One might as well use cash to light fires as to ignore potential regulations, as they can be extremely expensive, directly and indirectly. Regulations yield duties that must be discharged. Failure to discharge them triggers investigations, fines, litigation, class actions, and so forth.
While attending a conference recently, I spoke with the president of a state dealer association who remarked that many general managers in her state are not involved with the association and don’t really concern themselves with what it does. I agreed with her that such a perspective is a grave blunder.
As an attorney for over 40 years, I have observed that both federal and state governments promulgate industry laws by the cart full, good and bad. Many of these laws are convoluted and require legal tracking and scrutiny. Who’s monitoring these legal developments and looking out for you, the dealer? Who lobbies against them to protect dealer interests? Primarily and foremost, it’s the dealer associations.
The most sweeping change to consumer law in the 21st century occurred with the passage of the Dodd-Frank Act, which produced the Consumer Financial Protection Bureau, a powerful governmental agency charged with fearsome power and a mandate. The CFPB engages in supervisory activities, some leading to audits and prosecutions of regulated companies. Most independent and buy-here-pay-here dealers fall under the CFPB’s supervision but, remarkably, not franchise dealers. This exclusion was due to the efforts of dealer associations and has saved franchise dealers millions and millions of dollars.
How much regulation directly costs dealers was addressed in a study by the Center for Automotive Search at the behest of the National Automobile Dealers Association in 2014. The results were astounding. In 2014 dollars, the average dealership incurred $182,754 annually in federal regulatory cost, which was 24.7% of the average dealers’ before-tax profits for 2012, or $2,400 per employee. These costs were only for federal regulation and didn’t include state regulation, nor the potential indirect costs of noncompliance, such as fines and litigation.
Pending Regulation
This proposed regulation further festoons dealers with added legal mandates. According to CAR analysis, median upfront costs for this rule will be $46,950 per location. These costs include training, IT system investment, and related expenses. On a national basis, the rule will burden automobile dealers with a total outlay of $2,184,348,750. Dealer associations are presently and vigorously objecting to this proposed rule.
The Most Regulated Industry in America?
The opportunities to prosecute dealers are brimming with prosecutorial potential. One need only consider the multitudinous number of these laws to recognize the legal challenges visited upon dealers and the possibility of prosecutorial mischief, such as can manifest themselves by the Truth in Lending Act; Unfair and Deceptive Trade Practices Act; Equal Credit Opportunity Act, and so on, seemingly ad infinitum. Dealer associations monitor these laws, as well.
State Regulations
Federal regulations generally address disclosure issues, whereas state regulations not only include disclosures but also substantive matters, such as legal limits on how much interest can be charged. State laws address finance charge rates, insurance, titling and default charges, among many other issues. Dealer associations are often headquartered in state capitals since they regularly lobby state government to restrain these many laws.
Support Your Local Dealer Association (and NADA and NIADA)
Regulation is not only costly to implement, but it can be far more costly not to implement due to prosecution and litigation. Dealer associations are your bulwark against this regulation. It’s best to fully support dealer associations to avoid these calamities.
ABOUT THE AUTHOR
Terry O’Loughlin is director of compliance for Reynolds & 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.
