This document discusses unfair and deceptive acts and practices (UDAP) statutes and how they apply to automobile dealers. It notes that UDAP statutes cover virtually all aspects of a dealership's operations and interactions with customers. Violations can result in enforcement actions and lawsuits brought by government agencies and private attorneys. Key points are that even inadvertent violations are actionable, oral representations may create liability, and misleading omissions or ambiguous statements can violate UDAP statutes. The document provides examples of recent UDAP cases and penalties against dealerships and advises best practices for legal compliance.

1. UNFAIR AND DECEPTIVE ACTS &UNFAIR AND DECEPTIVE ACTS &
PRACTICESPRACTICES
20 Things Dealers May Not Know About UDAP Statutes –20 Things Dealers May Not Know About UDAP Statutes –
But Probably ShouldBut Probably Should
Presented by:
Jim Radogna
KPA Senior Sales & Finance
Compliance Specialist

2. Disclaimer
The material provided in this presentation is for informational and
educational purposes only. It is intended to give only a general
overview of the laws and regulations governing the automotive
industry, not to provide legal advice.
KPA LLC is not a law firm and does not dispense legal advice. If you
need specific legal advice, you should seek it from a competent
professional licensed to practice in your state.
KPA LLC specifically disclaims any personal liability, loss or risk
incurred as a consequence of the use, either directly or indirectly,
of any information given in this presentation.

3. What’s the Big Deal About UDAPs?
• UDAPs cover virtually EVERY aspect of your sales, finance and fixed
operations. Everything from advertising and marketing to consumers,
conversations your staff has with customers, conversations managers
have with salespeople, how deals are desked, how deals are handed off
to finance, how repair estimates are handled – you name it
• EVERYONE in the dealership who deals with the public is subject to
UDAP statutes and can create liability for the dealership and themselves
• UDAPs are extremely broad and provide both for enforcement by the
federal and government to stop the practices and individual actions for
damages brought by consumers who are hurt by the practices. They are a
favorite weapon for consumer attorneys that specialize in suing dealers
• No customer complaints are necessary and even inadvertent violations
are actionable
• Interpretation & enforcement constantly evolving

4. The Players
Federal Trade Commission
•The nation’s top consumer cop that directly regulates dealers
•Very proactive lately - taking action without customer complaints
•Advertising, information safeguards, buyers guides, vehicle recall actions – 2 CT dealers in 1st
ad action
•Consent orders typical initial penalty but quick to impose monetary penalties
•Uses the media to penalize those dealers caught in order to intimidate others
•Frequently pairs with other agencies in enforcement actions to expand its reach
Connecticut Attorney General & Commissioner of Consumer Protection
•Active in pursuing claims against dealers
•Can impose higher penalties than private actions
•More reactive, respond to customer complaints
Plaintiffs’ Attorneys (“Auto Fraud Lawyers”)
•Actively troll for business
•Have a number of tricks up their sleeves to turn little complaints into big problems
Consumer Financial Protection Bureau (CFPB)
•Collects consumer complaints and forwards to FTC & AGs
•Attempting to ban class action waivers in arbitration clauses

5. Applicable UDAP Statutes
FTC Act
The Feds have traditionally gone after bigger fish and left car dealers to state & local regulators.
The 2010 Dodd-Frank Consumer Protection Act exempt most dealers from CFPB oversight BUT
enhanced the FTC’s existing authority over motor vehicle advertising, sales and lease practices.
State AGs can now enforce FTC Act.
Federal enforcement leads to more local enforcement…Politics…
Uses the media to penalize those dealers caught in order to intimidate others
Connecticut Unfair Trade Practices Act (CUTPA) – One of the strongest UDAP statutes in the
nation
Variety of other statutes (TILA, FCRA, ECOA, odometer statutes, retail installment sales acts, fed
or state RICO) – CUTPA provides that “It shall be an unfair or deceptive act or practice for a new
car dealer or a used car dealer to violate any provision of a federal or state statute or regulation
concerning the sale or lease of motor vehicles.” Attorneys love to combine regulations for
more remedies and higher fees

6. Recent Connecticut Case
Dealer Allegedly:
•Over-allowed on trade and added to purchase price
•Failed to disclose deferred down payment
•Falsified credit application
Resulted in violations of:
•Truth in Lending Act (TILA)
•Credit Repair Organizations Act (CROA)
•Connecticut Unfair Trade Practices Act (CUTPA)
•Connecticut’s Retail Installment Sales Finance Act (RISFA)

7. Available Remedies
FTC
•Consent orders (typically 20 years)
•Up to $16,000 per day per violation
•Recent penalties against dealers for violating consent orders - $360K & $80K
CUTPA
•Actual economic damages
•Injunctive relief
•Punitive damages
•Class actions
•Attorney fees and costs
•Appointment of receiver
•Consent order
•$5,000 civil penalty per willful violation (knew or should have known that conduct was a violation)
•$25,000 per violation of injunction
•Forfeiture or suspension of any authority to do business in the state.

