COUNSELOR’S CORNER The Car Dealership Is a Regulated Institution That Happens to Sell Cars Julie Cardosi, Esq. Law Office of Julie A. Cardosi, P.C. The franchised new-vehicle dealership occupies one of the most heavily regulated spaces in American retail. In evaluating the legal and regulatory landscape over the last decade, a consistent conclusion is obvious: a dealer who thinks of the business as “just retail” rather than as a highly regulated entity will systematically underestimate the dealership’s legal exposure. Caught Between Two Sovereigns The dealer is an independent business answerable to state and federal regulators, yet also contractually dependent on the manufacturer(s) that sets performance standards, controls allocation, and can seek termination of the franchise under certain circumstances. While Illinois law requires an OEM to prove “good cause” before terminating, as we have warned in the past, manufacturers build their cases slowly — through performance letters and reports that, ignored, can become an unanswered record of deficiency. The prescription: respond factually and promptly without admission, in writing, and with counsel’s prior review, documenting where alleged shortfalls actually trace to the OEM’s own conduct, such as allocation deficiencies or improperly drawn territories. The Vehicle Transaction Itself Is Guarded by Consumer Protection Law The Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq.) governs nearly everything on the showroom floor. The Illinois Motor Vehicle Advertising Regulations (14 Ill. Admin. Code Part 475), adopted in 1991 with substantial dealer-industry input, and their federal counterpart laws and regulations, require accurate, all-in total pricing and clear disclosure. Adhering to these requirements has benefited dealers by building consumer trust and leveling the competitive field. The Illinois Motor Vehicle Retail Installment Sales Act, along with corresponding federal laws and regulations, governs disclosure of finance terms in the finance contracts. Section 2C of the Consumer Fraud Act absolutely prohibits retaining any part of a customer’s down payment when financing falls through, a rule enforced by the Attorney General and by private litigation against dealerships. And F&I add-on products — GAP, service contracts, credit insurance — all draw scrutiny from the FTC, CFPB and state regulators, demanding documented disclosures that the products are genuinely optional, priced separately and offered consistently to every customer. The Data Problem Dominates Because dealerships extend credit, they are “financial institutions” under the Gramm-Leach-Bliley Act and subject to the FTC Safeguards Rule, whose amendments in the recent past require a written risk assessment, a designated Qualified Individual, encryption, multi-factor authentication, an incident response plan, and FTC notification of breaches affecting a specified number of customers. The rule’s requirement that personally identifiable information be encrypted in transit may collide with how dealerships actually operate with deals routinely conducted electronically (including via text and email). As such, dealerships have been required to undertake steps to ensure their compliance. Certain cyberattack incidents involving prominent dealership vendors over the past few years drove home a hard-hitting point: the dealership remains the regulated entity even when the vendor 12 ILLINOIS AUTOMOBILE DEALER NEWS
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