Many complaints and legal actions against auto dealers are the result of the way vehicles are advertised. According to a joint survey by the Consumer Federation of America (CFA), National Association of Consumer Agency Administrators (NACAA), and North American Consumer Protection Investigators (NACPI), the number one consumer complaint has been misrepresentations in advertising or sales of new and used cars.

Advertising violations are also a ripe target for regulators and consumer attorneys. To give you an idea of how dealer advertising is on the radar, consider the opinion published by the New York State Attorney General’s office: “This office's review of current car ads has revealed a widespread pattern of deception and the use of materially false or misleading representations by some dealers. Rather than truthfully informing consumers, all too many ads appear designed primarily to confuse and mislead them. Such unscrupulous dealer ads are costly traps for unwary car buyers and are unfair to those dealers who compete on the basis of forthright and truthful advertising”. You may also recall that in 2007, Bill Heard Chevrolet was faced with a $50 million deceptive advertising lawsuit by the Georgia Governor's Office of Consumer Affairs.

Many dealers run into trouble with their advertising when staff members or outside vendors are not aware of the countless federal and state laws that regulate advertising. Here are some practical tips on how to avoid advertising violations:

• Never assume that advertising agencies or representatives know all the laws and regulations governing advertising compliance. This is particularly true of companies based in other states, such as internet and direct mail providers. State advertising laws vary and the responsibility for compliance lies with the dealership, not the advertising agency.
• Be aware of all advertising that your staff participates in. If your internet manager is advertising online (including social media!) or your used car manager is placing Auto Trader ads, it is important that they are properly trained and that all advertising is inspected before it is run.
• All advertising, whether printed, broadcast, internet or otherwise, should be in plain language, clear and conspicuous and non-deceptive. Deception can result from direct statements in the advertisement or from reasonable inferences that may be drawn from an ad, or from disclaimers that contradict, confuse, unreasonably limit or materially modify a principle message of the advertisement. Deception may also result from the failure to clearly and conspicuously disclose any material facts, including limitations, disclaimers, qualifications, conditions, exclusions or restrictions. Advertising is considered deceptive if “members of the public are likely to be deceived” or the advertisement has a “tendency or capacity to mislead the public”.
• Be sure that everyone understands that Bait & Switch is a commonly-cited advertising offense and must be avoided. The FTC defines Bait & Switch advertising as “an alluring but insincere effort to sell a product or service which the advertiser in truth does not intend or want to sell. Its purpose is to switch consumers from buying the advertised merchandise in order to sell something else, usually at a higher price or on a basis more advantageous to the advertiser.”
• If you are not sure about an advertisement, you should have it reviewed by a qualified professional – it may end up costing quite a bit less than a legal action.
• Be conservative in your advertising and understand that your intent is not relevant as far as the law is concerned. If an ad is deemed deceptive, an advertiser has liability regardless of whether there was an intent to deceive. A dealer has the duty to investigate the accuracy of any statements made in advertising.

Many complaints and legal actions against auto dealers are the result of the way vehicles are advertised. According to a joint survey by the Consumer Federation of America (CFA), National Association of Consumer Agency Administrators (NACAA), and North American Consumer Protection Investigators (NACPI), the number one consumer complaint has been misrepresentations in advertising or sales of new and used cars.

Advertising violations are also a ripe target for regulators and consumer attorneys. To give you an idea of how dealer advertising is on the radar, consider the opinion published by the New York State Attorney General’s office: “This office's review of current car ads has revealed a widespread pattern of deception and the use of materially false or misleading representations by some dealers. Rather than truthfully informing consumers, all too many ads appear designed primarily to confuse and mislead them. Such unscrupulous dealer ads are costly traps for unwary car buyers and are unfair to those dealers who compete on the basis of forthright and truthful advertising”. You may also recall that in 2007, Bill Heard Chevrolet was faced with a $50 million deceptive advertising lawsuit by the Georgia Governor's Office of Consumer Affairs.

