WASHINGTON -- All 50 or so dealerships reviewed by a federal agency are properly notifying customers that they can sue the banks that provide their loans if problems arise with their new vehicles, the Federal Trade Commission said.
The favorable FTC review gives ammunition to dealers as they seek to dissuade the agency from proposing new rules over dealer-assisted finance.
The FTC said yesterday its review found "broad compliance" with an agency rule that seeks to protect customers who have problems with their vehicles or with vehicle maintenance.
The 1976 regulation, called the Holder in Due Course Rule, overrode a number of state laws that shielded lenders from prospective consumer suits over alleged dealer transgressions, the FTC statement said.
The rule requires dealers to include in any consumer credit contract a provision that "effectively makes lenders liable for dealers' conduct," the FTC said.
The National Automobile Dealers Association said the findings highlight the "significant push within the industry to frequently and thoroughly train dealership employees on ethics, regulatory compliance and the value of transparency and professionalism."
The findings also "underscore the positive efforts dealers have made to develop a vehicle financing process that is fair, efficient and competitive," NADA spokesman Bailey Wood added.
The FTC reviewed consumer credit contracts executed after October 2009 at a randomly selected sample of nearly 50 franchised and independent dealerships in 45 states as well as two large online dealers, the agency said.
Before the rule was enacted 35 years ago, a dealer could ignore customers' complaints because he already had been paid, FTC lawyer Ronald Isaac said in an interview.
Lenders, who were often exempt from liability, would deny knowledge of the vehicle problems.
"Consumers were batted back and forth, and no one would take seriously their complaints," Isaac said.
The rule gave lenders an incentive to press dealers to address customer complaints, he said. Lenders also were given an incentive to work with reputable dealers.
The FTC review was initiated as part of the agency's broad information gathering on dealership practices as it decides whether to use its new streamlined rule-writing authority.
Last month, the FTC held the first of a series of roundtables to gather data on the prevalence of alleged dealer abuses. NADA participated in those discussions and argued that no changes were needed in rules governing dealer interest-rate markups.
The review also was initiated as the FTC enters discussions with a new agency, the Consumer Financial Protection Bureau, about which should oversee the Holder in Due Course Rule, Isaac said.
"We wanted to make sure of the landscape," he said.
One possibility that could emerge from these interagency talks is that the FTC will continue to monitor dealers' compliance with the rule and the new consumer agency will oversee banks' compliance, Isaac said.
Dealers currently do not have to disclose lenders' liability in credit contracts over $25,000 because those more affluent customers are thought to have the resources to look out for their own interests, he said.
That threshold will rise to $50,000 on July 21, the FTC said.