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Texas Independent Dealer Ordered to Pay $1 Million in FTC Settlement

The Federal Trade Commission (FTC) recently settled a $1 million complaint against an independent online retailer. The FTC accused the company of engaging in deceptive practices that the agency claims have harmed consumers. The case underscores the FTC's increasing crackdown on businesses, sending a clear message to all in the independent automobile dealership industry about the importance of compliance with FTC regulations. What's clear from this settlement is that the FTC has shifted gears and made stricter regulations than what most dealers currently expected.

The FTC's Case Against the Independent Online Retailer

On July 1, 2024, the FTC announced that it had charged an independent online retailer with a series of deceptive and misleading practices. According to the FTC's complaint, the retailer misrepresented the condition of the vehicles it sold, failed to deliver vehicles on time, and provided inadequate customer service. The FTC alleges that the company failed to follow the Used Car Rule, the Pre-Sale Availability Rule, and the Mail, Internet, and Telephone Order Rule (MITOR).

Key Allegations

As a used car dealer, the dealership is required to follow the FTC's Used Car Rule, which includes a requirement that the dealer properly complete and display a “Buyers Guide” on each used car it offers for sale. The Buyers Guide gives consumers important information about whether the used car comes with a warranty or is being sold “as is.” The FTC stipulates that "Before offering a Used Vehicle for sale to a consumer via the internet," the dealership failed "to display a properly completed Buyers Guide through a hyperlink that is prominently and conspicuously displayed with each Used Vehicle offered for sale."

Previously, many dealers believed they were in compliance if they prominently displayed the Buyers Guide on the vehicle itself. Now it is clear, the FTC has made stricter regulations about these Buyers Guides.

If the car is sold with a dealer's warranty, the Used Car Rule requires the Buyers Guide to list its basic terms and conditions, including the duration of coverage, the percentage of total repair costs to be paid by the dealer, and the exact systems covered by the warranty. The complaint alleges that the dealership failed to provide the Buyers Guide until late in the purchase process and that the Guides were often missing required information.

Finally, the complaint alleges that the dealership violated the Pre-Sale Availability Rule because it did not post the terms of its warranty on its website in close proximity to the warranted used vehicle, nor did the dealership inform customers how they could obtain the warranty's terms prior to the receipt of the sale documents.

The Importance of Compliance and Transparency

This case serves as a critical reminder for independent automobile dealers about the importance of maintaining compliance with regulatory standards and fostering transparency in business operations. The FTC's action underscores that failure to adhere to these principles can result in severe legal and reputational consequences.

Key Takeaway for Dealers

To stay compliant and avoid FTC scrutiny, independent dealers should ensure that every used vehicle listed for sale online includes a prominently displayed hyperlink to a properly completed Buyers Guide. This transparency not only meets regulatory requirements but also builds trust with potential customers by clearly communicating important information about the vehicle. All independent dealers are at risk for scrutiny under the FTC, making it crucial to be vigilant and compliant in all aspects of their business operations. Failing to adhere to regulatory standards, such as properly displaying Buyers Guides for online vehicle listings, could lead to significant legal and financial repercussions.


Other Steps to Ensure Compliance

To avoid the pitfalls highlighted by the FTC's case, independent automobile dealers should take proactive steps to ensure compliance with industry regulations and standards. Here are some recommended practices:

  1. Regular Training and Updates: Keep your team informed about the latest regulatory requirements and industry best practices. Regular training sessions can help prevent inadvertent compliance violations.

  2. Audits and Reviews: Conduct regular audits of your business practices, including advertising, sales, and customer service, to identify and address any potential issues.

  3. Clear Policies and Procedures: Develop and maintain clear policies and procedures for all aspects of your business operations. Ensure that these policies are consistently followed by all team members.

  4. Customer Feedback Mechanisms: Implement robust systems for collecting and addressing customer feedback. Use this feedback to improve your services and resolve any issues promptly.

Conclusion

The FTC's action against the independent online retailer serves as a stark warning to all independent automobile dealers. This FTC action makes clear that the agency will be cracking down on dealerships and other businesses, and independent dealers should take this opportunity to review their practices and make any necessary changes to ensure they are operating transparently and responsibly. By prioritizing compliance and customer satisfaction, dealers can more readily avoid regulatory scrutiny.

For more information and resources on compliance and best practices for automobile dealers, visit the Texas Independent Automobile Dealers Association (TIADA) website.

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