Like it or not, more regulations and rules are coming for auto dealerships. Most dealers already know about the new amendments to the Federal Trade Commission’s Safeguards Rule, which requires dealers to develop an information security program to protect consumer information. And recently, the FTC proposed a new rule to ban junk fees and bait-and-switch advertising tactics.
The National Automobile Dealers Assn. is going to bat for dealerships to try and stop or limit the scope of these rules. I’m not optimism that these efforts will succeed. As vehicle prices have been rising and affordability declining, there has been a significant increase in consumer complaints. History shows us there is a direct correlation between consumer complaints and rules being passed.
In addition to the new regulations, the FTC is stepping up enforcement efforts. Dealerships will either have to come into compliance or face large fines.
How to Prepare
If you look at the proposed FTC rule to ban junk fees and bait-and-switch advertising, all of it requires is more transparency from auto dealerships, which is what consumers have been demanding for years. The main requirements for dealers include:
- Requiring full disclosure and customer consent to purchase optional F&I products such as paint sealants and bonnet bras. Dealers will no longer be able to pre-load these products before the consumer purchases the vehicle, and consumers cannot be required to buy these products as a condition of buying the vehicle. Dealers also will have to post a list of product prices online.
- Dealers no longer can sneak junk fees into purchase contracts for items that the consumer does not know about or has declined. Examples of junk fees include payment insurance and paint protection.
- The FTC is also considering a requirement that dealerships will have to produce a true “offering price” for every specific vehicle they promote.
Regarding the new amendments to the FTC Safeguards Rule, most dealers have decided to partner with a third-party service provider to implement and monitor their information security programs. DMS vendors, law firms and information technology firms can all help dealerships come into compliance with the new rules, but ultimately, the buck stops with the dealer.
Any of the violations of the Safeguards Rule will result in a hefty fine against the dealership, not the service provider. Therefore, it is up to every dealer principal and senior personnel to understand the basics of what is required under the new rules.
Compliance no longer is just the domain of the F&I manager, but also the responsibility of dealer principals, general managers, used car managers, accounting personnel, marketing personnel and legal personnel.
NADA and other companies offer some resources, but for comprehensive training, consider getting key personnel certified by the Association for Finance & Insurance Professionals (AFIP). AFIP is a nonprofit, nonaligned sanctioning body that offers a certification course designed to give dealership professionals all the knowledge necessary to maintain compliance requirements.
AFIP Certification also can be used as proof of knowledge of F&I law and ethics to help settle employee disputes and serve as the cornerstone for a dealership compliance management system.
It is important that dealership personnel are qualified and knowledgeable about compliance, and not to rely on vendors to keep your dealership in compliance. For example, with the new Safeguards Rule it is up to your dealership to complete a risk assessment for every vendor you work with, such as a document destruction company. Additionally, an internal employee must oversee and monitor all service providers and submit a written report to the board of directors annually.
You can choose to fight the new regulations, or you can choose to prepare for them. Offering customers complete transparency, and protecting their personal information, is better for long-term customer relationships. Plus, you will be equipping your employees with valuable skills that can help your dealership better deal with customer complaints and increase efficiency.
Erica Cooper (pictured, above left) is senior manager-training operations for APCO Holdings, a provider and administrator of F&I products for the automotive industry.