Jerry Kopel

Car Dealers Board

January 11, 2007

By Jerry Kopel

Is this group too forgiving? After all, to forgive is divine. So should they be called the Divine Motor Vehicle Dealers Board?
The Dept. of Regulatory Agencies (DORA) did a Sunset review of the Motor Vehicle Dealers Board. When you get to pages 52-53, DORA researchers did something I have never seen before in the 29-year history of Sunset reviews.
They suspected, investigated, detected and challenged the number of disciplinary actions provided by the Auto Industry Division (AID) staff. The board is part of that division.
DORA called this "an example of the insufficient or inconsistent data supplied to DORA by the AID (staff)... in response to requests for information and data relating to the Board's disciplinary actions."
DORA leaned over backwards to "cover" the AID staff, stating "it appears the data retrieval system and not the AID staff, may have resulted in the inconsistency of the data provided".  Any first-year lawyer cross-examining that statement would jump on "appears" and "may".
How big a difference between valid and invalid? The comparison review only covered July 2003 through July 2006. False numbers were 27 suspensions, 42 revocations, and 99 probations. True figures were 30 suspensions, 13 revocations, and 53 probations.
A probation means finding a violation of law, but major punishment is put on hold, and punishment dropped after a successful short-term probationary period.
Instead of 12 revocations in 2005-06, there were NO revocations. Not one single revocation out of  19,123 licenses!
Why was this important? DORA responds: "The board is dominated by industry representatives and regulatory programs are often CAPTURED (emphasis added) by the industry in such scenarios.
"When a regulatory program is captured by the industry it is supposed to regulate, the public suffers because the government offers little or no recourse when statutes and regulations are violated. In some cases, competition can be stifled as the industry-driven regulatory authority uses the police power of the state to distort the market."
In my opinion, that means bad people are being kept in business at the expense of good people who lose a potential market share.
DORA points out that "previous Sunset reports were highly critical of the enforcement and discipline record of the board."  There is no reason to believe disciplinary numbers provided prior to 2003 were any more correct than the false numbers reviewed in this report. (The front page summary of the Sunset report continues to use the false numbers.)
The "examination":
The testing for new applicants consists of 41 multiple-choice and 10 fill-in-the-blank questions. These are open book exams.
There were 7,400 original, or reissued salesperson licenses in fiscal 2005-06 and 270 new and used car dealer and wholesaler original licenses.. To be licensed as a salesperson, dealer or wholesaler, you have to "pass" the written exam.
Imagine you want to be a salesperson. You take the test and get 20 answers incorrect. You are told which ones those were and are allowed to "correct" them, using an open book containing the answers. Golly, gee! You still get two wrong.
According to DORA "the administrator may assist the applicant in locating the answers in the license manual, law or regulation ... thereby mastering the information in the exam." The same is true for the dealer or wholesaler, except that the corrections can be made by phone, and continue to be made until the applicant scores 100.
DORA recommends doing away with the testing as "fundamentally meaningless". Those tested do not need to have any education and the steps to reach  100 percent correct answers means an applicant could get all the questions wrong and then have the administrator point out the correct answers. For the consumer this "generates a false sense of security".
Make it a very short time before the next review:
DORA's recommendation is to continue the motor vehicle dealer statute until 2012. Under present law this is an unusually short period, with another  review in 2011. But it makes good sense if the purpose is to seriously force a "clean house" on  disciplinary action by the board.
The DORA language indicates concern for the well-being of consumers making a major investment (more than $28,000 for a new vehicle and more than $15,000 for a used vehicle) and is also based on the "quality" of data submitted by the AID staff. And this 2006 report did not go into other board areas usually subject to a sunset review.
Some other recommendations: Increase the surety bond of dealers from $30,000 to $50,000 and do away with the $5000 surety bond for salespersons.
"No record indicates a single salesperson's bond has been opened or accessed over the past five years." Take 16,000 total salespersons either original, renewed, or reissued in a fiscal year, add the cost of a $5000 bond, with no pay outs. That means a tremendous yearly profit for the bonding companies and commissions for the sales agent who can be the auto dealer. 
While praising board members for the hard work they put in, DORA wants the nine member board to have representation by a county clerk and an expert from the financial lending sector to provide knowledge to the board of related motor vehicle consequences. The two would replace one new car dealer and one used car dealer.
The result would be three public members, four motor vehicle dealers, one county clerk and one lending expert.
Board members and not required  to be lawyers, and DORA recommends requiring disciplinary hearings to be held before a Revenue Dept. hearing officer or an administrative law judge.
DORA states: "Numerous benefits to the board would occur by utilizing the services of professional hearing officers". The board would still impose discipline and decide new applicant licensing issues "and have more time to consider important policy and regulatory matters".
Motor vehicle dealers and their lobbyists will likely oppose many, if not all of the DORA recommendations, but DORA research staff deserves praise for their insightfulness and courageous exposure of this industry.
(Jerry Kopel served 22 years in the Colorado House.)

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