Best Practice in One State Can Lead to Jail in Another

September 2011, Auto Dealer Today - WebXclusive

by Thomas B. Hudson, Esq. - Also by this author

I just returned from yet another dealer conference, this one in Vegas. Like many conferences, this one featured several panel discussions by dealers. One of the panels was discussing “best practices” in building sales volume. A dealer announced that one of the most successful things he had done to increase sales was to pay $200 for every referral that resulted in a sale.

Since that practice, paying what is commonly called a “bird-dog” fee, violates state law in a number of states, I woke up. It also got me to my feet, with my hand in the air, to make the point that a “best practice” in State A might just get you fined, or worse, in State B.

Now, I didn’t know what the situation for this particular dealer was. The possibilities were (1) the dealer had done his homework before engaging in the bird-dog fee program, maybe even calling his friendly local lawyer to make sure that it was legit, and had determined that the practice was legal in his state; (2) the dealer hadn’t done any due diligence, but had lucked out, and was located in a state in which the program was not prohibited or regulated; or (3) the dealer hadn’t done any due diligence, was located in a state where the practice was banned, and just hadn’t been caught yet.

It wasn’t really important what the particular circumstances of the dealer with the suggestion were, but it was important that the dealers in the audience get the point that state laws on a lot of auto sales, finance and lease issues vary, and that just because someone who is in a position of apparent knowledge, like a panelist at a national convention, says that a particular program or business tactic is a “best practice,” it doesn’t make it so.

The other side of the coin is an obvious one. A dealer might learn that a particular practice is illegal in his or her state, sit in a 20-group meeting and state authoritatively that such-and-such a practice is illegal, unaware that the same practice might be perfectly legal in the adjacent state. The other 19 dealers might conclude, erroneously, that the practice also violates their state laws and miss out on an opportunity.

When dealers from many jurisdictions meet, as they do at industry meetings and 20 groups, they swap stories and business tips and often come back with wonderful little pearls of wisdom that can improve their dealerships. Those dealers who implement those little pearls of wisdom without bothering to do the legal due diligence necessary to make sure they aren’t illegal run the risk that a best practice can be a quick trip to the big house.

Vol. 8, Issue 7

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