New Used Car Guide Sweep
The first initiative was a 20 -state sweep in partnership with local law enforcement authorities for compliance with the new Used Car Rule. The FTC amended the Rule and published a new Buyer’s Guide form in November 2016. It requires the new Buyer’s Guide to be conspicuously placed on all used vehicles for sale. The mandatory compliance date was January 28, 2018.
In their sweep, the FTC and its partners conducted on site reviews of 94 dealers and found that only 14 had the new Buyer’s Guides on all their used vehicle sales inventory. That’s less than 15%. 33 had the new Guides on half of their used cars and the remaining dealers did not. Not good.
According to the FTC,
“Following the sweep, the FTC sent letters to each dealership detailing the results of the inspections and providing material to help them come into full compliance with the amended Rule. Over the coming weeks, dealerships that were not displaying the revised Buyers Guide can expect follow-up inspections to ensure they have brought themselves into compliance with the amended Rule. Under the FTC Act, dealers who fail to comply face penalties of up to $41,484 per violation. State and local law enforcement agencies also enforce the recently amended [Used Car] Rule.”
Several years ago, when the penalties were only $16,000 per violation, another sweep and follow-up led to the FTC fining an Arkansas dealer $88,000 for not displaying Used Car Buyer’s Guides on its used vehicles. Expect more sweeps and higher fines for those dealers that do not have the new Buyer’s Guides on all, or substantially all, of their used vehicles that are offered to the public for sale or lease.
The new Used Car Buyer’s Guide focuses on dealer warranties and there are two forms. One for states that permit “as is” sales disclaiming all warranties and one for states that do not permit disclaimer of implied warranties. You can find the English version of both forms at https://www.consumer.ftc.gov/articles/pdf-0083-buyers-guide.pdf
Remember that if you conduct the sale in Spanish, you must use a Spanish version of the Used Car Buyer’s Guide. You can find these at https://www.ftc.gov/es/system/files/documents/plain-language/cfr_buyers_guides_spanish_form.pdf
It is not required but it is a good idea to get the customer to sign the Buyer’s Guide acknowledging receipt. The FTC allows you to put a customer signature line on the back of the Buyer’s Guide provided it is preceded by the following words: “I hereby acknowledge receipt of the Buyer’s Guide at the closing of this sale.”
The FTC’s Initiative Against Falsifying Credit Applications and Deceptive Advertising
This past month, the FTC filed a lawsuit in a federal court in Arizona seeking injunctive and monetary relief against a four-store group. They also sued the principals of the group in their personal capacities. That alone is an important reason to take notice of this lawsuit.
The FTC had never brought an action against dealers (or their principals) who falsify credit applications such as, in this case, by inflating customer’s income and down payments to get deals funded by lenders. One of the four stores was found to have inflated income or down payment amounts 44% of the time! And it wasn’t nickel and dime stuff. One customer cited by the FTC told the dealership she had a fixed monthly income of about $1,200, but a dealer’s staffer allegedly inflated it to $5,200 in the paperwork.
The complaint also charges that the defendants often used tactics that prevented people from reviewing the documents. The dealer’s personnel allegedly rushed some consumers through the process; had them fill out forms over the phone or in places like grocery store parking lots or restaurants; or altered the documents after consumers signed them.
This behavior went on for several years until one lender that experienced a disproportionately high default rate from the dealer’s customers did an audit and uncovered the schemes.
The dealer group was also charged with false advertising. The first thing the FTC looks at in dealer advertising is whether “triggered terms” required by federal Truth in Lending (“TILA) and the Consumer Leasing Act (“CLA”) were made in the ads. In many instances, they were not and that creates another unfair or deceptive practice.
As a refresher, in credit sales, if you advertise any payment amount, the term, amount or percentage of down payment, or the amount of any finance charge, then you must include (the triggered terms) the APR or annual percentage rate using one of those terms, the down payment, and the terms of repayment.
For leases, if you advertise the amount of any payment, a statement of any capitalized cost reduction or even that no up front payment is required ($0 down), then the triggered terms you must advertise are the fact the transaction is a lease, the amount due prior to lease signing or delivery, the number, amount and due dates of payments, and whether or not a security deposit is required.
The FTC always starts by looking for triggered terms in an ad. In this case, they also found that deceptive advertising took other forms. For example, one YouTube ad claimed the featured car “can be in your driveway for only $169 per month.” In fact, consumers can’t buy that car for the advertised monthly payment. That amount applies only to a lease. What’s more, the FTC says the ad didn’t clearly disclose that to get that monthly payment, consumers must shell out $2899 plus other fees at lease signing.
Then there’s the online ad where the company touted an “incentive” discount of $5,250. But buried behind multiple hyperlinks was the fact that the discount was available only to consumers who trade in a 1995 or newer vehicle or terminate a lease from another car company 30 days before or 90 days after delivery. In addition, the lawsuit charges that the dealer’s social media posts failed to disclose required triggered terms.
These two initiatives will almost certainly result in some huge monetary penalties against select dealerships. And both initiatives show that the FTC is prepared to go into new areas and partner with State Attorneys General and other local law enforcement to assemble data against rogue dealerships. You don’t want to be one of those rogue dealerships. Here are some strategies you might want to think about using:
- Make certain that the new Used Car Buyer’s Guide is attached to every used vehicle that is being offered for sale on the lot and keep vehicles without the Guide in an area where customers cannot get to them.
- Get a hand or electronically completed credit application from each customer and make sure there are no changes made. If a customer wants to change something on the credit app, get them to fill out a new one.
- No deal is worth incurring the ire of the FTC. The FTC gets its dealer list to investigate from consumer complaints, referrals from agencies like the Better Business Bureau, and state and local law enforcement. Implement a mediation process so aggrieved customers don’t go to these sources and weight the process in the customer’s favor. An arbitration clause is not binding on the FTC.
- Understand the FTC does “mystery shopping” of the entire car buying experience from initial contact to final delivery. Treat every deal as though an FTC officer were sitting across the table because they may be doing so. Honesty, transparency, and doing the right thing for the customer should be a part of your dealership’s operating philosophy.
- Remember that fines have increased from $16,000 per violation to $41,484 per violation. FTC settlements in the past year have frequently exceeded $1,000,000 in fines, penalties and customer redress. Something to think about when trying to squeeze the customer in the F&I office.