.  If the customer provided a down payment, he or she is entitled to receive the down payment upon rescission.  If you draft a general release to indemnify your dealership and the return of the down payment is the only thing the customer received, the general release is probably unenforceable for want of consideration, a key component to any contract.  So, in the example above, the dealer should consider giving the consumer something else that the dealership does not have to provide as part of the original transaction.
  • Create Effective General Release Processes:  You should create processes that help you identify when general releases are used and retain them in a secure location.  Since these documents may be used in litigation, you should be aware when your employees ask customers to sign them.  Also, you should consider keeping the general releases in a secure area and in a filing system that makes their retrieval, by customer, easy.  No matter how effective a general release may be, it will not be of much help if you cannot find it.

The Disposal Rule And What It Means To Your Dealership

A few days ago I reblogged a post from Naked Security about an enforcement action by the Massachusetts Attorney General’s Office against doctors in Massachusetts that unlawfully disposed of patient records.  You can read the original post here.   In summary, the doctors allegedly violated the Health Insurance Portability and Accountability Act (or “HIPAA“) by throwing out documents that contained the nonpublic personal information of their patients.  If “nonpublic personal information” has triggered thoughts about your compliance programs at your dealership then you’re off to a good start today (or you spend a lot of time thinking about compliance, which is a good thing).  The Safeguards Rule of the Gramm-Leach-Bliley Act obligates your dealership to create and maintain processes that protect nonpublic personal information.  Piggybacking off of the Safeguards Rule is the Disposal Rule, which, like HIPAA does for health care professionals, requires dealers to maintain processes that effectively destroy documents that contain nonpublic personal information.  With fines up to $1000 per violation, as well as allowing plaintiffs to recover their legal fees , the Disposal Rule is something your staff should not ignore.

Gone are the days when a dealership employee could simply throw a completed credit application or “dead deal” folders full of deal paperwork in a garbage can.  Now, if dealers have any documents that contain nonpublic personal information, such as social security numbers, customers’ date of birth and so on, they must dispose of the documents in a way compliant with the Disposal Rule.  The Disposal Rule requires dealerships to maintain “disposal practices that are reasonable to prevent the unauthorized use, or access to, information in a consumer report.”  Suggested practices include burning, pulverizing or shredding hard copies containing nonpublic personal information, or, if the information is stored electronically, appropriate erasure or destruction procedures.  If you contract with third parties to handle document document disposal, your dealership may be liable for their failures to comply with the Disposal Rule.  You can find a summary of the Disposal Rule and examples of what compliant processes contain here.

In the case cited by Naked Security, a photographer for the Boston Globe discovered the documents discarded by the doctors while dumping his own garbage.  Apparently the doctors’ offices shared a community dumpster with the photographer.  The photographer then referred the matter to the Attorney General’s office, who later brought suit against the parties.  It is easy to image similar discoveries made by employees or customers at a dealership that fails to comply with the Disposal Rule.  A disgruntled employee could report the dealership to the proper authorities or a consumer could see intact documents in a waste bin and file a complaint.  Compliant Safeguards Rule processes include processes that comply with the Disposal Rule.  Protect your dealership against similar suits by developing processes and training that addresses how your employees will dispose of information in accordance with the Disposal Rule.

Via:  Naked Security

Image Courtesy of Paper Shredding Review

CFPB Issues Regulations Affecting Dealerships in 2013

The Consumer Financial Protection Bureau (“CFPB”) has issued regulations pertaining to several matters affecting dealerships.  The first is a revision of the Consumer Rights Form used by employers who perform background checks on employees.  The Dodd-Frank Act designated the CFPB as the primary rule-making and enforcement agency for issues relating to background checks performed under the Fair Credit Reporting Act (“FCRA”).  Previously the Federal Trade Commission (“FTC”) was responsible for these actions.  Under the FRCA, an employer must obtain permissrion from applicants and employees prior to requesting credit reports or performing background investigations.  The employer must obtain permission in a form that contains no other substantive information.  Before the employer may take an adverse employment action against an employee or applicant based on information obtained from credit reports or background checks, the employer must provide the individual with notice of this decision.  Such notice must include the document the employer relied upon in making the adverse employment decision as well as a document known as the “Summary of Consumer Rights.”  As of January 1, 2013, the CFPB has modified the Summary of Consumer Rights form to clearly show that it, and not the FTC, is the agency tasked with enforcement.  Employers who incorporate background investigation procedures into their employment practices must use the new form, which may be downloaded here.

The CFPB also announced new thresholds for the Truth in Lending Act (“TILA”) and Consumer Leasing Act (“CLA”) that go in effect in 2013.  TILA and CLA regulate the practices and disclosures that dealerships use when entering into retail installment purchases or leases with consumers.  For many years, TILA and CLA only applied to extension of consumer credit totaling $25,000 or less.  The Dodd-Frank Act increased the threshold to $50,000 and also indexed the threshold to inflation, meaning that the threshold may be adjusted upward as inflation increases.  Including the inflation index, the threshold for TILA and CLA, effective January 1, 2013, is $53,000.  Any extension of credit or lease for $53,000 or less will be subject to TILA and CLA and can trigger liability for dealers that violate requirements of those laws.

FTC Revises Green Guides: What Dealers Should Know

Earlier this month the Federal Trade Commission amended its “Green Guides,” which address claims made by marketers of products’ environmental attributes. Since dealerships fall within the types of businesses regulated by the FTC, it is important that you are aware of the Green Guides and take them into consideration when creating and placing your advertisements. The Green Guides are not new laws or rules created by the FTC. Rather, the Green Guides outline what kinds of additional trade practices the FTC considers deceptive and/or unfair under Section 5 of the FTC Act.

Advertisements that fall within the Green Guides include claims made about products’ environmental attributes or claims made regarding your dealership’s sustainable business practices or certifications such as “LEED” (or Leadership in Engineering and Environmental Design). Sustainable business practices include recycling initiatives, reductions in water and energy consumption, and utilizing renewable energy like solar and wind. Generally, the FTC considers broad, unqualified general environmental claims like “green” or “eco friendly” unfair and deceptive trade practices. To avoid claims that an advertisement is unfair or deceptive, advertisements claiming a vehicle is “eco friendly,” for example, will need further disclosure of specific environmental benefits that are clear, prominent and specific. Statements made regarding your dealership’s sustainability practices or certifications also trigger compliance with the Green Guides. If your dealership has received certifications or “seals of approval” for sustainable practices or for the property, and you chose to advertise such certifications or seals of approval, the FTC may consider such advertisements endorsements, thus requiring additional disclosure. Dealerships will need to disclose any material relationship between the business and the organizations granting the certifications or seals, and disclose the basis for the certifications.

 The FTC has demonstrated it is willing to actively pursue claims under Section 5 of the FTC Act against businesses that engage in unfair and deceptive trade practices even when consumers do not initiate complaints against the businesses. The FTC’s recent enforcement action against dealerships advertising negative equity claims is one example of this trend. You should consult the Green Guides to see whether the FTC may consider your current advertisements unfair or deceptive.