Have you heard the new one? A sales trainer is suggesting a new sales trick that has salespeople regularly selling vehicles for more than the advertised price. The practice essentially invites customers to pay an additional amount above the advertised price as a tip for excellent service or for getting an exceptional deal. The trainer claims this is kosher, provided the additional amount is fully disclosed to the customer and the customer agrees to it.
It sounds too good to be true, right? That’s because it probably is. Most states have laws that explicitly require that dealerships sell vehicles at or below the advertised price, often referred to as the “ad price rule.” But even if your state does not have a clear rule, your state’s unfair or deceptive acts or practices (UDAP) statute may bar this sales tactic.
Keep in mind prosecutors and, in some states, plaintiffs’ attorneys, use these laws to challenge unfair business practices. Further, the Federal Trade Commission (FTC) is very much interested in unfair and deceptive practices, and has built a body of case law it or state prosecutors can use against your dealership.
Penalties and Headlines
This article briefly analyzes how this new sales tactic and others designed to circumvent the ad price rule could put your dealership in legal hot water. But even if your dealership’s sales staff never gets wind of this specific tactic, it is important to know that prosecutors and plaintiff’s attorneys are always on the lookout for unfair and deceptive practices. These cases can result in big penalties and even bigger headlines for your dealership.
The sales trick is likely prohibited in states that clearly mandate that vehicles be sold at or below the advertised price. For example, the California Department of Motor Vehicles’ regulation states that advertised vehicles “must be sold at or below the advertised price irrespective of whether or not the advertised price has been communicated to the purchaser.” California law does not recognize any exception to this rule. Further, these are relatively simple lawsuits, as the prosecutor can simply compare the final vehicle price to the advertised price.
Can you avoid the ad price rule by adding the additional cost to an aftermarket product? You may be able to get away with such a practice for a while, as it would be harder for a prosecutor to spot the violation by looking at the sales contract, but this is playing with fire.
In some cases, a prosecutor may allege that this amounts to “payment packing,” or quoting a price or monthly payment to a customer that includes products or services that the customer did not request. California has explicitly prohibited this practice. In other states, prosecutors have relied on their UDAP statutes to target these practices. For example, New York Attorney General Eric Schneiderman has brought nearly a dozen cases in the last several years charging dealers with “jamming,” another word for payment packing.
This practice also could invite scrutiny from the FTC and Department of Justice (for dealers engaged in indirect vehicle financing) and the Consumer Financial Protection Bureau (for dealers who hold their own paper). The CFPB has expressed skepticism about aftermarket products generally, and specifically warned that dealerships that sell aftermarket products at variable prices could be subject to a disparate impact lawsuit.
If, for example, your dealership sells more of an aftermarket product to Spanish-speaking customers and at a higher price than to English-speaking customers — and a legitimate business reason for the pricing difference does not exist — this could be the basis for a lawsuit that alleges the dealership unfairly discriminates against Hispanic customers.
Nowhere Is Safe
Even in states that do not explicitly prohibit sales of vehicles for more than the advertised price, state UDAP statutes may prohibit the practice. For example, Tennessee’s UDAP statute includes “advertising goods or services with intent not to sell them as advertised” as an unfair or deceptive practice. In these cases, the prosecutor may allege that the sales tactic shows that the dealership advertises a base price with the intent to sell the vehicle at a higher price, in violation of this rule.
Other states have a UDAP statute that more generally prohibits unfair or deceptive acts or practices. These often track the broad language of the FTC Act, which declares “unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce” to be unlawful.
In interpreting the terms “unfair” and “deceptive,” Florida courts, for example, have adopted and applied FTC case law to find a practice is unfair “if it offends public policy and is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” As a result, even in states such as Florida, which does not explicitly prohibit sales above the advertised price, the state UDAP statute could support lawsuits or prosecutions against dealers who sell above the advertised price.
This article has focused on a single sales tactic, but the lesson applies broadly. If a sales tactic appears too good to be true, there is a good chance a prosecutor (and, ultimately, a judge) will eventually agree. Many states have rules that prohibit specific practices, but even if you do not live in one, your sales tactics could nevertheless be deemed unfair or deceptive.
Christian Scali and Monica Baumann are attorneys with The Scali Law Firm, recognized by the Daily Journal as California’s top boutique automotive law firm. Reach them at [email protected] and [email protected].