Mid-Atlantic Dealer News - July 2024

J U LY 2 0 2 4 • M I D AT L A N T I C I A D A . O R G

MIDATLANTIC

DEALER NEWS

H I G H L I G H T I N G P E N N S Y L V A N I A • M A R Y L A N D • D E L A W A R E

Bankruptcy Basics:

What Dealers Need to Know

Knowledge is Power: Cyber Insurance 101

How to Turn, Turn, Turn Used Cars MIDATLANTIC INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION 1501 North Front St., Harrisburg, PA 17102

Preventing Bank Fraud NIADA Policy Conference: Register now!

FTC Presents Enforcement Report to CFPB PLUS

The Power of Educational Content Boosting Sales by Creating Informed Car Buyers

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IN JULY

SPECIALTY SALE JULY 25TH, 2024

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IN-LANE / ONLINE

@ americasaa.com 1100 South York Street | Mechanicsburg, PA 17055 717-697-2222 | aaaharrisburgpa.com | #americasautoauction

JULY 2024 | CONTENTS

The official magazine of the

MIDATLANTIC INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION PENNSYLVANIA • MARYLAND • DELAWARE 1501 North Front St., Harrisburg, PA 17102 (717) 238-9002 midatlanticiada.org Noah Melamed, Chairman Ticket to Ride Auto, Lancaster, PA nmelamed@yourttr.com Bert Straub, President 1st Choice Auto LLC, Fairview, PA bertcstraub@gmail.com Dan Limongelli, President-Elect Jo Dan Motors, Plains, PA jodanmotors@gmail.com Lisa Cohowicz, Interim Treasurer North East Pennsylvania A/A, Scranton, PA lisac@nepautoauction.com Clint Weaver, Secretary America’s Auto Auction Harrisburg, Mechanicsburg, PA clint.weaver@americasautoauction.com Tom Hodges, Vice-President Tom Hodges Auto Sales, Hollywood, MD tom@tomhodgesauto.com Michael Mansour, Vice-President Car Connection, Inc., New Castle, PA mike@carconnection1.com Beth Melamed, Vice-President Ticket to Ride Auto, Lancaster, PA bmelamed@yourttr.com April Hollobaugh ajautosalestitusville@gmail.com A&J Auto Sales, Titusville, PA James Makia james@exclusivemotorcarsmd.com Exclusive Motorcars, Randallstown, MD Dan McNamee dtlcars@aol.com Daniel Thomas Auto Sales, Croydon, PA Gregg Pachik gregg.pachik@manheim.com Manheim Philadelphia, Hatfield, PA Kerri Rotunda kerrir@corryade.com America’s Auto Auction Erie, Corry, PA

FEATURES 4 |

The Power of Educational Content Boosting Sales by Creating Informed Car Buyers In today's competitive auto industry, customer education is more than just a value-added service; it's a strategic imperative that can significantly differentiate a dealership and enhance customer loyalty.

6 | Bankruptcy Basics Let's explore four very basic pieces of advice to better prepare you when it comes to bankruptcy issues.

8 | How to Comply With New FTC Safeguards Rule Upgrading security and monitoring it once systems and policies are in place will help keep data secure so dealers might avoid a breach.

14 | Knowledge is Power: Cyber Insurance 101 While the goal of cybersecurity is to shut down data breaches and other cyber threats before they happen, the reality is you’d still be responsible for any sensitive information stolen in the event of a cyberattack.

15 | How to Turn, Turn, Turn Used Cars Former used-car manager Doug Hadden tells of a dealer who sold a new vehicle to a consumer, bought it back for the same price two years later at the height of vehicle demand – and within hours resold it on his used-car lot.

20 | Preventing Bank Fraud If a lender has reason to believe bank fraud was committed, the dealer could be required to buy back the deal.

21 | FTC Presents Enforcement Report to CFPB NIADA dealer members, more than 80 percent who employ less than 10 employees, will be faced with considerable costs from the rule, including professional fees from attorneys and IT personnel and recordkeeping storage.

22 | Join us for the 2024 NIADA Policy Conference 23 | Dark Patterns: Soon Starring a Dealer Near You Marketing via social media presents the potential for Dark Patterns, and dealers should consider how they are employing these applications.

DEPARTMENTS 2 | 4 | 16 |

President’s Message Executive Director’s Message Carlawyer

18 | 19 | 24 |

Basic Agent Training Course PA Title & Registration Services Auction Directory

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MIDATLANTIC INDEPENDENT AUTO DEALERS ASSOCIATION SPONSORS

Danielle Royer royers322motors@gmail.com Royer’s 322 Motors, DuBois, PA _____________________________ Tom Brandis • Executive Director tom@midatlanticiada.org WOULD YOU LIKE TO RECEIVE A DIGITAL EDITION OF THE MIDATLANTIC DEALER NEWS MAGAZINE? Email steve@midatlanticiada.org Copyright 2024 MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 1

q EXECUTIVE DIRECTOR’S MESSAGE

GEAR UP FOR THE FUTURE: MIDATLANTIC DEALERS UNITE AT THE ULTIMATE CONVENTION & TAILGATE BASH! Hello Dealers, It’s hard to believe that we are halfway through 2024 already. I hope your year is going well. I just spent a few Executive Director days with one MidAtlantic IADA of our annual Tommy Brandis sponsors, Big Time Advertising. Terry MacCauley and his team invited me to visit their headquarters to show me how they are using AI in their marketing campaigns. It’s absolutely mind blowing how this technology will change the game for dealers both now and in the future. While I was there, I got to shoot some video footage using their green screen. They will use it to create promotional videos for our upcoming convention.

Convention you ask??? YES!!! Registration is now open for the 2nd Annual MidAtlantic Convention and Vendor Tailgate taking place at Caesars Atlantic City on September 15-17. For those who attended last year, you already know that this Convention will become the number independent dealer event on the east coast.

This year, we will kick off the big event on Sunday afternoon with a workshop comprised of what can only be called a “Pro Bowl Team” of industry professionals and dealers. This panel will have you 100% prepared to sell more cars in 2025. Monday will be another full day of education covering all aspects of our industry. For the entertainment, both Sunday and Monday nights will be full blown Football Tailgate Parties with our vendors in the exhibition hall. This is the ONLY industry event where you will be able to hangout and network with your dealer friends and our

Auto Dealer/Garage Insurance Specialists * Garage and Automobile Liability * * Dealer Physical Damage * * Garagekeepers * * Work Comp * * Quick Quote Turnaround *

Telephone: 215-860-6510 Website: www.aatins.com Langhorne, Pennsylvania

Your One-Stop Shop for Auto Dealer Insurance 2 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

handpicked industry leading vendors, while watching the game on two 20-ft televisions.

You need to register early and secure your room. Room rates are only $95 a night and registration for the entire event is only $95 if you are a member of your IADA. Yes, you read that correctly, you get two nights hotel, convention registration and all the food and drink you can consume for under $400.

For more information and to register, please visit our website: midatlanticiada.org or scan the QR Code at the bottom of this message. Can’t wait to see you at Caesars Atlantic City!

If you have any questions, concerns or ideas, I can be reached via email at tom@midatlanticiada.org or my direct cell phone is 215-805-2034.

Until next month,

Tommy

GET CERTIFIED.

MidAtlantic IADA is proud to announce a partnership with Portfolio and Superior Solutions that brings our members a custom CPO program specifically designed for the independent dealer.

For details and eligibility, contact Superior Solutions at (814) 897-3478 or jax@superiorfisolutions.com.

superiorfisolutions.com

portfolioco.com ©2023 Portfolio Holding, Inc. All rights reserved.

