Focus on Finance & Insurance

Bad Hearts and Empty Heads When dealership finance and insurance staffers run afoul of the law, there are usually two reasons, says attorney James S. Ganther who specializes in helping dealers stay out of legal trouble. He likens the problem to anatomical ailments of sorts. The offenders either have a bad heart in need of an ethical bypass or they have an empty head, and somewhere in America, a village


Bad Hearts and Empty Heads
When dealership finance and insurance staffers run afoul of the law, there are usually two reasons, says attorney James S. Ganther who specializes in helping dealers stay out of legal trouble.

He likens the problem to anatomical ailments of sorts.

The offenders either have a bad heart in need of “an ethical bypass” or they have an empty head, and “somewhere in America, a village is missing its idiot,” says Ganther.

It's tough trying to straighten out someone with a bad heart, but its relatively easy to reform a dealership employee with an empty head, says Ganther, Continental-National Services Corp.'s vice president and general counsel who spearheads the firm's dealership legal education efforts.

Empty-headed liability often stems from someone doing things wrong “not because they are bad, but because they didn't know any better,” he says.

But dealership staffers suffering from either malady can land themselves and their dealer principals in court. Ganther estimates there are 40,000 pending lawsuits against dealerships in the U.S.

Many of those civil complaints stem from improper F&I practices. And based on past experience, when the juries award damages to elderly plaintiffs, expect to see “the senior citizen bonus payment,” says Ganther.

High on the “why-dealerships-get-sued” list is taking a trade-in vehicle with negative equity and rolling the outstanding debt into the payment plan of a new-car deal — without telling the customer.

Rolling negative equity into a new-car financing deal is not in and of itself illegal, “but it is if you don't tell the customer, and unfortunately that's a very common practice,” says Ganther.

He and others are trying to convince dealership personnel to end the practice.

“We've always viewed negative equity as something that had to be disclosed,” says David L. Jones, a vice president of General Motors Acceptance Corp. “We've accelerated our training so that everyone knows that and does that.”

Ganther adds that dealerships should never increase a vehicle's cash price on a loan application to accommodate negative equity. “That's against the law,” he says.

His No. 1 rule is to treat customers like royalty. That includes reviewing a deal jacket before denying a goodwill case. “Only angry people sue.”

He sees four types of employees. They are:

  • Unconsciously incompetent. “They don't know what they are doing is wrong.”
  • Consciously incompetent. “They know they are doing something wrong.”
  • Consciously competent. “They are doing it right, but with an effort, sometimes a serious effort.”
  • Unconsciously competent. “They are doing it right without a second though and doing it right every time.”

Meanwhile, in the face of stricter governmental privacy laws, such as the Gramm-Leach Bliley Act, dealership employees must carefully protect all customer information, including social security numbers and credit scores — virtually everything in deal jackets.

“If you have a stack of 10 unprotected deal jackets, that's 10 violations at $11,000 per violation as far as the Federal Trade Commission is concerned,” says Ganther.

Even if such information is stolen from a garbage bag in a dumpster behind a dealership, the dealership is still liable for failing to protect customer privacy.

Ganther says the FTC, in enforcing its beefed-up consumer safeguard regulations, is taking a special interest in computer security. “If you don't protect your computer network, the law presumes you've violated the safeguard rule,” he says.

He recommends computer intrusion- detection systems as well as virus and spyware protection. When it comes to such protection, “stay current,” he says.

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