In monitoring the auto finance and lease legal landscape, we see what seems like an endless parade of punitive legislation and regulation aimed at car dealers. If you’ve noticed the same thing, perhaps you’ve wondered where all of those proposed laws and regulations come from.

Do you suppose that each legislative and regulatory body has a standing committee of well-informed, fair-minded folks whose jobs are to understand the auto industry and legislate or regulate it in a sensible way that protects consumers but doesn’t overburden reputable dealers with layer after layer of restrictions?

Do you also believe in the Easter Bunny?

The reality behind those laws and regulations is that many, if not most, of them are measures brought on by dealer misconduct — self-inflicted wounds. A dealer will be caught doing bad stuff by a regulator, a state attorney general, or Channel 7 News, and it isn’t long before the populace is up in arms, waving their torches and pitchforks and screaming for some dealer’s head.

Consider a recent news report from New Mexico. In a private lawsuit, a dealer was charged with selling a new Nissan Versa to a homeless, schizophrenic woman with an income of $733 per month in Social Security disability benefits. According to the complaint, the sales price for the Versa was $2,000 over list, and, to add insult to injury, the dealership allegedly crammed a $2,275 service contract into the deal. The dealership’s conduct was characterized by the plaintiff’s lawyer as “rapacious.”

To create a contract like this one that could be sold to a sales finance company would require “dummying up” the credit application and the stipulations that the finance companies usually require. The complaint wasn’t long on the details of this sort of creativity in the dealership’s F&I office, but anyone reading the complaint would conclude that, if the complaint’s allegations were true, such activity had occurred.

Before I go any further, let me emphasize that what we are dealing with is a complaint filed by a car buyer’s lawyer. The dealership has not yet answered the complaint, so we don’t know what the dealer will have to say, and we are a long way from a judge or a jury determining what the facts of the matter actually are.

But in at least one sense, it doesn’t matter what the facts are. The complaint has been filed, the newspapers have picked it up, and the public — and legislators, and regulators — have yet again been reminded that car dealers are a bunch of crooks who prey on the unwary and defenseless. And that reaction leads to the next one: “There oughta be a law!”

Never mind that the allegations in this complaint, if true, mean that the dealership and its personnel have broken a number of existing state and federal rules. The dealership’s conduct was an outrage, and an outrage calls for action. So we get yet another law or regulation and another layer of redundant consumer protection.

So the next time you have to spend a dollar on compliance, you can thank the Consumer Financial Protection Bureau, your state and federal legislators, Sen. Elizabeth Warren, and the army of consumer advocates across the country who are seemingly trying to regulate the car business out of existence. But save at least one thank you for the dealer down the street, whose cowboys in the F&I office erroneously figured they could pull a fast one on the finance company without getting caught.

Thomas B. Hudson is a partner in the firm of Hudson Cook LLP and the author of several widely read compliance manuals. Email him at [email protected].

About the author
Tom Hudson

Tom Hudson


Thomas B. Hudson Esq. was a founding partner of Hudson Cook LLP and is now of counsel in the firm’s Maryland office. He is the CEO of LLC and a frequent speaker and writer on a variety of consumer credit topics.

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