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Facts, Anyone?

Stories about dealer practices that harm consumers are prevalent, but the facts seem to be difficult to come by.

May 2012, F&I and Showroom - Feature

by Tom Hudson

Last year, the Federal Trade Commission (FTC)’s roundtables proved no one has much data about the prevalence of bad practices by dealers. Consumer advocates came armed, as they always do, with sad stories about individuals victimized by dealers. They claimed, with little or no proof, that the practices were pervasive and representative of the way dealers treat consumers.

Industry representatives responded, acknowledging the existence of dealers who did not comply with laws regulating their transactions with consumers. But they also argued there wasn’t a shred of evidence regarding the prevalence of such practices, and they were correct.

To come up with the prevalence of a practice requires a fraction. The numerator of the fraction would be the number of bad acts. The denominator would be the total number of transactions in which the bad acts might take place. Surprisingly, the information necessary to determine that fraction doesn’t seem to exist.

For years, the FTC has collected consumer complaints, each year publishing a “Top 10” list. One category on the list deals with auto-related complaints. Unfortunately, the category is so broad that it includes complaints that have nothing to do with F&I practices, such as complaints about repairs and service. It even includes complaints to manufacturers about car problems. The list is, I suppose, better than no information at all.

The Consumer Financial Protection Bureau (CFPB) also has begun to collect consumer complaints. The bureau focused on credit cards and student loans at first, but you can bet it won’t be long before they begin to receive and compile complaints from car buyers. I just hope they do a better job categorizing the complaints than the FTC has done.

Neither the FTC nor the bureau seem to do anything to determine the validity of the stories they heard. It’s likely the case that some complainants later resolved their issues without notifying the bureau. It also is possible some consumers are misinformed about their transactions and file complaints that are baseless. For instance, a consumer might believe she has a three-day right to rescind a car purchase and complain when the dealer refuses to rescind.

It also is possible (dare we say so) that there are occasional consumers who will never be happy about any transaction and whose complaints are baseless. And we haven’t even gotten to complaints filed by outright crackpots and by the dealer down the street seeking to smear an honest competitor.

But I digress. I was musing about the collection of complaints by the FTC, the CFPB and other consumer-protection organizations that have a complaint-collection process. When you add them all up (which might be duplicative if consumers complain to more than one organization), you end up with only a very, very rough numerator of the fraction you need to determine whether any “complained-about” practice is pervasive enough to address with regulations or enforcement actions.

The other part of a fraction is the denominator. In order for the fraction to be a meaningful measure of prevalence, the numerator and the denominator must be counting the same things. If the FTC’s complaint file is the numerator, and if it includes sales, finance, lease, warranty, repair and service complaints, then the number used as the denominator needs to be the total of all of the transactions out of which those complaints arise. I don’t think anyone knows what that number might be.

But let’s speculate: If there are 50,000 complaints registered in a marketplace where there were 100,000 transactions, most of us would agree that there’s likely a problem there. If there are 50,000 complaints in a marketplace of 250 million auto-related transactions (which might be a really low guess when you throw in everything but the kitchen sink, the way the FTC does), you might think regulators could do more for consumer protection by focusing on, say, identity theft.

The FTC and the CFPB have made public statements that they are interested in facts regarding the prevalence, or not, of various dealer practices decried by the consumer advocates. If they are serious, they will need to determine a denominator that is appropriate for whatever number of consumer complaints they identify. The failure to do so would render their conclusions meaningless.

Thomas B. Hudson is a partner in the law firm of Hudson Cook LLP and the author of several widely read compliance manuals, available at CounselorLibrary.com. ©Counselor Library.com 2012, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to F&I and Showroom magazine. HC#4831-0523-2654 (5/12).

Comment

  1. 1. Katie Newman [ February 15, 2014 @ 10:43AM ]

    Oh please. AS IF mere mortal auto buyers can't interpret a blue book, black book, whatever book "spread":

    Do you seriously think anyone other than a completely uneducated, unsophisticated, innocent, naive, and trusting "mark" believes, for instance, that a 2011 ABC XYZ has a trade value of $4,000 and a retail value of $9,000? Guess Who provides those bogus numbers, anyway? Hint: It ain't the car buyer.