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 3

The Power of Educational Content Boosting Sales

by Creating Informed Car Buyers

BY SEAN TOUSSI, GLO3D.COM

In today's competitive auto industry, customer education is more than just a value-added service; it's a strategic imperative that can significantly differentiate a dealership and enhance customer loyalty. Hubspot’s recent study showed that nearly 50% of buyers read a company’s blog when making purchase decisions, highlighting the importance of informative content in influencing consumer behavior. This article explores various effective customer education strategies that dealerships can implement to empower customers, enhance their buying experience, and ultimately drive more sales.

Online Auto Education Content Online materials such as articles, guides, videos, and social media posts enable dealerships to effectively cater to various stages of the customer journey, from vehicle selection to providing maintenance tips. A study by Cox Automotive highlights that 66% of car buyers are more inclined to purchase from a dealership when they find its online educational content helpful.

Additionally, data from Digital Air Strike reinforces the importance of a robust social media presence, showing that 82% of car buyers are influenced by the educational content posted by dealerships, making it a highly engaging form of communication.

Another practical example of effective educational content is detailed video walkthroughs of new and used vehicle cars, which help customers understand what makes each model unique and suitable for their needs. Articles comparing various models can aid decision-making by highlighting differences in performance, safety features, 4 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

and fuel efficiency. Maintenance tips and how-to videos on vehicle upkeep, such as checking oil levels or changing tires, can foster customer independence while reinforcing trust in the dealership’s expertise. On social media, interactive Q&A sessions, live discussions on car care, and behind-the-scenes looks at dealership operations can engage customers further, making the dealership more relatable and accessible.

Comparison Charts Dealerships can integrate vehicle comparison charts into their sales strategy and provide prospective buyers with detailed, side-by-side comparisons of different models' features, benefits, and pricing. According to Auto Dealer Today, dealerships using these tools see an average increase of 30% in customer engagement.

Including detailed visuals, customization options, and user reviews further enriches the customer experience, helping buyers make well-informed decisions efficiently.

Transparent Pricing J.D. Power reports that transparency in pricing significantly enhances customer satisfaction ratings, with transparent dealerships receiving scores up to 30% higher than their less forthcoming counterparts. In response to these insights, car dealerships must provide detailed guides for each vehicle model, including all costs, such as taxes and extra fees.

For example, a dealership could feature an interactive pricing tool on its website, allowing customers to customize a car with options and immediately see the updated price. This approach meets customer expectations and facilitates better-informed purchasing decisions from the start.

In conclusion, auto dealerships that invest in a comprehensive customer education strategy can significantly enhance their market standing. By providing interactive online content, clear pricing guides, and detailed comparison charts, dealerships empower customers, streamline their decision-making process, and foster loyalty. This approach meets the evolving expectations of today's savvy consumers and drives customer satisfaction and sales. n

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 5

BY STEVE LEVINE, IGNITE CONSULTING PARTNERS

BANKRUPTCY Basics

I

t seems that at least once a week, a bankruptcy question comes up in one of the dealer/creditor social media groups that we follow. The questions usually involve either selling a vehicle to someone that has filed bankruptcy or repossessing a vehicle from a bankruptcy debtor. Unfortunately, what usually follows the question are a bunch of anecdotal comments, some good, some not so good, and the person posting the question has to play "Russian Roulette" when deciding which advice to follow.

This is simply an article, not an advanced class on Bankruptcy, so I’m not going to try to delve into the numerous fact patterns that may present themselves or try to anticipate every bankruptcy related question on the minds of this audience. Instead, I want to provide you with four very basic pieces of advice to better prepare you when it comes to these issues:

WHAT IS THE AUTOMATIC STAY? First, it's imperative to understand that the "automatic stay" protects the debtor and its property as soon as the bankruptcy case is filed. Think of it as a magic shroud that offers impenetrable protection. You don't

want to violate the automatic stay, that can get expensive in a hurry.

Back when I was doing bankruptcy work, I once had a client that refused to give back a recently repossessed vehicle when the customer filed bankruptcy a few days after the vehicle was taken, but prior to its disposition. The client was upset with the condition of the vehicle, lapse of insurance, and simply refused to listen when I cautioned that the proper procedure would be to return possession of the vehicle and file for an emergency Motion to Lift Stay. Instead, he wanted to save the time and money and rolled the dice, hoping the debtor would drop the issue. Not surprisingly, the debtor’s lawyer, smelling money, filed a Motion against my client for violating the automatic stay, and asked for sanctions. Let’s just say that the dealer learned a hard lesson and was a lot more lenient when it came to dealing with bankruptcy debtors in the future.

Remember, only the court can lift the automatic stay, you can't just take matters into your own hands, no matter how egregious the actions of the debtor. The best course of action is to file for a Motion to Lift Stay and work within the bankruptcy process, not around it.

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SUBSCRIBE TO PACER Secondly, every creditor should have a subscription to Pacer, which is a government website that tracks all open federal cases.

This enables you to check on the status of a case by simply putting in a name or file number. Having access to this information is invaluable. Best of all, it's free, with the only costs coming if you print more than a certain number of pages in each month.

I don’t think it is an overstatement to say that every creditor should subscribe to Pacer so it can research filings and also verify case numbers or other information provided by the debtor. This especially comes in handy when an applicant tells you that their bankruptcy case was “discharged”.

There’s a big difference between discharge and dismissal and over the years I’ve run into many situations where either the dealer or the applicant confused the two, which is problematic because they have very different meanings. An applicant that has recently had a bankruptcy discharge may be a safe underwriting bet, because there are prohibitions against filing a bankruptcy for several years after discharge, whereas a recently dismissed debtor can quickly refile and include newly purchased property

in the bankruptcy, which the dealer would then have to take affirmative action to protect its interests.

USE A CREDITOR'S RIGHTS ATTORNEY Thirdly, every debtor should establish a relationship with a creditor's rights attorney.

The Federal Bankruptcy Code is subject to interpretation by individual judges. For instance, when I used to handle bankruptcy cases in Dallas, there were three judges, and they handled issues like "cram down", "valuation", and other matters somewhat differently, so it was always important to understand the personal preferences of the judge. There's also something called "local rules", and even "local, local rules" (no, I'm not making this up) and these have to be considered when deciding on a course of action.

transferred and lien hasn’t been perfected within the time allowed by law. This fact pattern can lead to a Trustee trying to avoid the lien and treat this creditor as unsecured.

I bring this up to demonstrate that there can be situations where the Trustee’s interests and the creditor’s interests don’t align.

clients to the right analysis and resources.

Please reach out to info@ignitecp.com to learn more. n

Steve Levine is an auto finance lawyer with over 30 years of experience protecting car dealers and finance companies. He is an owner and Chief Legal and Compliance When it comes to bankruptcy issues, Officer of Ignite Consulting Partners, which practicing "Internet Law" can be costly. offers guidance on compliance, operations Plenty of social media commentators mean well, but they may not be intimately familiar and best practices. In 2022 he published with the code, know the right questions to Winning the Fight: A Guide to Protect Car ask, or understand the impact that a local Dealers, which is available on Amazon, or bankruptcy judge or trustee can play. While contact info@IgniteCP.com to learn more I no longer represent clients in bankruptcy and get your complimentary copy. Please 6/7/24 11:29 for AM matters, I’m MidAtlanticDealerNews-JULY2024-PRINT.pdf a good source of knowledge follow Steve on X1 @LawyerLevine on the "do's and don'ts" and can help guide compliance and industry related content.

Perhaps the question I’m asked most often involves whether or not a creditor is required to give back property if the debtor files bankruptcy after it was repossessed.

For most of my career, my answer was “yes”, because of the protection of the Automatic Stay; however, there was a Supreme Court decision a few years ago in the case of Chicago v. Fulton that seemed to indicate that this is no longer the case. I say “seemed C to indicate” because this case didn’t involve repossession, and bankruptcy judges Mhave interpreted this case differently. This type Y of matter illustrates why it is important to work with a creditor’s rights attorney CM that is familiar with how cases like this are MY interpreted at the local level.