8. Recent State Cases
• North Carolina AG - $850K for failing to deliver vehicles as promised
• Indiana AG - $1.1 million for deceptive practices
• Oklahoma MVC - $350k for advertising violations
• Louisiana UVMC - $298k for deceptive business practices
• Indiana AG – $625K for overcharging doc fees
• New Jersey AG - Vehicle history disclosures, payment packing and
advertising violations - $1.8 million
• New Jersey AG - $135K for advertising violations
• New York AG – $342K for advertising and UDAP violations
• NY Consumer Affairs - $694K for Consumer Fraud Act violations
• New York AG - $13.5 million for sale of illegal add-ons and payment
packing (plus 4 more dealers paying $2 million for same)

9. Private Lawsuits
• Backdating contracts – repurchase of over 1500 vehicles –
Roughly $20-30 million in liability
• Dealer group settled a documentation fee class action
lawsuit for over $8 million
• Another doc fee lawsuit in Indiana cost dealer $3.6 million
– over 200 additional lawsuits pending
• $625K in settlements for multiple UDAP violations
• $1.6 million settlement for selling “overpriced” theft
protection package

10. Criminal Liability
• Dealer facing 5 years in prison for falsifying down payments and credit
applications – U.S. Attorney claims dealer “knew of and approved the use of
these practices”
• 8 dealership employees indicted and plead guilty to falsifying credit
applications, power booking, straw purchases, and payment packing.
• A dealer and 9 of his employees were indicted by a federal grand jury for
conspiracy to commit wire fraud as a result of deceptive advertising, fraudulent
sales practices, and falsely reporting sales to the manufacturer.
• 5 Indictments, prison time and restitution for odometer tampering. Highest
penalty 5 years in prison and $1.5 million restitution.
• 2 Indictments and prison time for bank fraud (fraudulent car loans through
credit unions) – 2 years in prison and $357k penalty/ 11 years in prison and
$203k penalty.

11. Punitive Damages
• Not capped in Connecticut
 Deterrent effect
 Financial standing of defendant
• Not insurable in Connecticut (except vicarious)
• Vicarious liability can be found if the employer authorized
or ratified the conduct or the manner in which the
particular task was performed; or empowered the
employee, i.e., by making him or her a manager, lack of
training, or recklessly hired or retained an employee that
was unfit for the particular job.

12. Are UDAP Penalties Insurable?
Maybe not…
Dealer group denied coverage for lawsuit in which employees failed to disclose that the price
of an etch product was included in the amount of financing they obtained and that
employees told purchasers and lessees that they had to purchase etch in order to obtain
financing. The court stated “fraudulent misrepresentations and nondisclosures were done
intentionally with the full knowledge of and at the direction of the principals of the dealer
as a 'pattern and practice' of doing business."
Common Liability Policy exclusions:
• Intentional wrongful acts
• Gaining of any profit or advantage to which you are not legally entitled
• Claims arising out of false advertising or misrepresentation in advertising
• Unfair or deceptive business practices, or violations of any consumer protection laws
• Claims against you that are brought by or on behalf of any federal, state or local
government agency
• Claims arising out of the same wrongful act or series of continuous, repeated or related
wrongful acts, alleging the same or similar facts

13. Key Features of UDAP Statutes
• No customer complaints are necessary and even inadvertent violations are
actionable. Advertising violations are a common example of these principles. A
noncompliant ad in itself is enough to create a violation even if there is no
evidence that consumers have been harmed.
• Even innocent misrepresentations can be actionable under UDAP statutes.
All that is required is proof that a practice has a tendency or capacity to
deceive even a significant minority of consumers. This usually involves a
situation where the dealer employee should have known or could easily
have found out that his statement to the plaintiff was false, but didn’t bother to
verify his statement before making it.
• A common misconception by dealership staff is that only written agreements
are enforceable and oral agreements are irrelevant once the customer signs
a contract. This is simply not the case with UDAP claims which can be founded
on oral misrepresentations, oral promises made to the customer that the dealer
fails to deliver upon, the failure to disclose, or ambiguous statements that are
technically accurate, but deceptive as interpreted by the consumer.

