Today’s auto dealerships contend with a staggering number of state and federal laws that seek to protect consumers and employees from questionable practices. Even if your business is completely above board, running afoul of these laws can lead to steep fines and penalties, not to mention the resulting reputational damage. It’s never been more important to shore up your compliance strategy, especially considering car dealers are grappling with increased operational expenses, compressed margins and declining sales volumes, according to a 2019 article from Automotive News.
As the market landscape changes and people are more connected than ever, data privacy and compliance have become a key topic for consideration when laying out business strategies. It’s critical that you and your dealership staff are aware of the laws and regulations that impact you and especially your customers.
Of course, keeping pace with the growing number of laws and regulations can be a massive headache. In addition to nationwide edicts, each state has its own specific compliance initiatives and enforcement guidelines, making a broad approach counterproductive. To help your business anticipate regulatory speedbumps, let’s take a close look at some of the dealership regulations currently on the books.
8 Dealership Regulations Designed to Protect Your Customers
Generally speaking, dealership regulations can be broken down into two categories based on their intended purpose: protecting consumer rights and safeguarding employees from exploitation. While there is sometimes overlap between different laws, it’s important for auto dealers to understand their responsibilities under each separate regulation to avoid compliance issues.
To help get you started, here are some of the dealership regulations focused on consumer rights:
Please keep in mind, the following information is not intended to be used as legal advice. You should consult your local counsel to learn the specific steps your dealership should take to ensure compliance.
The Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (GLBA) is the main federal law that sets forth your dealership’s obligations to safeguard and protect consumers’ nonpublic personal information, which includes names, addresses, phone numbers and social security numbers, among other things.
The GLBA consists of two parts: the Privacy Rule and the Safeguards Rule.
- The Privacy Rule is concerned with how your dealership shares information about customers who obtain or apply for credit or lease products from your dealership.
- The Safeguards Rule addresses how your dealership protects information about your finance and lease customers. It requires you to develop, implement and maintain a comprehensive written information security program.
The GLBA essentially requires auto dealers to pay close attention to how you collect, store, share and protect consumers’ personal and financial information. Data protection and customer confidentiality are a top concern in today’s marketplace, and failure to comply with GLBA comes with large penalties. Financial institutions (including dealers) found in violation face fines of up to $100,000 per violation. Individuals in charge can face fines of $10,000 for each violation and can be put in prison for up to 5 years.
The Disposal Rule
The Disposal Rule is a federal regulation that applies to consumer reports. It requires dealers to employ disposal practices to prevent the unauthorized access to - or use of - information in a consumer report. The proper disposal of these reports includes measures like shredding papers and erasing digital records.
Because car dealers are also subject to the GLBA Safeguards Rule, you should incorporate practices dealing with the proper disposal of consumer information into your Information Security Program required by the Safeguards Rule.
The Magnuson - Moss Warranty Act
The Magnuson - Moss Warranty Act is a federal law regarding consumer product warranties. It was enacted to protect consumers from deceptive warranties and to make warranties more readily understandable and enforceable against the manufacturer or seller. Under this regulation, if a warranty is given, “all manufacturers and sellers of consumer products” must provide detailed information about the warranty coverage upfront. The act includes three basic requirements on which all other requirements are based:
- If a seller or manufacturer gives a written warranty, it must be clearly and conspicuously labeled as either “full” or “limited.”
- The warranty coverage information must be contained in a single, clear and easy-to-read document.
- Warrantors and sellers must ensure that written warranty information is available at the point of purchase so that consumers are given a chance to read it before buying.
For auto dealers, this regulation applies to new and used vehicles, aftermarket parts and even fixed ops services like tire replacements. Any mechanical and electrical systems that require parts to be switched out would also fall under this warranty act. As such, it’s crucial for all of your written product warranties to be clearly displayed at your dealership and on your website.
The Used Car Rule
The FTC’s Used Car Rule protects consumers from deceptive acts and practices in connection with the sale of used vehicles. It ensures that consumers receive all material facts in connection with the sale of used vehicles, and aims to prevent dealers from verbally misrepresenting the terms of warranty coverage prior to or during the sale. The rule accomplishes these goals by requiring dealers to provide various written disclosures to prospective buyers, including Buyer’s Guides on vehicles prior to offering it for sale.
