Pub. 11 2021 Issue 1

8 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com COUNSELOR’S CORNER Sale of Aftermarket Voluntary Protection Products Subject To Increased Regulatory Scrutiny: Compliance Take Aways For Dealers I n the auto industry, the sale of af- termarket or voluntary protection products (“voluntary products”) is an important source of profit to a dealership. NADA has reported that dealer finance departments’ sales of voluntary products continue to drive dealership revenue. Sources of revenue from the sale of these products include vehicle extended service contracts, guaranteed asset protection (GAP), and credit life and disability insurance. Other voluntary products include dent repair, window etching and products related to financing of the vehicle, among others. The sale of these voluntary prod- ucts, however, can be a regulatory “slippery slope” for dealerships finding themselves at the end of enforcement challenges by federal regulators, like the Federal Trade Commission, the Consumer Financial Protection Bureau, and Department of Justice, and state regulators, such as the Illinois Attorney’s General Office. In recent years, we have assisted dealers in connection with regu- latory challenges by some of these agen- cies over the sale of voluntary products. So, what are the regulatory con- cerns? Regulators often focus on the proper disclosure of these products and various claims that rise to the level of misrepresentations concerning the products. In Illinois, the Attorney General’s Office is charged with enforcing Il- linois laws intended to protect Illinois consumers against unfair and decep- tive practices. The Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq.) generally prohibits such unfair methods of com- petition and unfair or deceptive acts or practices which include: • “any deception, fraud, false pre- tense, false promise, misrepresen- tation, or • any concealment, suppression or omission of any material fact, or • any practice described in the “Uniform Deceptive Trade Prac- tices Act”. This law applies to advertising and to business practices and transactions. As to the disclosure of these prod- ucts, one area of scrutiny is whether the dealership has disclosed the optional or voluntary nature of the products. That is, the dealership must disclose (and be able to substantiate such disclosure) that the customer is not required to purchase these products when purchasing or leasing a vehicle, nor is the customer required to procure any product or service offered by the dealership. This extends to service contracts, financing and the other aftermarket protection products. The model NADA policy contains useful disclosure information, but it is up to each dealership to ensure their employees make certain that customers know that purchase of these products is voluntary and not required. Also, in the sale of these products, the dealership must disclose the products separately from the vehicle. Dealerships should also ensure against any misrepresentations con- cerning the price or the value of the products. Aside, some products, such as service contracts, for example, may be subject to specific insurance law requirements promulgated by the state’s insurance regulators. For this reason, dealers should consult with their lawyers and accountants about the structure of any service contracts they offer. In general, dealerships typically utilize a menu-based pricing system in the offer of these optional products to disclose the product costs. Again, it’s imperative to ensure the customer understands the costs, along with the voluntary nature of the purchase. An important aspect is to disclose the price and monthly payment for each of the products if purchased By Julie A. Cardosi, Law Office of Julie A. Cardosi, P.C.