Paranoia or Real Danger?

The CFPB really is following you, and every mistake you make in the showroom and in your advertising can lead to an enforcement action.

November 2016, Auto Dealer Today - Feature

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

Two of my favorite bumper stickers proclaim “Paranoid People Are Following Me” and “You Aren’t Paranoid if They’re Really Following You.” I thought of the second of these when I read an article in the Aug. 17 issue of The Wall Street Journal about the Consumer Financial Protection Bureau’s use of mystery shoppers to build cases against the companies the bureau regulates.

Spot Delivery readers shouldn’t be surprised about the CFPB employing undercover investigators. An article on the topic, “Secret Agent Man (or Woman),” appeared in the September 2012 issue. We have been warning for the last several years about the possibility that the car shopper you are dealing with might not be all that he or she is cracked up to be.

Treating everyone who comes into your showroom as if he or she is a mystery shopper is a dealership best practice. So in one sense, at least for Spot Delivery readers, the mystery shopping threat should be old news.

But the WSJ article started me thinking about the topic of government investigations in general and how they get started in particular. When you think about how a few of the latest enforcement actions originated, I believe you will agree that things really aren’t what they used to be. Consider, for example, the following scenarios:

  • You’re Fired: You terminate an employee for cause. The employee disagrees with your assessment of her performance and pursues an unemployment benefits claim. When that claim and an appeal of the claim are unsuccessful, the employee contacts the U.S. Department of Justice and your state attorney general, claiming that your credit granting policies violated state and federal anti-discrimination laws. You end up in a nasty and expensive lawsuit that nearly destroys your business.
  • Helping Bad-Credit Buyers? Really? A local newspaper runs an article that favorably comments on your ability to finance bad credit customers at low interest rates. A CFPB staffer runs across the article and, wondering how such a business plan can possibly work successfully, starts snooping around. The CFPB then initiates an enforcement action, charging your dealership with several violations of federal disclosure laws.
  • You Aren’t Playing Fair! A competing dealer in a small town becomes fed up with your dealership because you claim to sell cars to credit-challenged buyers without charging a finance charge, and files a complaint with your state attorney general. Again, an investigation leads to a costly enforcement action for violating federal and state disclosure laws.
  • You Live Under a Rock: Your dealership, unaware of recent and major Federal Trade Commission advertising crackdowns, uses ads that show APRs but don’t show the additional disclosures that must be included when the ad shows an APR. Or they offer to finance a buyer’s negative equity in ways that the FTC says are deceptive, e.g. “We’ll pay off your trade, no matter what you owe!” Or they show car prices after deducting every potential available discount, even when few or no buyers could qualify for the offer. Or they scream “NO MONEY DOWN” in big type and explain in small type several fees imposed at purchase. I could go on, but you get the idea. Advertising compliance is a sizzling hot topic in Washington, D.C.

All of these are real-life examples of ways that dealerships managed to find themselves in hot water. Add to these the fact that every dealership has a website, many of which contain disclosure and other violations, plus the fact that every CFPB enforcer has a computer or smartphone, and you are likely to agree that the compliance side of the car business is entirely different from the way it was just a decade ago.

You’re not paranoid. They really are following you.

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