One might as well use cash to light fires as to ignore potential regulations, which can be extremely expensive, both directly and indirectly. Regulations yield duties that must be discharged. Failure to discharge them triggers investigations, fines, litigation, class actions, and other consequences.
At a recent conference, the president of a state dealer association remarked that many general managers in her state are neither involved with the association nor concerned with its activities. This perspective is considered a grave blunder.
As an attorney for over forty years, I have observed that both federal and state governments promulgate industry laws extensively. Many of these laws are convoluted and require legal tracking and scrutiny. Who monitors these legal developments and looks out for dealers? Primarily and foremost, it’s the dealer associations.
The most sweeping change to consumer law in the 21st Century occurred with the passage of the Dodd-Frank Act, which produced the Consumer Financial Protection Bureau (CFPB). The CFPB engages in supervisory activities that can lead to audits and prosecutions of regulated companies. Most independent and Buy-Here Pay-Here dealers fall under the CFPB’s supervision but not franchise dealers. This exclusion was due to efforts by dealer associations and has saved franchise dealers significant amounts of money.
A study by the Center for Automotive Research (CAR) at the behest of the NADA in 2014 revealed that in 2014 dollars, the average dealership incurred $182,754 annually in federal regulatory costs. This was 24.7% of average dealers' before-tax profits for 2012 or $2,400 per employee. These costs were only for federal regulation and didn’t include state regulation or potential indirect costs of non-compliance such as fines and litigation.
Pending Regulation – The FTC’s Motor Vehicle Dealers Trade Regulation Rule
This proposed regulation adds further legal mandates on dealers. According to CAR analysis, median upfront costs for this rule will be $46,950 per location. These costs include training, IT system investment, and related expenses. Nationally, this rule will burden automobile dealers with a total outlay of $2,184,348,750. Dealer associations are presently objecting vigorously to this proposed rule.
Dealers May Be Among the Most Regulated Industries in America
The opportunities to prosecute dealers are extensive given numerous applicable laws such as the Truth in Lending Act (TILA), Unfair and Deceptive Trade Practices Act (UDAP), Equal Credit Opportunity Act (ECOA), among others. Dealer associations monitor these laws closely.
State Regulations
Federal regulations generally address disclosure issues whereas state regulations include disclosures along with substantive matters such as legal limits on interest charges. State laws address finance charge rates, insurance requirements, titling procedures, default charges among other issues. Dealer associations often operate from state capitals since they regularly lobby state governments regarding these laws.
Support your Local Dealer Association (and NADA and NIADA)
Regulation is costly both to implement and more so if not implemented due to prosecution and litigation risks. Dealer associations act as a bulwark against excessive regulation; thus supporting them is crucial for avoiding regulatory calamities.
By Terrence J. O’Loughlin
The Reynolds and Reynolds Company