People engage in all forms of commerce without ever realizing that their required duties entail serious legal risks and demands. The mere fact that one doesn’t have to be licensed by the state doesn’t mitigate the demands placed upon the practitioner. The old adage, “Ignorance of the law is no defense,” is quite apt for those engaged in selling voluntary protection products. People who sell these products are indeed agents, which is a legal term with a specific meaning. Agents need to know their roles and duties. This need is especially acute in an era when voluntary products are being targeted by governmental agencies for, in some cases, allegedly being “junk” or “junk fees” and used as a way to illegally discriminate. As a corollary, agents may become personally liable in multitudinous ways. 

The Legal Basics

Agent

An agent is a person authorized to act on behalf of another person. The party for whom he or she is authorized to act is known as the principal. 

Principal

A principal refers to someone who authorizes another to act in her place: the agent. This relationship gives rise to fiduciary duties in the principal-agent relationship. 

In criminal law, principal refers to a person who commits a crime. 

Accomplice Liability 

An accomplice is one who intentionally and voluntarily participates with another, such as the principal, in a crime by aiding, counseling, commanding or encouraging the other person in the commission of the crime.

In other words, if someone is in the business of selling voluntary protection products, he has a duty to the product provider (principal) and the dealer. He must be honorable in his presentations.

VPPs Under Attack

Voluntary protection products have become a cause celebre, as they have been characterized, in some instances, as “junk fees” and a means of discrimination.

President Joe Biden and the Consumer Financial Protection Bureau have alleged that products sold with opaque fees give rise to the application of the term junk fees.  In addition, a product is junk if it doesn’t materially offer commensurate value. 

Consumer advocates thunder that the CFPB needs to protect consumers from these insidious voluntary protecti/on products as they castigate them as junk fees. The Consumer Federation of America issued a press release charging that such products are junk and lead to discrimination:

“Junk fees can also lead to discriminatory practices involving car financing, with profits padded by expensive add-on products, such as service contracts, Guaranteed Asset Protection (GAP) insurance, and window etching.” 

It should be noted that the Federal Trade Commission has long required that sellers must have prior substantiation of a product’s claims, both express and implied.  Voluntary protection products, once again, must provide value, and their performance must closely match their marketing contentions. 

Recent Cases

There have been a number of recent cases regarding these issues, with millions of dollars being paid by the defendants. In particular, not only have the principals (e.g., dealer corporations, captive finance company) been sued, but employees of these organizations (e.g., general and sales managers) have also been held liable. Voluntary protection product agents beware. 

Recommendations 

Here is a list of recommendations all agents should heed: 

• Understand the agent’s role, responsibilities and duties.

• Do not advocate or educate dealers regarding illicit practices.

• Maintain all licensing. 

• Do not sell voluntary products that do not have value or whose marketing claims are excessive.

• Study the agency contract and relevant laws.

• Advocate that every dealer adopt the NADA program “Voluntary Protection Products: A Model Dealership Policy.” 

• Alert management regarding nefarious dealer practices.

• Screen third-party vendors and inquire about their legal protocols.

Finally, as all attorneys advise, govern yourselves accordingly. 

Terry O’Loughlin is director of compliance for Reynolds and Reynolds and is admitted to the Pennsylvania and Florida bars. Before joining Reynolds, he was employed by the Florida Office of the Attorney General, where he investigated automobile dealers and financing sources. He previously was a public accountant.