I had the pleasure of addressing a 20 Group recently regarding the current legal culture. The exasperation of the assembled dealers was palpable, as it normally is when dealer prosecutions are discussed. I always emphasize at these meetings that dealers need to track the approach taken by regulators: simple legal analysis.
Law School and Legal Analysis
I thought that I would study the various bodies of law when I began law school, reading each statute and regulation. Law students most certainly read these bodies of law ultimately, but the primary focus of law school is identifying key issues from fact patterns, ascertaining which laws apply, and reaching a result. Dealers should also employ this kind of thinking, considering their many compliance obligations.
IRAC – It’s Not a Nation in the Middle East
The acronym IRAC means issue-rule-application-conclusion. Dealers and their designates, such as general managers, finance managers and compliance officers, need to understand this thought process to be proactive and effective. The compliance obligatory imperatives are quite numerous, as indicated below. I related to this 20 Group that I probably could visit their stores and find something wrong, even though they may have a rigorous compliance program, as the legal challenges for dealers are so many. Dealers should focus more on the issues that can get them into trouble.
Why IRAC? Dealers’ Compliance Obligations
Dealers may be in the most regulated business in the United States as the following indicated NADA publication so pointedly illustrates. They must attempt to follow all these laws, but like law students, they need to especially focus on the key issues where regulators are focusing their attention.
The partial list of dealer compliance imperatives is contained in an excellent publication by the National Automobile Dealers Association, “Regulatory Maze,” which is available online. Every dealer should have a copy of this publication and study it. Their financial existence is at risk for infractions of these laws.
IRAC Also Applies to Regulators
It’s important to note that IRAC also applies to regulators. Dealers should pay attention to the typical and current issues being prosecuted. Regulating agencies are pulled in various directions. For example, state attorneys general address issues regarding antitrust, civil litigation, criminal appeals, Medicaid fraud, lemon law, consumer protection, and so forth. Which issue is pressing on your attorney general’s office presently? Inquiring dealer minds should want to know.
The Dealer Regulatory Hit List
The Vehicle Shopping Rule/CARS Rule has taken a detour. Various issues identified in this defeated rule remain, but which ones? A neutered Consumer Financial Protection Bureau, defanged Federal Trade Commission, and uncompromised state agencies will continue their grim trudge to prosecute dealers. With over 150 potential Unfair or Deceptive Acts or Practices infractions, there are many pitfalls for dealer liability. Every dealer should understand UDAP.
Advertising is a chronic and everlasting issue for dealers due to its prominence and ease of prosecution. Dealers should pay heed to their advertising in its many forms. In the past year, a major dealer association was informed that its membership will now be targeted by the attorney general for violations. This same attorney general’s office hadn’t been prosecuting advertising infractions for many months but now will be doing so with severity.
In addition to false advertising, other issues which have risen to prominence in the past few years are price and fee transparency, discrimination, junk fees, and applying joint and several liability, i.e., both dealer and employees, such as general managers, would be responsible for paying all the penalties, together or separately.
Moreover, states, most notably California, are proposing their own CARS rules. Other states, such as New York and Massachusetts, have passed new laws regarding UDAP and junk fees. Pennsylvania also passed related legislation.
The hit list will continue.
Exasperation – Compliance Is Inescapable
The ancient yet continuously relevant philosophy of Stoicism posits that one should accept what is, rather than fight it. Compliance is. Dealers need to accommodate this reality and deal with it by tracking key issues and preparing today for tomorrow. Cite the issue.
Terry O’Loughlin is director of compliance for Reynolds and Reynolds and is admitted to the Pennsylvania and Florida bars. Before joining Reynolds, he was employed by the Florida Office of the Attorney General, where he investigated automobile dealers and financing sources. He previously was a public accountant.
