Full Compliance of Safeguards Rule Required

By Robert O’Koniewski, Esq.

MSADA Executive Vice President

rokoniewski@msada.org

Follow us on Twitter • @MassAutoDealers

As we have explained over the last 20 months, the Federal Trade Commission requires dealerships and other businesses to be in full compliance with all pieces of the Safeguards Rule beginning June 9. We have not heard of, nor do we expect, any imminent extensions, so the time for preparation has ended; compliance implementation must be commenced.

Since December 2021, your MSADA and the National Automobile Dealers Association have issued scores of writings and conducted numerous webinars regarding the Rule’s implications for dealerships – so your awareness should not be lacking. But have your actions met the Rule’s compliance expectations?

The Federal Trade Commission first issued “Standards for Safeguarding Customer Information” (the Safeguards Rule) in 2002, under its authority in the Gramm-Leach-Bliley Act, and it took effect on May 23, 2003. On December 9, 2021, after several years of notice, public hearings, and comment, the FTC published revisions to the Rule, expanding many of the requirements applicable to dealerships. Most of these new requirements were made applicable effective December 9, 2022. In November 2022, however, the FTC pushed full compliance with chunks of the Rule until June 9, 2023. That day has arrived.

There is quite a lot that dealers must do to comply with the Rule’s requirements. Compliance with the Rule is complicated and time-consuming. As dealers have learned over the last year or so, compliance is not a simple task that can be undertaken lightly or quickly, or simply outsourced to a vendor. If you are still behind the eight-ball in your compliance efforts, NADA has made available guides, including a comprehensive Driven Guide for dealers that contains step-bystep instructions for compliance, program templates, webinars, workshop sessions, third-party and governmental resources, vendor services, and more at www.nada.org/safeguardsrule.

Moreover, your MSADA has several associate members with expertise in this realm whom you can contact, all of whom have conducted webinars for our member dealers.

Finally, as for enforcement, we cannot offer a guess in what form the FTC enforcement actions will manifest themselves. The enforcement risks can come from not only potential FTC compliance actions but also actions by our Attorney General and private rights of action. In the past, for example, the FTC has focused on situations where a breach occurred and was made public and then brought a subsequent enforcement action. The FTC, however, is not prohibited from demanding information about Rule compliance based on referrals, tips, or just plain, good ol’ enforcement sweeps. Since the current FTC administration is undeniably anti-business and anti-dealer, this is not beyond the realm of possibility.

The cost of an action against your dealership can be considerable. This would include FTC penalties as well as actual and punitive damages arising from claims along with attorneys’ fees and costs. If I may quote directly from the NADA’s Safeguards Rule Guide regarding enforcement penalties, on page 8:

“The penalties for not complying with the Revised Safeguards Rule can be extensive – and expensive. The FTC can initiate an enforcement action against automobile dealers under the authority granted to them in [the FTC Act]. Penalties may include long-term consent decrees with your companies and sometimes your executives, extensive injunctive relief, and potential monetary fines for violations of the consent decree. While the FTC cannot seek monetary penalties for first-time violations of the Safeguards Rule, it often seeks to identify violations for which it otherwise can seek money. Further, the FTC can seek up to $50,120 per consent order violation, and the FTC can take an expansive view of what a ‘violation’ is, depending on the circumstances – particularly if there are issues involving multiple customer records.”

If, for some reason, you still have not started, we suggest you do not wait any longer to commence this project. You will need to work with your advisors, staff, attorneys, vendors, and other pertinent parties. As we have articulated since December 2021, this is not optional; this is not a mere suggestion for conducting best practices. Begin taking the steps necessary to comply with the new requirements to protect your dealership and your customers.

Unfortunately for dealerships and other affected businesses, there will be substantial initial and annual expenditures for which you will have no direct return on that investment other than the peace of mind that you prospectively have protected your business from incurring large financial penalties and your customers from the consequences of a potentially life-altering breaches.

As in all compliance matters, keep this in mind: What is your level of risk to bet that you will not be the one impala in the herd that the lion catches today for his mid-afternoon repast?

