January 2018, Auto Dealer Today - WebXclusive
A statue called “Man Controlling Trade” stands outside the Washington, D.C., headquarters of the FTC, one of the two federal agencies principally tasked with regulating vehicle sales and finance. Photo by trxckster via Flickr
It’s tempting to avoid studying new regulations, new government leadership, and new rulings. While avoiding these topics at family gatherings may be the smart choice, you shouldn’t avoid them at your dealership.
Most dealers know that compliance can be critical to their bottom line, but many do not know how to balance staying current with today’s ever-changing regulatory environment with the day-to-day needs of running and growing their business. In a sea of jargon and complex regulatory language, it can be overwhelming to try to parse out which new rules and regulations apply to your dealership.
However, if you pay attention and leverage the right resources, you can build a good basis of knowledge for keeping your dealership in compliance. Read on for a quick, three-part briefing to set the stage.
1. Agencies to Know
Dealerships use a lot of acronyms, but the government may have this industry beat. There are more than 430 departments, agencies and sub-agencies in the federal government!
When trying to keep up with federal regulations that may apply to your dealership, be sure to pay attention to two agencies that are active in this space: the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). These agencies work primarily to protect consumers, and they will be two of the most likely to issue rules and regulations that affect your dealership’s operations.
FTC: The FTC issues many regulations applicable to auto dealers, and this agency is serious about preventing unfair and deceptive acts and practices.
In addition to investigating claims related to unfair and deceptive acts and practices in the advertising space, in 2017, the FTC also focused on examining claims of “yo-yo” financing. In so-called “yo-yo” financing arrangements, consumers (often those with sub-optimal credit histories) are offered the opportunity to take possession of a vehicle while their loan application is pending (known as “spot delivery”), which may be a particularly common occurrence when deals are struck at night or on weekends.
When financing falters, the consumer is recalled to the dealership and coerced into a less favorable financing arrangement. (This example also highlights the interplay between applicable state and federal law, because state laws also govern spot deliveries and are subject to considerable variance from state to state.)
CFPB: The CFPB is an independent federal agency established by the Dodd-Frank Act to establish and enforce rules relating to consumer finance, including rules prohibiting unfair, deceptive or abusive practices.
Many dealerships are under increased pressure from their banking partners to adopt best practices derived from CFPB actions. It is therefore critically important that you understand the CFPB rules and programs that may affect your dealership. The way auto dealers market and advertise vehicles and financing options are reliable sources of consumer complaints filed with the agency.
2. Topics to Watch
Consumer privacy and data security will remain important topics for dealers to watch. With so much of the buying process happening online, new regulations in these areas could have an immediate impact on your information security and advertising practices. The earlier that you become aware of potential changes to privacy and information security regulations affecting your dealership, and start planning for any resulting changes required to ensure that your dealership’s operations remain compliant, the better off you’ll be.
Many dealers use third-party vendors for certain services. These partnerships bring up a number of privacy and information security issues, including website behavior tracking, online credit applications, sales and service marketing. Talk with your vendor to see if there are any areas of potential concern and if there’s anything more that you or your vendors should be doing to protect data.
3. Where to Turn for Help
It can be difficult to keep up with the changing landscape of federal regulations on your own. Fortunately, there are many resources available to help.
Every year, Dealertrack (a Cox Automotive brand) provides an updated Compliance Guide, which is a resource that provides insight into current regulations and practical suggestions for best practices in compliance. You can request the guide for free.
There are also several compliance management software systems available, some of which will even integrate with your other dealership software platforms. I encourage you to investigate for yourself and look for a solution that suits your dealership’s needs.
Finally, please note that neither this article nor the Dealertrack Compliance Guide are intended to serve as a substitute for legal analysis, and we do not purport to provide any legal or regulatory advice. You should consult with your attorney regarding any legal, regulatory or compliance questions or concerns that you may have.
Jay Seirmarco is assistant general counsel at Cox Automotive.