NEW YORK – Some government regulators enjoy hunting for dealers, which is why dealers shouldn’t give them ammunition.
So says attorney Leonard Bellavia, a dealer’s son who specializes in representing auto retailers who can find themselves in the crosshairs of state attorneys general, federal trade commission rule enforcers and the like.
“Regulators seem to like having dealer heads as trophies,” he says during a session called “Understanding Regulators” at the 2014 Automotive Resource Network Conference here.
Attorneys general are particularly trigger happy as elected officials who can play politics, he says. State departments of motor vehicles actually wield more power, "but they’re less political.”
DMV cases against dealers usually stem from consumer complaints, he says. “There’s an actual adjudication process, so you can ferret out bad cases. DMV cases are more defensible for us, which is not to say AG cases aren’t.”
But attorneys general come well-armed. One of their powerful weapons is the dreaded press release. It can do a lot of damage in graphically describing alleged dealer wrongdoing, typically involving dubious wording of ads.
“You have to worry about press releases,” Bellavia says, noting it’s not just members of the general public who may read them. It’s also people with longer memories.
“Consumers tend to forget things like that in the news, but lenders and manufacturers don’t,” he says. “A franchise agreement can be terminated based on truth-in-lending violations.”
The wording of some ads, while technically correct, can put a dealer at risk, Bellavia says. “Let’s not win the battle and lose the war.”
He recalls a dealer got in trouble because his ad didn’t state the obvious. The dumbfounded dealer lamented, “But of course you have to be a veteran to get a veteran’s discount.”
Other ad missteps are more egregious. The old bait-and-switch is a surefire way of drawing unwanted attention from government agencies such as the FTC, which this year launched “Operation Steer Clear,” investigating ad practices of 10 dealerships. Nine of them entered into consent agreements.
A common theme of those alleged violation is the use of disclosures that seem less likely to explain a promotion and more likely to negate it.
For example, listing a car for $13,995 and then saying in fine print that it’s subject to an additional $5,000 payment is asking for trouble.
Doing something like that “is going to catch the eye of an FTC regulator,” Bellavia says. “I’ve had good-faith disagreements (with regulators). On the other hand, some cases are indefensible. We’ll often advise a client to settle a case.”
For regulators, an ad’s litmus test is whether it will deceive a reasonable person. “That’s pretty broad,” Bellavia says.
Here are examples of other advertising no-nos:
- A teaser promoting $99 a month payments, but a footnote saying that’s only for the first five payments, with the rest amounting to $517 a month. “In the eyes of regulators, footnotes are meant to deceive,” Bellavia says. “If a disclosure is not next to a listed price, it doesn’t matter to them what a fine-print footnote says.”
- 0% financing for any new Honda under $12,000 when, in fact, no new Hondas are under $12,000.
- Offering to pay off the negative equity on a trade in, then rolling that amount into a new loan. “The customer thinks the loan is forgiven. Clearly, that’s misleading,” Bellavia says.
