After seeing the penalty the Washington attorney general levied on an independent dealer last week, attorney Tom Hudson said he's seen an uptick in these cases recently and that the operation “got off relatively lightly.”
Hudson stressed dealers can avoid what happened to RGH Marketing and its owner Robert Hubbard Jr., a former manager of Interstate Auto Liquidators in Vancouver, Wash.
Washington attorney general Rob McKenna originally filed a lawsuit in 2009 against RGH Marketing and Hubbard, alleging both violated Washington’s Consumer Protection Act, Promotional Advertising of Prizes Act and Dealers’ Licenses Act.
Now, Hubbard and RGH must pay more than $128,000 in penalties and attorneys’ fees.
“This dealer actually got off relatively lightly,” Hudson told Auto Remarketing on Wednesday.
“We’ve seen a lot of these actions by AGs around the country lately — I’d say a couple of dozen in the last year or so — and settlements of $200,000 to $300,000 are not uncommon,” added Hudson, one of the founding partners of the law firm Hudson Cook, a nationwide provider of legal compliance services for the automotive and financial industries based in Hanover, Md.
What Got the Dealer into Trouble
Washington’s attorney general recapped why Hubbard and the store ended up with legal problems.
McKenna accused the defendants of misleading customers by falsely claiming that vehicles were being sold under distressed conditions by using advertising terms such as “Pre-Auction Auto Sale,” “Repos,” and “Bank Asset Sale” when in fact, the vehicles came from the dealer’s regular inventory.
The AG also indicated the dealership’s ads included promises of vehicle discount offers that did not exist, such as “50-percent off the MSRP” on used vehicles, when MSRP is generally a term describing new models, not used units.
“Illegal advertising not only harms consumers, it gives dishonest auto dealers an unfair advantage over businesses that are playing by the rules and already struggling during this difficult economy,” McKenna declared.
According to assistant attorney general Mary Lobdell, advertising statements implying that customers could finance and drive home any vehicle of their choice, regardless of a consumer’s credit rating, were also misleading.
“Although consumers were led to believe credit would be available to everyone at these sales, the dealership could not prove that consumers, regardless of creditworthiness, received financing offers,” Lobdell stated.
A judgment was entered in Clark County Superior Court against Hubbard and RGH Marketing. The defendants must pay the $66,228.00 judgment, $36,228.00 in costs and attorneys fees, and $28,000 in civil penalties.
What Dealers Can Do Differently
Since this case in Washington wasn’t the first to appear on Hudson’s legal radar, the attorney began his advice to dealers with what he called a few simple things.
“Dealers need to assure that every statement in an ad is truthful,” Hudson told Auto Remarketing.
“If the event being advertised is just another weekend at the dealership, the ad shouldn’t make claims that it is any sort of special day,” he continued. “Claims of discounts need to be truthful.”
For example, Hudson explained if a vehicle is advertised at a certain discount off the previous price, the dealer must be able to establish the unit was actually offered earlier at the higher price.
Furthermore, he emphasized dealers should not claim inventory units are repos or off-lease if that description simply isn’t true.
“For any claim the dealer makes, the dealer needs to be prepared to prove that the claim is absolutely true,” Hudson stressed, “And dealers need to review their own ads and take responsibility for them, and not rely on the ad company to do it correctly."
A colleague at Hudson’s firm, Nicole Frush Munro, elaborated on that point and more in an article titled, “Pay the Lawyers Now, or Pay the Attorney General Later.”
Munro said she recently received a call from a lawyer representing a dealership that had been “called on the carpet” by its state’s attorney general for advertising violations.
“It seems that the dealership’s website contained ads that used the so-called ‘triggering terms’ identified by federal regulations as requiring additional disclosures in the ads,” Munro explained.
“The dealership folks who had put the website together and who supplied its content had used scads of ‘disclaimers’ in connection with the ads, but the disclaimers were either in ‘mouse type’ or, when spoken or scrolled across the screen, were not intelligible,” she continued.
Turns out, the dealership had an appointment with the attorney general the next day to answer questions about the website.
“The dealership’s lawyer told me that his client didn’t have much by way of a defense, and that he intended to basically ‘plead guilty’ and try to negotiate the lowest penalty he could,” Munro recollected.
“He mused that the AG might strip a $150,000 to $300,000 slice off of his client’s rear. A number in that range would be pretty much in line with fines levied by AGs in other states in advertising violation cases,” she went on to say.
To ensure any size dealership doesn’t wind up in the crosshairs of an attorney general investigation, Munro suggested a few questions to strengthen advertising compliance efforts:
—Who is responsible for ad compliance at your dealership? Who’s your ad guru?
—To whom does your ad guru report, and who has the authority to override the guru’s decisions?
—What sort of training in advertising and disclosure laws and regulations have you given to your ad guru?
—What sort of legal and compliance tools, and what sort of budget, does the ad guru get?
—What sorts of records do you keep that reflect the review and approval of ads?
“If you can’t name someone at your dealership, or an outside lawyer, who is responsible for approving every ad and every change to your website, you should designate such a person,” Munro recommended.
“If you’ve been relying on your advertisement company or the folks who built your website for advertising compliance, there’s probably no hope for you,” she conceded.
“If you aren’t using an outside lawyer to review your marketing materials, you’ll need an internal specialist, the ad guru,” she went on to say. “The ad guru ought to report as high up the dealership chain of command as possible. If he or she answers to a sales manager, then you are basically letting your sales manager make legal decisions.”
Munro said a dealership’s advertising point person should be certified by the Association of Finance and Insurance Professionals or by some other group, such as a state dealer association that offers training.
“The ad guru should have copies of all federal and state laws and regulations at hand, as well as copies of all of the information about ads available on the Federal Trade Commission’s website,” Munro noted.
“Also, there is often a surprising amount of assistance about ad and website compliance available from many state auto dealer associations. Your dealership lawyer can help assemble these materials, and can perhaps provide some training to the ad guru in using them,” she added.
By following these recommendations, Munro contends a dealer will be better prepared to answer questions from the attorney general’s office about a particular ad or website page.
“You’ll be in much better shape if your ad guru can pull out the file that reflects the approval process and shows why the ad or Web content was approved,” Munro stated.
“The AG might still take the position that you’ve violated an ad law or regulation, but I will guarantee you that any penalty assessed won’t be nearly as high as it would have been had you not had any proof of attempted compliance,” she declared.
“Will this effort cost money? No doubt. But it’s either pay now or pay later,” Munro concluded.
Hudson Cook can be found online at www.hudco.com.