FY24 Budget, Tax Relief Bills Head to Conference

July 1 is the constitutionally required date for the start of the state’s fiscal year – a date the legislature and governor have had a casual interest in meeting over the past decade. This year has an added twist, however. In addition to resolving their differences on each’s competing $56 billion spending plans for FY24, each chamber also has passed tax relief packages that differ considerably.

The Senate passed its version of the FY24 spending plan in late May. The bill does include an outside section of interest to auto body repairers – increasing the reimbursed labor rate – a long sought initiative your Association has pursued over the years. Section 31 of the bill would create a 14-member auto body labor rate advisory board within the Division of Insurance to study and make recommendations annually for a fair and equitable labor rate that insurance carriers must pay to repairers for insurance-paid auto body repair work. The initial hourly labor rate would be required to be set at $55 per hour, which is well above the current average of $37 per hour that is the lowest in the country.

The fate of the various conflicts within the two budget plans, including the auto body labor rates piece, rests with the six budget conferees: Sens. Michael Rodrigues (D-Westport); Cindy Friedman (D-Arlington); and Patrick O’Connor (R-Weymouth); and Reps. Aaron Michlewitz (D-Boston); Ann-Margaret Ferrante (D-Gloucester); and Todd Smola (R-Warren).

As for tax relief, unlike the House, the Senate did not take up its own tax relief package before its budget deliberations but instead waited until mid-June when it could better assess incoming revenue data in the face of April’s funds coming in $2 billion lower than anticipated. The Senate did create a placeholder of $590 million less in revenue for FY24 in anticipation of passing its own bundle of tax cuts and other forms of relief.

On June 15, the Senate ultimately did approve its own tax relief legislation that, at $590 million, is half the size of the House’s $1.1 billion package, which was approved in April.

The Senate bill, in part reflecting a more progressive approach to tax relief, diverges from the House package in several ways. (We covered the details of the House tax cuts in our May Roundup column.) For example, the Senate bill does not include the House’s cut in the current 12 percent short-term capital gains tax to 8 percent backdated to January 1, 2023, and then to 5 percent starting January 1, 2024. Nor does the Senate legislation contain the language included in the Governor and the House’s bills that would have extended the single sales factor tax formula to all companies that are headquartered in Massachusetts but have income from other states; the single sales factor tax is currently only applied to mutual fund companies and manufacturers.

The Senate’s relief package, however, does embrace the House’s approach on the estate tax by doubling the threshold at which the tax would kick in from the current $1 million to $2 million. (Gov. Healey had proposed raising the threshold to $3 million in her February announcement.)

A conference committee consisting of three House members and three Senators will be appointed to resolve the differences between the two bills. Fortunately, both chambers did account for reduced revenues due to the tax cuts in each’s budget plan, relying on additional revenues coming in from the millionaires’ tax, newly created through a voter-approved constitutional amendment last November.

We will provide updates as they may occur.

Right to Repair Saga Continues

The RTR data access law has more twists and turns than an Ellery Queen novel.

As we detailed in our April Roundup column, with the auto manufacturers’ lawsuit challenging the legality and constitutionality of the November 2020 expanded right-to-repair law (MGL Chapter 93K) remaining in decisional limbo in Boston’s Federal District Court, the Massachusetts Attorney General, Andrea Campbell, filed notice with the court on March 7 that her office will begin to enforce the law on June 1.

With the AG’s announcement, dealers could expect the enforcement of the law to include the requirement that new- and used-vehicle dealers provide a form, drafted by the Attorney General to include specific provisions as dictated by Section 2(g) and 2(h) of Chapter 93K, to prospective vehicle owners describing the existence and abilities of the telematics system, including data collection content, in the vehicle. Failure to comply with the law will allow car owners to sue under the state’s Consumer Protection Act for triple damages or $10,000, whichever is greater. Additionally, the dealership could be subject to revocation of the Class 1 or Class 2 license.

The “motor vehicle telematics system notice” for prospective vehicle buyers must include, but is not limited to, the following features: (i) an explanation of motor vehicle telematics and its purposes; (ii) a description summarizing the mechanical data collected, stored, and transmitted by a telematics system; (iii) the prospective owner’s ability to access the vehicle’s mechanical data through a mobile device; and (iv)an owner’s right to authorize an independent repair facility to access the vehicle’s mechanical data for vehicle diagnostics, repair, and maintenance purposes. The notice form must provide for the prospective owner’s signature certifying that the prospective owner has read the telematics system notice.

