After hitting an impasse with auto industry skeptics, TrueCar is facing another setback. The embattled company and its dealers were notified by the Colorado Department of Revenue that they could be in violation of five of the state’s advertising rules, according to a letter released on Dec. 15.

According to the Colorado Automobile Dealers Association, TrueCar had initiated a meeting with the Department’s Motor Vehicle Dealer Board in late November to find out if its service was in compliance with Colorado state laws. “That seemed to be a discovery meeting to tell the [state’s] Auto Industry Division (AID) how the TrueCar model works,” said Tim Jackson, Colorado Automobile Dealers Association (CADA) president.

The Department of Revenue’s legislative liaison, Mark Couch, stated that the AID is currently investigating a complaint that it received last week regarding TrueCar and could not comment until the investigation was completed, reported F&I and Showroom magazine.

Jackson said that his association was not involved in the meeting, but was notified soon after by the AID about a number of issues regarding TrueCar’s business relationship with dealers. Some of the topics mentioned in the AID’s letter include concerns over access to dealer’s inventory information, possible “bait and switch” situations and concerns regarding unlicensed sales activity.

The five advertising violations identified included failure to include vehicle stock numbers, using the word “invoice” in advertisements, small font size on disclaimers, failure to disclose all costs associated with purchasing a vehicle, and not listing an expiration date or time limit for offers.

The association’s new-car dealers were notified about the situation over the weekend. “I’ve been on the phone all day,” Jackson said. “Out of those 250 or so dealers, I’ve probably fielded between 25 to 35 calls so far.”

The AID’s letter also indicated that it has been instructed to “pursue licensure by TrueCar as either a Used Motor Vehicle Dealer or to have individuals associated with TrueCar licensed as salespersons or both.”

The reason for this, Jackson adds, is that anyone who is negotiating the price of a car in Colorado needs to be licensed to do so.

Though the alleged violations originated from TrueCar’s materials, the AID states that any dealer using the company’s services to promote and list vehicles will ultimately be responsible for any violations of the state’s compliance rules.

“It’s up to the dealers who they do business with and we don’t tell them who to do business with or not to do business with,” Jackson says. “But it’s our role to help them stay in compliance.”

Group 1 Automotive was recently reported to have ended its business relationship with TrueCar, but did not immediately return F&I and Showroom’s requests for comment. Last week, Honda confirmed that it warned its dealers over the summer that marketing dollars will be withheld if dealers violate the company’s stated advertising guidelines. A company spokesman, however, denied that Honda is prohibiting its dealers from using TrueCar.

What do teenage girls have to do with the Telemarketing Sales Rule? More than you might think. I’m a lawyer with five daughters 18 years old and under, so I know of what I speak.

As you may recall, the Telemarketing Sales Rule (TSR) went into effect in 2003 to both implement the Telemarketing and Consumer Fraud and Abuse Prevention Act and preserve the Holy Golden Silence. For Boomers like me, the Holy Golden Silence was that period between approximately 5:00 and 7:00 p.m. when nuclear families sat down together to eat dinners lovingly prepared by mothers wearing pearls. Polite people simply did not call other polite people during the Holy Golden Silence. Desecration of the Holy Golden Silence elicited scorn from my father and energetic violations of the Second Commandment.

Telemarketers, of course, are not polite people. They specialized in calling during the Holy Golden Silence precisely because they knew Boomers and their spawn would be sitting near a wall-mounted telephone whose handset was attached to its base via an actual cord.

And this is where teenage girls enter the equation. My daughters have never seen a functional wall-mounted telephone in their lives. Honest. Helping one such daughter with her homework recently, I was actually asked which was invented first, the fax machine or fire? (Answer: Fire. Your grandfather invented it). They live in a wireless world.

So when we sit together to eat dinner, a tradition still staunchly defended at das Gantherhof, a ringing telephone is not the issue. Rather, it is text messaging, to which my daughters are all addicted. During our Holy Golden Silence, I need to banish the iPhones. They text their friends from under the table. They text “pls ps the btr” to their sisters. They may transmit mutant thumbs to my grandchildren.

In short, technology has overcome the TSR. No one calls anymore – or so it seems. If our landline phone rings, we know it’s not someone we want to talk to – people we want to talk to have our cell numbers.

But not all dealerships are technology forward. Some are still rumored to use fax machines. So for those that still use telephone marketing, a brief overview of the Rule may be in order. Here goes.

