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).
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