If one were to choose to enter the most regulated industry in the United States, one would choose to be a car dealer.  The number of federal and state laws which dealers must discharge is indeed daunting, as there are hundreds of them. Moreover, there is slight pause to the government adding to this burden since few of these laws are repealed, only added. The recent disciplining of the Consumer Financial Protection Bureau by the Trump administration is an exception.

In my conversations with dealers, I am often struck by their remarkable innocence regarding their enormous exposure to liability. A statistic cited over a decade ago estimated that there are over 40,000 private lawsuits filed against dealers. In addition, state attorneys general and federal agencies, such as the Federal Trade Commission, routinely prosecute dealers for millions of dollars. During my attorney general tenure of 16 years, I participated in a national group of attorneys who specialized in suing dealers. This group presently numbers over 2,000 attorneys who seek to sue dealers and possibly turn any dealer complaint into a class action, exacting sizable sums of money from the litigation.

Almost every prosecution or case brought against a dealer is based, fully or partially, on the unfair or deceptive trade practices act commonly referred to as UDAP.  This includes the FTC and other federal agencies, state attorneys general and state agencies, and of course private plaintiffs. Some consumer protection laws are promulgated that do not allow consumers to directly file a lawsuit. However, UDAP is so flexible that violations of these laws can be “shoehorned” into a UDAP violation, thereby creating a private right of action. Dealers need to better understand this expansive law.

The Law of Laws: UDAP

From my experience and observation, I have identified over 150 ways dealers can violate UDAP. The act addresses virtually every aspect of a dealer’s sales, finance and fixed operations: advertising and marketing, presentations and conversations with consumers, price and payment quotations, repair estimates, and so forth. Any dealership employee who interacts with consumers could violate UDAP.

Historically, consumer transactions were governed by caveat emptor (let the buyer beware). UDAP has supplanted that concept entirely. Dealers are initially on defense when a UDAP allegation is made.

UDAP Explained

The “Acts or Practices” part of the law is readily defined. It is business behavior or taking some form of action. The “unfair or deceptive” part of the law requires some explanation. 

Over 90% of UDAP cases are brought under a deceptive theory. Deception, in this context, is a practice involving a representation, omission or act that: 

1.     Misleads or is likely to mislead

2.     To a reasonable consumer

3.     Concerning information which is material

Unfairness is essentially unconscionable behavior. It has three criteria:

1.     Injury (e.g., monetary loss)

2.     Consumers cannot avoid injury.

3.     There are no countervailing benefits.

It’s important to note that UDAP is incredibly broad. Many subjects can become the basis of a UDAP case: verbal assertions, written documentation, payment packing, spot delivery, erroneous disclosures, advertising, residual-based financing, menu selling, confusing window stickers, junk fees, curb stoning, power booking, telephone scripts and so forth. No one needs to file a complaint, as the state attorney general can act unilaterally. In addition, dealers can violate UDAP by minor carelessness.

Dealers need to ask themselves this question about any of their business behaviors:

Does it have the tendency or capacity to mislead a consumer? If yes, it can be a UDAP violation. It’s a low bar to surmount.

What to Do, What to Do …

Apply the Stoic concept, Premediatio Malorum (premeditate the evils and troubles that might lie ahead.). Anticipate that a lawsuit is coming. Expect the worst. Then structure your dealership behavior and protocols so that the evil and troubles never come by beginning with the following, adding other appropriate measures:

·      Draft a written compliance plan, with a code of ethics, and implement it.

·      Designate or hire a compliance officer.

·      Address all complaints with a uniform protocol.

·      Train all employees thoroughly and discipline any violators.

Risks from UDAP violations can’t be eliminated, but they can be managed with diligence.

Terry O’Loughlin is director of compliance for Reynolds and Reynolds and is admitted to the Pennsylvania and Florida bars. Before joining Reynolds, he was employed by the Florida Office of the Attorney General, where he investigated automobile dealers and financing sources. He previously was a public accountant.