The Federal Trade Commission (FTC) gives consumers a choice about whether they want to receive most telemarketing calls. Consumers are able to put their phone numbers on a national “Do Not Call” registry. It is illegal for most telemarketers or sellers to call a number listed on the registry. Because a dealership may want to call actual or prospective customers, it is important to know when one may or may not do so.

The TSR – often called the Do Not Call Rule – applies to any effort to sell goods or services through interstate phone calls. This includes dealerships that solicit consumers. It also includes outside telemarketers who solicit sales on behalf of dealerships.

Dealerships and the telemarketers they use are required to search the Do Not Call registry at least quarterly and drop from their call lists the phone numbers of consumers who have registered. The FTC maintains a website that provides this information: https://telemarketing.donotcall.gov/.

A consumer who receives a telemarketing call despite being on the registry will be able to file a complaint with the FTC, either online or by calling a toll-free number. Violators could be fined up to $11,000 per incident.

Fortunately, there are some important exceptions to the TSR. In fact, if it is a dealership’s policy to only contact consumers that fall within an exception to the Rule, the dealership may never need to actually compare a consumer’s name to the names on the Do Not Call registry.

A dealership or telemarketer may call a consumer with whom it has an established business relationship for up to 18 months after the consumer’s last purchase, delivery, or payment – even if the consumer’s number is on the Do Not Call registry. This means that dealerships are free to call a customer for 18 months following delivery of a vehicle in a cash transaction, or for 18 months after the last payment in a financed or lease transaction.

This 18 month period resets every time a customer makes another purchase or payment. Thus, if a customer made his last car payment 19 months ago and he is listed on the Do Not Call registry, a dealership cannot make an unsolicited sales call to that person. But if he gets his transmission replaced at that dealership, a new 18 month period is established.

In addition, a dealership may call a consumer for up to three months after the consumer makes an inquiry or submits an application to the dealership. What this means is that a dealership is free to call a potential customer for up to three months after a sales visit to that dealership, or after taking a test drive. And if a consumer has given a dealership written permission, that dealership may call the consumer even if the consumer’s number is on the Do Not Call registry.

But beware: if a consumer asks a dealership not to call, the dealership may not call, even if there is an established business relationship. Indeed, a dealership or its telemarketers may not call a consumer – regardless of whether the consumer’s number is on the registry – if the consumer has asked to be put on the dealership’s internal Do Not Call list.

Some states have their own Do Not Call registries, so a dealership would do well to check with its local counsel to determine if these laws increase its obligations with respect to calling customers.

Dealerships and their telemarketers are required to transmit their telephone number, and if possible, their name, to consumers’ caller ID services where it is technologically possible. Transmission of callers’ ID information allows consumers to know who is calling (and, presumably, ignore the call).

The following provisions of the Telemarketing Sales Rule also apply to dealerships:

• Dealerships and telemarketers may only call consumers between 8 a.m. and 9 p.m., local time.
• Dealerships and telemarketers must promptly identify themselves as a seller and explain that they’re making a sales call before pitching a product or service.
• Dealerships and telemarketers still must disclose all material information about the goods or services they are offering and the terms of the sale. Misrepresenting any terms or conditions of the sale is prohibited.

To be safe, a dealership should assume that every person who visits or does business with the dealership has signed up for the Do Not Call registry. Then, only call those people if they fall within one of the exceptions to the Do Not Call regulations. If you aren’t sure that an exception applies, you should compare the consumer’s name to those on the Do Not Call registry.

Finally, remember that the Telemarketing Sales Rule primarily applies to sales calls. A dealership is never prohibited from contacting customers to inform them, for example, of recall or other safety-related information.

But to return to our point of departure, technology is moving past telephone solicitations. My daughters and their generation are immune to its fading charms. The real issue for the younger set addresses e-mail and text solicitations: The CAN-SPAM Act.

Yeah, I think I smell another article…

WASHINGTON — President Obama has named former Ohio Attorney General Richard Cordray as his nomination for director of the new Consumer Financial Protection Bureau (CFPB), which was created by the passage of the Dodd Frank Act last year. The nomination will require Senate confirmation, which, by all account, will be a problem.

Cordray previously served as Ohio’s treasurer and as head of the CFPB’s enforcement division for the last six months under current interim director and agency architect Elizabeth Warren.

