Mike Charapp spotlights additional U.S. regulatory issues

Mike Charapp spotlights additional U.S. regulatory issues

Dealer lawyer and Auto Law panelist Mike Charapp went over several hot button issues for Washington regulators in the Federal Trade Commission, Consumer Financial Protection Bureau, Internal Revenue Service, Department of Transportation and Department of Labor.

– FTC: Advertising enforcement

The FTC was funded specifically to oversee car dealer issues by the Dodd-Frank Act, said Charapp. Hot button issues are advertising, spot delivery, sales and F&I tactics, and consumer privacy, he said.

A consent order by the FTC in March against a California franchised dealer group shows FTC aggressiveness. The FTC action was in response to a federal court complaint alleging yo yo sales, misrepresentation of vehicles and terms, false online reviews of dealer performance and false advertising. The dealer group had to pay $2.6 million and will be closely monitored by the FTC for 20 years.

Internet advertising is the true target today, Charapp said. One of the biggest red flags for the FTC is advertising, –pay off your trade no matter how much you owe.” Other hot button issues in advertising are: Truth-in-Lending and Truth-in-Leasing noncompliance; bait and switch (advertisement net of incentives of limited availability without adequate disclosure and advertising deals that are not available); and untrue $0 down lease claims.

– FTC: Revised Used Car Rule

The revised FTC Used Car Rule that went into effect in January does not change the requirement to post the Buyers Guide on all used vehicles for retail sale. But the revision does change the form itself. The FTC will do compliance orders in the next year, and dealers should be prepared.

Dealers have two options for compliance until January 27, 2018, Charapp said. In the option he recommends, dealers use the form redesigned by the FTC. In the revised form, dealers can no longer check a box saying the vehicle is being sold with a limited warranty. If there is no dealer warranty, a dealer must mark the box stating that the vehicle is being sold with limited warranties only (Maryland), –as is” (Virginia), or with a dealer warranty.

If a dealer warranty is being issued, the box for –dealer warranty” must be checked. If there is a warranty other than a dealer warranty, the –implied warranties only” or –as is” box must be checked. If dealers have customers sign the Buyers Guide required in Virginia and recommended by Charapp in Maryland a specific phrase must be used.

In the second option for compliance, dealers may continue to use up remaining stock of the former Buyers Guide form until January 27, 2018. Specific language is required on the form if a non-dealer warranty applies to the vehicle.

See the earlier report in the WANADA Bulletin for more detail on these options and

other changes in the Used Car Rule. Click here for the FTCês Dealerês Guide to the

Used Car Rule.

– CFPB: Dealer reserve and class action waivers

The CFPB is still creating enforcement actions on dealer reserve through finance providers, and the lenders are pressuring dealers, Charapp said. It is imperative for dealers to establish a written fair lending policy, said Charapp, who highly recommends NADAês policy.

The CFPB has proposed a regulation that would prevent waivers of class actions in predispute arbitration provisions in agreements acquired by finance sources under its jurisdiction. It is still sorting through more than 6,000 comments, said Charapp. NADAês David Regan added that if the rule is released, it could be stopped by the U.S. Chamber of Commerce or Congress.

– IRS: Cash reporting, 8300 program design

The IRS is regularly auditing dealer compliance with the cash reporting requirement, Charapp said. Dealers must file Form 8300 to report cash transactions more than $10,000 or a series of related transactions totaling $10,000 or more. Penalties can be severe $25,000 per violation for second violations. Dealerships must have a cash reporting policy that has a written program using a redundant system, said Charapp.

– Vehicle Recalls: A continuing problem

Every dealer should have a vehicle recall policy, Charapp said. New vehicles with open recalls should be grounded, no question asked, said Charapp. Each dealer should check, what is the dealership policy to make sure such vehicles are not being delivered?

Used vehicles with open recalls should be fixed if possible. If it is not possible, the recall should be disclosed. If the dealerês franchisor issues a stop sale on used vehicles, that should be followed. Dealers must also check service vehicles of their brand for open recalls. Dealers should also explore the issue of compensation for vehicle downtime.

– U.S. DOL: Overtime Rule

There have been more delays in the appeal of the U.S. Labor Departmentês overtime rule. The rule raises the white collar exemption level for overtime from $23,660 to $47,476 per year or less. The rule applies to full-time, salaried executive, administrative and professional employees.

–Dealers need to be concerned about the new overtime rules,” said Charapp. –This was going to go into effect the first part of 2017.”

Salespeople and service technicians are exempt from overtime pay, but there is a dispute in the courts about the longstanding exemption for service advisors.

– U.S. DOL: Wage and Hour issues

Charapp offered dealers pointers in the challenging area of Wage and Hour Law from the U.S. Department of Labor:

« Employee vs. independent contractor. Make sure that contractors fully meet the criteria.

« Classification of employees. Salespeople, qualifying mechanics and –partsmen” are exempt from premium overtime. Dealers should know the limits for the positions.

« Minimum wage. The general office should check every pay period to determine whether exempt employees are making the minimum wage for each hour worked.

« Premium overtime. Dealers should ensure proper pay for eligible employees.

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