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.
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.
Recently Edmunds.com sued an online reputation company that posted reviews to its website, and other websites such as Yelp. The lawsuit alleges that the company, Humankind, posted fake reviews on behalf of dealership clients that showed the dealerships in a favorable light. Last year, Yelp began flagging reviews that it believed were paid for by businesses hoping to boost their popularity on Yelp. These actions by Edmunds.com and Yelp highlight a growing concern that the parties are trying to manipulate ratings on review websites in order to attract additional business. Many dealers do not understand that services that offer to post reviews on a business’s behalf for a fee may breach state and federal consumer protection laws.
According to guidance issued by the Federal Trade Commission (“FTC”) on paid reviews:
The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed [emphasis added].
A favorable review posted online about a dealership’s services would fall within the definition of an endorsement. It is likely that the FTC would find a material connection between dealerships that pay for reviews and the individual endorsers or businesses that compile these endorsements. If material connections exist between your business and the endorser, the FTC requires full disclosure of this relationship. In case above, full disclosure would mean each review stating clearly what consideration the dealership paid for the review. Even if you do not contract with a vendor to submit reviews, you have to comply with the FTC’s rules. For example, if you give a consumer a gift card in return for a favorable review, the customer must disclose he or she received the gift card in exchange for the review. Failing to make the necessary disclosures may result in significant fines and penalties. In one enforcement action, the FTC levied $250,000 in fines against a business for failing to disclose it compensated reviewers for favorable reviews.
If your dealership pays for favorable reviews, you should reconsider this practice. Failing to disclose material connections between the dealership and the reviewer may result in enforcement actions and significant fines. If you contract with vendors to provide this service, you are responsible for their conduct. It is not enough to plead ignorance regarding the vendor’s practices. When selecting a vendor offering “reputation management” services, you must ask whether or not the vendor pays reviewers for reviews.
The Federal Trade Commission (“FTC”) recently brought enforcement actions against dealerships regarding their online advertising practices. The most discussed enforcement action targeted dealers who made claims related to negative equity online. Afterwards there was some confusion as to the extent of the FTC’s application of consumer protection laws to online advertisements. Last week the FTC issued guidance that clarified its position on what kinds of online advertisements would be considered deceptive and unfair. While you can obtain a copy of the publication by clicking here, I have provided a brief overview of key parts of the guidelines below:
- The same consumer protection laws that apply to commercial activities in other media apply online, including activities in the mobile marketplace. The FTC Act’s prohibition on “unfair or deceptive acts or practices” encompasses online advertising, marketing, and sales.
- Your advertisements should contain disclosures located close to “trigger terms” like sale price, payments, etc. It is not enough to include a hyperlink to a separate webpage with the disclosure. You also should evaluate the effectiveness of these disclosures by staying abreast of where consumers look and do not look on your webpage.
- If limitations of a particular online media make disclosure unfeasible, you should consider not using that media to advertise offers containing “trigger terms.” For example, the social media website Twitter limits communications to 140 characters. Any advertisements on Twitter that contain “trigger terms” must include disclosures that fit within the character limit.
- Your disclosures must be legible regardless of the device consumers use to view the advertisement. You will need to make sure that consumers can view your advertisements and disclosures on a variety of devices, such as desktop computers, laptop computers, tablets, and smartphones.
Image Courtesy of The Rude Baguette
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