Many dealers run into trouble with their advertising when staff members or outside vendors are not aware of the countless federal and state laws that regulate advertising. Here are some practical tips on how to avoid advertising violations:

• Never assume that advertising agencies or representatives know all the laws and regulations governing advertising compliance. This is particularly true of companies based in other states, such as internet and direct mail providers. State advertising laws vary and the responsibility for compliance lies with the dealership, not the advertising agency.
• Be aware of all advertising that your staff participates in. If your internet manager is advertising online (including social media!) or your used car manager is placing Auto Trader ads, it is important that they are properly trained and that all advertising is inspected before it is run.
• All advertising, whether printed, broadcast, internet or otherwise, should be in plain language, clear and conspicuous and non-deceptive. Deception can result from direct statements in the advertisement or from reasonable inferences that may be drawn from an ad, or from disclaimers that contradict, confuse, unreasonably limit or materially modify a principle message of the advertisement. Deception may also result from the failure to clearly and conspicuously disclose any material facts, including limitations, disclaimers, qualifications, conditions, exclusions or restrictions. Advertising is considered deceptive if “members of the public are likely to be deceived” or the advertisement has a “tendency or capacity to mislead the public”.
• Be sure that everyone understands that Bait & Switch is a commonly-cited advertising offense and must be avoided. The FTC defines Bait & Switch advertising as “an alluring but insincere effort to sell a product or service which the advertiser in truth does not intend or want to sell. Its purpose is to switch consumers from buying the advertised merchandise in order to sell something else, usually at a higher price or on a basis more advantageous to the advertiser.”
• If you are not sure about an advertisement, you should have it reviewed by a qualified professional – it may end up costing quite a bit less than a legal action.
• Be conservative in your advertising and understand that your intent is not relevant as far as the law is concerned. If an ad is deemed deceptive, an advertiser has liability regardless of whether there was an intent to deceive. A dealer has the duty to investigate the accuracy of any statements made in advertising.

Much has been written about Automotive Online Reputation Management and, fortunately, there are a number of companies and consultants now available to assist dealers in getting a handle on this crucial subject.  Reputation and customer satisfaction is of the utmost importance to dealers and there is little doubt that many negative online postings are either questionable or do not reliably portray the true culture of the dealership.

However, I believe that a dealership’s reputation is difficult, if not impossible, to manage when certain staff members do not operate ethically and resort to “old school” deceptive practices.  Looking through some of the sites that rate dealers, I found some interesting examples:

• A dealer reviewed on one of the sites has dozens of negative posts about bait and switch, refusal to sell at advertised prices and other questionable acts.  I was a bit surprised at the volume of negative feedback and I have to wonder who’s watching the store.  But fear not, the brilliant perpetrators of all of this negative feedback had a plan. They simply added some positive posts to the site, which of course were exposed as coming from the dealership’s IP address.  So much for that idea. How does this dealer defend against various staff members allegedly lying to customers and then trying to cover it up? It’s sure not going to be easy.

• A post on another site accused the dealer of deceptive adverting. Now, I long-ago realized that some customers have tendency to misread advertisements, so, in order to give the dealership the benefit of the doubt, I looked up the ad on their website. Well, sure enough it was questionable at best and went astray of state advertising regulations. The people who wrote that ad may be patting themselves on the back for bringing customers across the curb, but at what cost? The customer not only did not buy from the dealer, but also gave a glowing review and recommendation of the competitor who ended up earning their business. Undoubtedly, there are many people who are going to read that review about the dealer’s advertising practices but how does the dealership defend itself? They could claim that the ad wasn’t deceiving but the state’s attorney general might not agree. Does the dealer really want to open that can of worms?

• The next dealer was accused of payment packing by the finance department.  According to the post, the customer attempted to rectify the situation by returning to the dealership to discuss the issue but apparently received no satisfaction. After the customer posted the negative review, a customer relations rep from the dealership responded with a nice apology and offers to help – so far, so good, (although it was 21 days after the original post).  Here’s where it goes downhill – the next post comes from an “anonymous” employee of the dealership who proceeds to berate the customer by accusing him of posting fraudulently. The employee stated that the customer’s issue couldn’t have happened; the company is wonderful, etc.  “Anonymous” actually remarked that the customer should be “ashamed of himself” and “should be man enough to discuss his concerns and not hide behind a fraudulent posting.”  Is it just me or is this the worst possible way to try to handle a negative review??  Eventually, the GM got involved and the problem was finally rectified to the customer’s satisfaction (I guess it was a real customer with a real complaint and not a fraudulent posting?).  The customer very graciously posted an update about the resolution, but also responded about the employee that attacked him and called him a liar. The question that comes to mind is this: What has more significance in the mind of someone reading this review - that the dealership ultimately handled the complaint or that someone in the dealership raked the customer over the coals for complaining in the first place?

There are a number of excellent firms that specialize in Online Reputation Management and I highly recommend that dealers consider utilizing their services. But it important to realize that while these companies do an outstanding job, it may not be possible to mitigate the damage caused by ethically-challenged personnel. The first and most important step in managing one’s reputation is having zero tolerance for bad behavior by employees.