During the announcement, President Obama discussed Dodd-Frank’s provisions, which included making taxpayer-funded bailouts illegal, Wall Street reforms and stronger consumer protection rules.

“Already, the agency is starting to do a whole bunch of things that are going to be important for consumers — making sure loan contracts and credit card terms are simpler and written in plain English,” the president said. “Already, thanks to the leadership of the bureau, we’re seeing men and women in uniform who are getting more protections against fraud and deception when it comes to financial practices.”

In her White House blog post announcing the nomination, Warren described Cordray as someone that would be a “strong leader” for the CFPB. She added that he is someone with “a proven track record of fighting for families during his time as head of the CFPB enforcement division, as attorney general of Ohio and throughout his career.”

“He was one of the first senior executives I recruited for the agency, and his hard work and deep commitment make it clear he can make many important contributions in leading it,” Warren continued in her blog post. “Rich is smart, he is tough and he will make a stellar director. I am very pleased for him and very pleased for the CFPB.”

In this month’s Legal column, Tom Hudson, partner at the law firm of Hudson Cook LLP, talked about the many challenges the CFPB is facing as it gets set to assume regulatory authority on July 21. The Republican-controlled Senate has already said it will block President Obama’s nomination. Republican lawmakers also have introduced several proposals to reduce the bureau’s power and independence.

Because of efforts put forth by the National Automobile Dealers Association, dealers were largely excluded from the CFPB’s oversight. However, the Dodd-Frank Act granted the FTC new rulemaking powers as it pertains to dealers. The agency is now hosting a series of roundtables to determine where it should focus its attention when it assumes its new powers. The next roundtable is scheduled for Aug. 2-3 at St. Mary’s University School of Law.

SCHAUMBURG – Zurich has launched an awareness campaign for automobile dealers to help them navigate the maze of new laws and regulations expected to affect their businesses in 2011 and beyond. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Truth in Lending Act, and the laws of Title X are just a few of the rules and regulations automobile dealers need to understand and follow in order to be in compliance with the law, reported F&I and Showroom.

“Many auto dealers don’t know that the passage of Dodd-Frank will have a substantial impact on the way franchised auto dealers conduct financial transactions beginning July 21, 2011,” said Glenn Roberts, national training and business development manager for Zurich North America Commercial. “Zurich is looking out for auto dealers by helping them know that Dodd-Frank is not just for big banks and Wall Street.”

In order for Zurich to help educate its customers on rules and regulations affecting auto dealers, Zurich collaborated with Hudson Cook LLP, a law firm specializing in legal issues that face auto dealers, to develop a comprehensive legal guide that will be used to train and educate Zurich’s employees. That information will now be share with the company’s customers.

Zurich is encouraging its customers to raise these issues with their respective attorneys to develop a compliant F&I office. Some of the information Zurich is ready to help auto dealers understand is detailed below:

• The Dodd-Frank Act amended the Truth in Lending Act (TILA) to increase the scope of credit and leases covered by TILA. In addition, the range of damages available under TILA and the class action cap have been raised. The federal agencies responsible for drafting and maintaining regulations dealing with these coverage amounts will revise those regulations to reflect the changes, which become effective July 21, 2011.

• The Dodd-Frank Act amended the Fair Credit Reporting Act to require creditors, which includes dealers, to provide the actual credit score used to help make the credit decision to consumers in an adverse action notice.

• Congress gave the Federal Trade Commission (FTC) more authority and a mandate to regulate dealers for unfair and deceptive acts and practices. Count on the FTC to increase its regulation and enforcement of dealers.

• State attorneys general may enforce the laws of Title X, which are federal consumer financial laws and rules issued by the Bureau of Consumer Financial Protection. Attorneys general have historically been aggressive in pursuing dealers. They will now be armed with new enforcement tools and remedies.

Menu Providers’ Perspectives!

Full speed ahead: The Red Flags Rule is in enforcement! Yes, that’s right, the day has finally arrived! And that means the time has come to comply, comply, comply! As of Jan. 1, the FTC not only has the power to go after banks, credit unions and captive lenders that violate the rule, but it can also seek out dealerships that aren’t following protocol.

We knew this day was coming and over the course of 2010 have published several articles explaining what this rule encompasses and how it affects us. Our December issue included an article about the pros and cons of this recently implemented rule from a provider and legal expert’s perspective. One of the ways a software company can assist the dealership in complying with the Red Flags Rule is by incorporating Red Flags checks into the programs used by the dealer.

