The Federal Trade Commission (FTC) recently announced a $10 million settlement with a major automotive retailer. This retailer operates nearly 75 dealerships in eight states and is ranked as the 13^th largest retailer in the 2022 Automotive News listings of top 150 dealerships.

The settlement is the largest in the FTC’s history with automotive retailers. The complaint outlines issues that all retailers should review their processes, policies, and practices to ensure they can avoid allegations of similar practices.

The complaint focuses on:

• Including add-ons to the transaction (defined as service contracts, Gap, and paint protection), sometimes without the consumer’s consent, other times represented as mandatory purchases, and other times misrepresented as free. In the body of the business practices, the description of the process infers an addendum for package hard adds may have been in place;

• A discretionary policy that permitted dealership employees to discriminate against black consumers versus non-Latino white consumers on the amount of interest rate markup and product profits; and

• An Truth in Lending violation concerning a coupon offer that was advertised.

Defendant’s Business Practices

The 29-page complaint spends time discussing what it calls “Defendant’s Business Practices.” It outlines alleged dealership practices in further detail, including lengthy sales negotiations, 60 pages of paperwork with dozens of signatures, and a practice of including add-on products either without express informed consent, as required, or misrepresented as free. It builds a case that the consumer is rushed through the signing process without reviewing each document they are being asked to sign.

Sign here, sign here, and sign here.

Also included in the complaint is a mention of dealer group specific training materials, obviously obtained through discovery. This document shared that the fourth largest complaint the dealer group received during the undisclosed period was “non-disclosed packages.” It does not expand on the group’s corrective actions on the complaint process, if any.

The Paper Trail

Unfortunately, the opposing forces of time and documentation consistently batter each other during the vehicle purchase process. Many dealerships struggle with the amount of time the consumer spends to purchase a vehicle. Included in that struggle is the volume of paperwork included that quite frankly is voluminous in part because of regulatory- or consumerism-driven disclosures. During our training sessions, we lament the fact that a consumer signs nearly 80 times and a manager another 20 times in a typical finance transaction. 

We recommend a documented, transparent, and acknowledged paper trail in every deal file. The properly completed documents in this paper trail should help to demonstrate that the consumer is making an informed decision at every step of the sales process, helping to deflect claims such as those included in this settlement.

The paper trail consists of the first pencil, the final pencil, the menu presentation page, the menu accept/decline, a buyer’s or lease order (n/a in California), the RISC or Lease Agreement, and the Voluntary Protection Product (VPP) enrollment forms.

• First and Final Pencil – The first pencil must be delivered at the dealer’s first pencil rate matrix or the dealer must document any exception to policy. Any hard add-ons supported by an addendum on the vehicle must be line itemed and disclosed as optional. The final pencil must include all agreed upon changes, including sale price, trade information, down payment, term, and payment.

• Menu Presentation Page – The base payment terms must be consistent with the final pencil, and any difference must be documented. The consumer must initial by the base payment so the dealer can demonstrate that this payment was disclosed to the consumer as the payment, with approved credit, and that the consumer can take delivery without the purchase of VPPs.

• Menu Accept Decline – The final agreement of VPPs purchased and declined, and final contract terms are disclosed and acknowledged on this document.

• Contracts and VPP – The RISC/Lease Agreement and VPP enrollment forms disclose and document the consumer’s final agreement.

Finally, as many dealership forms are now date- and time-stamped, these time stamps must show that the paper trail was completed in the proper chronological sequence.

If I can lay these documents out to a regulator or jury, it should demonstrate that the consumer indeed made informed decisions throughout the process and there was no deception intended.

Continued good health, good luck, and good selling.

Gil Van Over is the executive director of Automotive Compliance Education (ACE), the founder and president of gvo3 & Associates, and the author of Automotive Compliance in a Digital World.