At a recent conference, I sat in on a session where another speaker was holding forth. He was from a company that hosts Websites where dealers can advertise cars for sale and his topic was “Internet Sales Best Practices.” I was half-listening and taking a quick glance at each slide as I caught up on my email, when suddenly, the speaker had my full attention.

He had posted a slide showing what he had identified as “a very effective Internet posting.” The posting under discussion showed a price for a vehicle of “$14,995 (cash and good credit customers).” The obvious implication of this price posting was that potential buyers who were not “cash and good credit customers” would pay a (presumably) higher price. That’s an enforcement action or a class action plaintiff’s lawsuit just waiting to happen. 

The federal Truth in Lending Act, Regulation Z and most state retail installment sales acts require the disclosure of a vehicle’s “cash price.” Cash price is a defined term under federal and most state laws and it is defined in a manner that doesn’t include any charges for the cost of the credit extended in a credit sale transaction. So, a dealer who sets one cash price for credit buyers and a lower cash price for cash buyers has just converted the difference between those two numbers into a finance charge. That’s not good.

That’s not good because unless the differential is added to the finance charge and included in the APR calculation (and it never is) the dealer has a slam-dunk disclosure violation. An enforcement agency or plaintiff won’t stop with alleging a disclosure problem either—you can bet that any complaint will also claim that the differential must be considered in determining whether the transaction violates state maximum finance charge rate laws as well. And you can expect to see that old standby claim that the practice of quoting different cash prices is a violation of a state unfair and deceptive acts and practices law.

The issue is not limited to Internet pricing. At nearly every industry conference I attend, I end up trying to convince a dealer that he cannot increase the price of a car when he determines that he’s going to have to assign the retail installment sales contract for that car to a subprime company that buys such contracts at a discount. It’s the same issue, albeit in a context in which the enforcement authorities or plaintiff’s lawyer might have a difficult time proving their claims. But the dealer posting “$14,995 (cash and good credit customers)” has just handed the enforcement agency or plaintiffs a winning case on a silver platter.

If you haven’t had a sit-down with your friendly local lawyer regarding your dealership’s pricing policies, you might want to make a note to do so sooner rather than later, especially if you’re using any Internet ads like these.

Tom Hudson is the author of CARLAW® II, Street Legal, and CARLAW®, and is the editor/author of the CARLAW® F&I Legal Desk Book, the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the editor in chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. In addition, he is a partner in the Maryland office of Hudson Cook, LLP. For information, call 410-865-5411, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or visit www.counselorlibrary.com.

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