I’m a compliance lawyer for car dealers. It ain’t sexy, but as they say, it pays the bills.
And speaking of paying the bills, the Federal Trade Commission recently proposed a massive new set of regulations for car dealers. Every time the agency does this, lawyers like me make money, and lots of it. Dealers have to shell out big bucks to lawyers and compliance companies whenever the FTC makes new rules, largely because these rules are basically indecipherable to anyone other than lawyers who specialize in this area.
I have spent a lot of time analyzing and distilling complicated regulations, providing regulatory compliance advice to dealers for nearly 30 years. So I think I am qualified to say that the only ones who will benefit from these new regulations are lawyers like me and some dishonest dealers.
The FTC claims that adoption of these rules will direct business away from dishonest dealers and save consumers billions of dollars’ worth of time. These claims would be laughable if not for the fact they are coming from the Federal Trade Commission.
Perhaps the most absurd comments made by the FTC can be found on page 111 of the new rules:
“Deceptive practices by dishonest dealers lead consumers to engage with those dealers instead of honest dealerships. Under the proposed Rule, some business that would otherwise have gone to dealers using bait-and-switch tactics or deceptive door opening advertisements will now go to honest dealerships.”
Under this logic, when the new rules take effect, dishonest dealers will somehow be identifiable as dishonest, and therefore the consumer will avoid them and give their business to honest dealerships. Let’s break that down:
1. The FTC starts with “deceptive practices by dishonest dealers.” Note that deceptive practices are already illegal in all states. Nothing in these new rules makes deceptive practices “more illegal.”
2. I think it is safe to assume that dishonest dealers are not going to start being honest just because the FTC imposes new rules. Dishonest dealers will continue to be dishonest, they will just be less compliant.
3. With or without new rules, dishonest dealers will continue to attract consumers with dishonest practices.
So how exactly will the new rules cause business to move over to honest dealerships?
A central point here is that more disclosure rules will only create a competitive advantage for dishonest dealers, because they are the ones tricking customers. News flash: False advertising works.
As an illustration, a consumer walks into Moral Motors. This dealer complies with all federal and state rules, discloses everything, explains all terms in great detail so that the consumer sees the transaction for exactly what it is, and pulls no trickery. The process takes a very long time, the consumer grows frustrated, decides the vehicle costs too much, and leaves. The consumer then goes over to Mendacious Motors, which discloses nothing, violates every rule, rushes through the paperwork and delivers the car, all the while tricking the consumer into thinking he is paying far less for the vehicle. Advantage: Mendacious Motors.
Most dealers really try to do things the right way. Most dealers want to be Moral Motors. But when they continually lose business to Mendacious Motors up the street as a result of its illegal practices, many start feeling like a sucker.
The answer to this “feeling like a sucker” is a level playing field achieved through better enforcement of existing regulations. New regulations will only punish the honest dealers who comply, while dishonest dealers will continue to ignore the rules, attract the customers, and be the primary source of complaints to the FTC.
The solution is for the FTC to enforce the rules it currently has against the most egregious violators.
The second most absurd comment the agency makes comes on page 91:
“The Commission assumes that, as a result of the proposed Rule provisions prohibiting misrepresentations and requiring price transparency, each consumer who ends up purchasing a vehicle will spend 3 fewer hours shopping online, corresponding with dealerships, visiting dealer locations, and negotiating with dealer employees per motor vehicle transaction.”
Putting aside the fact the FTC has pulled that time-savings number out of its … imagination, it defies any semblance of logic to think that proposing voluminous new disclosure requirements will somehow shorten the time a consumer spends buying a car.
A little common sense is in order here: More disclosure equals more paperwork equals more words equals more signatures equals more time.
Next, let’s address shopping time. The FTC states that “bait-and-switch or deceptive door opener advertising has the effect of wasting consumers’ time.”
I agree. But the FTC also seems to think that the new rules will dramatically reduce shopping time, by “eliminating time spent pursuing misleading offers.” Really? In what universe?
It really doesn’t matter how many new disclosure rules are imposed on dealerships. There will still be luring, baiting and deception out there that consumers have to struggle through — much like what people have to do when shopping for insurance, mortgages, mattresses and, yes, even legal advice. There will be no time saved so long as dishonest dealers engaged in bait-and-switch are still operating.
Here’s the real kicker: Bait-and-switch tactics are already illegal in all states, and the FTC has full authority to go after any dealer engaged in such practice.
According to the agency, this deception is so prevalent that it is costing consumers billions of dollars in wasted time. So is the FTC intensifying its enforcement efforts by throwing the book at the dishonest dealers out there? Nope. Instead, it has decided to make bait-and-switch super-duper illegal and then just wait for the bad guys to change their ways.
If the FTC is really interested in saving consumers time, here’s what it could do:
1. Simplify the car-buying/financing process by working with the Federal Reserve Board and revising Regulation Z — the Truth in Lending Act — to create a single document that provides meaningful disclosures to consumers. In other words, look for ways to reduce the amount of paperwork, rather than add to it.
2. Take strong enforcement action against the real perpetrators — those ragtag, no-name dealers intentionally and systematically engaging in deceptive practices. Big-name, reputable dealership groups with legitimate compliance programs, in-house legal departments, and recognizable brand names who make unintentional compliance errors are not the problem.
The FTC’s comments and justifications for its actions just don’t comport with reality. Perhaps the agency is just looking to throw compliance lawyers a bone, because at the end of the day, if these rules do go into effect, that is precisely what it will be doing.