Much has been written about Automotive Online Reputation Management and, fortunately, there are a number of companies and consultants now available to assist dealers in getting a handle on this crucial subject.  Reputation and customer satisfaction is of the utmost importance to dealers and there is little doubt that many negative online postings are either questionable or do not reliably portray the true culture of the dealership.

However, I believe that a dealership’s reputation is difficult, if not impossible, to manage when certain staff members do not operate ethically and resort to “old school” deceptive practices.  Looking through some of the sites that rate dealers, I found some interesting examples:

• A dealer reviewed on one of the sites has dozens of negative posts about bait and switch, refusal to sell at advertised prices and other questionable acts.  I was a bit surprised at the volume of negative feedback and I have to wonder who’s watching the store.  But fear not, the brilliant perpetrators of all of this negative feedback had a plan. They simply added some positive posts to the site, which of course were exposed as coming from the dealership’s IP address.  So much for that idea. How does this dealer defend against various staff members allegedly lying to customers and then trying to cover it up? It’s sure not going to be easy.

• A post on another site accused the dealer of deceptive adverting. Now, I long-ago realized that some customers have tendency to misread advertisements, so, in order to give the dealership the benefit of the doubt, I looked up the ad on their website. Well, sure enough it was questionable at best and went astray of state advertising regulations. The people who wrote that ad may be patting themselves on the back for bringing customers across the curb, but at what cost? The customer not only did not buy from the dealer, but also gave a glowing review and recommendation of the competitor who ended up earning their business. Undoubtedly, there are many people who are going to read that review about the dealer’s advertising practices but how does the dealership defend itself? They could claim that the ad wasn’t deceiving but the state’s attorney general might not agree. Does the dealer really want to open that can of worms?

• The next dealer was accused of payment packing by the finance department.  According to the post, the customer attempted to rectify the situation by returning to the dealership to discuss the issue but apparently received no satisfaction. After the customer posted the negative review, a customer relations rep from the dealership responded with a nice apology and offers to help – so far, so good, (although it was 21 days after the original post).  Here’s where it goes downhill – the next post comes from an “anonymous” employee of the dealership who proceeds to berate the customer by accusing him of posting fraudulently. The employee stated that the customer’s issue couldn’t have happened; the company is wonderful, etc.  “Anonymous” actually remarked that the customer should be “ashamed of himself” and “should be man enough to discuss his concerns and not hide behind a fraudulent posting.”  Is it just me or is this the worst possible way to try to handle a negative review??  Eventually, the GM got involved and the problem was finally rectified to the customer’s satisfaction (I guess it was a real customer with a real complaint and not a fraudulent posting?).  The customer very graciously posted an update about the resolution, but also responded about the employee that attacked him and called him a liar. The question that comes to mind is this: What has more significance in the mind of someone reading this review - that the dealership ultimately handled the complaint or that someone in the dealership raked the customer over the coals for complaining in the first place?

There are a number of excellent firms that specialize in Online Reputation Management and I highly recommend that dealers consider utilizing their services. But it important to realize that while these companies do an outstanding job, it may not be possible to mitigate the damage caused by ethically-challenged personnel. The first and most important step in managing one’s reputation is having zero tolerance for bad behavior by employees.

It seems like dealers just can’t catch a break when it comes to lawyers and lawsuits. Back in 2004, California businesses won a hard-fought battle against “shakedown” lawsuits with the passing of Proposition 64. Previously, the law had allowed any party to sue a company regardless of whether the plaintiff was directly affected. For example, lawyers were able to review car dealer ads in the newspaper, spot a violation of the Vehicle Code and file a lawsuit against the dealer, without any client who was misled. Proposition 64 restricts private lawsuits against a company only to those where an individual is actually injured by and suffers a financial loss due to an unfair, unlawful, or fraudulent business practice. It also provides that otherwise only public prosecutors may file lawsuits charging unfair business practices. Of course, this was a tremendous blow to greedy attorneys who specialized in these shakedown lawsuits.

Unfortunately, many dealers are still falling victim to other types of class action lawsuits that are no less mind-boggling. It should come as no surprise that these cases typically end up with the allegedly wronged consumers getting little or nothing while the attorneys collect a fortune.