CY

TRUSTEES AND DEBTOR'S CMY COUNSEL K

Lastly, understand that the debtor's attorney isn't the only adversary you may have in a bankruptcy case. Upon filing, a Trustee is appointed, and its job is to marshal the assets of the debtor and protect the estate.

Sometimes this can put the Trustee at odds with a creditor. The Trustee can play a big role in how the case proceeds, so it's important to factor them into your analysis.

The issue where I’ve probably seen the most tension between trustees and car finance creditors is when a title hasn’t been MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 7

IN THE KNOW How to Comply With New FTC Safeguards Rule

By Ronnie Wendt, Editor at Auto Dealer Today

I

n an era when data is a business’ lifeblood, Reynolds and Reynolds Chief Information Security Officer Nikhil Kalani has been the guardian of a high-stakes ballgame.

The digital-evolution leader, who helps create products to enhance dealership data security, observes that the strategy in the game is harder than ever. Hacking, he says, has evolved from people infiltrating personal computers to organized groups breaching entire company systems.

The stakes are different, too. “A decade ago, we might have seen a ransom demand of $250. Now they ask for millions of dollars.”

The high-stakes Kalani describes led the Federal Trade Commission to update its Safeguards Rule, the result of which took effect last June. The new rules strengthened protections for consumers’ information maintained by nonbanking financial institutions, from mortgage brokers and payday lenders to automotive dealerships.

The agency then proposed a supplemental amendment to the rule that would require financial organizations to report data breaches and security events to the FTC. In October, the agency amended the rule to include nonbanking financial institutions

within its jurisdiction. Now those institutions—including auto dealerships— must report data breaches affecting 500 or more people.

“Before this change, a dealership might have had to report a breach to state regulators.

That’s a pretty common requirement in most states,” Kalani says. “The new requirement adds in federal reporting directly to the FTC.”

What the Amendment Says

Dealers can refer to the revised rule for specifics, but Kalani says the focus is on “notification events,” which the FTC defines as the “acquisition of unencrypted customer information without the authorization of the individual to which the information pertains.”

The FTC further defines a notification event as one that “involves the information of at least 500 consumers.” In those situations, the covered entity—for our purposes, an auto dealership—must notify the FTC “as soon as possible, and no later than 30 days after the discovery of the event.”

An FTC statement on the new provision, which is scheduled to take effect on May 13,

8 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

says the notice must include: • The name and contact information of the financial institution • Description of the information involved • The date or date range of the notification even • The number of consumers effected • A general description of the notification event “The FTC has provided a web-based form to fill out,” Kalani says. “The form itself is not overly complex. It asks some basic questions about the breach and its scope, the number of customers impacted, and provides a place for additional information. The complexity comes into play after dealerships make a report.”

While Kalani can't speak for the FTC on notification handling, past actions can offer insight. He says that historically, the FTC conducted an investigation after a sizeable data breach and if it found security lapses, set security requirements for the organization.

“Historically, they asked for further reporting up to 20 years,” he says. “So, not counting the fines they might issue, a dealer must be prepared to report to the FTC for 20 years.”

The FTC has also required inspections by an approved third-party auditor every other year to ensure organizations meet the new security provisions. It has asked for the first audit report, and any of the future reports thereafter, for up to 20 years.

Prevent Breaches First

FTC reporting may be straightforward, but the aftermath might not be. To avoid future problems, Kalani suggests establishing a robust security posture, for which he recommends three steps: 1. Develop a security culture. “This begins at the top, with leadership recognizing the value and promoting it to staff.

2. Put employees through regular security-awareness training. Training should evaluate how employees respond to diverse types of attacks, such as phishing, where hackers contact targets by email, phone or text message to lure them into providing sensitive data, including banking details or passwords.

“Most breaches begin with an email that an employee clicked on, which gives a foothold to an attacker,” Kalani says. “In fact, over 95% of all breaches begin by email. Dealerships need to test employees' security awareness and reward the best performers and give extra attention to those taking security risks.”

Working with a partner offers a consistent approach to gauge the security awareness of every employee. The companies can simulate cyberattacks to test employees and provide performance statistics to the dealership.

3.

Put technical protections in place.

Kalani says this comprises security protections for email systems, personal computers and company servers, with continuous year-round monitoring.

“Monitoring is critical,” he says. “These attacks usually happen on nights, weekends or holidays, times when a dealer’s own IT staff may be minimal, so dealers want to work with a partner who is available during those times.

Also, email security needs to be given a high priority, and of course, frequent and reliable data backups.”

Reynolds and Reynolds protects customer data through its security operations center,

which focuses on threat intelligence, or what hackers are up to, to keep pace with the latest hacking techniques and tools.

It monitors the systems and networks at dealerships. And when a cyber event occurs, Reynolds says the center promptly responds to address the situation.

Pick the Right Partner

Picking the right partner hinges on knowing the difference between compliance and security, according to Kalani.

“Dealers often think security and compliance are the same thing,” he says.

“They are related, but they are not the same. A dealership that is compliancemotivated might pick a partner whose skill set is fixed on compliance. But that won’t stop hackers.”

He explains the difference with an analogy: A car that’s road-legal can be driven on the road. It is a compliant car. However, that doesn’t mean it’s designed for safety or dependability, which requires “a different class of vehicle.”

Dealerships need a cybersecurity-focused technical partner to safeguard their data.

The partners can help them establish a robust security foundation across systems, networks and data management, then layer on the right security tools, monitoring and training.

“These dealers may need to do some projects and implement new tools to catch up. They may need to upgrade their systems to establish a good baseline.”

Upgrading security and monitoring it once systems and policies are in place will help keep data secure so dealers might avoid a breach entirely, he says.

How Hacking Has Evolved

Hacking has evolved beyond the stereotypical teenager in his or her parents' basement. It’s now an organized crime network bent on destruction, according to Kalani.

Here’s how he describes the face of hacking today.

•

•

“Once you have strong technical cybersecurity, building in compliance is easy,” he says. “You are already doing the right things.”

He shares an example of how that might look in a dealership. Dealers need formal information security policies, but policies are documents that may sit on a file share or get published. Having policies, he says, doesn’t stop hackers.

“It’s about the implementation quality of the policy,” he says. “The policy describes what actions are needed, but you need to make sure the actions taken are of an appropriate quality. That’s data security versus compliance.”

In order to improve cybersecurity, some dealers may need to invest in technology.

Many dealers haven't kept up with their technology investments and are now in technical debt, Kalani says.

•

•

It’s organized. The criminal network functions as companies, complete with supply chains, employee handbooks, and vacation policies. Nearly two decades ago, it mostly involved individuals attacking a single PC at a time. Now gangs are involved. The rise in bitcoin and other digital currencies made financial transactions harder to track, causing a rise in ransomware attacks.

It’s specialized.

One hacking organization might focus on getting a foothold in a network to sell access to another group. A second group might purchase access, then work to infiltrate the entire network. A third entity might carry out data exfiltration, encryption and pass on the attack to a fourth group for ransom negotiations.

“It operates like a modern company where each team, or gang, in this case, focuses on what they do best,” Kalani says.

It's expensive. A report by IBM and the Ponemon Institute puts the average data breach cost for businesses with fewer than 500 employees at nearly $3 million, and the average cost per breached record at $164. The figures exclude additional regulatory fines or costs to get back online.

It takes a long time to recover. Recovery can take weeks and typically requires a vendor that may bill by the hour.

Recovery is made much harder there are no reliable backups. Ransomware gangs typically search for backups on the network and attempt to destroy them. n

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 9

Industry News in Brief Survey finds consumers more likely to click on vehicles with high-quality photos

BY AUTO REMARKETING STAFF How important is a good photo on a vehicle display page? Automotive photo, video and data collection company Redline decided to find out, and its recent survey showed consumers believe it’s very important.

The survey of 372 adults — including respondents who indicated they had shopped online for a vehicle in the past three years — found 95% of the respondents believe professional-looking photographs of vehicles on a dealership’s website significantly increase the perceived value of the vehicles.

