Autoweb.com, an Internet service that charges dealers fees for online referrals, has run afoul of the law in Texas, which has a strict ban on auto brokering.
The state has not taken formal action against Autoweb.com. And the Santa Clara, Calif., buying service believes it has altered its referral program to comply with Texas law. But the case is on hold until state authorities review the changes Autoweb.com has made.
The case came to a head after the state told dealers they could be held legally responsible if the buying service violated anti-broker laws.
The Texas Motor Vehicle Division said Autoweb.com's problem involved the fees it charges dealers. Autoweb.com typically bills dealers $30 for each online prospect it sends them. To Texas authorities, a fee per referral is the same as a transaction fee, which makes Autoweb.com a broker.
'Although a referral is not a sale, one out of every four or five could result in a sale,' said Carol Kent, director of enforcement for the Texas Motor Vehicle Division. 'That's why it is transaction-related.'
Most other major online referral services charge dealers flat, monthly fees. If Autoweb.com charged all dealers the same flat, monthly fee, that would be acceptable, said Kent.
Dean DeBiase, chairman, president and CEO of Autoweb.com, said the company has proposed a flat-fee pricing program, but he did not disclose specifics. The program still must pass muster with the Texas Motor Vehicle Division.
In the meantime, Autoweb.com stands to lose business.
The Texas Motor Vehicle Divi-sion sent warning letters to the company's Texas dealers in Sept-ember, saying that doing business with Autoweb.com would make them liable for breaking the anti-brokering law. The letters said dealers could face fines of up to $10,000 for each day they violate the law.
Kent said that after the warning letters went out Sept. 22-24, about 20 dealers called her office saying they would stop doing business with Autoweb.com, although Autoweb.com says it has not lost dealer customers.
The company sent a letter Sept. 27 to Texas dealers saying it would send them referrals for no charge through Sept. 30. The letter told dealers it soon would come up with a competitive, flat-fee program.
DeBiase said Autoweb.com quickly brought its program into compliance with the law after finding out the motor vehicle division sent warnings to its dealers.
But Texas enforcement boss Kent said her office has been going back and forth over the matter with Autoweb.com for more than a year. After feeling ignored for months, she said that holding dealers liable for 'aiding and abetting' brokering was the only way to get the out-of-state company's attention.