Legal trends dealers should watch for in 2016

Legal trends dealers should watch for in 2016

With increasing scrutiny from regulators and franchisors this year of dealership operations, this is the first in a series of articles that will present the legal trends dealers should watch out for in 2016.


1. The rule of thumb for dealers with open recalls on used car inventory is repair when possible and disclose to consumers when not. Although there is no federal requirement to ground a used car with an open recall, the best practice is to check the recall status of every used car in stock. If there is a recall affecting a vehicle of the brand handled by the dealership, repair it. Doing so will provide business to the service department and avoid potential liability problems.

2. Check for recalls on customer vehicles in service. The recently passed transportation bill included a mandate for dealers to check for open recalls on vehicles brought for service if the franchisor requires it. The requirement goes into effect this summer, but itês a good idea to start now.

Government regulation: DOJ and CFPB

1. Personal liability for business wrongdoing raises the stakes. The Department of Justice has announced it will search out individuals responsible for business wrongdoing. Potential personal liability makes it more important than ever to understand the dealershipês legal obligations and to implement compliance policies.

2. The Consumer Finance Protection Bureau will continue its attack on dealer finance operations. The CFPB has signaled that it will not back off from its attempt to minimize the dealer role in arranging car loans. The best defense is a fair lending policy that establishes a fixed starting point for all credit discussions and permits deviations only for reasons that CFPB wonêt be able to tie back to discrimination against minorities.

3. CFPB will increase scrutiny of F&I products. The next extension of CFPBês power will be over F&I products and services in finance paper bought by finance sources under its jurisdiction. Dealers should have a set pricing matrix for all F&I products, and allow deviations from the prices only for reasons that CFPB will not attempt to tie back to discrimination.

4. CFPB is attacking pre-dispute arbitration provisions. The Bureau has submitted to small business review its proposal to prohibit use of class action waivers in arbitration provisions. The CFPB can impose such a provision only if it is supported by a Congressionally mandated study. The evidence so far has been sketchy.

Thanks to WANADA Kindred-Line member Michael Charapp, Esq. of Charapp & Weiss, LLP for providing this material.

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