Here are some recent examples of class action lawsuits in California:

• A Toyota Dealer failed to properly disclose an “Optional DMV Electronic Filing Fee” on leases that were assigned to Toyota Motor Credit Corporation and charged the fee without the customer’s knowledge or consent. It is believed the case affects over 50,000 persons who leased vehicles from over 60 Toyota dealerships in the last five years. (We’re talking about a $28 fee).
• A dealership settled a class action suit where a customer alleged that when she was called back to the dealership to sign a new contract to purchase the same vehicle, the dealership dated the subsequent contract the same date as the original contract, thereby causing undisclosed charges. Members of the class, believed to be up to 500 customers, will receive up to $1,400 for valid claims.
• A class action lawsuit that consisted of all persons who executed a Retail Installment Sale Contract with the dealership that included in the “Cash Price of Motor Vehicle,” on the contract the cost of insurance. The Court awarded members of the Class a refund of all of their payments, as well as having the option to rescind their contracts.
• A suit where the Class consisted of all persons who purchased a used vehicle from the dealership for personal use and were charged “California Tire Fees” even though the dealer had previously paid the tire fees to the seller of the tires at the time the dealer purchased the tires. (Tire fees are $1.75 per new tire).
• Another Class consisted of all persons who purchased a diesel vehicle from the dealership for personal use and were charged a smog fee and a smog certification fee.
• A lawsuit where the Class consisted of customers who made a deferred down payment, and whose RISC does not disclose that some portion of the down payment would be deferred until a later date.
• Another action naming all persons who purchased a used vehicle for personal use that was not equipped with new tires, but who were charged a California Tire Fee.
• A Class was defined as all persons who executed a Retail Installment Sale Contract for the purchase of a vehicle for personal use where registration and licensing fees were not properly disclosed.
• Another Class including all customers who were not properly notified within ten days of the execution of their purchase contract that the dealer was exercising its contractual right of rescission.
• Customers who signed a Retail Installment Sale Contract that failed to separately itemize the amounts paid for license fees and registration/ transfer /titling fees on the retail installment sale contract. (Are they kidding? The dealer did not overcharge the fees, but simply did not split them up!)
• A class action settlement was reached on behalf of all consumers who purchased undisclosed prior rentals, entitling class members to $1,000 refunds from the dealership.
• Another class action that involves the failure of the dealer to disclose the itemization of capitalized cost in the precise manner required by law.

You may be thinking that since you have your customers sign an arbitration agreement you don’t have to worry about class-action lawsuits, right? Well, in two recent cases, a law firm successfully defeated motions to compel arbitration in backdating and deferred down payment class actions. One of the Courts held that the customer could not waive her unwaivable rights under the Consumers Legal Remedies Act, which included the right to bring a class action lawsuit. The other Court held that the arbitration clause was procedurally and substantively unconscionable.

Although the cases above are all from California for illustration, be assured that there are attorneys in every state finding ways to exploit dealers. In many states, a plaintiff suing under the state consumer protection laws does not need to prove that the dealer intended to defraud the consumer in order to make out a case. The lack of any element of intent on the part of the dealer not only lowers the bar for proving liability, but also makes the case more susceptible to treatment as a class action.

What’s really sad about all of this is that most of these lawsuits have nothing to do with unfair or deceptive practices on the dealer’s part. The lawyers are simply taking advantage of mistakes and oversights. Take tire fees for example. These fees are often mistakenly charged because the dealer’s DMS isn’t programmed to differentiate between new and used tires. If an employee inadvertently overcharges the fee, it is not retained by the dealer, but sent to the state. So, does that mean that California and the dealer are in cahoots in defrauding the poor consumer? And how about the need to separately itemize the amounts paid for license fees and registration/transfer/titling fees? C’mon, that’s just ridiculous.

The good news is that exposure to these types of lawsuits is avoidable. It is important for dealers to review their company policies and practices and ensure that all employees are properly trained. It may also be a good idea to have a highly-qualified second set of eyes on every deal. Personnel can get very busy and may overlook important details when trying to move customers through the sales process in a timely fashion.

It’s a shame that dealers have to contend with these issues. It’s tough enough trying to stay afloat without the sharks circling.

It seems like dealers just can’t catch a break when it comes to lawyers and lawsuits. Back in 2004, California businesses won a hard-fought battle against “shakedown” lawsuits with the passing of Proposition 64. Previously, the law had allowed any party to sue a company regardless of whether the plaintiff was directly affected. For example, lawyers were able to review car dealer ads in the newspaper, spot a violation of the Vehicle Code and file a lawsuit against the dealer, without any client who was misled. Proposition 64 restricts private lawsuits against a company only to those where an individual is actually injured by and suffers a financial loss due to an unfair, unlawful, or fraudulent business practice. It also provides that otherwise only public prosecutors may file lawsuits charging unfair business practices. Of course, this was a tremendous blow to greedy attorneys who specialized in these shakedown lawsuits.

