Car dealers are favorite targets of state attorneys general.

Two reasons dominate such keen governmental interest, says Terrence O'Loughlin, a former investigator for the Florida Attorney General's Office.

One: Justified or not, a lot of disgruntled consumers turn to their state's chief legal officer if they feel mistreated at dealerships.

“It's the No.1 complaint in a lot of states,” says O'Loughlin, who now counsels dealers as director of compliance for Reynolds and Reynolds, an information and technology firm.

Two: Going after dealers is good politics for officeholders seeking to please the public, he says at an F&I Management and Technology conference. “Attorneys general look like good guys by going after dealers.”

Having been on both sides as a former assistant attorney general and now a compliance counselor to auto retailers, O'Loughlin offers this advice to dealers: “Be concerned with how you conduct business.”

That doesn't just apply to dealers who might be tempted to cut corners. It also extends to straight-shooters who must nonetheless brush up on their compliance abilities. Scores of state and federal government regulations affect dealers. Violations often carry stiff fines.

“There must be a commitment to, not just a concern for, compliance and ethics,” says Robert Harkins, a partner in HH&O Consulting Group. “Every deal a car dealer makes touches at least 10 Federal Trade Commission regulations.”

Most of those come under the Unfair and Deceptive Trade Practices Act, focusing on whether a dealership action or practice misleads consumers.

“If the answer is ‘yes,’ you could get a visit from someone you don't want to see,” Harkins says.

Then again, an innocent dealer could become the subject of a government investigation simply because a customer is trying to wiggle out of a deal. It's a case of buyer's remorse run amok. File it under desperate people doing desperate things during hard economic times.

One such instance is when a person buys a car, then loses a job or suffers a similar financial setback. People in such jams can come up with all sorts of claims of how the dealer bamboozled them. Many either call their state attorney general's office or a private law firm.

“I see a lot of lawsuits against dealers bubbling up,” says Gil Van Over, president of gvo3 and Associates.

Not coincidentally, much of that litigation is in Las Vegas and Florida, areas where the housing crisis hit the hardest, leaving many residents financially stressed.

But other states can show dealer unfriendliness, too. “Tort hell” is how William Lehman, president of the Mississippi Automobile Dealers Assn., described his state.

Crusading attorneys general going after dealers may think of themselves as knights in shining armor. But Van Over sees something of the night about them.

“As consumers become more desperate, more of them are going to be helped by the dark side to get out of situations they got themselves into,” he says. “They are looking for technicalities to get out of a car deal.”

Tactics include filing civil actions after retaining attorneys who specialize in suing dealers. Such litigators meet periodically with each other to discuss best practices.

“They have their own word tracks,” Van Over says. “One of them is to say to a client, ‘They told you that was the best rate, right?’”

“Best” is a 4-letter word, says Harkins. “You are playing with fire when a dealership person flatly says, ‘This is the best deal’ or ‘This is the best rate.’”

Litigators often can find something better, and introduce it as court evidence on behalf of their clients claiming mistreatment at the dealership.

Harkins says if a dealership staffer is asked if a deal is the best available, a defensible response is: “If you wish to finance here, this is the best rate available.”

Not just private lawyers hold periodic meetings to discuss how best to take legal action against dealers. Attorneys general do likewise in quarterly sessions.

“They will talk about what's going on, share information and discuss any good cases,” O'Loughlin says. One recent powwow featured 22 sessions on the auto industry, he says. “They get together to discuss how to successfully sue dealers.”

Workshop topics such as Stop Unfair Dealer Financing “gives you an idea of what their thinking is,” he says.

After one such session a few years ago, several state attorneys general began suing dealers for selling anti-theft windshield etchings, Van Over says. “It's not a coincidence that they all started picking on the same product. It's a way to win votes.”

It's also a way to raise revenue. Several state attorneys general offices are self-funded operations. Successfully suing dealers helps fill the coffers, O'Loughlin says.

So-called dealer add-ons — products and services ancillary to the purchased vehicle itself — “are tremendous profit centers for state attorneys suing dealers,” he says.

Special lawyer handbooks tell how to sue dealers. The legal guides also tell how much to expect in compensation for various claims. One example is a spot-delivery case, in which a customer takes possession of a car before financing is confirmed, then later is told the loan rate is higher than the dealership originally said.

The Internet has led to copy-cat litigation against dealers, O'Loughlin says. “Lawyers will take a complaint off a website and simply put their name on it.”

He recalls Alaska dealers telling him a few years back that they were fortunate enough not to face class-action suits. “I told them, ‘You will.’ And they did, because of the Internet.”

As an assistant attorney general, O'Loughlin handled about 5,000 dealership consumer complaints. From that experience, he recommends dealers carefully itemize everything sold, from extended warranties to aftermarket products.

Van Over believes in what he calls “the power of three.” That means three customer signatures on each purchase order.

He recalls a case in which a dealership customer claimed he didn't authorize certain purchases. The suit went south when the judge said “But you signed three documents saying you bought them.”

Harkins recommends an in-house process in which customers know what they are getting, agree to buy it, know why they bought it and feel good about the purchase after leaving the store.

