December 13, 2018
Authored by: Douglas Thompson
The holidays are a time for deals — rebates, discounts and special financing offers. Especially prevalent are automobile advertisements with images of big red bows atop shiny new cars and exhilarated families dashing out into the snow to unpack presents out of the back. Well, the regulators are watching those advertisements too. For the fourth time in a month, the CFPB is warning consumers, especially servicemembers, about the potential pitfalls of the car buying process and understanding exactly what they are buying and what they are financing. The FTC is joining in to help, with its own resources as well.
Add-On Products are an area of special concern and focus for the CFPB. The CFPB recommends that buyers “be prepared to say ‘No, thank you’ if [they’re] offered add-ons [they] don’t want or need.” But the CFPB also adds a warning that customers should be sure to review their contracts carefully to make sure the items declined are not included. Dealer sales practices vary on these types of products, and the CFPB appears to be suggesting not so subtly that buyer had better beware.
Value & Actual Costs/ Financing. Products and services the regulators highlight include: (a) guaranteed auto protection (GAP), (b) tire, dent, paint and fabric protection packages, (c) extended warranties, and (d) service contracts. These additional products and services can be valuable to consumers depending on how long they intend to keep the car, how they want to maintain it, and their own economic circumstances and budget cashflow. The CFPB and FTC focus signals that in marketing these products and services, institutions and their business partners must be direct and forthright about the product, its features, its limitations, and the price. High pressure sales tactics or aggressive marketing may result in customer complaints, regulatory inquiries, and litigation and reputation risk.
Queries the CFPB identifies for consumers: applicable deductibles, default/the impact of late or missed payments, and who specifically is offering the product. For example with regard to GAP, the CFPB outlines 10 questions consumers may want to ask about coverages, cost, claims, responsibilities. In circumstances where add-ons are rolled into the total purchase price to be financed, the actual total cost may come as a bit of a surprise to consumers who had been focused on and negotiating the sticker price. Customers should be clear whether the extra cost is a one-time charge or an installment and whether the cost is being rolled into financing. In addition, the CFPB suggests researching options in advance options, comparison shopping, and avoiding making extended warranty decisions on the spot at the dealer.
Meanwhile, the FTC is offering its own questions and advice: “Are Car Ads Taking You for a Ride? How to determine whether special promotions featured in car ads offer genuine value — or are simply smoke and mirrors.” LINK: The FTC also highlights what it calls “auto loan modification scams” and negative equity car trade-ins, among other topics.
Truth in Advertising & UDAP – Mystery Shoppers. For compliance officers, executives and legal risk partners, you may consider mystery shopping to make sure you have an appreciation of the customer experience on the sales floor and in the finance office. It is critical to monitor advertisements and marketing flyers that may be locally generated or sales approaches suggested locally. You may have developed truthful clear marketing materials at the corporate offices, but sometimes short cuts, verbal representations or other local sales interactions may undercut the approved materials and drive risk. Clear and accessible product/service FAQs help ensure customers have all the information they need to make decisions. Strong training programs and attention to core customer values also should help reduce post-sales challenges.
Not Just Cars and Not Just Servicemembers. Just because the recent CFPB blogs are addressed to servicemembers and relate to yearend car purchases, you should not keep skimming past. Both the CFPB and the FTC have made clear that they are concerned about a number of special populations including elders, students, and others who may be vulnerable. If your institution services those populations, take note. The auto industry is not the only one with add-on products or extra charges. If your company markets supplemental services, extended warranties, or other add-ons, this applies to you. Clearly, the CFPB is focused on consumers having accurate information about the products being marketed, the costs of the products, and whether in fact the products are optional. Institutions that consider the customer’s perspective and provide clear, actionable marketing information will likely fair better in the event of consumer complaint or regulatory inquiry.