The survey also showed 87% of consumers would click on a vehicle with a clear, welllit, well-framed photo over one with a blurry, poorly lit or poorly framed photo.

And 57% of car shoppers think a dealership featuring professional images would need to engage in less price negotiation.

Redline said those perceptions indicate “high-quality images attract potential buyers and empower dealerships to maintain their pricing integrity, leading to improved profit margins.”

According to Redline’s study, 94% of respondents expressed a preference for clicking on professional-looking photos first when browsing online inventories, which the company said shows “the critical role” of visual in capturing consumer attention in the competitive digital marketplace.

“Our survey demonstrates professional vehicle photography is not just about

aesthetics. It directly influences consumer trust, confidence and ultimately a dealership’s bottom line,” Redline CEO Mike McGlade said in a news release.

“By investing in high-quality images, dealerships can enhance their online presence, attract more serious buyers and achieve higher profit margins.”

America’s Group promotes Polk

BY USEDCAR NEWS America’s Group announced the appointment of Katie Polk as the new general manager of America’s Auto Auction Savannah.

Katie Polk, a Certified Automotive Remarketer, brings over 15 years of invaluable experience to her new role. Her journey began in 2009 with Southeastern Auto Auction, where she held various key positions, including Office Administrator, Dealer Sales Representative, Fleet/Lease Coordinator, and National Remarketing Manager. Her dedication and hard work culminated in her recent promotion to General Manager.

Throughout her tenure, Polk has played a pivotal role in the growth and success of America’s Auto Auction Savannah.

Brian Thomas, America’s Group SRVP, expressed his confidence in Polk’s abilities, stating, “Katie’s extensive experience, industry knowledge, and unwavering commitment to excellence make her the perfect fit for this role. We have no doubt that under her leadership, America’s Auto Auction Savannah will continue to thrive.”

Polk said, “I am truly honored to take on this new role and am enthusiastic about the opportunities that lie ahead.

I am committed to upholding the high standards of professionalism and service that our customers have come to expect from America’s Auto Auction Savannah.”

Polk is a graduate of Georgia Southern University and currently serves as cochair of the IARA social media subcommittee. She resides in Richmond Hill with her husband Daniel and their son Thomas Daniel. n

10 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

IT’S TIME TO NOMINATE THE BEST OF THE BEST Please take a moment to consider a nomination for the 2025 MidAtlantic IADA Dealer of the Year and send it in today!

Each year, MidAtlantic IADA recognizes and presents the Dealer of the Year Award to one carefully selected dealer.

The award was created to recognize the remarkable accomplishments of MidAtlantic independent dealers. For many years, award recipients have exemplified their commitment to quality and excellence in the industry, outstanding customer service, and giving back to their community to make it a better place for everyone.

This prestigious award not only celebrates business success, but also honors dealers who embody ethical practices and community stewardship.

Your nomination plays a crucial role in acknowledging and spotlighting those who go above and beyond in shaping the automotive industry with integrity and a positive impact.

EMAIL NOMINATION TO: STEVE@PIADA.ORG Steve Smith, Office Manager

3880 Lehigh St, Whitehall, Pa 18052 PH: 610-435-5554 - FAX- 610-435-5557 Email: lehighvalleyautauction1@gmal.com

Dealer Only Sale Every Wednesday @ 5:00 PM Simulcast in Every Lane!

Gates Open @ 4:00 PM INOPs Run @ 4:45 PM All Major Floor Plans Accepted!

• AFC • Westlake Financial • Veicle Acceptance Corp • Auto Use • Auction Credit • NextGear Capital

LVAA

5:00 PM W EDNESDAY REMINDER! TIME TO LOG ON!

WWW.LEHIGHVALLEYAUTOAUCTION.COM MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 11

4th Annual

SUMMER SLAM CAR SHOW SUNDAY, JULY 28 8AM - 12PM

Hosted by Manheim Baltimore-Washington to benefit Wounded Warriors Day on the Bay 7120 Dorsey Run Road, Elkridge, MD, 21075

FREE & OPEN TO THE PUBLIC EVENT IS RAIN OR SHINE Ample parking available at no cost!

VEHICLE REGISTRATION: $20 Registration Fee To pre-register, please email greta.stetson@coxautoinc.com Variety of Food Trucks will be on site.

Flag Presentation at 8AM Trophy Ceremony at 11:30AM

12 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

8th Annual

SUMMER SLAM SALE

JOIN US ON TUESDAY, JULY 30 9:30AM | 2,500 UNITS 15+ LANES

Please join us for our 8th Annual Summer Slam event sale and enjoy a day of home runs, your favorite ballpark food, and amazing inventory!

First 200 clients in the doors will get a complimentary lunch ticket, a commemorative Summer Slam T-shirt, and the chance to get an autographed baseball by our favorite baseball team’s mascot!

DUNK A MANAGER!

11AM - 12:30PM BEHIND LANE 1 For a donation of $20 to the Boys and Girls Clubs of America, get three chances to dunk the manager of your choice!

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 13

Knowledge is Power: Cyber Insurance 101

By Nikhil Kalani, Chief Information Security Officer & Vice President of Information Security for Reynolds and Reynolds. Visit ReyRey.com.

While the goal of cybersecurity is to shut down data breaches and other cyber threats before they happen, the reality is you’d still be responsible for any sensitive information stolen in the event of a successful cyberattack. In its simplest definition, cyber insurance can cover financial losses sustained from a cyberattack and cover your liability for a data breach involving customer information. Costs can include legal fees, notifying customers about the breach, and repairing or replacing computer systems.

IT foundation followed by an up-todate, monitored cybersecurity program, well-maintained compliance standards, and cyber insurance. Every layer works together to ensure you’re as protected as you look on paper.

The average cost of a ransomware claim is $485,000. For most dealers, just the thought of facing that kind of situation is scary, and facing it without coverage is even more terrifying! Yet, in 2023, 40 percent of companies purchased cyber insurance only after they had incurred a cyberattack.

Taking action before an incident will save you money in the long run.

Recent price surges and why they happened Cyber insurance prices have been growing at an alarming rate. You may have experienced premium increases of 250 percent or more compared to a few years ago. It can be difficult to understand the high price point and know how to position your dealership for significant savings. The reality for cyber insurance companies is they’ve lost money the past few years by offering policies too broadly.

As ransomware and other attacks have become rampant, claims have been more frequent and larger than anticipated.

Now, insurance companies are only looking for “good risks.”

Cyber insurance does not replace cybersecurity Insurance is meant to be one piece of your larger, risk-preventing puzzle. To have the best security program possible, your dealership should have a strong

A “good risk” is a business that follows good IT protocols, security best practices, and cyber hygiene. These best practices also overlap with the FTC Safeguards Rule, thus giving you a two-for-one victory!

14 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

How to become a “good risk” Here are the steps needed to become a “good risk” and harden your defenses against cyberattacks: • Use multi-factor authentication (MFA) for admin accounts, cloud access, and remote access.

• Outsource endpoint protection, like PCs and servers to a 24/7 Security Operations Center. A good Security Operations team can respond to security alerts within minutes and shut down attacks in their infancy.

• Ensure you have reliable backups that are “air-gapped.” This means they are offline- either physically or logically- so malicious actors can’t tamper with them.

• Invest in a strong email filter.

Phishing emails act as the entry point for 95 percent of all attacks.

• Ensure you’re using currentgeneration, supported operating systems and hardware, like firewalls.

These systems need to receive regular security updates to maintain protection against the newest threats.

• Manage your third-party risks. These are vendors that have access to your data or your network. Suppliers are a

While the goal of cybersecurity is to shut down data breaches and other cyber threats before they happen, the reality is you’d still be responsible for any sensitive information stolen in the event of a successful cyberattack. common route to getting hacked!

