Thursday, December 24, 2009

Don’t Get Bitten by Your Bird Dog

A good article by Patty Covington

Long-standing dealership practices aren’t necessarily legal dealership practices. Many of these questionable practices have been around for years - and often dealers keep using them, because “everyone does it.”

Dealers sometimes don’t think twice or consider whether the practices are legally permissible or even if they are good for business. Over time, these practices have simply become part of the dealership's operations.

Referral fees are a good example of these practices.

I’m not talking about leads purchased from a typical lead provider or the purchase of a marketing list. I’m talking about referral fees paid by one dealership to another dealership or payments between sales associates of different dealerships for the referral of a customer who buys a car.

This arrangement could be part of a formal referral fee program between dealerships. let’s say sales associate Frank at franchise dealership X agrees to refer his “turndown” customers to sales associate Tom at independent dealer Y.

The arrangement could even involve an individual not employed by a dealership.

No harm, right?

Well, maybe more than you might expect. If you, or your dealership, is involved with such a program, here are a couple of things you should consider:


State law may prohibit paying for a referral in connection with the sale of a car.

Some states specifically prohibit the practice, commonly called “bird-dogging.”

Louisiana is such a state. Some states, like Ohio, require that any commission or compensation paid for the sale of a car be to a person licensed as a salesperson in the dealer’s employ.

Other states have dealer and salesperson licensing laws that sweep in broker activities. Finally, some states have laws specifically targeted at the “brokering” of cars. Some of these laws require brokers to be licensed, while others simply prohibit the brokering of the sale of a car.


Information exchanged could violate privacy laws.

Even very basic information regarding a customer, like the customer’s name, could be “nonpublic personal information” under the federal Gramm-Leach Bliley Act (GLBA).

Credit applications and a customer’s FICO score also would constitute nonpublic personal information.

Under the GLBA, nonpublic personal information cannot be shared with unaffiliated third parties unless the dealership’s privacy notice specifically states that the dealership shares information in such a way.

If Social Security numbers are shared, other state privacy laws may be violated. A significant number of states have laws that prohibit certain disclosures relating to Social Security numbers.

In addition, if an employee shares customer information with another person against dealership policy, the disclosure could constitute a security breach. Some states have security breach laws that apply only to paper documents, but other states’ laws also cover electronic records.


Information exchanged could constitute a consumer report.

If credit applications or FICO scores are shared, the federal Fair Credit Reporting Act (FCRA) is implicated. These documents constitute consumer report information.

What does this mean?

First, the party giving out this consumer report information may be deemed to be a consumer reporting agency under the FCRA.

Secondly, the party receiving the consumer report information is required by the FCRA to have a “permissible purpose” for the information under the FCRA prior to receiving it.

The FCRA sets forth an elaborate set of rules, requirements, and conditions for consumer reporting agencies and users of consumer reports.

The implications of being a consumer reporting agency are enormous. In addition, some states regulate these practices.


Calling a potential customer could violate “Do Not Call” rules.

You will violate the federal Telemarketing Sales Rule (TSR) if you call a potential customer registered with the Federal Trade Commission’s Do Not Call registry.

State mini-DNC registries and rules may also apply.

Exceptions available under the TSR will likely not apply because the customer initially contacted and dealt with the referring dealership, not the dealership following up on the referral.


Finance and lender broker licensing may apply.

Some states have finance and lending broker laws that are triggered for finance transactions.

Since most cars are financed, these laws may be implicated. Rhode Island has such a law. These laws typically impose licensing requirements.


If your dealership sells its financing contracts to sales finance companies and banks, it has entered into a dealer agreement regarding those contracts.

Typically, dealer agreements contain representations and warranties from the selling dealer to the effect that the dealer is in compliance with all state and federal laws applicable to the sales and financing transactions reflected by the contracts.

If your referral program violates such laws, you might find yourself forced to repurchase those contracts. Not a good day.

Finally, in addition to the above legal issues, there may be some practical matters that should be considered. For instance, are dealership associates referring the “right” deals to another dealership?

Is it possible that a sales associate will earn more on a referral than he would have earned if he’d sold the car himself? That may be possible with subprime discount deals.

It’s better to carefully consider whether what “everybody else is doing,” is first legal and second, makes sense for your business. It’s not that unusual for commonly accepted practices to come under fire.


Patricia E. Covington is a partner with Hudson Cook, LLP, a Hanover, Maryland-based law firm that represents national and state banks, savings associations, credit unions, mortgage bankers, and licensed lenders in the development and maintenance of consumer mortgage, automobile finance, and other credit programs.


BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

7 comments:

Anonymous said...

i very adore your own posting kind, very interesting,
don't quit and keep posting due to the fact it just simply well worth to look through it.
impatient to read even more of your current well written articles, thanks ;)

Anonymous said...

Well your article helped me altogether much in my college assignment. Hats afar to you send, wish look progressive for more interrelated articles soon as its united of my favourite subject-matter to read.

Carol 4 u said...

Hi, (Also, interested for article exchange)

This is Carol, a webmaster of some quality financial websites having good internet presence and traffic. As I found your website is relevant to my one, I'd like to have you as my link partner. I am ready to give you some healthy links (both text and banner) from content pages (pr1/2/3) of my websites.

I have few brand new debt, mortgage, insurance, credit related articles, which I wish to post in your site.

If you are not the concerned person, then kindly forward this mail to the webmaster concerned.
Waiting for your reply.
Regards,
Carol
nancysix00@gmail.com



N.B: -- This message contains personal, privileged, and confidential information and is intended only for the individual named. If you are not the named addressee, you are NOTIFIED not to disseminate, distribute, re-transmit, copy, or utilize this e-mail, and contents herein. Please notify the sender immediately by return email if you have received this e-mail by mistake. You are FURTHER NOTIFIED to delete this e-mail and any attachments, as well as any copies made thereof, from your computer system(s). The sender does not accept liability for any errors or omissions in the contents of this message and unless explicitly stated otherwise, does not intend to give legal advice or enter in an attorney-client relationship.

Anonymous said...

hiya


Just saying hello while I read through the posts


hopefully this is just what im looking for looks like i have a lot to read.

Auto Transport said...

Dealers are still crooks. I remember getting thrown out of a dealership for asking them to show me the dealer invoice for a car I was interested in. By law they are required to do so.

Anonymous said...

I like your style, the particular inescapable fact that your webpage is a little bit different tends to make it so useful, I get tired of discovering same-old-same-old almost all of the time. I have I just stumbled on this page by you Thank you.

Anonymous said...

"auto transport": We don't have to show you ANYTHING, by law. You can find the information easily enough on the internet, so why would it be a law. Get facts straight before posting.