So, we decided to get the perspective of a few menu providers about the pros and cons of complying with this rule. My thanks go out to MaximTrak Technologies, Ristken Software Services and VisionMenu for providing P&A eMagazine with their perspectives.

We first asked what they feel, as software providers, are some advantages of using Red Flags checks and what advantages do these checks provide dealerships?

Ron Martin, president of VisionMenu, Inc., says, “It is a low-cost, quick-and-easy way for the dealer to ensure that the customer is who they say they are. It evaluates the name and address, age and social security number against a variety of public records to confirm the identity of the person. Now the dealership just needs to make sure that the customer in front of them is actually who they say they are. This is done by evaluating a list of out-of-pocket questions. Sure, there is room for some people to slip through the cracks, but if the process is followed completely, most identity thieves will be uncovered. We at VisionMenu have chosen to leave this process to the expert, which is why we have chosen a company’s web service that specializes in catching identity thieves. We are just facilitating ease of use to the F&I manager by allowing full integration.”

Jim Maxim, president of MaximTrak Technologies, adds that “Federal compliance issues today surrounding identity theft and protection of non-public personal information are some of the hottest topics in today’s business discussions – especially in the financial services arena. Automotive dealers today are being held as accountable for compliance with these regulations as some of the world’s largest banks. So, the risks are huge and it really demands that the dealership principals pay attention to these areas and assess their processes and overall compliance. We incorporate these services to make it quick and easy for the dealer to adopt compliance into their sales and finance processes and to save the dealership time on each and every transaction, which means more time spent selling products.”

Patrick DeMarco, president of Ristken Software Services, says “the biggest advantage is protecting the dealerships against fraudulent buyers and therefore mitigating the risk of a distressed financial situation for the dealership. By incorporating Red Flags technology directly into our menu application, it ensures the F&I managers are completing Red Flags checks at the point of sale. A simple series of questions can protect the dealership and its creditors from identity theft. Ristken does not charge additional fees in our application for Red Flags integration. We feel all of our customers should have that protection benefit in their operations.”

On the flip side, there are shortcomings, and as Jim Ganther mentioned in his December article “it can be easy to fall into the trap of believing the transactional approach is sufficient to address all of a dealership’s obligations under the rule.”

Martin agrees that the checks do tend to provide the dealer with a false sense of security and that the dealer needs to have implemented and documented, in writing, the procedures put in place to detect, prevent and mitigate identity theft. Maxim also says they often see that the shortfalls that are occurring at the dealer-level are in the training, process and policy areas.

Because these menu providers offer challenge questions within their software programs, we asked them how the questions operated within these programs. Maxim says that although some dealers incorporate the challenge questions into every transaction, many do not because it is not required, and they are only prompted with such questions when an alert is caused as a result of a credit report being pulled or something within the system being alerted during the sales process.

All of the participating menu providers provide a Red Flags identity theft prompt that upon selection opens a window that prompts the F&I manager with several challenge questions. Martin adds that based on the circumstances, it is crucial that the challenge questions be answered correctly, and although it is not a full-proof way of confirming the person’s identity, they get as close as they can.

We finally asked our menu provider participants, just as we did of Jim Ganther and Pattie Dillon last month, if they thought that Red Flags checks capabilities should be charged to the dealer. Although Ristken does not charge additional fees in their application for Red Flags integration, both VisionMenu and MaximTrak Technologies do charge for this option. However, Martin says, “Yes, there is a nominal fee. But in order to stay with our high-quality, low-cost model it is an a la carte option for customers. And all things considered, when it comes to compliance, it is money well spent.”

Maxim also notes that his company’s Red Flags service “is billed on a per authentication basis – there are no monthly minimums.” He further explains that, “a dealership that sells 500 cars per month should pay more than a dealership that only sells 50 cars per month. The very nature of the service makes it palatable for everyone and ensures that we can provide the same quality of service to every automotive dealer that wants to utilize these services to comply with the Red Flags requirements.”

In spite of the possibility that Red Flags checks can give the dealer a false sense of security, it seems that the benefits of implementing a Red Flags checks program within a menu selling system far outweigh the cons. And, to remain compliant and avoid unnecessary legal issues, it is absolutely necessary the dealer have a written program for compliance and a training program to follow through with their compliance of this rule.