08/20/2020 10:00 am | BY GWC Warranty

Dealer Compliance: What Every Dealer Needs to Know

It’s no surprise to anyone in the industry that automotive dealers are some of the most regulated businesses in the United States. Understanding your legal obligations and the government regulations that impact your dealership can save you thousands of dollars, not to mention severe legal penalties.

It’s more important than ever to make compliance a focus of your dealership operations. There are complex regulations in place to protect both consumers and your dealership at every step of the sale. Understanding those details can make all the difference when it comes to preventing violations, avoiding a hit to your reputation and hefty fines.

It’s time to take a closer look at eight of the most important laws and regulations you need to be aware of, at any point during the sale (and after).

Americans with Disabilities Act

The ADA gives civil rights protections to individuals with disabilities. It prohibits discrimination against individuals with disabilities in all areas of public life, including employment, government services, public accommodations, and communications. This Act paved the way for modifications like accessible parking, curb ramps, and access for service animals, to name a few.

What some dealers may not realize is that the ADA can also apply online, since websites are now seen as direct extensions of brick and mortar businesses. There are several different ways to help make your site more accessible to everyone, like adding alternative text for images or using colors that are easy to read and distinguish. For more information about Web Content Accessibility Guidelines, click here.

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act requires financial institutions, including dealerships, to explain how they share and protect their customers’ private information. It consists of two parts: the Privacy Rule and the Safeguards Rule. Fines for non-compliance can reach $10,000 for each violation and can include prison time.

  • The GLB Privacy Rule requires dealers to inform customers about the information they’re collecting, how their sensitive data is shared, and about their right to opt-out if they prefer that their data not be shared.
  • The GLB Safeguards Rule requires dealers to take action to secure customer data. This rule looks for a few things: a written information security plan, a comprehensive risk analysis, safeguards from affiliates, and ongoing plan implementation and monitoring.

California Consumer Privacy Act

California passed the CCPA to regulate the way businesses share personal information, and it went into effect on January 1, 2020. The goal of this Act is to give California residents greater control over the information that businesses collect about them. Most online and paper forms that customers fill out to test drive, buy, or lease a car contain sensitive information, and buyers are entering personal data on web forms more than ever. Dealers must have a firm hold on all of this data. Another essential component of the CCPA is the inclusion of opt-out instructions on your website, as well as an overview of your data collection policies and CCPA rights.

Even if you don’t do business in California, other states are contemplating following suit. It’s best to prepare now.

Used Car Rule (Buyer’s Guide)

The Used Car Rule has been a mandatory car dealership regulation since 1985 and was created to help consumers make an educated decision by providing essential purchasing and warranty information. Any dealer that sells more than five used vehicles a year must display the FTC Buyer’s Guide prominently, and give a copy to the buyer at the time of purchase.

Some of the items in the guide include:

1) Whether the vehicle is sold as-is or comes with a warranty, and what percentage of costs the dealer will cover under warranty

2) How to get a vehicle history report and check for recalls

3) Status of the vehicle’s major mechanical and electrical systems

4) How to contact the dealer

5) How to obtain a Spanish-language guide

The safest way to comply with the Buyers Guide Rule is to place a Guide Sticker in a vehicle as soon as you take possession. Every ten years, this regulation is revisited to make sure it’s still offering consumers an appropriate level of protection, so it’s important to monitor changes—non-compliance can mean a $40,000 fine.

Equal Credit Opportunity Act

Under the ECOA, dealers are prohibited from discriminating when providing credit. Lenders can’t ask about or make decisions based on race, color, religion, sex, age, marital status, or national origin when considering credit. They’re also required to inform customers of the final credit decision within 30 days and notify applicants when action is taken on their applications.

When making credit decisions, it’s crucial to base your judgment on the customer’s creditworthiness on paper and keep applicants informed.

Fair Credit Reporting Act

The Fair Credit Reporting Act governs how your dealership handles consumer credit information. Part of the Fair Credit Reporting Act provides clear clarification for automotive dealerships regarding when they can and cannot obtain a consumer report:

“When the consumer expresses an interest in buying a car on credit, there would be a permissible ‘credit’ purpose under section 604(a)(3)(A). If the dealer gets the consumer’s written consent, there is clearly a permissible purpose under section 604(a)(2).”

In other words, you can run a credit report when customers tell you that they want to pay for a vehicle using a personal check or if they ask you about credit options to finance their purchase.

You cannot run a credit report when a customer is browsing, asking general questions about finance, or test driving a vehicle. You should not pull a customer’s credit until they express intent to purchase or lease a vehicle, or sign a disclosure permitting you to check their credit.

Truth in Lending Act

TILA requires that all lenders explain the terms of loans in a format that consumers can easily understand, so they can compare them to other offers they may receive. Before the Truth in Lending Act, it was hard for consumers to know how different credit offers compared to each other because every institution cited different terms and different rates. Now, lenders must provide a TIL disclosure statement that explains the size of the loan, the APR (annual percentage rate), all finance charges, a payment schedule, and the total amount to be paid through the lifetime of the loan, amongst other details.

If your dealership extends credit to customers—and almost all do—you must ensure that the details of your credit offer comply with TILA requirements. Your written disclosures must summarize all finance charges, including application fees, service fees, late fees, and prepayment charges. F&I managers without experience in TILA compliance may be tempted to offer attractive promotions that cover up hidden fees. Violations like this can result in aggressive penalties, including up to $5,000 fines per violation and prison time.

Magnuson-Moss Warranty Act

This Act exists to ensure that your customers get complete information about warranty terms and conditions so that they can compare coverage before buying. But once the warranty is purchased and your customer drives off the lot, you’re still governed by Magnuson-Moss. Your team needs to understand what is and isn’t covered under the customer’s warranty. If a buyer feels their warranty claim was unfairly denied, they can file a complaint with the state Attorney General, the local consumer protection office, or the Federal Trade Commission.

It’s also important to be clear that under the Magnuson Moss Act, customers with warranties don’t have to come back to your service department for repairs or parts. Claims cannot be denied even if the consumer went to an independent mechanic, a chain shop, or performed repairs or routine maintenance on their own.

Creating a culture of compliance, data security, transparency, and honesty is critical to protecting your dealership. With GWC’s online compliance training, you’re able to certifiably train and track performance for individuals, which can prove invaluable if you’re ever under audit. An investment in compliance training will always deliver the best return, protecting you from unnecessary penalties and fines.

GWC offers a variety of compliance offerings from industry experts to aid in your compliance with state and federal regulations. Reach out to a sales representative to learn about our compliance offering. GWC is not providing legal advice and recommends you seek the counsel of your legal team when instituting policies that help you comply with your state and local regulations.