“An open and honest presentation accomplishes that,” he says.

While O'Loughlin doesn't recommend destroying vital deal-jacket contents, he advises against keeping “extraneous” information.

“Those documents can potentially get you in a heap of trouble,” he says. “They give attorneys the opportunity to sniff around. Class-action attorneys routinely do that.”

Copies of those documents may end up in an attorney general's file “and may lead to something else being looked into,” O'Loughlin says. “It can open all sorts of doors.”

He recalls a $4 million settlement against a dealer. “The case was built on deal-jacket documents that didn't have to be kept.”

Unsubstantiated advertising claims — such as misleading vehicle prices or loan rates — can lead to legal woes, too

“Attorneys general like advertising because it's the easiest case to make,” O'Loughlin says. “And if you aren't monitoring your online ads as much as the conventional ads, you can get in trouble.”

It puzzles him why so many dealers fail to follow advertising regulations. “The rules are laid out. They aren't hard to comply with.”

Someone at the dealership must understand advertising legalities, says Michael Benoit, an attorney who represents dealerships.

It's not enough to think an ad agency will take that responsibility or bear the blame if a false-ad claim is leveled.

There is a fine line between puffed-up claims and deception, and a lot of dealership advertising can cross it, Benoit says. “I've seen totally legal ads that work great and illegal ads that totally fail.”

It's pretty simple, says Denny Long, Dealer Marketing Services' senior vice president-direct marketing. “If it's not true, don't say it. If you can't do it, don't say you can.”

He says some dealership ad claims are outrageous — and self-destructive. He tells of two dealers who went out of business because both used the same gimmick of advertising prices that “made it look like they were giving cars away.”

Advertising regulations can vary by state. For instance, it is illegal in Texas to advertise invoice prices. Some states allow money-off coupons, some don't.

And only in Illinois is it illegal to say in advertising that a dealership can aid a bankrupt consumer. “It dates to a time when you couldn't help such a person,” Benoit says. “But even though you now can, a 1967 law prohibits you from saying so.”

Some attorney general dealership visits are surreptitious, Harkins says. He recalls cases involving “plants” wearing eyeglasses embedded with hidden mini-cams.

Some dealerships flunked that test of their compliance and ethics, he says. “It turned up payment packing, product packing and a lack of disclosure on windshield etching, meaning that if the car were stolen the customer didn't have information that could help in its possible recovery.”

O'Loughlin says dealers need to retain attorneys that fully understand their businesses. Non-specialists need not apply. “It's not the dealer's role to educate an attorney about how a dealership works,” he says.

George Glassman is one dealer who also is a lawyer. Nevertheless, he relies to a great degree on legal advice from attorneys working for various dealer associations.

“Running a dealership takes a lot of work, and it helps being a lawyer myself,” says Glassman, who heads the Glassman Auto Group in Southfield, MI. “But no one should think they know more than the attorneys that handle dealership issues on a daily basis.”

Benoit says, “Most dealers are sophisticated people running sophisticated businesses. But sometimes I meet dealers who think their vendors are responsible for legal compliance.”

That's a grave mistake. “You can't delegate legal responsibility,” he says, citing why compliance standards and due diligence are vital.

“Not living up to obligations can be very expensive,” Benoit says. On the other hand, if something falls through the cracks, “regulators can and will go easy if you can show legitimate good-faith compliance efforts and processes.”

Glassman agrees. “I've been fortunate in dealing with the state attorney general and the Michigan Secretary of State's office, because we take time to see if a customer's complaint has merit and rectify the situation if we could have handled something better.”

Still, many complaints against dealers are frivolous, he says. “As the economic climate gets more difficult, more people try to seek compensation for anything that ails them.”

Employees need to understand the seriousness of it all, Benoit says. That means knowing the dire consequences of bait-and-switch ploys, false claims and fraudulent information on customers' loan applications.

“It is a great behavior modifier if an employee thinks he will go to jail for doing something wrong at the dealership.” he says.

Benoit says dealers should expect more government regulations, as consumer advocacy groups press lawmakers to keep auto retailing on a tight leash.

Dealers should treat customers like their spouses, says David Engleman, an attorney and founder of American Legal Funds.

“You may do something wrong and get away with it today,” he says. “But if your wife finds out later, you'll wish you did it right the first time. Think about tomorrow's potential consequences, and tomorrow will be a lot better.”

That's not to say hungry-eyed attorneys will cease and desist in going after dealers, whether they've done something wrong or not. But it will make their legal pursuits that much harder.

Lewis Kuhl says he'd like to put those attorneys out of business, even though he is a lawyer himself, one who represents dealerships.

“Maybe I'm taking a self-defeating position, but in the interest of dealerships I'm looking at the business side of it when I say I'd like to see those consumer lawyers go away,” he says.

Then again, certain dealers might want those lawyers to stick around, says Melinda Zabritski, automotive credit director for Experian Automotive.

Noting the vehicle-brand preferences of many successful litigators, she says, “I'm not sure Mercedes-Benz, BMW and Lexus dealers want to see all those attorneys go away.”