It’s a scenario pretty common to buy-here, pay-here dealerships. Store management tries to satisfy a dispute with an unhappy customer, but that individual turns to the internet to vent — and perhaps badmouth — about the dealer and its personnel.
It might cross operators’ minds to put a clause in an installment contract prohibiting such activities, but the National Automobile Dealers Association sent strong suggestion against that strategy stemming from what the Federal Trade Commission (FTC) could do as a result.
NADA recapped this week that the FTC announced its first enforcement action pursuant to the recently enacted federal Consumer Review Fairness Act (CRFA), suing three businesses and two business owners for allegedly violating the CRFA. The FTC alleged that the companies used form contracts that included clauses barring customers from sharing negative comments and demanded financial penalties (damages and attorney’s fees) against customers who did so.
The regulator said the businesses — including an HVAC contractor, flooring seller and horseback riding company — have reached a preliminary agreement with the FTC to stop using the contract provisions and to inform their customers that the provisions cannot be enforced.
When NADA spotted the development, the association said via a daily e-newsletter, “Under the CRFA, dealerships are prohibited from including provisions in any ‘form’ contract that seek to restrict people from posting honest reviews about the dealership, or penalize them for doing so. This includes any consumer contract or agreement entered at the dealership or in online terms and conditions.
“The CRFA protects a broad variety of consumer assessments including people’s ability to share their honest opinions about a business’s products, services, or conduct, in any forum, including social media. A business can be found to have violated the CRFA whether they actually seek to enforce such a contract provision or not,” NADA continued in special material to help stores.
In a separate blog post, the FTC also shared a trio of recommendations for dealerships and other businesses in order to comply with the CRFA. They included:
1. Review your form contracts.
Has it been a minute since you’ve read your form contracts? What do they say about consumer reviews or other communications covered by the CRFA? And where did the language come from in the first place? If you haven’t given your contracts the once-over since the CRFA took effect on March 14, 2017, it’s time to take a closer look. Read Consumer Review Fairness Act: What Businesses Need to Know to review the basics.
2. The FTC and states can enforce the CRFA whether or not a company follows through on its threats.
You’ve probably seen press reports about companies that have tried to enforce illegal provisions against consumers. It’s not the kind of publicity any business wants. But it’s a mistake to think you’re in the clear if you include those provisions in form contracts, but haven’t followed through against consumers. The CRFA establishes that the existence of an illegal contract provision alone could subject a company to a federal or state enforcement action — and the consequences can go beyond FTC or court orders. Companies can be subject to financial penalties for knowing violations of the CRFA.
3. The FTC Act also applies.
Courts have looked at companies’ practices related to consumer reviews through the lens of the FTC Act’s prohibition on unfair or deceptive practices. Of course, companies should comply with the Consumer Review Fairness Act, but questionable conduct also can be challenged under Section 5 of the FTC Act.