Pub. 18 2019-2020 Issue 3

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 1 , 2 0 2 0 22 new jersey auto retailer In recent years, non-existent margins on new car sales and a race to the bottom in the online used car marketplace have forced new car dealers to pass on certain costs of doing business to consumers in order to remain profitable. However, before charging fees to consumers to recover those costs, New Jersey dealers must assess their compliance with the State's complex legal and regulatory requirements. If a fee is noncom- pliant, then the cost of defending against or settling government enforcement actions or class action lawsuits can erase any benefit that the fee creates for a dealer's bottom line. Indeed, if a dealer is found in violation of the applicable laws and regula- tions in a lawsuit, then the dealer can be required to pay treble damages, attorney's fees and costs. Enforcement actions, on the other hand, can result in fines of up to $10,000 for a first offense and $20,000 for a second or subsequent offense. Notably, these government-levied fines can be imposed per violation, i.e., per transaction. With this level of potential exposure, New Jersey dealers cannot afford to take a relaxed approach to compliance when assessing fees on consumers. Automotive Sales and Advertising Practices New Jersey's Consumer Fraud Act (" CFA ") — one of the oldest and strongest consumer protection laws in the country — governs the fees that New Jersey dealers charge consumers. Generally, the CFA prohibits the use of any "deception, fraud, false pretense, false promise, misrepresentation or the knowing concealment, suppression, or omission of any material fact" in connection with the sale or advertisement of goods or services. However, even if there is no actual deceit, any "unconscionable commercial practice" by a dealer also violates the CFA. This subjects dealers to potential liability for a broad variety of conduct since the standard of "uncon- scionability" is open to interpretation. Regarding the CFA's general prohibition against deceptive or unconscionable business practices, dealers must be very cautious in how they present and charge fees to consumers. Obviously, dealers cannot charge fees for services not actually provided to a consumer in a transaction. Moreover, to the extent that a spe- cific fee is not adequately disclosed or explained to a consumer, the consumer may later claim ( through their attorney ) that the dealer was acting in a deceptive or unconscionable manner. The consumer could argue that the dealer intended to hide the fee in some way or they would have objected to the fee had they been effectively informed about it. More importantly, the New Jersey's Division of Consumer Affairs (" DCA ") adopts and enforces regulations related to its authority established in the CFA. Specifically, the DCA has adopted several onerous regulations targeting automotive sales and advertising practices. A dealer's good faith or lack of bad intent will not excuse technical noncompliance with their requirements. Rather, the standard for determining such non- compliance is strict liability, and regulatory violations lead to automatic liability under the CFA. The DCA's automotive sales regulations target two types of common dealer fees: pre-delivery service fees ( i.e., "dealer prep fees" ) and documentary service fees ( i.e.," doc fees" ). The regulations seek to prevent dealers from inflating a vehicle's sale price by providing unwanted services and then hiding the cost of them in a statement of the monthly payment amount. The DCA's regulations define "pre-delivery service" as dealer preparation, vehicle preparation, handling and delivery, or any- thing similar, such as mechanical/safety inspections, detailing, cleaning, fabric guard or rustproofing. Basically, almost any ser- vice that dealers perform on a vehicle prior to delivery can fall within this definition. When assessing dealer prep fees, dealers must itemize the specific services performed and the fee for each service in at least 10-point type on the sales document ( i.e., Retail Order Form ). Also, dealers cannot charge dealer prep fees if they receive compensation for the services from any other source. BY KAYLA E. ROWE, ESQ. AND ANTHONY M. ANASTASIO, ESQ. DEALER BEWARE: Common Dealer Fees Can Run Afoul of New Jersey's Consumer Protection Laws