As a regulatory compliance lawyer, I often have the conversation with clients about proper disclosure of the details of a sale or credit transaction. State and federal laws and regulations often drive many of the disclosures in both types of transactions. But, there is one law that a regulator (or a plaintiff’s attorney) could invoke in virtually any sale or credit transaction that does not contain specific disclosure requirements and has no handy checklist to follow. That law is an “unfair or deceptive acts or practices” law, commonly referred to as “UDAP.” UDAP laws are the favorites of many plaintiffs’ attorneys, as well as the more aggressive state attorneys general. Not to be outdone by the states, Congress added its own spin in the federal Dodd-Frank Act by prohibiting unfair, deceptive, or abusive acts or practices (“UDAAP” – two “A”s) in connection with any consumer financial product or service transaction. Already much has been discussed about what “abusive” means and how the federal law may be distinguished from its older, state cousins, the UDAP laws. While large dealerships should continue to be concerned about the enforcement of the “new” federal UDAAP law, all dealerships should be sensitive to state UDAP laws, which could be enforced by regulators with a more local focus and apply to both sale and credit transactions.
Recently, the New York attorney general invoked New York’s UDAP law when he sued one dealership group and settled with two others for a practice identified as “jamming.” “Jamming” refers to the practice of charging the buyer for “hidden” after-market products, sometimes by burying the cost of the after-market product in the purchase price of the vehicle. The primary focus of the New York AG was credit repair and identity theft protection services, but jamming applies to other after market products as well. In his press release, the AG said that the dealerships used deceptive sales tactics, including charging consumers for services while concealing those charges from the consumers or misrepresenting that the services were free. And even worse, consumers did not receive the credit repair and identity theft protection services for which they were charged. The AG further alleged that the dealerships added on charges for other after-sale items like VIN etching and key replacement services, without clearly disclosing how much they were charging for such services.
In many instances, dealers can increase their profits on deals when they sell after-market products. But, there can be a fine line between “selling” and “deceiving,” a line I warn clients not to cross or even approach. Dealers must sell these after-market products by clearly disclosing the cost of the product, the value of the product to the buyer (including that the product may not benefit everyone, if that is the case), and the optional nature of the product. Failure to do so could result in UDAP allegations by a plaintiff’s lawyer or, as in this case, by the state AG.
In the current lawsuit, the AG alleges more than $1 million in damages. In one of the current settlements, the dealership agreed to refund over $100,000 to consumers. These cases follow settlements the New York AG reached in June of 2015 in which other dealerships agreed to provide restitution of more than $13.5 million and paid penalties of $325,000. All of these cases involved Credit Forget, Inc., a credit repair company that allegedly sold unlawful credit repair products and that the New York AG shut down.
So, in addition to avoiding deceptive sales tactics, dealers must thoroughly “vet” after-market products before selling them. Dealers should be particularly wary of credit repair products, which are heavily regulated in New York and other states.