• Provide high-quality security awareness training to your organization and review results frequently. Follow up on associates who don’t complete training or fail their phishing tests.

• Have a solid, rehearsed Incident Response Plan. Conduct a tabletop rehearsal at least once a year.

How to actually save money Once these steps are in place, share your information security program with your broker. An alternative way that’s growing in popularity is to obtain insurance through your IT or cybersecurity service provider, who may have partnerships with insurance companies.

You can prove the quality of your program and diligence by sharing key metrics: • Your phishing test results (including “phish prone” percentage), ideally under five percent.

• Systems protected by Managed Detection and Response.

• Percentage of MFA enrollment.

• Percentage of vendor-supported devices (unsupported systems should be zero).

• Results from the last backup test.

• Penetration test results.

With a solid program and a demonstration of your diligence, you can help your dealership qualify for the best cyber insurance rates possible! n

How to Turn, Turn, Turn Used Cars

BY STEVE FINLAY, SENIOR EDITOR, WARDSAUTO DEALER BUSINESS MAGAZINE

Former used-car manager Doug Hadden tells of a dealer who sold a new vehicle to a consumer, bought it back for the same price two years later at the height of vehicle demand – and within hours resold it on his used-car lot.

That’s why the used-car market has been hot, hot, hot in recent years although it’s cooling down somewhat.

“I’d never seen anything like this,” Hadden, a vice president at ACV, an online auction company and digital service provider.

Many consumers turned to the used-car market when parts shortages in the early years of the decade cut into new-car production and availability. Soon, both new and used cars were in high demand.

The party isn’t over for dealers who made record per-vehicle profits as demand outpaced supply. But things are stabilizing a bit. For example, used SUV and pickup truck prices are down 7% and 3.7%, respectively, according to the Carfax Used Car Index.

“We’re about to land on a new normal,” Hadden predicts.

For dealers to thrive in that environment requires a true management plan of stocking the right inventory, he says during a “Used-Car Super Session” webinar hosted by

the American International Automobile Dealers Assn.

need to acquire them as trade-ins. They’re out there.”

Buying inventory on gut instinct? “Don’t do it,” Hadden warns, acknowledging he did precisely that as a young used-car manager. “It doesn’t work anymore.”

He describes trade-ins as the darlings of used-car lots.

“They turn faster and earn more profit. Homegrown inventory is as good as it gets,” Grill says

“What sells well new, sells well used,” says Carfax’s Bob Grill.

Instead, stock is based on market-demand data. That includes drilling down to identify what vehicles sell well regionally and at the dealership itself. “The wrong car priced right is still the wrong car,” Hadden says.

“Plan to maximize profit on every acquisition.”

For starters, stock on the used-car lot the vehicles which sold well as new cars, says Bob Grill, a Carfax senior manager. “What sells well new, sells well used.”

And car color counts. A used-car veteran once quipped that purple vehicles should be outlawed because they become pre-owned car lot duds. Conversely, black, white, silver and gray vehicles are most popular in the land of the red, white and blue, according to various surveys. So, stock cars of those colors even though it’s hard to find them at auctions, Grill says. “You

Fellow webinar participant Mike Rossman, a consultant and retired AutoNation vice president-sales, says it’s critical for a dealership to track used-car closing ratios just as it does in the newvehicle department.

The market is trickier today, he adds: “You must be sharper today. The bar is higher than in 2020. Brush up on your closing skills.”

Documenting a used vehicle’s history – including how well it was maintained and how many previous owners it had – is vital to pricing and turning it to a dealer’s advantage. “It’s top of mind for consumers,” Grill says.

“Every used vehicle has a unique history and value.”

He recommends using powerful descriptions to market used cars. Such as: “Just made available this beautiful, well-maintained, one-owner Honda Civic.

We leased it to its original owner. Our Honda-certified mechanics have taken care of it its whole life. We know this car better than anyone.”

“Use descriptions to set your vehicles apart,” says Grill. n

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 15

the

H

CARLAWYER

©

By Eric Johnson, Partner in the law firm of Hudson Cook, LLP Editor in Chief of CounselorLibrary.com’s Spot Delivery®

ere’s our monthly article on selected legal developments we think might interest the auto sales, finance, and leasing world. This month, the developments involve the U.S. Department of Justice, Consumer Financial Protection Bureau (CFPB), and Federal Trade Commission (FTC). As usual, our article features the “Case(s) of the Month” and our “Compliance Tip.” Note that this column does not offer legal advice. Always check with your lawyer to learn how what we report might apply to you or if you have questions.

FEDERAL DEVELOPMENTS On May 8, the U.S. Department of Justice entered a proposed consent order with Hyundai Capital America, a vehicle finance company, resolving allegations that the company violated the Servicemembers Civil Relief Act by unlawfully repossessing 26 motor vehicles leased or owned by SCRAprotected servicemembers without obtaining court orders. Section 3952 of the SCRA provides that "[a]fter a servicemember enters military service, a contract by [a] servicemember for ... the purchase [or lease] of real or personal property (including a motor vehicle)" "for which a deposit or installment has been paid by the servicemember before the servicemember enters military service" "may not be rescinded or terminated for a breach of terms of the contract ... nor may the property be repossessed for such breach without a court order." A court may delay the repossession or condition the repossession on the refunding of all or

part of the prior installments or deposits made by the servicemember. The DOJ's complaint alleged that, on June 25, 2014, Jessica Johnson, a Navy Airman, financed the purchase of a vehicle. The financing contract was assigned to Hyundai Capital.

On March 23, 2015, Johnson enlisted in the Navy. Her enlistment orders indicated that she would be ordered to active duty beginning on August 25, 2015. In June 2015, Johnson faxed her enlistment orders to Hyundai Capital and asserted that she was protected by the SCRA. While she was on deployment, her account became delinquent. On July 27, 2017, Johnson allegedly spoke with a Hyundai Capital customer service agent about her account and stated that she was no longer deployed but was still in the military. On the same day, a Hyundai Capital employee allegedly recommended to its recovery department that Johnson's vehicle be repossessed.

The written recommendation noted that "customer confirmed she is not deployed today." Attached to the recommendation was a report from the Defense Department's Defense Manpower Data Center database dated July 27, 2017, which indicated that Johnson had been on active duty since August 25, 2015, and was still on active duty as of July 27, 2017. On July 28, 2017, Hyundai Capital approved the repossession, allegedly based on the fact that Johnson was on "active [duty], but ... confirmed not deployed." Hyundai Capital then repossessed the vehicle without a court order and sold it in October 2017. Based on its review of documents provided by Hyundai Capital related to its vehicle repossessions from April 15, 2015, through May 21, 2023, the DOJ's complaint also alleged that the company repossessed, without court orders, 25 additional motor vehicles owned or leased

16 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

by SCRA-protected servicemembers. The consent order requires Hyundai Capital to pay $10,000 plus any lost equity to each servicemember whose vehicle was repossessed and pay a civil penalty of $74,941. The consent order also requires Hyundai Capital to provide credit repair to affected servicemembers, provide SCRA training to its employees, and implement policies and procedures for vehicle repossessions that comply with the SCRA. On May 16, the U.S. Supreme Court, by a vote of 7-2, rebuffed a challenge to the constitutionality of the CFPB’s funding structure, lifting a cloud that threatened the agency's enforcement and rulemaking efforts and clearing the way for final implementation of the Payday Lending Rule. The Supreme Court reversed the Fifth Circuit's decision. Justice Thomas wrote the majority opinion, joined by all three of the traditionally liberal Justices (Kagan, Sotomayor, and Jackson) as well as Justices Kavanaugh and Barrett and Chief Justice Roberts. The Court stressed that "an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes" and that the CFPB's funding scheme "fits comfortably" within that framework, consistent with historical practice. The Court highlighted two founding-era agencies—the Customs Service and the Post Office—and described how their fee-based, standing appropriations serve as precedent for the CFPB's funding structure. Also important for the Court was the statutory cap on the agency's spending, which it likened to the common historical practice of Congressional appropriations for a "sum not exceeding" a specified amount.