14. Key Features of UDAP Statutes
• A dealer employee’s oral misrepresentations (or overly enthusiastic sales
claims) may violate UDAP statutes even if they’re subsequently corrected
by a written disclosure statement. For example, attempting to disclaim an
oral warranty with an “as is” contract can lead to a UDAP (and breach of
warranty) claim when a sales consultant states “this vehicle is in great shape.
Our service department completely reconditioned it before we put it on the lot.
If you have any problems, believe me, we’ll take care of it.”
• In many cases, the consumer need not prove the seller’s intent or
knowledge. The seller’s good faith does not excuse technical
noncompliance and may not be a viable defense.
• There are a number of ways that plaintiff’s attorneys can defeat arbitration
clauses in UDAP claims. The Attorney General is not bound by the arbitration
clause.

15. Key Features of UDAP Statutes
• While Common Law Fraud often must be proven by clear, convincing evidence,
the UDAP standard is likely to be just a preponderance of the evidence. A
preponderance of evidence has been described as just enough evidence to
make it more likely than not that the fact the claimant seeks to prove is true.
• Where there is a statutory defense for “bona fide error,” this defense typically
applies only to clerical errors, such as typographical errors or mistakes in
computing numbers, not to a seller’s other unintentional misrepresentations. A
bona fide error is an unintentional, honest mistake. Commission of a bona fide
error, if corrected immediately upon discovery, normally does not call for a
punishment.
• Unilaterally crediting the consumer’s account with the amount the consumer
has sought in a lawsuit does not moot a UDAP claim, nor does a defendant’s
offer to refund the consumer’s money after suit has been filed. Once lawyers
get involved, settling the claim will likely get far more expensive.

16. Key Features of UDAP Statutes
• To prove that a claim is mere puffing, the seller will have to show that the
exaggerated claim is harmless, purely fanciful, or a spoof, calculated to amuse
and with no capacity to deceive. A claim is not puffing where the claim
promises a specific act, or where the claim’s truth or falsity can be determined.
Thus, offering the lowest price or highest trade value can create liability unless
true and verifiable.
• It’s no defense to a UDAP claim that the challenged practice is engaged in
throughout an industry or is “customary” business conduct. Regulators
frequently penalize those unlucky dealers that get caught in order to intimidate
others.
• Literally true statements can be deceptive. A practice is deceptive if the
overall net impression of the representation, not just the specific explicit claim,
is deceptive. One example might be advertising a prior rental vehicle as a “one-
owner”. Another could be an ad that claims a “$0 Down!” lease but in reality the
first payment and various fees are due at signing.

17. Key Features of UDAP Statutes
• A statement or omission may convey more than one reasonable meaning, and if one of
those meanings is deceptive, it violates UDAP statutes. A good example would be
where a dealer employee claims that a service contract is “included” in a payment quote.
A reasonable meaning to a consumer is that “included” means “free” or “at no additional
cost.”
• Representations are deceptive if necessary qualifications are not made, if material facts
are not disclosed, or if these disclosures or qualifications are too inconspicuous.
Omission of information may be deceptive if disclosure of the omitted information is
necessary to prevent a consumer from being misled. These are commonly-cited
advertising violations. A favorite mindset among regulators is that “what the large print
giveth, the small print can’t taketh away”.
• The public is not under any duty to make a reasonable inquiry into undisclosed
aspects of a representation or advertisement. Deception can occur if there is a “tendency
or capacity to mislead the public” or when “reasonable inferences may be drawn.” In the
automotive world this, unfortunately, is a VERY LOW BAR. An omission is considered
material if a significant number of unsophisticated consumers would attach importance to
the information in deciding on a course of action.

