How to Prevent Legal Issues at Your Dealership

Please be aware that the information in this article is provided solely for informational purposes and is not intended to be legal advice. Please speak with a qualified attorney if you have any legal questions about this information.**

Nowadays, the majority of dealerships run honestly, and misbehavior is considerably less common than it formerly was. Given that, you could assume that dealerships are mostly protected from legal issues.

Dealerships must adhere to a number of rules, from service departments to F&I, in order to operate legally, and even honorable dealers occasionally make mistakes. A law that is broken, even without malicious intent, is nonetheless broken, and expensive legal action may result. Even if the law was only inadvertently broken, it won’t matter much to the government if a client or employee makes a formal complaint.

Of course, there are still others with bad intentions, which just makes the situation worse. When numerous people are working together in your firm, this behavior sometimes starts with a single person looking to gain an advantage or cut shortcuts. Other times, though, it spreads like a disease. Customers will be misled into thinking optional purchases are required, or hidden fees will be added for items they don’t desire.

Problems in the service lane frequently result from failing to establish a structured safety system or failing to assign assigned safety tasks. Safety infractions are frequently overlooked by employees in an effort to save time, yet doing so might result in serious legal problems. (This is a pointless step for profitability; it can be accomplished just as easily by raising the capacity or effectiveness of the service lane.)

Dealers must learn how to avoid the most prevalent blunders, gain a better understanding of their own products, and adopt a level of transparency that may appear contradictory to some in order to prevent these problems.

Let’s go over some of the most typical areas to watch out for and some precautions you may take to avoid investigations and legal action.

Where do legal disputes at dealerships most frequently occur?

Customer Financial Protections

F&I is the subject of the majority of dealership-related rules today, in part because there is so much more potential for fraud to occur there. These matters are often handled by the Attorney General (AG) of your state, who has a broad ability to impose fines for dishonest or unfair business activities.

The Federal Trade Commission (FTC) is frequently the source of trouble for dealerships in the second area, which is their deceptive advertising methods.

Among the frequent legal issues are:

* Quotes for differentiating interest rates

* Payment packing, or including F&I items or services in a monthly car payment even though the consumer didn’t request it,

* Conducting unauthorized automobile sales

* Selling unroadworthy autos or “lemons”

* Making fraudulent claims regarding goods, services, or payments to clients (such as saying gap insurance is required)

* Using misleading advertisements

* Faking a customer’s income on a credit application (legal action in this case might even target managers who had no direct involvement)

* Employee Safety & Health

There are safeguards that apply to employees as well, such as those provided by the Occupational Safety and Health Administration (OSHA). OSHA investigations typically take place when a significant accident occurs on your property or after someone detects an impending threat. Most OSHA violations are extremely simple to preventatively correct, but they are frequently ignored.

Even if you believe your workplace is safe, it’s crucial to maintain compliance because OSHA doesn’t notify you before an investigation.

Service Directors should be aware of the following OSHA infractions, which are among the most frequent:

Lack of safety measures against slips and falls (from inadequate signage and equipment to unattended oil slicks on the shop floor)

A service bay hoist that is insufficiently safe

inadequate airflow in the paint shop (or any other place where there are gases, vapors, smoke, aerosols, etc.)


Incorrect usage of forklifts (including failing to follow regulations on maximum weights, vehicle speed, load balancing, and operator training)

improper labeling or placement of electrical lines, such as omitting warnings

Containers for chemicals (acids, disinfectants, glues, paints, etc.) that are not labeled or are labeled incorrectly.

Machines without safety shields

Fire code violations (which also include issues with file boxes stacked too high or obstructed exits in other parts of your business)

How to Prevent Legal Issues at Your Dealership

While there are many things you can do to lessen your likelihood of running into legal issues with the AG, FTC, or OSHA, they can mostly be categorized into three main categories: transparency, education, and proactive system implementation.

Internal and external transparency

Being as honest as you can when it comes to customer rights is the best way to stay out of legal trouble. As a general rule, anything that deceives clients could land you in serious legal trouble.

For starters, this calls on you to be upfront about the terms and conditions of any transaction. It is important to handle any surprises that can cause a consumer to file a complaint.

Transparency on the administrative side necessitates that you maintain accurate and up-to-date deal jackets that display all supporting documentation and signoffs. This will be the first item that investigators from the AG’s office look at if they arrive, so getting these right could end up saving you.

Deceptive dealer advertising is considered low-hanging fruit by the FTC. You might not even have the resources on hand to present a strong defense if they accuse you of it. No matter what your competitors are doing, making any false claims in your advertising is quite risky.

Education (about the law and your products)

Even when everyone is doing their best, employee ignorance can occasionally lead to problems. Even though we are all only humans, ignorance may frequently be corrected.

For example, fewer than 10% of F&I staff members who deliver contracts to clients have really read the documents. If you don’t know what’s in a contract, how can you properly describe it?

The right compliance techniques must be learned. Reviewing your contracts, products, and industry standards may seem like a chore, but it’s a lot better use of time and money to take proactive steps to be compliant now rather than dealing with a lawsuit that might later have a detrimental effect on your firm.

Because, once again, ignorance of the law does not exempt you from it, F&I managers in particular need to educate themselves about the things they are offering. For instance, you are required by law to list a customer’s car payment each month separately from any other costs. Neglecting to do so could have detrimental effects.

The same principle holds true in the service center. Discover the equipment your team is utilizing, the rules that apply to its use, how to operate it, and the safety measures you must observe.

Actively establishing systems to maintain compliance

When you make a sincere effort to maintain compliance, investigators may be more willing to overlook a violation (or lessen the severity of the sanctions) as a result.

Creating a mechanism to address consumer complaints is one example of this. By doing so, you can handle issues before they get more serious and necessitate outside help, like police enforcement. Mistakes do occur, but if neglect is at blame, they are more likely to develop into serious issues.

The same idea holds true in terms of workplace safety.

A safety committee is frequently established at dealerships to specify who is in charge of keeping an eye out for potential infractions. OSHA ultimately wants to demonstrate a dedication to safety. A single error becomes less of an issue when you can show them training records, structured written programs, and proof of an established safety culture. For investigators, the absence of these procedures raises serious questions.

Programs for safety training must be kept current and must include any new hires along the route. A mistake here raises the possibility of an unintentional violation, such as when you neglect to instruct a new hire on proper safety measures or fail to update your training materials on a regular basis.

Transparency Has Greater Economic Benefits Than You Might Think

The best course of action is to practice fair and complete disclosure. Failure to do so may result in costly legal problems as well as damaging customer perceptions of your business. It will be embarrassing and make the news.

While some dishonest people might look for quick money in F&I, an honest and open culture generates more earnings in the long run. Since many people mistakenly think that compliance hinders profitability, this may seem counterintuitive.

But pause a moment to think about how consumers perceive dealerships. People are skeptics who have come to accept some degree of dishonesty. However, you gain a ton of confidence when you follow the law, disclose costs fully, and refrain from pushing things that your customers don’t require. People begin to trust you because they know they can, and any vendor will tell you that a customer who trusts you is more likely to buy from you, whether it’s a new car or an optional F&I item.

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