Justice Jackson wrote a separate concurring opinion to emphasize that the political branches of government are better suited and intended to address policy concerns like the mortgage and financial crisis giving rise to the Dodd-Frank Act. She noted that the judicial branch "should not lightly assume" to place limits on other branches' powers. In a dissenting opinion, Justice Alito (joined by Justice Gorsuch) echoed many of the themes in the Fifth Circuit's opinion. They focused on the novelty of the CFPB's funding arrangement and the robust rulemaking and enforcement powers exercised by the agency, concluding that the CFPB enjoys "the very kind of financial independence that the Appropriations Clause was designed to prevent." The ruling removes a disability from the CFPB and provides the agency a freer hand in pursuing its rulemaking and enforcement agenda. Several CFPB investigations and enforcement actions were stayed pending resolution of this case, and the CFPB is poised now to push those matters forward (as the agency suggested in its own statement after the decision). On Capitol Hill, the chair of the House Financial Services Committee, Patrick McHenry issued a statement vowing to revisit the CFPB's authority through reform legislation.

On May 20, the FTC provided its annual letter to the CFPB detailing its enforcement, rulemaking, research, and policy development activities and consumer and business education during 2023 related to the Truth in Lending Act, the Consumer Leasing Act, and the Electronic Fund Transfer Act. The letter highlights the FTC's activities in the areas of vehicle sales, financing, and leasing, specifically the final Combatting Auto Retail Scams Trade Regulation Rule, and "junk fees," specifically the proposed Trade Regulation Rule on Unfair and Deceptive Fees. The letter also highlights the FTC's activities involving issues that affect American Indian and Alaska Native populations, as well as proposed changes to rules governing negative options. Finally, the letter discusses the agency's Military Task Force, which focuses on various initiatives to assist military consumers, and other FTC work involving military lending.

CASE(S) OF THE MONTH Dealership Effectively Disclaimed Implied Warranty of Merchantability When It Sold Used Vehicle to Consumer: An individual bought a used vehicle from a dealership and financed the purchase.

At the time of the purchase, the dealership provided the buyer with a Buyers Guide, which stated that the dealership was selling the vehicle "AS IS — NO DEALER WARRANTY [and] THE DEALER DOES NOT PROVIDE A WARRANTY FOR ANY REPAIRS AFTER SALE." The Buyers Guide was explicitly incorporated into the vehicle sales contract. The sales contract contained the following provision: "USED CAR BUYERS GUIDE. THE INFORMATION YOU SEE ON THE WINDOW FORM FOR THIS VEHICLE IS PART OF THIS CONTRACT. INFORMATION ON THE WINDOW FORM OVERRIDES ANY CONTRARY PROVISIONS IN THE CONTRACT OF SALE." The same day, the buyer purchased a service contract from a provider. At some point, the following handwritten notation was added to the Buyers Guide: "Customer has purchased a 24 [month]/24,000 mile [provider] warranty." A month later, the vehicle broke down. An auto repair shop informed the buyer that the vehicle was not worth repairing because, although some repairs would be covered by the service contract with the provider, approximately $2,500-$3,000 in repairs would not be covered. After the dealership refused to perform any repairs or arbitrate the matter, the buyer sued, alleging breach of the implied warranty of merchantability. The dealership moved for summary judgment, and the trial court granted the motion.

The Court of Appeals of Indiana affirmed.

The appellate court concluded that the dealership, as a matter of law, had effectively disclaimed the implied warranty of merchantability when it sold the vehicle to the buyer. Pursuant to the Indiana Uniform Commercial Code, "[u]nless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind." However, the appellate court noted that a used car dealer "may disclaim implied warranties through the use of conspicuous language containing expressions like 'as is' or 'with all

faults' or other language which in common understanding call the buyer's attention to the exclusion of warranties and makes plain there is no implied warranty." The Buyers Guide, which was explicitly incorporated into the sales contract, provided that the vehicle was being sold as is. The personal representative of the buyer's estate, who was substituted as plaintiff after the buyer died, did not dispute that the Buyers Guide language was sufficient to disclaim any and all implied warranties, but he argued that the dealership negated any implied warranty disclaimer contained in the sales contract by offering the service contract to the buyer the same day it sold her the vehicle.

The service contract stated: "YOU UNDERSTAND THAT THE SELLER IS NOT OFFERING ANY WARRANTIES AND THAT THERE ARE NO IMPLIED WARRANTIES OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER WARRANTIES, EXPRESS OR IMPLIED BY THE SELLER, COVERING THE VEHICLE UNLESS THE SELLER EXTENDS A WRITTEN WARRANTY OR SERVICE CONTRACT WITHIN 90 DAYS FROM THE DATE OF THIS CONTRACT [emphasis added]." The appellate court stated: "We need not address the particulars of this argument. As mentioned, in the event of conflict with other provisions of the sales contract, the provisions of the Buyers Guide control. The Buyers Guide disclaims all implied warranties without exception, overriding any other language in the sales contract suggesting that any exceptions exist. Even if we assume, arguendo, that [the buyer's] purchase of the Service Contract satisfied the exception laid out in the language above, it does not help [the plaintiff]." The plaintiff then argued that the handwritten notation added to the Buyers Guide - "Customer has purchased a 24 [month]/24,000 mile [provider] warranty" - served as an acknowledgment that the buyer's purchase of the service contract negated the dealership's warranty disclaimer. The appellate court disagreed, stating that "[t]he notation is nothing more than a simple acknowledgment that [the buyer] had purchased the service contract from [the] third-party [provider]; the notation does not mention the warranty Continued on next page

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 17

THE CARLAWYER© CONTINUED Continued from previous page disclaimer exception in the sales contract, much less incorporate it. [The plaintiff] has failed to establish that the language of the Buyers Guide can be harmonized with the relevant language in the sales contract." See Thomas v. Valpo Motors, Inc., 2024 Ind. App. Unpub. LEXIS 555 (Ind. App. May 2, 2024).

contract from a third-party provider wasn’t relevant. What does your Buyers Guide say about the vehicle you’re selling and does it effectively disclaim the implied warranty of merchantability? Does your buyer’s order or purchase agreement incorporate the Buyers Guide? It’s time to pull up those documents and review what they may or may not say with your friendly counsel! n

COMPLIANCE TIP

Eric (ejohnson@hudco. com) is a Partner in the law firm of Hudson Cook, LLP, Editor in Chief of C o u n s e l o r L i b r a r y. com’s Spot Delivery®, a monthly legal newsletter for auto dealers, and a contributing author to the F&I Legal Desk Book. For information, visit www. counselorlibrary.com. ©CounselorLibrary. com 2024, all rights reserved. Single publication rights only to the Association.

HC# 4872-0711-6227

The Case of the Month turned on whether the dealer had effectively disclaimed the implied warranty of merchantability when it sold the vehicle to the buyer. In this case, the Buyers Guide, which was explicitly incorporated into the sales contract, provided that the vehicle was being sold as is. The Buyers Guide disclaimed all implied warranties effectively overriding any other language in the sales contract suggesting that any exceptions exist. The fact that the buyer purchased a separate service

18 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

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MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 19

Preventing Bank Fraud

BY PENELOPE BELL, AUTOMOTIVE COMPLIANCE EDUCATION

Year after year, bank fraud continues to be a top compliance issue in dealerships.

I continually stress to dealers how prevalent it is and their continuous need to have no-tolerance policies in place should such issues arise. I hear so many stories of bank fraud, and a lot of times the claims are from a disgruntled or exemployee.

Dealers must have solid policies in place to deal with these claims. So let’s rehash some common areas of bank fraud that plague a dealership, discuss the potential repercussions dealers face if caught committing these acts of fraud, and what dealers can do to mitigate claims.