Further, under Section 2(h) of the law, when selling or leasing motor vehicles containing a telematics system, a dealer holding a Class 1 or Class 2 license issued under Section 58 of Chapter 140 must provide the motor vehicle telematics system notice to the prospective owner, obtain the prospective owner’s signed certification that he or she has read the notice, and provide a copy of the signed notice to the prospective owner. A dealer’s failure to comply with these requirements will be grounds for any action by the municipal licensing authority relative to the dealer’s license, up to and including revocation, pursuant to section 59 of chapter 140.

However, just before the Memorial Day weekend and days out from the June 1 enforcement date, the Alliance, on May 26, filed papers with the court seeking a temporary restraining order barring enforcement of the law until the court could render a decision in the lawsuit or until the court could issue a preliminary injunction granting such relief. After the court’s May 30 hearing to take arguments on the Alliance’s request, federal District Court Judge Douglas Woodlock denied the Alliance’s request. One aspect the judge took note of was the fact that federal agencies had not submitted comments at any time during the litigation to support the Alliance’s argument that federal law and regulations pre-empted them from complying with the state RTR law.

As a result of the judge’s decision, on the morning of June 1, the AG’s office finally published on its website information regarding the data access law, including the telematics notice for consumers. As stated on the AG’s website: “The law requires a car dealer who sells or leases a motor vehicle containing a telematics system to provide the motor vehicle telematics system notice to the prospective owner, obtain the prospective owner’s signed certification, and provide a copy of the signed notice to the prospective owner.”

Here is a direct link to the notice: https:// www.mass.gov/doc/2023-6-1-telematicsright-to-repair-notice/download.

Dealerships can print the form off the AG’s website at the above link. Please make sure your dealership personnel retain a signed copy of the consumer notice.

Additional information is available at these links:

• https://www.mass.gov/your-car-yourrights

• https://www.mass.gov/info-details/ motor-vehicle-telematics-system-notice-requirement

Then arrived a surprising new twist to the right to repair saga impacting the vehicle manufacturers, consumers, dealer- ships, and the advocates for the 2020 law, including independent repairers and the after-market parts companies. On June 13, out of the blue and seemingly in response to the judge’s comment regarding a lack of input from any pertinent federal agencies, the U.S. Department of Transportation’s National Highway Traffic Safety Administration filed with the federal district court a letter it had sent to 22 motor vehicle manufacturers informing them that the Massachusetts right to repair law (MGL Chapter 93K) conflicts with, and is therefore pre-empted by, existing federal law, namely the National Traffic and Motor Vehicle Safety Act. In the letter, NHTSA warned the manufacturers not to comply with the state RTR law.

The NHTSA letter to the vehicle manufacturers is available at https://media. wbur.org/wp/2023/06/06-14_NHTSA_ Telematic_Letter.pdf. The letter was sent to general counsels for the following manufacturers: BMW, Fisker Group, GM, Hyundai, Kia, McLaren, Ferrari North America, Ford, Honda, Jaguar-Land Rover, Mazda, Mercedes-Benz North America, Mitsubishi, Porsche, Stellantis, Tesla, VW, Nissan, Rivian, Subaru of America, Toyota, and Volvo.

One leg of the manufacturers’ argument against the law is federal pre-emption. The NHTSA letter provides support for that argument. The NHTSA letter subsequently could serve as an impetus to discourage the vehicle manufacturers from altering telematics systems in the vehicles in a manner that allowed for compliance with Chapter 93K but could put the vehicles in violation of federal law and regulations, thereby creating potentially hazardous conditions for vehicle owners and drivers.

All the parties involved, including our franchised dealerships, await the next step by the AG’s office, especially if it seeks a graceful way to walk itself back from its enforcement activities, until a decision from Judge Woodlock. The AG has made no statements regarding suspension of enforcement as it relates to distribution of the telematics notice to prospective buyers.

Stay tuned for more as this saga unfolds.

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