As more auto dealers move their sales online during the COVID-19 pandemic, figuring out legal and regulatory issues with those online sales is crucial to making the transition successful.
Since every state, city and even county may have different regulations, it’s best to check with your local lawyers, law enforcement and health officials to ensure your practices are permitted, said Brad Miller, the NADA director of legal and regulatory affairs and senior counsel for digital affairs.
As of April 15, there were more than 20 states with some form of restriction on in-person sales. About 16 states require online sales only, while about six states allowed showrooms open by appointment only. That doesn’t include the hundreds of local restrictions, Miller said.
The National Automobile Dealers Association hosted the April 15th webinar on the topic as part of its NADA Dealership Lifeline Webinars.
Check with your attorney or state dealer association to confirm the following are permissible under state laws and regulations, and any applicable stay-at-home orders:
• Online sales through your website.
• Remote selling by salespeople working from their homes, using technology, such as emails, chats, text messages and phone calls. Confirm there is no requirement that a salesperson must be physically present at the dealership’s licensed facility when using technology.
• Offsite delivery.
It’s important to know all negotiations with the vehicle sale need to be handled through the licensed dealership, either in person, by email or phone.
By the time the vehicle is delivered, there are no sale negotiations allowed at the person’s house, this includes haggling on trade-in deals and upselling extra products, said Aaron H. Jacoby, managing partner in Los Angeles for Arent Fox LLP attorney firm.
It also is wise not to have a licensed salesperson deliver the car, so there’s no opportunity to even upsell. Protocols must be developed and followed for physical delivery of the vehicle to a consumer’s home or business, Jacoby said.
“A lot of regulators will be looking for COVID-19 abuse,” Jacoby said in the NADA webinar.
It’s a “perfect storm” for identity theft so dealers need to exercise caution when their employees deliver cars and pick up trade-in vehicles, Miller said.
“We’ve seen a bunch of COVID-related scams,” he said. “When delivering cars you have to confirm identities while maintaining social distancing. There’s all sorts of clever bad guys out there. You really have to pay attention.”
According to NADA’s Red Flags Rule Guide: “For accounts opened remotely and without meeting the customer in person, the dealer may determine that Red Flags and/or customer identification methods may be necessary due to the inability to physically inspect identification documents and determine, for example, if the customer’s physical appearance matches the photograph on the identification documents.”
This could be difficult if the customer is wearing a mask, Miller said.
Additional steps to consider include “out of wallet” questions, video or online review of ID and other documents and work with finance sources to clarify responsibilities and cover e-contracting issues.
Also, dealers need to take extra caution where and how information is sent and security of virtual meetings.
The Federal Trade Commission’s “Cooling Off” Rule, which governs door-to-door sales, includes those done away from a place of business. Historically, while this hasn’t been an issue for dealers, with the increase in online sales it could become an issue, Jacoby said.
If applicable, this allows for a three-day rescission right for the consumer, and dealers should avoid triggering the Cooling Off Rule. If any part of the transaction is negotiated or solicited at the customer’s home, it could implicate the Cooling Off Rule, he said.
“We’re not changing the nature of the transaction. We’re just changing the medium,” Jacoby said. “It’s the same documents. Other than at-home delivery everything else is pretty much the same.”
Being strict with a home delivery or any delivery that’s not at the dealership is key, said Russell P. McRory, partner in New York for Arent Fox LLP.
“You should just be dropping off the car, giving them the keys and getting signatures, all with social distancing,” McRory said in the webinar. “The dealer will have to make a decision on the trade-in before they actually see the car in person. There will be limitations on what you can verify with the trade.”
NADA offers a dealer guide for safely operating your dealership during a pandemic here: https://www.nada.org/safely-operating-your-dealership-pandemic/.
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