18. Key Features of UDAP Statutes
• A practice is deceptive even if subsequently clarified. Point of sale disclosure is not
sufficient to clarify deceptive media advertising. For example, the claim “we’ll pay off
your trade no matter what you owe” has been found to be deceptive even though the
dealer discloses that negative equity is added to the purchase contract at the time of
sale. So the old “see dealer for details” disclaimer may not protect you as much as you
would like.
• A merger clause or a contract provision that “no agreement between salesman and
customer is binding on the company” or otherwise disclaiming oral representations
does not defeat a UDAP action based on an employee’s misrepresentations. The
presence of a disclaimer does not necessarily guarantee that the terms of the disclaimer
will be recognized and enforced in a legal dispute.
• High-pressure sales tactics have been cited as unfair trade practices in lawsuits and
regulatory actions. In Connecticut case cited earlier, plaintiffs were allegedly told that the
sale price that "was good for that day only." Plaintiffs asserted that the time limit for the
sale price was "a false and deceptive statement, because the dealer and other
dealerships routinely sell comparable vehicles for significantly less than the price that
[this Motor] Vehicle was sold to Plaintiffs.”

19. Key Features of UDAP Statutes
• Often the correct disclosure to which the seller points can be shown to have been
untimely. Disclosure of important missing information just as the contract is being
signed does not prevent the previous failure to disclose from being deceptive.
• Misrepresenting the nature or import of documents being signed is likely to be
considered deceptive. Keep in mind that statements like “just sign next to all the Xs”
can lead to problems.
BOTTOM LINE: Any statement that your staff makes, or
fails to make - that a consumer would place
importance upon - can be the basis for a successful
UDAP claim.

20. How Do Plaintiffs’ Attorneys Develop Cases?
• No matter what the customer’s initial complaint is (usually
dissatisfaction with vehicle), the attorney will comb through all sale
documents and sue using every law and legal theory that seems to fit,
including technical violations
• Whatever type of problem the consumer client first discusses, the
attorneys explore potential UDAP violations in all aspects of the
transaction—advertising, sales presentations, consummation of the
sale, credit terms, and the seller’s performance
• Their primary goal is to show violations as being willful, a systematic
and organized pattern of deceptive practices, or racketeering (RICO)
to rack up the big $$$ - punitive damages, class action
• Plaintiffs’ attorneys are very savvy at coaching clients and analyzing
paperwork to win the “he said- she said” battle
• Seek out disgruntled former employees

21. Advertising and Recalls
• CarMax caused a stir in Connecticut with the sale of used vehicles with open
recalls
• General Motors and Dealers settled an FTC complaint for advertising vehicles
with used vehicles with open recalls.
• The companies are prohibited from claiming that their used vehicles are safe;
“certified pre-owned”; or have been subject to a rigorous inspection unless
they are free of unrepaired safety recalls, or unless the companies clearly
disclose the existence of the recalls in close proximity to the inspection
claims.

22. Best Practices For Avoiding Legal Issues In Your Sales Department
• Demonstrate a “good faith effort” at compliance - establish compliance policies and procedures, train ALL
employees on those policies, and document employees’ understanding of the policies and procedures.
• Conduct regular compliance audits.
• If you’re not sure, don’t guess! Invest in an advertising review service and give your staff access to expert
advice such as a compliance hotline.
• Be selective about where you get your advice. Chances are your F&I product providers are not really
“experts” in compliance, nor are your advertising agencies or marketing companies, despite claims to the
contrary. Automotive compliance is a very specialized area that requires full time focus by industry experts –
it’s a constantly moving target.
• Carefully scrutinize what products you’re selling. Are they legal in your state? Do the products you sell offer
real value to consumers?
• Add-ons should be sold at fair, consistent prices. Price-gouging is a recipe for disaster in the current
regulatory environment.
• Disclose, disclose, disclose! It’s vital that every customer in every transaction knows exactly what they’re
buying, agrees to the purchase without coercion or deception, and that you can prove it.
• Many potential legal issues can be avoided by simply responding to customer complaints and perhaps
offering a goodwill concession. All customer concerns should be addressed promptly by qualified personnel,
regardless of their perceived validity.

23. Common Issues Found During Compliance Reviews
• Privacy notices – missing or wrong form used
• Adverse Action Notices – no process in place to send AANs
• RBPNs – Credit Score Disclosures not given to all applicants
• OFAC – Not run for cash customers
• Menus - incomplete and not matching
• Falsified credit applications
• Write ups – Numbers don’t track with menus & contracts
• Price gouging – No caps on F&I products
• Payment packing
• Buyers Guides – missing or filled out improperly
• Selling for more than advertised price
• Red Flags – High risk applicants not cleared properly
• Information Safeguards
• Website advertising – missing disclosures
• Vehicle history disclosures – prior rentals, demos, etc.

24. Questions and Answers

25. Contact Information
More Questions?
Email Jim Radogna
jradogna@kpaonline.com