These guides must be posted prominently and conspicuously on the vehicle being sold and must include:
- Detailed information on existing warranties
- An advisory about pre-purchase car inspections
- A breakdown of any major mechanical and electrical systems the vehicle possesses
According to the FTC, dealerships that violate the Used Car Rule can be subject to penalties exceeding $40,000 per violation.
The Truth in Lending Act
The Truth in Lending Act and its accompanying regulation, Reg Z, was passed by Congress to require creditors (including car dealers who sell cars on credit) to make disclosures to consumers about the cost and terms of credit. This ensures customers can easily compare loans and financing rates offered by different dealers and financial institutions to select the best lending options for their specific needs. All creditors are required to use the same terminology and expressions when discussing rates, and customers must be presented with disclosures in writing when applicable. Under the Truth in Lending Act, auto dealers must disclose:
- The creditor’s identity
- The amount financed (along with either a written itemization or a statement that the consumer has the right to one)
- The finance charge
- The annual percentage rate
- The consumer’s detailed payment schedule
- The total of payments
- The total sale price
- A prepayment statement
- Any dollar or percentage charge that may be imposed before the maturity of the contract due to a late payment other than a deferral or extension charge
- The fact that the dealer has or will acquire a security interest in the vehicle being sold or in other property by item or type
- The disclosures required to exclude certain charges from the finance charge
- A statement that the consumer should refer to the contract for information about non-payment, default, the right to accelerate the maturity of the contract, and prepayment penalties and rebates
Failure to comply with this regulation can result in a fine of $5,000 and/or imprisonment of up to one year, or both, according to the FTC. In many cases, a plaintiff must prove that an auto dealer willfully and knowingly violated the act in some way, though there are exceptions.
The Equal Credit Opportunity Act
The Equal Credit Opportunity Act was enacted to help combat discrimination in the lending industry. Under the act, lenders and creditors cannot discriminate on the basis of race, color, gender, religion, national origin, age or because one’s income is derived from public assistance. Additionally, the act requires creditors to notify applicants of any actions taken on their applications (whether they approve the application, reject the application or would approve the application on different terms).
Since auto dealers are considered “creditors” under the Equal Credit Opportunity Act, you must be careful to not infringe upon the rights of potential buyers. Penalties for noncompliance can be severe, as dealerships that fail to uphold the regulation are subject to civil liability for actual and punitive damages in individual or class actions.
While informing your workforce about this essential regulation can help your sales and F&I teams remain compliant, the best way to protect your business is through comprehensive training and employee development courses.
Over the past few decades, the FTC has introduced new laws intended to protect consumers from false and/or misleading advertising. Regardless of which channels your dealership advertises through - social media, Google ads, radio, television, print, etc. - you must ensure all messaging is transparent and accurate. The FTC’s guidelines include three major rules that auto dealers must uphold, including:
- All advertising must be truthful and not misleading.
- All claims made in advertising material must be backed by evidence, both for express and implied claims about the quality of the products.
- Advertisements cannot be “unfair,” meaning they cannot “injure customers, violate established public policies or be otherwise unethical.”
As online competition continues to grow, dealerships’ marketing efforts will likely increase in both frequency and boldness. However, to avoid breaking the FTC’s truth-in-advertising regulations, it’s essential that your marketing strategy is built on sound and honest claims. Civil penalties for noncompliance can range from thousands to millions of dollars, depending on the severity of your violation.
California Consumer Privacy Act (CCPA)
This landmark legislation, which took effect January 1, 2020, secures rights for California consumers as it relates to their privacy and the data businesses collect about them. While you might not do business in California, other states have taken steps to enact similar legislation and many states plan to have similar laws in effect within the next couple of years. This means you may want to start preparing now for what will likely be a permanent shift in how we do business.
Below is an overview of the rights the CCPA grants to California consumers:
- The right to know what personal information is collected, used, shared or sold by businesses
- The right to delete personal information held by businesses
- The right to opt-out of sale of personal information by businesses
- The right to non-discrimination in terms of price or service by businesses
Keep in mind that this is a very brief overview of a complex regulatory system. We strongly suggest you consult your local counsel to learn what steps you need to take to become and remain compliant.
Now, more than ever, consumers are aware of what data they share and how it’s stored and sold by companies they do business with. You must take every reasonable measure and effort to protect your customers’ information, and as a result, your reputation and bottom line.
Staying on top of these and other major dealership regulations can feel like a full-time job. Luckily, the compliance experts at JM&A Group are here to help. To learn more about regulatory requirements in the automotive retail industry, contact a JM&A representative today.