Unfortunately, many dealers are still falling victim to other types of class action lawsuits that are no less mind-boggling. It should come as no surprise that these cases typically end up with the allegedly wronged consumers getting little or nothing while the attorneys collect a fortune.

Here are some recent examples of class action lawsuits in California:

• A Toyota Dealer failed to properly disclose an “Optional DMV Electronic Filing Fee” on leases that were assigned to Toyota Motor Credit Corporation and charged the fee without the customer’s knowledge or consent. It is believed the case affects over 50,000 persons who leased vehicles from over 60 Toyota dealerships in the last five years. (We’re talking about a $28 fee).
• A dealership settled a class action suit where a customer alleged that when she was called back to the dealership to sign a new contract to purchase the same vehicle, the dealership dated the subsequent contract the same date as the original contract, thereby causing undisclosed charges. Members of the class, believed to be up to 500 customers, will receive up to $1,400 for valid claims.
• A class action lawsuit that consisted of all persons who executed a Retail Installment Sale Contract with the dealership that included in the “Cash Price of Motor Vehicle,” on the contract the cost of insurance. The Court awarded members of the Class a refund of all of their payments, as well as having the option to rescind their contracts.
• A suit where the Class consisted of all persons who purchased a used vehicle from the dealership for personal use and were charged “California Tire Fees” even though the dealer had previously paid the tire fees to the seller of the tires at the time the dealer purchased the tires. (Tire fees are $1.75 per new tire).
• Another Class consisted of all persons who purchased a diesel vehicle from the dealership for personal use and were charged a smog fee and a smog certification fee.
• A lawsuit where the Class consisted of customers who made a deferred down payment, and whose RISC does not disclose that some portion of the down payment would be deferred until a later date.
• Another action naming all persons who purchased a used vehicle for personal use that was not equipped with new tires, but who were charged a California Tire Fee.
• A Class was defined as all persons who executed a Retail Installment Sale Contract for the purchase of a vehicle for personal use where registration and licensing fees were not properly disclosed.
• Another Class including all customers who were not properly notified within ten days of the execution of their purchase contract that the dealer was exercising its contractual right of rescission.
• Customers who signed a Retail Installment Sale Contract that failed to separately itemize the amounts paid for license fees and registration/ transfer /titling fees on the retail installment sale contract. (Are they kidding? The dealer did not overcharge the fees, but simply did not split them up!)
• A class action settlement was reached on behalf of all consumers who purchased undisclosed prior rentals, entitling class members to $1,000 refunds from the dealership.
• Another class action that involves the failure of the dealer to disclose the itemization of capitalized cost in the precise manner required by law.

You may be thinking that since you have your customers sign an arbitration agreement you don’t have to worry about class-action lawsuits, right? Well, in two recent cases, a law firm successfully defeated motions to compel arbitration in backdating and deferred down payment class actions. One of the Courts held that the customer could not waive her unwaivable rights under the Consumers Legal Remedies Act, which included the right to bring a class action lawsuit. The other Court held that the arbitration clause was procedurally and substantively unconscionable.

Although the cases above are all from California for illustration, be assured that there are attorneys in every state finding ways to exploit dealers. In many states, a plaintiff suing under the state consumer protection laws does not need to prove that the dealer intended to defraud the consumer in order to make out a case. The lack of any element of intent on the part of the dealer not only lowers the bar for proving liability, but also makes the case more susceptible to treatment as a class action.

What’s really sad about all of this is that most of these lawsuits have nothing to do with unfair or deceptive practices on the dealer’s part. The lawyers are simply taking advantage of mistakes and oversights. Take tire fees for example. These fees are often mistakenly charged because the dealer’s DMS isn’t programmed to differentiate between new and used tires. If an employee inadvertently overcharges the fee, it is not retained by the dealer, but sent to the state. So, does that mean that California and the dealer are in cahoots in defrauding the poor consumer? And how about the need to separately itemize the amounts paid for license fees and registration/transfer/titling fees? C’mon, that’s just ridiculous.

The good news is that exposure to these types of lawsuits is avoidable. It is important for dealers to review their company policies and practices and ensure that all employees are properly trained. It may also be a good idea to have a highly-qualified second set of eyes on every deal. Personnel can get very busy and may overlook important details when trying to move customers through the sales process in a timely fashion.

It’s a shame that dealers have to contend with these issues. It’s tough enough trying to stay afloat without the sharks circling.