LEGAL, LEGISLATIVE AND REGULATORY SUMMARY

January 2007

·   Federal Legislative Developments

The month of December was a quiet month on the Hill. The President signed both the Tax Relief and Health Care Act of 2006 and the Tax and Trade Bill into Law while Lawmakers enjoyed their winter break. Members of Congress returned to Washington on January 3rd to officially convene for the 110th Congress. Sweeping into power in both the House and Senate, Democrats jumped into their "first 100-hours agenda," which consisted primarily of developing new lobbying and ethics rules. The House Lobbying Reform Package would ban providing gifts and meals to lobbyists, require pre-approval from the ethics committee for travel paid for by outside groups, prohibit the official use of corporate jets, require full disclosure of all earmarks, and create an outside group to enforce ethics laws. The Bill is likely to be one of the few bipartisan legislative measures to advance early on in the new Congress.

The next set of priorities will likely consist of passing some of the September 11th Commission recommendations, increasing the federal minimum wage, lowering interest rates on student loans, empowering the government to negotiate lower prescription drug prices for senior citizens and increasing the Corporate Average Fuel Economy Standards. These issues are sure to spark considerable debate. Republicans have already said that they will not permit a minimum wage bill to pass without some kind of small business tax breaks and the President has consistently opposed rewriting the 2003 Medicare Prescription Drug Bill. Additionally, there is no consensus among Members of the Senate regarding whether the CAFE Standards should be increased as a result of a legislative mandate or new authority granted to the Administration. Lawmakers will also feel pressure to take up some even tougher issues, such as finding an exit strategy for the war in Iraq, and must pass a new Budget Resolution, both of which may take considerable time away from other priorities.

It's early, but how Lawmakers interact now will set the stage for the remainder of the Session. Keep in mind that while Democrats have a 31-seat margin in the House, they only have a two-seat margin in the Senate, far short of the 60 votes needed to overcome filibusters and pass Legislation. Then there is the President, who has the most powerful of all legislative weapons- the veto.

·  Federal Regulatory Activity

FTC Issues Report to Congress Regarding FACT Act Studies

The Federal Trade Commission (FTC) issued its second interim report to Congress on December 5, 2006 concerning its studies on the accuracy and completeness of information in consumers' credit reports. Under Section 319 of the Fair and Accurate Credit Transactions Act of 2003 (the FACT Act), the FTC must complete a total of five interim reports for members of Congress (one every two years from December 2004 until December 2012) and a final report is due in 2014. In the first report that was submitted to Congress in December of 2004, the FTC examined the history and current practices of the credit reporting industry, identified key areas where errors in credit report data can occur, reviewed and evaluated studies conducted to date on credit report accuracy and completeness, examined possible methodologies for conducting a more comprehensive study, and described a pilot study for testing a methodology for a nationwide survey.

Over the past two years, the Agency conducted a test survey with the help of a third party contractor. They randomly selected consumers to review their credit reports with an expert and identify potential errors. The consumers were then encouraged to dispute those errors that the expert felt could have an impact on their credit standing. Based upon the results of this initial study, the FTC has identified issues that need to be addressed further. For instance, they found that many consumers who alleged errors existed did not file a dispute and, therefore, FTC Staff could not evaluate the allegations. The FTC is now putting together a follow-up study to improve the design for the survey. The primary focus will be on evaluating consumers' experiences in identifying and disputing errors and being able to categorize errors by the type and seriousness in terms of potential harm to their credit standing. We will continue to monitor these studies on behalf of NIADA and its Members as the FTC's conclusions will likely impact both existing and future Regulations implemented pursuant to the FACT Act.

FTC Further Delays Enforcement of Call Abandonment Provisions

On December 18, 2006, the FTC published a Notice announcing that it will extend beyond January 2, 2007 its policy of not enforcing the call abandonment provisions of the Telemarketing Sales Rule (TSR) against telemarketers that deliver prerecorded messages. The Notice was released in response to four petitions that were filed seeking the extension after the FTC announced on October 4, 2006 that it was denying an industry petition to add a safe harbor to the call abandonment provisions. The safe harbor language would have allowed telemarketers to deliver prerecorded messages to consumers with whom the seller had an established business relationship. The FTC also released a proposal to amend the TSR to make explicit the prohibition of delivering prerecorded messages, unless the seller has obtained a consumer's express prior written consent to receive them, and announced that it would begin bringing enforcement actions against companies that used prerecorded messages without obtaining such consent. So, as long as they comply with the safe harbor requirements, sellers and marketers don't have to worry about enforcement actions, at least until the proceedings on the proposed prerecorded call amendment are complete.

