Government officials generally believe that problems in the marketplace can be solved by government action. This can be in the form of legislation or by taking corrective action through investigations and prosecutions. Obviously, these approaches are not always welcomed by the private sector. However, the recurring problem of illegal activities and unprofessional behaviors at car dealerships can be remedied significantly by requiring every person involved in the sales process to be licensed.

The majority of people employed at car dealerships do not engage in illegal civil or criminal practices. The problem lies with auto dealership gypsies who travel from one dealership to another leaving angry customers in their wake. These types of employees, and those who aspire to join them, should be banned from the industry and appropriate licensing can be an effective way to support this effort.

Currently, there are no states that require F&I managers specifically to be licensed. But, a number of states require salesmen to be licensed and the definition of a salesman may be broad enough to include F&I managers in these states.

The advantages of a comprehensive licensing system include:

• Greater control as to which employees transact business with consumers

• Available background information about potential employees who apply at dealerships

• Increased awareness of the law among the sales force

• Potentially more prestige in the eyes of the public, since a car salesman would be recognized as a state licensed professional
  

There are approximately 60 million new- and used-car transactions every year in the United States. The average new-car sales price is approaching $30,000 and the average used-car price is $14,000. These figures should at least warrant the consideration of licensing individuals involved in the sale of automobiles.

Actions Taken by States

In 2004, the Virginia Automobile Dealers Association proposed a law that would require finance managers to be licensed separately and distinctly from car salesmen. This proposal was subsequently withdrawn and replaced by a less ambitious bill to be introduced during the current legislative session.

Virginia presently has a car salesman law, and the proposed law would broaden the definition of “salesman” to include “finance manager.” Consequently, a finance manager will have to be licensed as a car salesman in this state.

In addition, various states have passed legislation that mandates that people who engage in sales activities at motor vehicle dealerships be licensed as salesmen. States with this type of law include: California, Colorado, Idaho, Kansas, Kentucky, Mississippi, Nevada, North Carolina, Ohio, Oregon, Oklahoma, Pennsylvania, Tennessee, Utah, Virginia and Wisconsin.

The statutes in each state differ significantly as to what is required, but the issues addressed are generally the same.

What Is Required

As to be expected, the minimum age to be licensed is 18. Licensed salesmen have to agree to act in good faith, which means they have to act with honesty of purpose. This suggests that salesmen must essentially take an oath. Salesmen must also pledge that they are conversant with state laws regarding automobile transactions.

Some states, such as Kansas, Tennessee, Virginia and Wisconsin, require salesmen to take an examination. The test is relatively brief — about 20-50 questions — but the questions can be selected from a number of subjects. Applicants must answer at least 80 percent of the questions correctly to pass.

Potential salesmen are required to complete a registration form, which must be attested to or notarized. The applicant usually must indicate his full name, Social Security number, past and present licenses held, criminal convictions with explanations, and whether he or she has ever had a license revoked, denied or suspended in any state. Some states, including California, require digitized fingerprinting for identification purposes.

Licensing fees are generally modest; in some states, it’s only $10. Licensed salesmen are required to display their licenses for the benefit of the public and agents of the Department of Motor Vehicles (DMV). Consumers are then able to identify those salesmen who engage in illegal practices and report them.

In most states, the license expires after a period of time, such as a calendar year. A license can also become invalid when a salesman leaves the dealership where he is employed. In this instance, the dealer is the principal, and the salesman is an agent of the dealer. Consequently, the license must be surrendered to the dealer principal.

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Reasons for Denying a License

The major reason to license salesmen — and potentially F&I managers — is to prevent certain people from having the opportunity to market vehicles and products to the public.

The first major consideration is whether someone who has perpetrated a criminal act should be allowed to procure a license. A related issue is how serious that criminal transgression might be for this denial. Should the license be denied based on a misdemeanor or felony? And if it is based on a felony, must the felony be one of a fraudulent nature?

Some states would only deny a license if an applicant were convicted of a felony. And in other states, if a felony conviction were within a certain time period, such as 10 years, the felony would be a bar to admission as a car salesman. Civil infractions of motor vehicle statutes and regulations may also be grounds to deny an applicant a license.

The second consideration is whether an applicant was denied a license in another state or had his or her license revoked or suspended in another state.

The concept is to give full faith and credit to another state’s determination that a person who fails to meet licensing requirements in one state should not be able to obtain a license in another state. This consideration is truly significant since discredited salesmen should never be given the opportunity to interact with the public in the marketing of vehicles if they have violated the law in any state.

There are other restrictions. In Nevada, for example, any reason determined by the controlling agency, which is in the best interests of the public, will serve as a bar to an applicant receiving a license.

Civil and Criminal Penalties

Once again, the states vary regarding penalties for those who engage in marketing activities without a duly procured license. In some states, such as Wisconsin, the penalty can be a fine for as much as $5,000. The penalty may have to be paid by the dealer principal as well as the person who engaged in the errant sales activity. In other states, such as Nevada, the alleged violator may be prosecuted for a misdemeanor.

A license offered by the state is construed as a constitutional property right and necessitates that due process be observed in the administration and sanctioning of its issuance, suspension and revocation. The state statutes utilize the Motor Vehicle Board (MVB) and/or the DMV to administer licensing programs.

The initial evaluation and background investigation of an applicant would be addressed by the DMV. The DMV would also administer the examination.

Reported violations of the law trigger an investigation and possible hearing with the MVB to determine whether a licensed salesman should be suspended, fined or have his license revoked. Clearly, criminal violations would merit this treatment but would be prosecuted by a district or state attorney’s office.

Industry Recommendations

The National Automobile Dealers Association believes that the industry should aspire toward a more professional image and that F&I managers should be well trained. NADA encourages dealers to support continuing education with its educational programs and those of the Association of Finance & Insurance Professionals (AFIP).

I would recommend that a national uniform statute be adopted by the states. This uniform statute should have two tiers of licensing. In the first tier, all salesmen, including F&I managers, who interact with the public would be required to have a basic license. Then, the second tier license would apply to those agents at the store who negotiate and prepare the actual sales contracts and other documents. The only distinction would be that the second tier license would require a more sophisticated test, as well as the initial requirements of the basic first tier salesman’s license.

The National Conference of Commissioners on Uniform State Laws (NCCUSL) drafts uniform state legislation that individual states can adopt so that the differences between the various states’ laws are minimized. Florida has adopted more than 40 such acts.

A comprehensive uniform licensing statute could be based upon the AFIP model for education and testing and could even incorporate AFIP’s training and testing modules. If NCCUSL would be willing to undertake such a drafting challenge, it could develop a uniform act that would help the industry redress these isolated but recurring problems.

Terry O’Loughlin has worked for the Office of the Attorney General of Florida since 1990 in the Economic Crimes division. He has been involved in the investigation and prosecution of auto dealers, manufacturers and finance and leasing companies.