06
March
2025

A Bad Day at the Office

Dealerships face significant risks from litigation, especially from class action lawsuits, which can be financially devastating. It is crucial for these businesses to prioritize compliance and adopt sound practices, as neglecting these areas can lead to severe consequences.

A Bad Day at the Office

Every so often, “it” happens. I’m forced to have one of “those” miserable conversations that I dread. It happened just the other day, when a random dealer reached out and asked for my help in analyzing a lawsuit recently filed against his dealership. He dismissively glossed over the facts, not showing much concern, placing blame solely on the consumer that had purchased and financed a vehicle, and summed things up by classifying it a “nuisance” case.

Not So Fast - this is a Class Action Lawsuit
When I studied the lawsuit papers, I just about fell out of my chair, immediately seeing this was no run of the mill lawsuit. This is a CLASS ACTION case being pursued by a plaintiff’s firm that knows how to press the issue. I’d bet that this firm is already examining the dealership’s title transfer history on file with the state to identify other similarly situated customers to add to the class. At best this case will cost a small fortune to defend, and at worst it could put the dealer out of business.

I had to deliver the bad news. It’s those kinds of conversations that knock the wind right out of me because they are brutal. I had to explain that even if the allegations in the pleadings were not accurate, there was no quick and easy way to get rid of this case. The consumer’s lawyers wouldn’t take their word for it, they were going to send a bunch of written requests for documents, ask a lot of questions that have to be answered under oath, and even take a deposition or two.

Forget about budgets, inventory planning, and the typical daily worries that dealers face. Survival mode hits very quickly and the most pressing question is how much will this cost? While that depends on a lot of variables, the real answer is it costs a lot more than anyone plans to spend and will take a lot of time and energy and be a big distraction for the business. A lot of other needs will have to be sacrificed because this is a “bet the company” problem.

To make matters worse, this dealer is not particularly large, doesn’t sell and finance many cars, and has a small staff. It is not in a financial position to take on this added litigation expense. In fact, on the basis of a few conversations this gentleman and I had in the past, it seems to me that that compliance and best practices weren’t prioritized because the dealer took the “I’m too small, it can’t happen to me” approach. Well it did happen, and it does every day, to dealers and other creditors all over the country. Administrations come and go, regulator priorities change over time, but lawsuits remain a constant threat and continue to be the biggest risk faced by an independent dealer.

That Won’t Happen to Me
Does that refrain sound familiar? Are a lot of you readers shifting uncomfortably in your seats? Let me say it again. This is a small dealer that doesn’t sell a lot of cars, has a small number of employees, and, like a lot of you out there, it pushes compliance to the back of the line because it isn’t sexy and doesn’t move the “profit needle” on a monthly basis. Is any of this hitting too close to home? Folks, I’m well aware that improving search engine optimization, bumping up Facebook marketing, or finding a way to close more deals is front and center on your collective minds. After all, the response I get when wanting to discuss compliance is very similar to what happens at the beginning of the drum solo at most rock concerts: lots of folks head for the door for a bathroom or smoke break.

The Threat is Real
The threat is real, folks. In my opinion, too many of you are comfortable whistling in the dark, hoping that the boogie-man will pass you by. The reality is it only takes one mistake, one employee having a bad day, one failure to follow the right process, and everything that’s been invested in your dealership is at risk. If the allegations in this lawsuit I mention are accurate, a lot of “ones” combined to add up to the perfect storm. These include a lack of policies, failure to follow the ones that did exist, lack of training, careless completion of forms, failure to use an arbitration clause, lack of complaint management, and servicing errors. Many of you will smugly think “that’s not us”, but how many of you are willing to put that to the test in the form of a risk assessment or “mock” audit? Judging from the absence of a line at my door, I’d say not many.

I’m not writing this as a scare tactic and I’m not being alarmist. I’m writing it to illustrate how just about anyone reading this is susceptible to the same horrible fate.

Another Horror Story
Want another sad tale, as if one is necessary? A few years ago a dealer in Texas got hit with nearly a $ 100,000 verdict, not to mention the expense of the dealer’s own legal fees for taking the case to trial and then appealing the jury verdict against it. The actual damages suffered by the plaintiff were less than $ 10,000, but it was the plaintiff’s lawyers fees that put the big dent in the dealer’s pocket.

The worst part is that the case centered around the dealer’s decision to repossess a vehicle because of lack of proof of insurance and the “he said-she said” allegations that followed, not to mention the dealer’s insisting on the customer’s payment of a $500 repossession fee before returning the vehicle, despite the fact that the dealer didn’t incur such fee. Throw in lack of written, consistent procedures, lack of an arbitration clause, poor account notes, and what seems to be a stubborn unwillingness to admit a mistake, and we’ve got another in a long line of ugly court decisions that presents our industry in the worst light possible.

Honestly Evaluate Where You Stand on Compliance
I implore my readers to “OWN YOUR COMPLIANCE” and stop sweeping shortcomings under the rug. Do some self examination, or better yet, reach out to me and I’ll give you a list of some good places to start looking. Let’s honestly assess what steps you should take to protect your business, and then let’s develop a plan for improvement. Stop simply hoping you won’t be the next headline; hope is not a strategy. Instead, take affirmative and powerful steps to stop “IT” from happening to you.

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Categories: Dealer News Stories

Steve Levine

Steve Levine

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 Officer of Ignite Consulting Partners, which offers guidance on compliance, operations and best practices. He has also published two books, Winning the Fight: A Guide to Protect Car Dealers and Counterpunch: Compliance Strategies for Car Dealers which are both available on Amazon. Or contact info@IgniteCP.com to learn more. Please follow Steve on X @LawyerLevine for compliance and industry related content.

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