IRS Releases Guidance on Newly Passed Deductions

The 2007 filing season may begin on time, but recent changes in the Tax Law mean the IRS may not be able to process some individual and business tax returns until early February. On December 22, 2006, just two days after the President signed the Tax Relief and Health Care Act of 2006 into Law, the Internal Revenue Service (IRS) released new guidance to help taxpayers claim the extended deductions for state and local sales taxes, higher education tuition and fees, and educator expenses, and other tax advantages now available to taxpayers. The IRS has posted information concerning the newly passed Legislation on its website at www.IRS.gov and plans to mail out a Publication in early January explaining how to take the deductions. The IRS is also encouraging taxpayers to file electronically, since electronic filing systems like e-File will be updated to include these changes.

·  Activity of Interest

Settlement Related to Use of Drivers' Records Could Impact More Than 200 Million People

Eleven lawsuits filed in Florida against various Companies that gather consumer information on a national basis could affect more than 200 million people nationwide. The plaintiffs claimed that the Companies obtained and used their personal driver's license or vehicle registration information for marketing purposes without permission. After four years of litigation, all but two of the Companies named in the lawsuits have reached a tentative settlement agreement, and they are proposing that the Judge make the agreement apply to anyone throughout the 50 States whose data was obtained by the Companies since April 1, 1998.

Each of the original plaintiffs in the cases would receive $15,000 and their attorneys could get as much as $25 million in costs and fees. While no other damages would be paid at the time of settlement, those individuals who have evidence of being harmed by misuse of their personal data could still file lawsuits. The Companies have also agreed to: Adopt safeguards to protect personal information made available from state motor vehicle agencies; include language in their contracts with customers stating that they will maintain the confidentiality of driver information and identify how the information may be used; set up educational programs for employees; and appoint an independent third party to evaluate and ensure continued compliance with applicable laws.

Employee's Theft Forces Owners to Sell Dealership

A Louisiana Dealer was forced to sell his store after discovering that the General Manager stole almost $1 Million from the Dealership. The General Manager wrote at least 90 checks from the Dealership to two different marketing companies that he owned over a four-year period. He also falsified financial statements provided to two of the Dealership's lenders and one of its distributors. By the time his activities were discovered, the Dealership was $5 million out of trust and a $5 million savings account had been completely drained. In addition to civil charges brought by the Dealer's representatives for monetary damages, the General Manager faces federal criminal charges that include wire fraud, illegal monetary transactions and making false statements to a bank, which could result in a 150-year prison term and a $3 million fine. This is a great reminder to all dealers to hire cautiously and continually monitor employees' activities-no matter how many years they have been there!

·  Case of the Month

Study Reveals Customers Are Happy With Their Buying Experiences: Let's Keep It That Way

This month we decided to skip the facts and findings and jump straight to the moral: If you put forth some effort at developing a compliance program, you can avoid learning the lessons that others you have read about in this section learned the hard way. What's more, you'll probably find that your customer satisfaction will increase, along with your bottom line profit. Despite the negative press dealers often receive from the media and consumer advocates, a new study commissioned by Automotive Retailing Today (ART) and conducted by Harris Interactive, revealed that dealers' customers report having a pleasant and satisfying car buying experience more often than not. They also found that there was a 35% difference between the number of positive experiences reported by the media and those reported by consumers themselves. Let's keep that trend moving in the right direction!

For dealers in many parts of the Country, the months of December through February are the slowest for sales, making this the ideal time to reflect on the past year and plan ahead. Based on what we have heard and seen ourselves during 2006, education (for consumers and dealers alike) has played a large factor in this positive trend. Take a look back at the cases we have brought to your attention; then, while you are conducting those annual reviews of your employee's performances, plan to conduct one of your Dealership as well. Make it your New Years Resolution to follow through with the review and updating of your Dealership's paperwork. Stop saying you are going to audit actual deals to ensure that the documents are being properly completed and that computers are programmed to print information in the appropriate places and do it! Don't stop there either, update those job descriptions and employee handbooks, schedule training for employees, and block out some time to attend seminars and conventions yourself to stay apprised of legal, legislative and regulatory developments. If you need a little help getting started, visit www.NIADA.TV and take a look at the Compliance Day segments. Start with the Dealership Walk Thru segment and go on from there. The time and effort you invest now will pay dividends throughout the entire year!