FORGERIES

Forgery needs no explanation. Never sign or ask another person to sign any documents on behalf of the customer.

Even with the customer’s permission, documents should never be signed on their behalf. This includes using Signature on File, or SOF.

BOOKOUT INCONSISTENCIES

Bookout inconsistencies, which is known in the industry as power-booking, is showing nonexistent options on a used car to increase the vehicle value on the bookout worksheet that is sent to the lender. This value is used by the lender to determine the deal’s loan-to-value ratio.

Falsifying the vehicle options to increase the value should be strictly forbidden.

BORROWER VERSUS DRIVER

Borrower-versus-driver, also known as a straw purchase. A deal is considered 20 | MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024

a straw purchase when a person who is primarily driving and purchasing the vehicle is not a party on the RISC or lease agreement. A dealer should never deliver a deal he or she knows to be a straw purchase.

If a lender has reason to believe bank fraud was committed, the dealer could be required to buy back the deal.

CREDIT APPLICATION ALTERATIONS

Credit application fraud is when the dealer modifies or misrepresents the information provided by the customer on a credit application or coaches the applicant. The five key credit determinants – time at residence, time on the job, occupation, income and housing expense – are what lenders take into consideration when making a credit decision. When the determinants are altered, it is usually done to circumvent underwriting guidelines or make the deal appear more favorable.

REPERCUSSIONS

There are numerous repercussions a dealer potentially faces if the above examples of fraud occur in a dealership.

If the lender has reason to believe bank fraud was committed, the dealer could be required to buy back the deal. Lending institutions may file a Suspicious Activity Report, or SAR, if a transaction smells fishy. Bank fraud allegations can also Continued on next page

Continued from previous page result in unwanted federal investigations, especially if enough SARs are reported; hefty fines; and unwanted jail time.

DEALERSHIP PROTECTION

To protect the dealership and avoid buybacks, SARs and other repercussions, a dealer must implement policies and procedures and continually follow up to ensure employees adhere to the policies. Dealerships should consider the following: 1. Have a policy in place that prohibits bank fraud, and establish notolerance guidelines.

2. Train on the policy and have all employees sign an acknowledgment.

Be sure to include that violations of the policy could result in termination of employment.

3. Develop processes to document compliance.

4. Spot-check signatures within a deal to look for consistent signatures.

5. Have a responsible employee sign off, attesting to the accuracy of the options listed on the book-out worksheet.

6. Audit the five key credit determinants provided by the customer on the source credit application to what was submitted to the lender.

7. Require that any employee who becomes aware of bank fraud occurring in the dealership report it immediately.

I leave you with this last piece of advice: Having a no-tolerance policy in place is the best defense against claims of bank fraud.

If a dealer can provide evidence of a policy, show employees’ adherence to the policy, and prove processes to document their compliance, it will likely mitigate any claims of bank fraud brought against them. n

COMPLIANCE FEATURE

FTC Presents Enforcement Report to CFPB The Combating Auto Retail Scams (CARS) rule and litigation against auto dealer marketing firm Traffic Jam Events highlighted the Federal Trade Commission’s annual enforcement activities report presented to the Consumer Financial Protection Bureau this week.

The CARS rule finalized by the FTC in 2023 will require automobile dealers to provide consumers with an offering price, disclose all optional add-ons, and give information about total payment when discussing the monthly payment. Dealers must also get consumers’ “expressed, informed” consent for any charges as part of the vehicle purchase. The FTC rule scrutinizes add-ons, which are part of the vehicle purchase.

The rule was to go into effect July 30, but after NADA and TADA filed a lawsuit against FTC, a stay was put in place. NIADA and the Texas IADA filed an amicus brief to the suit, pointing out the harmful impacts on dealerships and consumers if the rule is put in place.

Consumers will see vehicle price increases due to the increased dealer requirements for disclosures and recordkeeping. They will also be faced with a more timeconsuming and confusing sales experience, as dealers maneuver the disclosures, including providing an offering price and monthly payments in any discussion of a vehicle.

Consumers, who already have limited options, may find it impossible to secure financing as banks and third-party creditors reduce the funding to dealers lacking the resources to meet the requirements of the rule.

NIADA dealer members, more than 80 percent who employ less than 10 employees, will be faced with considerable costs from the rule, including professional fees from attorneys and IT personnel and record-keeping storage. Dealers may also see a decline in sales due to the extended sales process with the added disclosures and the repeating of the underwriting procedure for every vehicle inquiry.

The FTC in its report to the CFPB highlighted the continued litigation against Traffic Jam Events, LLC. The FTC alleges Traffic Jam, “sent deceptive mailers to consumers to entice them to auto sale sites by falsely suggesting the company was affiliated with a government COVID-19 stimulus program; sent direct mail advertisements deceptively indicating consumers had won specific valuable prizes (such as $2,500 or $5,000 cash) that consumers learned they had not won when they attempted to claim the prizes; and sent mailers quoting monthly payments to purchase vehicles on credit that did not provide, or hid in small print, key financing terms required by law that consumers need to determine the true costs of the advertised financing.”

The report also points out the FTC’s work on junk fees and other lending practices. n

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 21

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DARK PATTERNS: Soon Starring a Dealer Near You

By Terry O'Loughlin, Director of Compliance for Reynolds & Reynolds Dark Shadows (Not Patterns) “Dark Shadows” was a television soap opera in the 1960s featuring vampires, warlocks and the occult. Conversely, Dark Patterns is a legal theory postulated by the Federal Trade Commission and the Consumer Financial Protection Bureau CFPB to sue businesses, such as auto dealers. They both sound and appear to be born out of the supernatural. However, the FTC and CFPB have announced plans to prosecute Dark Pattern violators.

A Word about Venus Flytraps and Regulators Venus flytraps are carnivorous plants that feed on insects with their crocodile-like jaws. When an unwary insect makes contact with the plant’s open leaves, vibrations from the prey's movements trigger the "jaws" to shut in a tenth of a second. Regulators are similar to Venus flytraps, as they enclose merchants, such as dealers, in an extremely rapid manner, with the victims taken unawares.

Regulators include all federal and state agencies that investigate and sue dealers.

“Venus-flytrapping” dealers is one of their key purposes. It’s important to always note that state regulators track the issues that federal regulators prosecute and emulate them on a state level. Dark Patterns is, once again, another way to sue dealers.

What Are Dark Patterns?

The term “dark patterns” describes design practices that trick or manipulate consumers into making choices they would not otherwise have made and that

may cause harm, generally in an electronic world. Dark patterns can possibly violate the unfair and deceptive trade practices acts, or UDAP, the favored prosecuting statute of all government agencies and class-action attorneys. If a practice has the tendency or capacity to mislead a consumer, it can be a violation of UDAP laws. For example, Dark Patterns apply to interfacing electronic media when they deceptively disguise advertising and promotional messages by misleading consumers into believing they are independent, impartial or not from the sponsoring advertiser itself.

Marketing via social media presents the potential for Dark Patterns, and dealers should consider how they are employing these applications.

The days when dealers advertised in newspapers, television and radio have been substantively replaced with websites, e-mail, electronic internet bots, i.e., robots, ChatGPT, and the host of social media applications, such as Facebook, WhatsApp and Instagram. Each of these media contain the potential for Dark Patterns, and dealers should consider how they are employing these applications.

Dark Pattern Issues Many of these Dark Pattern issues should be familiar to dealers, but now they emerge in the numerous electronic media in new ways. Here are only a few examples the FTC cites as potential violations and appear in some dealer-consumer interfaces:

• False low-stock message – stating that inventory is low when it isn’t • False high demand – asserting that consumers must purchase immediately by misleadingly saying that there is great demand • Limited-time message – offer is good for only a limited time but without a meaningful deadline • False discount claims – claiming that there is a discount when it doesn’t exist • Preventing price comparisons – The price is so confusing that consumers can’t compare it with others • Prechecked boxes – boxes are already checked and can’t be unchecked.

