Arranging test drives and selling and delivering cars and trucks remotely have become common during the COVID-19 pandemic. But such sales can create potential legal problems for dealerships.
“This is just the tip of what could be a very large iceberg,” said Eric Johnson, an Oklahoma City-based partner for Hudson Cook, in the NADA workshop “Selling Cars Remotely Without Driving Afoul of the Law” on Thursday. Terry O’Loughlin, director of compliance for Reynolds and Reynolds, moderated the workshop.
At a high level, a big issue is that state and federal laws were typically written before many of the technologies in routine use today were even invented. So it’s tricky to interpret how they apply and how federal laws may interact with differing state laws.
A prominent example is that many of the rules that are being applied today to online auto sales were written with face-to-face, door-to-door salespeople in mind, attorneys said. They were “meant to combat high-pressure sales tactics at the consumer’s home,” Johnson said.
Dealers want to avoid having their remote sales considered “door-to-door” sales, for legal purposes, he said. That’s because for door-to-door sales, the Federal Trade Commission has rules that mandate a so-called “cooling-off” period.
The cooling-off period gives the buyer a three-day right to cancel the sale. It also restricts the right of the seller to assign the contract to someone else for five days after signing. State laws may pile on more requirements, Johnson said.
“You really have to look at the laws of the state you’re operating in, to see if the laws in your state provide additional protection” for the consumer, he said.
There are a couple of ways the rule could affect auto dealers selling cars on the Internet in 2021.
The FTC rule applies if the seller or the seller’s representative “personally solicit the sale … at a place other than the place of business of the seller,” Johnson said.
However, the rule doesn’t apply to transactions that are negotiated in advance, either at the seller’s place of business, or else remotely, with no personal contact prior to delivery. That is, by mail or telephone, which attorneys today take to include the Internet.
The upshot for dealers is that the dealership’s remote sale could qualify as a “door-to-door” sale if a dealership representative tries to renegotiate a previously negotiated contract during their in-person visit to the buyer.
That would incur the cooling-off period, and with it the right to cancel the sale, and the inability to assign the contract — like to a bank or captive finance company. “You could have to hang onto the trade-in for 10 days and cough up the down payment,” Johnson said.
The solution, according to Johnson and O’Loughlin, is for dealerships to strictly avoid any effort at “sales,” or renegotiating a previously agreed-upon contract, when the dealership sends a representative to the buyer.
Specifically, Johnson recommends avoiding sending a salesperson to deliver cars, or get paperwork signed, because they might be tempted to do a little more selling, like an extended-service contract. Conversely, some states mandate that a salesperson must be sent, he said.
It’s also possible the buyer might want to do some more negotiating, Johnson said. “It could happen.”