NADA Show and the Revised FTC Safeguards Rule

Originally published in March 2022.

Here at the NADA Show 2022, there’s a lot to see and many people to be seen with, but there’s a topic that seems to be on everybody's lips and minds and that’s the revised FTC Safeguards Rule.

On Thursday, before the show began in earnest, NADA put on an educational session describing in great detail the new and additional requirements the Safeguards Rule is going to impose upon dealers and it is a source of great concern. Of major concern to NADA is a dealer's obligation to oversee their service providers.

This is going to require dealers to put out questionnaires, solicit data, and make judgments about the quality of their vendors' Safeguards Programs. And if those Safeguards Programs are not up to snuff, dealers have to terminate those service providers.

But it works both ways. If the dealer can't meet the Safeguards Rule they may not be able to do business with their banks and we're already seeing banks putting out contract addenda to their lender agreements requiring dealers by contract to comply with the Safeguards Rule. If the dealers don't comply, they will not be able to sell their paper as of the enforcement date of December 9th, 2022.

Is it going to take time to get all of this together and meet the new requirements of the Safeguards Rule? Absolutely. NADA’s Brad Miller said you should be working on it already. It’s a lot to do and the window you have to accomplish it all is rapidly closing.

The Americans With Disabilities Act and Dealers

Originally published in June 2021.

Today we’re going to talk about how dealers should address the Americans With Disabilities Act.

Today’s topic is prompted by an email message we received from a client dealer who asked if we could create training content addressing the Americans With Disabilities Act. We will, but wanted to respond immediately, which is why we’re providing this particular segment.

Origins of The Americans with Disabilities Act

The Americans with Disabilities Act – ADA for short – was passed in 1990. As a second-year law student interning on Capitol Hill, I actually attended the first Senate Committee hearing on this legislation in 1987. The Senator presiding over the hearing was Ted Kennedy, and the first witness was his son, Ted, Jr., who had his right leg amputated due to cancer when he was 12.

In broad terms, the ADA prohibits discrimination based on actual or perceived disabilities. It applies to dealerships in two main areas: employment and as a “Public Accommodation.” We’ll deal with employment first.

Dealerships and the ADA

Dealerships are prohibited from disability discrimination in hiring, promotions, training, and other privileges of employment. In the course of hiring, it prohibits questions about an applicant’s disability. Does this mean you must hire disabled employees for any position? Not necessarily. Rather, you’re required to make a “reasonable accommodation” for the known physical or mental limitations of an otherwise qualified individual unless it would create an undue hardship.

Reasonable Accommodation & Undue Hardship

What’s a “reasonable accommodation?” And what constitutes an “undue hardship?” A dealership was recently sued when one of its employees was diagnosed with cancer. A reasonable accommodation would be to allow her unpaid days off when she needed to go to her chemo treatments once a month. Giving her the time off was not considered an undue hardship. But the devil is in the details, and that’s why you have local counsel to consult when these questions come up.

Public Accommodations

The second area of responsibility flows from dealerships’ status as public accommodations. This means that you must remove barriers to access for people with disabilities at your dealerships. Because the ADA has been the law of the land for over 30 years, most dealership facilities have access ramps for people in wheelchairs, lowered urinals and sinks in the restrooms, and braille signage on the walls.

But what about hand controls for disabled customers who want to test drive a vehicle? There is Department of Justice guidance on that exact question from 1994, and it suggests installing those controls would not be an undue burden. If you want to read that document – and you should - you may access it through the URL on your screen.

Your Dealership's Website

I’ll end with one current ADA hot button – your dealership’s website. There is case law that holds websites are included within the definition of public accommodation. This means, at a minimum, that your website should be compatible with assistive software, such as screen readers that assist blind people. This is a very, very big issue – all I want to do today is make you aware of it and suggest you have your IT staff or outside IT consultant audit your website for accessibility. Suing companies for non-ADA-compliant websites is a cottage industry, and you don’t want to get caught up in one of those lawsuits.

And if you have a question you’d like to see addressed in a future episode, send me an email. You never know.

Dealer Doc Fees and Advertising

Originally published in October 2021.

Today we’re going to talk about how to charge a doc fee without attracting the attention of the FTC, the CFPB, or your local bar association.

The story you’re about to hear is true. The details have been changed a bit because I don’t want to embarrass anyone, while at the same time I want to share this as a cautionary tale. But first, a little background.

What's a Doc Fee?

What is a doc fee, and why does it matter how and when it’s disclosed? A doc fee – short for document or documentation fee – is sometimes called a dealer fee or something else. It’s intended to cover the costs a dealership incurs in preparing the documentation related to a retail vehicle sale or lease. Let’s be clear – it does cost money to administer all that paperwork, and there’s nothing wrong with charging for those services.

Over time, as competition and the Internet’s free flow of information created downward pressure on vehicle prices, dealers were tempted to increase their doc fees as a means of holding front-end gross. Many, many dealers gave in to this temptation in states where it was legal to do so. Thus, we now see docs fees over $1,000 in the states that do not cap those fees.

State Statutes

Approximately 1/3 of the states have statutory limits on what dealers may change charge in the nature of doc fees, ranging from $65 in California (for dealerships that don’t provide on-site registration) to $300 in Maryland. For the 35 states that don’t regulate doc fees, it can be the Wild West. So here’s Takeaway No. 1: Know your state’s doc fee limit and don’t exceed it. If your state doesn’t regulate doc fees, don’t be greedy: the tallest blade of grass is usually the first one to get cut!

Key Takeaways

And here’s Takeaway No. 2: Even if you’ve priced your doc fee appropriately, you can still get in trouble if you don’t advertise it properly. Why is that? Because – regardless of state laws – the FTC’s prohibition on deceptive advertising makes it unlawful for dealership ads to misrepresent the total price a customer will pay for a vehicle. If a $900.00 doc fee is added at the end of a transaction, it needs to be included in the advertised price – full stop.

I got an email about a dealership that did not include its doc fee in its advertised prices, but with pair of reasons for the omission. First, there was strong price competition in its market, so if they included their doc fee in the advertised price, no one would visit their store. Just let that sink in. “We knowingly lie in order to get customers.” Not a sustainable business model.

The second reason was that the dealership didn’t know what the doc fee would be until the customer actually bought the vehicle. How could that be, you might ask? Because the dealership charged one doc fee for customers it financed and a higher doc fee for cash or third-party financed customers. The dealer rationalized this by saying he needed to charge cash customers a higher doc fee to compensate the dealership for the money it did NOT make by financing the vehicle.

We provided that dealer with the information I just described. I hope he will go forth and sin no more. And I hope you always include your doc fee in your advertised prices. Failing to do so can lead to unwanted attention from the FTC, the CFPB, and your local bar association, and we don’t want that.

If you want more detail on this topic, NADA has published an outstanding resource called “A Dealer Guide to Federal Advertising Requirements.” It’s available to NADA members through their website, and I highly recommend it.