Who is the biggest, scariest boogeyman that auto dealers speak about in hushed tones around the campfire? Lately, that would have to be the Federal Trade Commission. Over the past year, the FTC has been setting its sights on dealerships, targeting low-hanging fruit such as discriminatory lending practices and false advertising.
Do not let careless mistakes and a lack of common sense allow the FTC to come knocking at your door with a hefty fine. Instead, learn from the recent violations which have hit dealerships across the country. These aren’t just scary stories to tell in the dark, after all.
Malicious Markups
In 2020, back during the middle of a pandemic, the FTC went after an East Coast auto dealer after it was alleged that their sales force was instructed to charge higher markups on new vehicles to minority customers. Allegedly, customers were targeted with higher fees 50% more often than their white counterparts.
The biggest takeaway from this instance—aside from the obvious fact that the FTC is taking a closer look at racial discrimination—is that the Commission named not only the dealership’s owner in the violation report but also the general manager. The FTC is taking note of all employees at all levels.
In response to this violation, the dealership is now required to employ a qualified senior manager responsible for not only ensuring these discriminatory markups never happen again but also overseeing mandated employee training. In addition, the dealership must develop a new lending plan with an interest rate of no more than 185 basis points.
Needless to say, if this dealer had incorporated more comprehensive training for employees, coupled with a progressive lending program much earlier, this whole situation could have been avoided.
Lack of Transparency in Advertising
The cynical among may say that advertising in any industry is never completely honest. And they may have a point. However, when dealerships lie about what they’re selling to customers, you better believe that the FTC takes special notice.
That same dealership dinged for alleged markups was also hit for numerous advertising violations, such as selling vehicles well above their listed price. The FTC found various Truth in Lending Act and Regulation Z violations on the advertisements.
Take special note of the language used in advertisements and promotional materials. Recently, a dealership sold they claimed was ‘like new,’ which is a term the FTC considers subjective and prohibits the use of in their advertising guidelines. After it was sold, the buyer discovered a problem with the ‘like new’ vehicle, and the dealer refused to fix it. An investigation revealed that the dealership told another prospective customer that the car had been worked on before it was put up for sale.
This lack of transparency on the dealer’s part resulted in upwards of $5.8 million in punitive damages. A nice reminder that misleading, and being dishonest through advertising with customers is something that the FTC takes seriously.
What Comes Next?
In addition to these harmful consumer practices, dealers should also be aware that the FTC is looking into violations related to certified pre-owned vehicles, the specialization of which offers customers a lot of ammunition if they seek to allege wrongdoing on the part of dealerships. The FTC is also taking greater note of dealers who violate the Equal Credit Opportunity Act, which prohibits credit discrimination based on certain protected classes.
Many of these violations come down to one thing: ignorance. As always, proper training and education can help avoid a visit from the FTC and instill a higher level of consumer confidence in your dealership.
Contact us today for access to industry-leading training tools and consulting services designed to help you keep your dealership operating at the highest possible level.
