By: J. Eric Gregory (Attorney)
This article is not designed to be legal advice or representation to you or your dealership: it is instead written to help you consider your dealership’s practices and help you better manage your business. I write this as a practicing attorney who knows the car business from the inside out from my 25 years of experience as a dealer principal in new and used car dealerships..
I know first hand that dealers like you are hard working, visionary business leaders who generally are very busy working “in” your business and don’t have much time to work “on” your business. The “Buyers Guide” is an area that dealers can put in a little up front work and as a result virtually eliminate the potentially debilitating fines and penalties that can result from improper implementation.
As you are likely aware you are required to adhere to the FTC’s Used Car Rule. The rule among other things requires dealers to disclose whether the cars they sell come with a dealer’s warranty or are sold “as is.” If a dealer sells a car with a dealer warranty, the Rule requires the Buyers Guide list the warranty’s basic terms and conditions, including the duration of coverage, the percentage of total repair costs to be paid by the dealer, and the exact systems covered by the warranty.
If you are like most dealers you think you already know and implement the Used Car Rule. By way of example, I was recently on a site visit with one of my clients and even though they thought this was one area they had covered, when I did a walk around I found $1,075,000 in violations! They were very thankful I was there to help them instead of an auditor ready to assess penalties. So you think know about the Rule but honestly ask yourself if you are you like my client and you are not properly implementing the Rule? If you still think you are “ok” I offer another example of when the FTC randomly inspected 14 car dealers and found “of the dealers surveyed, only nine, or about two-thirds, were in compliance with the FTC’s Used Car Rule”. I hope you are not one of the one’s that’s in the wrong 1/3 of the dealers audited.
The FTC is also diligent about educating consumers to look for Buyers Guides and to report non-compliance. In an article currently on the FTC website they write to consumers: “So if you’re shopping for a used car at a dealer, make sure the Buyers Guide is displayed. If not, the FTC wants to hear about it.” Consumers are looking and the FTC will likely respond if consumers report discrepancies. You need to be in compliance as its just good business.
Now that I’ve got you thinking about the Buyers Guide and your need to make sure you are implementing it, the rule is changing. Among other things the FTC penalties are going way up which should motivate you even more to inspect your procedures, confirm you are in compliance and create a procedure to make sure you get into compliance with the new Rule. With the new Rule the penalties go up from $16,000 per violation to $40,000 per violation.
The recent FTC changes to the Used Car Rule as it applies to the Buyers Guide as announced on November 10th, 2016 include:
- changing the description of an “As Is” sale;
- placing boxes on the face of the Buyers Guide that dealers can check to indicate whether a vehicle is covered by a third-party warranty and whether a service contract may be available;
- providing a box that dealers can check to indicate that an unexpired manufacturer’s warranty applies;
- adding air bags and catalytic converters to the Buyers Guide’s list of major defects that may occur in used vehicles;
- adding a statement that directs consumers to obtain a vehicle history report and to check for open recalls. The statement also instructs consumers to:
- visit ftc.gov/usedcars for information on how to obtain a vehicle history report; and
- visit safercar.gov to check for open safety recalls;
- adding a statement, in Spanish, to the English-language Buyers Guide, advising Spanish-speaking consumers to ask for the Buyers Guide in Spanish if the dealer is conducting the sale in Spanish; and
- providing a Spanish translation of the statement that dealers may use to obtain a consumer’s acknowledgement of receipt of the Buyers Guide.
Although the amended Rule permits dealers to use their remaining stock of Buyers Guides for one year after the January 27, 2017 effective date these changes offer dealers a great opportunity to tune up their compliance right now and may give the FTC a new motive to inspect dealer’s adherence. Use this chance to check your current procedures and implement new standard operating procedures to conform to the new changes to the Used Car Rule. See the full article for more information or contact my office for specific guidance.
We will continue to bring you tips for complying with this and other rules, regulations and laws that can slowly slip away from your attention. Fines are steep; so consider the cost of compliance versus the cost of violations. Remember the quote from Hall of Fame basketball player/coach John Wooden, “If you don’t have time to do it right, when will you have time to do it over?” My team and I are here to offer you support either through giving you information or aiding you in a compliance review of not only the Used Car Rule but the myriad of other rules, codes, laws and compliance issues that face you and your dealership everyday. A compliant dealership is a successful dealership, so if your team isn’t aware of the FTC Used Car Rule and it’s new changes, take the time to educate them and ensure your dealership is always on the right side of the law.
If you would like more information on this topic or are interested in compliance assistance please contact me at (404) 483-1212 or our paralegal, Rick MacLeish, at (770) 639-0772. Check out our website at www.cardealerattorneys.com. We offer discounts for GIADA members.
 15 U.S.C. 45(m)(1)(A) (unfair or deceptive acts or practices)—Increase from $16,000 to $40,000