February 2011, Auto Dealer Today - WebXclusive
Every time someone mentions bird-dog fees, I flash back to my first impression of real, live bird dogs. Not pet dogs like the eight Golden Retrievers my wife and I have rescued. I’m talking about working bird dogs whose only role in the scheme of things was to flush, find or retrieve birds.
When my dad was shipped off during World War II to Europe to fight Hitler’s bunch, my mother took my older brother and me back to her folks’ place in Atmore, Ala., to wait out the war. My Uncle Dee, a World War I veteran, was an avid hunter and kept bird dogs in a large pen behind the house.
Uncle Dee would solemnly tell all the visiting nieces and nephews that these dogs were working dogs, not pets, and were to be left alone. You quickly learned to mind Uncle Dee’s admonishments to be careful around the bird dogs.
Dealers would be well-advised to take Uncle Dee’s advice when it comes to paying bird-dog, or referral, fees to people who refer car buyers to the dealership. Like almost everything else in dealer-world, these sorts of fees are frequently the subject of legislation or regulation.
Federal law doesn’t have much to say about bird-dog fees. I cannot recall a single reference to auto dealer referral fees or bird-dog fees in the Truth in Lending Act or in the other federal laws and regulations that apply to dealers.
State laws and regulations, however, are a whole ‘nother ball game. Most states have either laws or regulations that prohibit or regulate these fees in some manner.
One of the things our firm does for a living is build and maintain databases of literally hundreds of questions relating to state dealer laws. In one of our databases, this question appears: “May referral fees or gifts (sometimes called bird-dog fees) be paid or given by the dealer to the buyer or another party?”
Just for grins, I ran a 51-jurisdiction report (the 51st jurisdiction is the District of Columbia), to get a feel for typical state approaches to the regulation of bird-dog fees. Here’s a typical state answer:
With respect to a consumer credit sale, the seller may not give or offer to give a rebate or discount, or otherwise pay or offer to pay value to the buyer, as an inducement for a sale in consideration of the buyer giving to the seller the names of prospective purchasers, or otherwise aiding the seller in making a sale to another person, if the earning of the rebate, discount, or other value is contingent upon the occurrence of an event subsequent to the time the buyer agrees to buy. If a buyer is induced by a violation of this section to enter into a consumer credit sale, the agreement is unenforceable by the seller, and the buyer, at the buyer's option, may rescind the agreement or retain the goods delivered and the benefit of any services performed without any obligation to pay for them.
Note that this state law deals with payments to the buyer. It is silent on payments to third parties, like other dealers, the local barber or the woman at the bank. Many state laws draw that distinction.
Note also the penalty. If the dealer violates this provision, the transaction with the buyer is unenforceable. Can you say, “free car”?
Laws and regulations in other states address the legality of bird-dog fees in other ways. Some, for example, prohibit payments by a dealer to anyone who is not a licensed salesperson.
Then there are auto “brokering” laws. “What?” you say! A simple referral of a customer—that’s not brokering.
But, oh yes, some states laws call that brokering, especially if there is cash changing hands. State law may require the “broker” to be licensed, or outright prohibit the practice.
So the next time someone in your dealership suggests that some of your marketing dollars be directed to a bird-dog program, remember Uncle Dee, and wander around to your friendly lawyer’s office for a short consultation.
Be careful around the bird dogs.
Vol. 7, Issue 12