KEEPING IT REAL — AND LEGAL
By: Jim Radogna
Unfair and Deceptive Acts and Practices statutes (UDAP) cover virtually every aspect of a dealer’s sales, finance and fixed operations. Everything from advertising and marketing to consumers, staff conversations with customers, managers’ conversations with salespeople, how prices and payments are quoted, how deals are handled in F&I, how repair estimates are handled – you name it. Everyone in the dealership who deals with or markets to the public is subject to UDAP statutes and can create liability for the dealership and for themselves.
UDAPs are extremely broad and provide for enforcement by both federal and state governments to stop the practices and individual actions for damages brought by consumers who are allegedly hurt by the practices. The FTC and state attorneys general actively pursue UDAP claims against auto dealerships and they are a favorite weapon for consumer attorneys who specialize in “auto fraud.”
What is most concerning about UDAP statutes is that they are “catch all” edicts – interpretation and enforcement of them are constantly evolving. Just because a particular act or practice isn’t specifically prohibited by law, it can be litigated as a UDAP violation if it is viewed as improper merchant conduct. These statutes allow for almost any unresolved customer complaint to snowball into a potentially devastating lawsuit.
Perception Is Key
When you look at actual enforcement actions and court cases against dealerships, there is typically one common element: the perception that the dealer was less than completely honest with a consumer. So if a dealer employee is accused of being dishonest with a customer, either by commission or omission, they may end up in a courtroom or worse.
So, here are 20 things all customer-facing dealership employees should know about UDAP statutes:
- No customer complaints are necessary and even inadvertent violations are actionable. Advertising violations are a common example of these principles. A noncompliant ad in itself is enough to create a violation even if there is no evidence that consumers have been harmed.
- Even innocent misrepresentations can be actionable under UDAP statutes. All that is required is proof that a practice has a tendency or capacity to deceive even a significant minority of consumers. This usually involves a situation where the dealer employee should have known or could easily have found out that his statement to the plaintiff was false, but didn’t bother to verify his statement before making it.
- A common misconception by dealership staff is that only written agreements are enforceable and oral agreements are irrelevant once the customer signs a contract. This is simply not the case with UDAP claims which can be founded on oral misrepresentations, oral promises made to the customer that the dealer fails to deliver upon, the failure to disclose, or ambiguous statements that are technically accurate, but deceptive as interpreted by the consumer.
- A dealer employee’s oral misrepresentations (or overly enthusiastic sales claims) may violate UDAP statutes even if they’re subsequently corrected by a written disclosure statement. For example, attempting to disclaim an oral warranty with an “as is” contract can lead to a UDAP (and breach of warranty) claim when a sales consultant states “this vehicle is in great shape. Our service department completely reconditioned it before we put it on the lot. If you have any problems, believe me, we’ll take care of it.”
Good Faith May Not Be Enough
In many cases, the consumer need not prove the seller’s intent or knowledge. The seller’s good faith does not excuse technical noncompliance and may not be a viable defense.
- A violation of a state or federal statute meant to protect the public may be a per se UDAP violation (for instance TILA, FCRA, ECOA or Used Car Rule). Attorneys love to combine regulations for more remedies and higher fees.
- While Common Law Fraud often must be proven by clear, convincing evidence, the UDAP standard is likely to be just a preponderance of the evidence. A preponderance of evidence has been described as just enough evidence to make it more likely than not that the fact the claimant seeks to prove is true.
- Where there is a statutory defense for “bona fide error,” this defense typically applies only to clerical errors, such as typographical errors or mistakes in computing numbers, not to a seller’s other unintentional misrepresentations. A bona fide error is an unintentional, honest mistake. Commission of a bona fide error, if corrected immediately upon discovery, normally does not call for a punishment.
- Unilaterally crediting the consumer’s account with the amount the consumer has sought in a lawsuit does not moot a UDAP claim, nor does a defendant’s offer to refund the consumer’s money after suit has been filed. Once lawyers get involved, settling the claim will likely get far more expensive.
Is the Claim Harmless?
- To prove that a claim is mere puffing, the seller will have to show that the exaggerated claim is harmless, purely fanciful, or a spoof, calculated to amuse and with no capacity to deceive. A claim is not puffing where the claim promises a specific act, or where the claim’s truth or falsity can be determined. Thus, offering the lowest price or highest trade value can create liability unless true and verifiable.
- It’s no defense to a UDAP claim that the challenged practice is engaged in throughout an industry or is “customary” business conduct. Regulators frequently penalize those unlucky dealers that get caught in order to intimidate others.
- Literally true statements can be deceptive. A practice is deceptive if the overall net impression of the representation, not just the specific explicit claim, is deceptive. One example might be advertising a prior rental vehicle as a “one-owner”. Another could be an ad that claims a “$0 Down!” lease but in reality the first payment and various fees are due at signing.
- A statement or omission may convey more than one reasonable meaning, and if one of those meanings is deceptive, it violates UDAP statutes. A good example would be where a dealer employee claims that a service contract is “included” in a payment quote. A reasonable meaning to a consumer is that “included” means “free” or “at no additional cost.”
- Representations are deceptive if necessary qualifications are not made, if material facts are not disclosed, or if these disclosures or qualifications are too inconspicuous. Omission of information may be deceptive if disclosure of the omitted information is necessary to prevent a consumer from being misled. These are commonly-cited advertising violations. A favorite mindset among regulators is that “what the large print giveth, the small print can’t taketh away.”
Making Sure the Disclosure is Correct
- The public is not under any duty to make a reasonable inquiry into undisclosed aspects of a representation or advertisement. Deception can occur if there is a “tendency or capacity to mislead the public” or when “reasonable inferences may be drawn.” In the automotive world this, unfortunately, is a VERY LOW BAR. An omission is considered material if a significant number of unsophisticated consumers would attach importance to the information in deciding on a course of action.
- A practice is deceptive even if subsequently clarified. Point of sale disclosure is not sufficient to clarify deceptive media advertising. For example, the claim “we’ll pay off your trade no matter what you owe” has been found to be deceptive even though the dealer discloses that negative equity is added to the purchase contract at the time of sale. So the old “see dealer for details” disclaimer may not protect you as much as you would like.
- A merger clause or a contract provision that “no agreement between salesman and customer is binding on the company” or otherwise disclaiming oral representations does not defeat a UDAP action based on an employee’s misrepresentations. The presence of a disclaimer does not necessarily guarantee that the terms of the disclaimer will be recognized and enforced in a legal dispute.
- High-pressure sales tactics have been cited as unfair trade practices in lawsuits and regulatory actions. Examples include intimidation, coercion, personal disparagement, emphasizing social difficulties, refusing to let customers leave until they sign contracts, using relays of salesmen until the consumer succumbs, and preventing consumers from taking the time to consider a decision and its consequences. So while you should Always Be Closing, care should be taken not to step over the line.
- Often the correct disclosure to which the seller points can be shown to have been untimely. Disclosure of important missing information just as the contract is being signed does not prevent the previous failure to disclose from being deceptive.
- Misrepresenting the nature or import of documents being signed is likely to be considered deceptive. Keep in mind that statements like “just sign next to all the Xs” can lead to problems.
Best Practices to Avoid UDAP Traps
- Train ALL employees who deal with the public on compliance and ethics, not just management – people don’t know what they don’t know.
- Have written policies and codes of ethics in place – all employees should be held to the same standards.
- Hold staff accountable through compliance audits.
- Institute a complaint resolution process – strive to take care of your customers BEFORE they contact the attorney general or a lawyer.
- Tell the truth, the whole truth, and nothing but the truth – every time.