MARKETING AND SELLING MOTOR VEHICLES OVER THE INTERNET: CONSTRUCTING
YOUR WEBSITE IS THE EASY PART!
By: Keith E. Whann
As use of the Internet to conduct both business-to-business and
business-to-consumer transactions has steadily increased, e-commerce
has become an important marketing tool for the motor vehicle industry.
Dealers have seen first hand that the vast number of potential opportunities
for motor vehicle dealerships utilizing e-commerce are unlimited.
What many fail to realize is that a number of potential pitfalls
can come along with the endless possibilities the web offers to increase
dealership sales.
The motor vehicle industry is one of the most heavily regulated
industries today and federal and state agencies are taking steps
to make it clear that their rules and regulations apply to Internet
transactions just as if the transactions were conducted in person
and on paper. The Federal Trade Commission (FTC), for instance, has
released several reports discussing how it intends to use its resources
to develop policies for protecting consumers from online fraud and
deception, tailor its law enforcement to meet the challenges of e-commerce
and extend offline protections to consumers online. The FTC has already
conducted an informal study of 200 websites and found that most of
the sites lacked important disclosure information such as refund
policies, cancellation terms and warranty information. At the same
time, the FTC has brought more than 100 internet-related enforcement
actions against nearly 300 businesses and individuals, including
motor vehicle dealerships in Colorado, New York and Pennsylvania
and their individual owners who, according to the FTC, ran deceptive
lease advertisements on the Internet.
Any violation of the FTC’s advertising rules is also a violation
of Ohio’s Consumer Sales Practices Act and the Administrative Rules
promulgated thereunder. The Office of the Attorney General has recently
taken actions against several motor vehicle dealers for improper
disclosures in connection with advertisements and has made it clear
that it will be taking additional measures to enforce compliance
with both federal and state advertising laws. Areas that have caused
the most problems for motor vehicle dealers include the Federal Truth
in Lending and Leasing Acts (Regulations Z and M) and Ohio’s Advertising
and Sale of Motor Vehicles Rule.
The new Federal Privacy Laws have
added to the challenges motor vehicle dealers face. The Gramm-Leach-Bliley
Act and the FTC’s
Implementing Rule require motor vehicle dealers to state the
sources from which nonpublic personal information is collected and
the
types of information collected from that source. Motor vehicle
dealers across the country use websites to collect information
about customers and fail to disclose that fact in their privacy
notices.
Motor vehicle dealers are also conducting transactions
on their websites that trigger notice obligations under the Federal
Privacy
Laws, but they have not implemented any procedures for providing
those notices. If a dealer collects nonpublic personal information
about a customer and offers a financial product or service,
i.e. accepts a credit application via the dealer’s website, the dealer
is required to provide an initial privacy notice that complies
with the requirements set forth in the Gramm-Leach-Bliley Act
and the FTC’s Rule. The notice can be provided by mail, in
person
at
the dealership or, if certain conditions are met, electronically.
If the notice is provided electronically, the customer must
affirmatively agree to receive the notice at the web site, it must
be clearly
and conspicuously posted (i.e. on a screen that consumers frequently
access, such as the page on which transactions are conducted)
and it must be provided in a format that the customer can retain.
Posting
the notices on a web site or via electronic mail is not reasonable
if the consumer does not obtain a financial product or service
from the dealer electronically and/or does not conduct the
transaction almost entirely at the web site. Federal and state regulators
are stepping up enforcement actions with respect to compliance
with
both the Privacy Laws and use of the Internet to conduct these
types of transactions.
In addition to regulatory activity by
state and federal regulators, we are also beginning to see more
complaints being filed by consumer
attorneys alleging violations in connection with advertisements
and offers via e-commerce. Just as consumer attorneys scrutinize
dealership
paperwork for violations, an increasingly popular trend is to print
website screens and get them admitted to trial. In the case of
Van Westrienen v. Americontinental Collection Corporation, one of
the
numerous claims under the Fair Debt Collection Practices Act (FDCPA)
arose as a result of alleged misrepresentations made on a debt
collector’s website. In one of the notices the debt collector mailed
to the debtor,
it included a website address and further indicated that the debtor
could contact the agency by using e-mail. The court found that
because the debtor's website was referred to in the collection letter,
any
misrepresentations in the website subjected the debt collector
to liability under the FDCPA, regardless of whether the debtor actually
viewed the website or not and regardless of whether the false representations
were related to the collection of the debt.
The good news is a dealership
does not have to be perfect. Ohio’s Consumer Sales Practices Act
and many of the Federal Consumer Protection
Laws include a defense commonly referred to as the “bona fide error
defense”. The bona fide error defense is applicable when a dealer
is able to show that it maintains procedures reasonably adopted
to avoid an error and, notwithstanding those procedures, an error
occurs.
The procedures should involve two components: a review of website
practices and disclosure compliance. The importance of being able
to establish the bona fide error defense is that the consumer's
remedies are typically limited to actual damages or rescission of
the transaction.
The consumer's right to recover statutory damages and/or attorneys'
fees is eliminated. The elimination of these two components frequently
takes the consumer’s lawyer who is no longer able to recover his
fees out of the equation and puts the dealer in the more favorable
position of dealing directly with the consumer.
While use of the
Internet poses additional challenges for all businesses engaging
in consumer transactions, the motor vehicle industry faces
some unique challenges. Federal and state laws governing consumer
transactions, dealer licensing and franchise laws, titling laws,
advertising laws and even franchise and lender agreements will
have an impact on how a dealer conducts business via the Internet.
Many
dealers begin engaging in e-commerce without considering potential
legal and business ramifications such as whether the vehicles are
displayed and sold at a licensed location and to what extent third
parties can be compensated. They have constructed websites focusing
on their design and how quickly they work instead of asking themselves
how the screens will look if they are used as exhibits at trial.
Whether you are currently conducting business over the Internet,
or are contemplating doing so, it would be wise to spend time to
think through these issues beforehand with someone who knows the
motor vehicle industry and how to establish the appropriate policies
and procedures to effectively raise a bona fide error defense. |