    Your math is faulty. Because not EVERY car-buying victim of a completely lopsided deal knows that they've been had.

    But as long as we're playing with numbers, why not factor THIS into your calculations: Consumers buy maybe 5, 6,7 vehicles in a lifetime. How many vehicles do auto dealerships sell? How many car buyers know what the old "4-Square" shell game is, much less, how it's played? Contrast that with the vast experience in these deceptive matters the auto dealership has, and maybe, just maybe, you'll get a more accurate fix on just who's zooming who.

    Signed, my 75-year-old mom just paid 4k over advertised sales price, 3k over MSRP, and I've a feeling this happens to uneducated, unsophisticated car buyers more often than not

  2. 2. Brian Stone [ May 07, 2014 @ 10:59AM ]

    Much is to be said for the deceptive practices of some of the auto dealers out there, however, unless you are "...completely uneducated, unsophisticated, innocent, naïve, and trusting...", every single 2011 ABC XYZ, in the market today, is booked out on uncountable websites (including NADA and Kelley Blue Book) listing both trade value and retail value, also listed on these websites are the MSRP and INVOICE figures, telling every single customer what the suggested retail price is (MSRP) and what the dealer paid for the car (INVOICE) for every single new vehicle as well. Couple that with the regulations that are now policy, the Privacy Act, the Menu, Risk Based Pricing Notification, Adverse Action Notification, etc., and it makes me wonder what "zooming" even is.
    The "math" is not faulty, the perception that EVERY car-selling dealer is making a lopsided deal on a "victim", is wrong. Based on just the fact that 60% of the "car-buying victims" have some form of credit trouble, and STILL expect the same terms they had before the trouble, including the same APR, down payment (which they never seem to have), term, advance, etc., when the dealer has to pay a fee that can not be passed on to said "victim (the very same customers who can't pay their current car payment, yet spend countless time in dealerships trying to buy much more expensive vehicles)".
    Lastly, why would you not be with your 75-year old mother, if nothing else than for moral support? That is to say, that if all car dealers are "...zooming.." the "completely uneducated, unsophisticated, innocent, naïve, and trusting "mark"s", which I'm assuming you feel your mother is one, based on the "4k over advertised sales price" and "3k over MSRP" remark (which I don't understand either, she either paid sales price or MSRP, but not both), why would you not be there to make sure

  3. 3. Brian Stone [ May 07, 2014 @ 10:59AM ]

    Much is to be said for the deceptive practices of some of the auto dealers out there, however, unless you are "...completely uneducated, unsophisticated, innocent, naïve, and trusting...", every single 2011 ABC XYZ, in the market today, is booked out on uncountable websites (including NADA and Kelley Blue Book) listing both trade value and retail value, also listed on these websites are the MSRP and INVOICE figures, telling every single customer what the suggested retail price is (MSRP) and what the dealer paid for the car (INVOICE) for every single new vehicle as well. Couple that with the regulations that are now policy, the Privacy Act, the Menu, Risk Based Pricing Notification, Adverse Action Notification, etc., and it makes me wonder what "zooming" even is.
    The "math" is not faulty, the perception that EVERY car-selling dealer is making a lopsided deal on a "victim", is wrong. Based on just the fact that 60% of the "car-buying victims" have some form of credit trouble, and STILL expect the same terms they had before the trouble, including the same APR, down payment (which they never seem to have), term, advance, etc., when the dealer has to pay a fee that can not be passed on to said "victim (the very same customers who can't pay their current car payment, yet spend countless time in dealerships trying to buy much more expensive vehicles)".
    Lastly, why would you not be with your 75-year old mother, if nothing else than for moral support? That is to say, that if all car dealers are "...zooming.." the "completely uneducated, unsophisticated, innocent, naïve, and trusting "mark"s", which I'm assuming you feel your mother is one, based on the "4k over advertised sales price" and "3k over MSRP" remark (which I don't understand either, she either paid sales price or MSRP, but not both), why would you not be there to make sure

 

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