• Preselection - preselecting a default that’s good for the company but not the consumer, such as a service contract • Drip pricing - initially advertising only part of a product’s total price, and then imposing other mandatory charges late in the buying process, such as a dealer preparation fee There are numerous other examples, such as bait-and-switch, hidden costs, automatically playing videos, hidden information, deceptive consumer testimonials, and many others. These practices may not seem apparently pernicious but may be unlawful.

Activist government agencies will continue to identify new ways to prosecute dealers.

Provident dealers will plan on foiling these prosecutorial efforts by identifying what they should do to comply with these issues. Dealers need to explore these dark shadowed patterns and judiciously clarify their electronic media outreach to the public. n

MIDATLANTIC DEALER NEWS | MIDATLANTICIADA.ORG • JULY 2024 | 23

AUCTION DIRECTORY PENNSYLVANIA ADESA MERCER 758 Franklin Road, Mercer, PA 16137 724.662.4500 / Fax: 724.662.8716 Friday 9:00 AM Office M-W: 9-4:00; TH: 9-5:00; F: 8-5:00 adesa.com ADESA PA I-83 Ex. 28 (Old Ex. 12), 30 Industrial Rd. York, PA 17406 717.266.6611 / Fax: 717.266.7650 Wednesdays 9:00 AM; INOPS 8:30 AM Specialty Sale every 4th Wed 8:30 AM adesa.com ADESA PITTSBURGH 378 Hunker Waltz Mill Rd. New Stanton, PA 15672 724.925.4700 / Fax: 724.925.4701 Tuesday 9:00 AM pittautoauction.com AMERICA'S AA - HARRISBURG 1100 S. York St., Mechanicsburg, PA 17055 717.697.2222 / Fax: 717.697.2234 Thursday 8:45 AM harrisburgautoauction.com AMERICA’S AA - LANCASTER 1040 Commercial Ave., P.O. Box 406 East Petersburg, PA 17520 717.569.5220 / Fax: 717.569.3109 Wednesday 9:00 AM; INOPS 8:30 AM americasautoauction.com AMERICA’S AA - PITTSBURGH 55 E. Buffalo Church Rd. Washington, PA 15301 724.225.1777 / Fax: 724.225.7223 Thursday 12:30 PM americasautoauction.com AMERICA’S AA – ERIE P.O. Box 317, 12141 Route 6 West Corry, PA 16407 814.664.7721 / Fax: 814.664.7724 Thursday 10:00 AM 3 Lanes Dealer Consign, Fleet/Lease americaserie.com BLAISE ALEXANDER AUCTION 350 Fairfield Rd., Montoursville, PA 570.435.8391 Mondays: 10:45am blaisealexanderauction.com BLOOMSBURG AUTO AUCTION 25 Ridge Road, Bloomsburg, PA 17815 570.784.2306 Wednesday 10:00 AM bloomaa.com

CAPITAL AUTO AUCTION 5135 Bleigh Ave., Philadelphia, PA 19136 215.332.2515 / Fax: 215.332.2534 Monday thru Friday 9:00 AM - 4:30 PM capitalautoauction.com CARRIAGE TRADE PUBLIC AUTO AUCTION 1200 W Ridge Pike, Conshohocken, PA 19428 800.441.6717 / Fax: 610.834.8274 Monday Sale Day 3:00 PM carriagetrade.com CENTRAL PENNSYLVANIA AA Exit 178 of I-80, Lock Haven, PA 17745 800.248.8026 / Fax: 570.726.7841 Thursday 9:45 AM Office: MTF 8-5:30 W-Th 8-6:00 cpaautoauction.com FREEDOM AUTO AUCTION 3580 Emmitsburg Road Gettysburg, PA 17325 717.338.1516 / Fax: 717.334.9314 Thursday 6:00 PM freedomauction.com GARDEN SPOT AUTO AUCTION Robert Rd. & Apple St., Ephrata, PA 17522 717.738.7900 / Fax: 717.738.7930 Tuesday 10:00 AM gardenspotautoauction.com GREATER ERIE AUTO AUCTION 7700 Avonia Road, (Exit 16 of I-90 & PA Route 98) Fairview, PA 16415-0916 814.474.3900 / 877.474.GEAA Tuesday 1:45 PM greater-erie.com KELLER BROS AUTO AUCTION 1030 Schaeffer Rd., Lebanon, PA 17042 717-949-2349 Wednesday 2:00 PM kbautoauction.com LEHIGH VALLEY AUTO AUCTION 3880 Lehigh St., Whitehall, PA 18052 610.435.5554 / Fax: 610.435.5557 Wednesday 5:00 PM lehighvalleyautoauction.com MANHEIM KEYSTONE 488 Firehouse Road, Grantville PA 17028 717.469.7900 / Fax: 717.469.2842 Every Monday 11:00 AM manheim.com MANHEIM PENNSYLVANIA 1190 Lancaster Rd., Manheim, PA 17545 717.665.3571 / Fax: 717.665.9265 Exotic Highline Sales every other Thursday - 9:00 AM; Fridays Sale 8:30 AM manheim.com

24 ||MIDATLANTIC MIDATLANTICDEALER DEALERNEWS NEWS| MIDATLANTICIADA.ORG | MIDATLANTICIADA.ORG • JULY • JULY 2024 2024

MANHEIM PHILADELPHIA 2280 Bethlehem Pike, Hatfield, PA 19440 215.822.1935 / Fax: 215.822.8140 Tuesday 9:30 AM; TRA Sale - Tues 12:30 PM Office: M-Th 8:30-5:00; F 8:30-1:00 manheim.com MANHEIM PITTSBURGH AA 21095 Route 19, Cranberry Twp., PA 16066 724.452.5555 / Fax: 724.452.1310 Wednesday 9:00 AM manheim.com NORTH EAST PENNSYLVANIA AA 860 N. Keyser Ave., Scranton, PA 18504 570.207.CARS / Fax: 570.207.1860 Tuesday 10:00 AM nepautoauction.com PERRYOPOLIS AUTO AUCTION Route 51 S. Perryopolis, PA 15473 724.736.4445 / Fax: 724.736.0466 Friday 9:45 AM perryautoauction.com MARYLAND BSC AMERICA/BEL AIR AUTO AUCTION 4805 Philadelphia Rd., Belcamp, MD 21017 410.879.7950 / Fax: 410.893.1515 Thursday 8:30 AM at Clayton Station Thursday 8:00 AM at Bel Air in Belcamp bscamerica.com CAPITAL AUTO AUCTION 5001 Beech Rd, Temple Hills, MD 20748 301.316.4980 / Fax: 301.316.4982 capitalautoauction.com MANHEIM BALTIMORE-WASHINGTON 7120 Dorsey Run Rd., Elkridge, MD 21075 410.796.8899 / Fax: 410.799.0512 Tuesday Sale, 9:30 AM Tuesday Frontline Sale, 9:00 AM TRA/Salvage, 1:00 PM manheim.com NEW YORK STATE LINE AUTO AUCTION 830 Talmadge Hill Rd. S., Waverly, NY 14892 607.565.8151 / Fax: 607.565.3915 Ally Financial Open Sale –EVERY FRIDAY, 9:20 AM GM Financial Open Bi-weekly.

Simulcast in all lanes. statelineauto.com WEST VIRGINIA MOUNTAIN STATE AUTO AUCTION Route 2, Box 835, Shinnston, WV 26431 304.592.5300 / Fax: 304.592.3510 Monday 10:30 AM; Office: 9:00-5:00 mtstateaa.com

UPCOMING EVENTS

New Years Week Sale Day is MONDAY, DEC. 30TH

Christmas Week Sale Day is MONDAY, DEC. 23RD

DECEMBER 2024 Holiday Schedule

AAA LANCASTER 12TH ANNIVERSARY SALE

WED. SEPT. 18

TH