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Hey everyone,
Happy June. Time keeps flying and the buy-sell bustle continues.
Catch up on the latest deals here.
— CDG
After the Federal Trade Commission made the phrase “97 warning letters” a full-time resident in automotive vocab this March, we wanted to dig around.
CDG News filed two Freedom of Information Act requests: One for the names of the 97 letter recipients, and another seeking intel on related complaints.
With that, we learned that more than 10,000 consumers have filed grievances since 2021. The FTC sent us a sample size of 200 files to review.
The most-repeated claims weren’t shocking: shady advertising, financing terms that didn't match what customers were told, and add-ons that appeared in contracts without approval.
We then hunted suggestions for avoiding costly compliance mistakes in a tightened watchdog era. (And some may seem obvious, but…).
Dealers are dodging unnecessary hits from advertising complaints because nobody owns the audit.
We found that 164 of the 200 entries involved switcheroos on advertised prices.
(Including the one below.)
Tom Kline, a former dealer turned risk and compliance consultant, and founder of Better Vantage Point, told me more auditing isn’t necessarily the fix.
Instead: Create a system to catch mismatched or misleading prices.
"The regulator, in general, does not care if you make mistakes,” Kline said. “What they care about is if you have a system to catch it."
Tom Kline
Better Vantage Point
He said monthly or quarterly audits work just fine.
Consistency, documentation, and the ability to show a regulator what changed as a result of each audit, matters most.
Consider these tips:
Close the aggregator loop: Have sales managers print out the advertisements and add them to a deal folder (print or digital), so there's a record proving the advertised price matched the sale price.
Similarly, create a bible of sorts as one source of truth, be it a binder, OneDrive, GRC software, etc., that keeps all audit results and corrections together and ready to show regulators on demand.
Know how far back they’ll look. In at least one case Kline is aware of, a regulator audited deals that were four years old.
And another thing: Those worrying about disclaimer wordings are worried about the wrong issue.
"If you have a disclaimer, it is going against the grain of what the FTC is really asking for,” Kline pointed out.
Find a breakdown (pun intended) of the complaint categories in the chart below.
Of course, the FTC’s clampdown campaign affects all dealers, even groups that did not get a letter.
Joe Gentile, Esq., general counsel at Empire Automotive Group, said their group already did periodic spot checks before the letters.
They didn’t receive the correspondence, but looked inward to confirm their processes were solid.
"We were always on the lookout, because it's an issue occasionally that pops up if there are unhappy customers who felt misled by an advertisement," Gentile said.
Joe Gentile
Empire Automotive Group
First, the Empire crew reviewed their practices against the FTC’s list.
They also attended at least two compliance sessions, including one on Zoom organized by the Greater New York Auto Dealer Association.
And, they made it a team effort that included Gentile, managing partners, ownership, the BDC director, and general managers.
The group continues to monitor rule changes.
Not to mention: If anyone ever does feel misled, Empire addresses it with the customer and in their advertising if needed.
The takeaway: Create a system to track and catch mistakes, keep detailed records handy, and stay updated on the changing compliance rules.
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F&I disputes are piling up, often with no record of what the customer agreed to.
The next-largest group of auto-related complaints (128) involved the F&I department, such as the one seen below.
Other issues logged by consumers:
Signed contracts with final rates that did not match what they were told.
Payment amounts that changed between the lot and the desk.
Surprise financial conditions.
Credit checks pulled without authorization.
Kline says many issues stem from a disconnect between marketing and sales, plus a compensation structure where customer resolutions come out of the sales manager's pocket, creating a conflict between satisfying customers and protecting earnings.
"One of the process improvements should be making sure that those two issues are not counter-exclusive, so that your sales staff and managers are making sure customers are satisfied,” Kline said.
Here are ways to help tamp down F&I mistakes:
Lock the rate early: Before any products are offered, have the customer sign or initial the interest rate on the menu’s first page.
"Of course that should be the same interest rate that the customer walks out the door with," Kline said.
Respond to reviews properly.
That means picking up a phone (sorry, Gen Z): Get the customer back in, resolve it individually, then ask them to update their review.
Prevention may seem obvious, but…
"If you can prevent the customer problems to begin with, you'll never have a compliance problem," Kline said.
The signal: Get those signatures on documents, stay transparent and don’t hide from customer issues.
Add-on complaints are, well, adding up, but a few extra signatures could stop that.
Sixty-six customers cited issues with products such as protection plans, GAP coverage, unasked for treatments and coatings, and other accessories appearing in contracts without consent.
Those mistakes add up.
The chart below shows the range of dollar amounts listed from the complaints that included them.
In one instance, a buyer was told a $699 window tint was mandatory and already installed on every vehicle in the dealership.
When the car arrived without its tint, the dealer agreed to a refund.
But the $599 refund check came up short.
The dealer said they’d refund the missing $100, but the customer said they never got it.
Kline suggests: You guessed it. More documentation. And more signatures.
Especially on these four products:
Buyer's order: Product and price listed and signed.
Retail installment sales contract: Same product, same price, signed again.
Accepted menu items: Get a signature on all products they choose.
Enrollment form: A separate product-specific form, signed at purchase.
Don’t forget…
"The pricing should be consistent on all four of those, and there should be a customer signature on all four," Kline said. "This is not just a compliance issue, it's a risk issue as well."
Document, document, document: If your F&I process relies on a customer's memory of what they agreed to, you don't have consent. You have exposure.
Bottom line: Neither the letters nor the complaints confirm dealership misconduct, but the patterns help spotlight areas to tighten up… Before the FTC comes knocking.
"The key to this entire issue is really not a compliance-based answer at all," Kline said. "This is really a fundamental [issue]:
“How are you handling your customers, and what customer problem processes do you have in place?"
