How to Ensure That Your Car Dealership Complies with Laws and Regulations

Car dealerships not only have to comply with a wide range of dealer-specific standards and regulations but also with federal and state regulations that apply more broadly to all businesses.

Operating a car dealership can be a complex undertaking whether you sell new or used cars, include service, offer add-on products, or assist with financing. The consequences of not complying with the law can range from a stern warning to hefty fines to revocation of your dealer’s license. 

It makes good business sense to become familiar with the regulations that apply to your business. Ignorance of the law is never an acceptable excuse. While this isn’t an all-encompassing list, here are some of the most prevalent laws and regulations your car dealership must comply with to stay out of trouble. 

Gramm-Leach-Bliley Act (Personal Data)

The Gramm-Leach-Bliley (GLB) Act was created to protect the personal information and privacy of consumers. Violations of the GLB Act can result in fines of up to $11,000 per violation. 

Auto dealerships collect and store a lot of information about their customers. According to GLB rules, a dealership must inform clients of what data they are collecting and how it will be shared and offer customers the ability to opt out of sharing. Dealers must also take action to safeguard collected and stored data. 

Red Flags Rule (Identity Theft)

The Red Flags Rule was created by the Federal Trade Commission (FTC) to require that lenders and creditors create a written Identity Theft Protection Plan. Specifically, a plan must outline the typical signs of identity theft, establish a response procedure, and remain up-to-date. Common “red flags” include a credit history with fraud alerts, suspicious ID documents, and undeliverable emails or mail. 

Truth in Lending Act (Financial Transparency)

Also known as Regulation Z, this rule requires that lenders provide consumers with a clear list of all credit terms. For example, Regulation Z mandates that a lender use standard terminology to provide written, straightforward documentation of the following.

• The loan amount
• APR
• Payment schedule
• Finance charges and fees
• Total amount to be paid over the life of the loan

Fair Credit Reporting Act (Formal Notice)

Any dealer that provides financing and credit should be familiar with the Fair Credit Reporting Act (FCRA). One of its clauses relates to Adverse Action Notices, which states that you must formally give notice to customers in writing within 30 days if you deny credit or offer them credit on less favorable terms. If the credit offer has “materially less favorable terms” than those given to most other customers, the dealer must send a risk-based pricing letter to the customer. 

Equal Credit Opportunity Act (Discrimination)

Because many dealers also act as lenders, they are subject to the Equal Credit Opportunity Act (ECOA). This Act prohibits dealers from discriminating against a borrower when providing credit. Per the ECOA, lenders cannot factor in or ask about age, religion, sex, color, race, national origin, or marital status when evaluating credit. Lenders must also advise the applicant of a decision within 30 days. 

Telephone Consumer Protection Act (Phone & Text Solicitation)

Most people make phone calls and send texts without thinking about it, but the rules are different for businesses. The Telephone Consumer Protection Act (TCPA) states that businesses are required to obtain written permission from customers for all communication, including phone calls and texts. A single violation could mean fines of up to $500.

To make sure you don’t run afoul of this regulation, some of the steps to take include the following.

• Obtain written consent from all customers and prospects for all forms of communication.
• Be specific about the type of communication you plan to send. 
• Notify customers of any potential fees (i.e., text messaging rates).
• Allow customers to opt out of communications from your dealership.
• Remain up to date on any changes to these regulations. 

CAN-SPAM Act (Email)

Most people receive a ton of emails each day, but that doesn’t excuse sending unsolicited messages to anyone from your dealership. People hate spam emails, and the CAN-SPAM Act addresses this with steep fines for businesses that ignore the rules. 

According to this law, auto dealers must adhere to certain rules with their email messages.

• Messages may not contain deceptive or false subject lines or headers.
• Messages must be identified as ads.
• Messages must have an opt-out option, with requests being fulfilled within ten business days. 
• Messages must contain the sender’s valid physical address. 

FTC fines for violations of these rules can reach as high as $16,000 per email. 

Truth in Advertising Act (Marketing)

According to the Truth in Advertising Act, anything a dealership advertises must be fair, truthful, substantiated, and non-deceptive. For example, vehicles being advertised should feature accurate images and descriptions as well as the correct year, model, and mileage. Certain disclosures must also be included, such as any financing terms, EPA-estimated MPG, and discount conditions. 

OFAC & the Specially Designated Nationals List (Illegal Activity)

When your dealership leases or sells a car to someone, it must also comply with some rules established by the government to confirm that the purchaser is not on this country’s “do not associate” list.

The Office of Foreign Asset Controls (OFAC) has created a Specially Designated Nationals (SDNs) List, which includes people or groups flagged as dangerous for things like drug trafficking, terrorism, or other illegal activities. A simple search can keep you in line with these rules. 

IRS Form 8300 (Money Laundering)

Another way the government tries to identify bad actors is by requiring reporting of large cash transactions. The IRS now requires that businesses, including car dealerships, file a Form 8300 if there is any cash (including checks or money orders) equal to $10,000 or more. The form must be filed within 15 days of the payment. 

Provide More Value to Your Customers with Protection Products

You can set your car dealership apart from the competition by offering your customers more value through a suite of protection products. 

Titan Warranty Administration offers a comprehensive group of products that can help your clients protect their budgets against unexpected expenses and rising costs. Our products include vehicle service contracts and warranties, guaranteed auto protection (GAP), vehicle maintenance plans, and other ancillary coverages. Contact us today for more information about offering these services to your customers.

The information provided herein is not legal advice and is designed for informational purposes only. Please contact independent, competent counsel to assist with any legal question that may arise and do not rely on any statement referenced on this website or external internet site as legal advice.