The Bigger Compliance Puzzle
The Bigger Compliance Puzzle

When it comes to compliance, most of the talk the last several months has centered on the Consumer Financial Protection Bureau (CFPB) and the guidance it issued. The guidance does not directly impact dealers – but it does affect the lenders dealers rely on, and it has certainly changed the way many lenders look at the contracts sent to them for approval.

However the CFPB, and the changes being slowly enacted because of it, aren’t the only regulations dealers need to be aware of. An important part of any agents’ value-added services is to make sure dealers are not neglecting all the other aspects of compliance for which they will be held accountable.

First, and most importantly in many ways, is to make sure there is someone at the dealership itself who has taken ownership of compliance in all aspects of the dealership. Before even identifying any holes in the compliance strategy, there first has to be someone who is responsible for them. “Every dealer should have its own compliance officer,” said Terry O'Loughlin, director of compliance, Integrated Document Solutions, Reynolds and Reynolds. “Agents should encourage the dealer to have someone who is appointed to that position. That person should have responsibility to oversee all compliance efforts.”

He went on to note, “There should be a business plan just for compliance - something a dealer can do cheaply if they appoint someone. It could be their controller, it could be the general manager, or it could be someone else in the office, but someone has to be charged with that responsibility.”

While it is still not a mainstream concept, many dealers are starting to take that advice to heart. “I can tell you that, at least in my experience so far, a good number of dealers are beginning to stir,” said Tom Hudson, chairman, Hudson Cook LLP. “For example, I visited with a large dealership in North Carolina recently; they had commissioned a compliance expert to compile a handbook, when in the past they had never had one. They also appointed their own compliance manager, which is something we’re seeing a little more frequently as well.”

“The dealer needs to know who should have compliance knowledge, then make sure they have it,” said Dave Robertson, executive director, AFIP. He believes, however, that the knowledge shouldn’t be concentrated in one person, but that everyone who deals with contracts needs to be educated. “If people in the dealership are required to do their job relative to regulations – such as the people who write contracts – they must be knowledgeable about them. They can’t be required to follow the rules if they don’t know them.”

While he believes it is important for everyone to be aware of the rules, he does, however, advocate a system of audits to ensure they are following through – rules aren’t any use if they are not being followed. “The dealer must have an audit program where there is a systematic, organized audit,” Robertson said. “They have to make sure the rules are actually being put into practice. There needs to be a regular audit of F&I and deal jackets to make sure everything the staff have learned is, in fact, being followed.”

Once a dealer has appointed their compliance manager, and given them the authority, they need to do audits and, most importantly, follow up with the appropriate consequences when violations are found. So, what should the audit focus on?

O’Loughlin said that the place to start and his first very strong recommendation would be to have every dealer review their Safe-Guards Rule and Red Flags Rule programs, as well as review and update privacy policies. Dealers also need to ensure they are in compliance with the updated Consumer Protection Act which, last October, changed how and when consumers can be contacted by businesses. “If dealers are contacting their customer base, they need to make sure they have an updated authorization agreement so they can send e-mails, call them on the phone, text them, send them faxes or initiate any kind of communication - electronic or otherwise,” he said. “My suspicion is that many dealers haven’t taken this step. There have been cases where dealers called a customer on their cell phones and incurred costs to that customer – and anyone who does that is liable for those costs. This is something dealers want to reevaluate if they have any ongoing reminder campaigns.”

“I had one dealer come to me looking for a deal jacket review,” said Hudson. “I said happy to do it, but what about your underwriting manual, collections manual, red flags manual, etc.? He said ‘we don’t have that’. It is a federal requirement – dealers have to do that, but a lot of dealers are struggling putting together the internal compliance arrangements they need. Big dealerships have been at it for a while, but as you scale down in size, compliance efforts are more wanting. The smallest dealerships still have a long way to go.”

Robertson advised that one of the first places dealers should start when revamping their compliance policy is to seek training. The government, he said, has several comprehensive training programs on specific topics, and then there are a variety of third party programs, like his own AFIP certification for F&I managers. “That is a big component of a dealer’s program,” he stressed again. “People who need the knowledge, must have the knowledge.”

Hudson agreed, noting that if he were a small dealer, there are a few resources he would be pursuing right now. “Go to your state association and lean hard on the director,” he said. “Tell them, look you need to be developing this stuff for all of us, to spread the cost over all the smaller dealerships. They need to develop materials all the small dealers can adapt, and I haven’t seen any sign of that yet.”

Another form O’Loughlin believes dealers should re-evaluate is their arbitration agreements. He noted that the government recently convened a hearing on arbitration clauses, and part of the mandate for the panel is to look at how those clauses apply to consumers. “The expectation is that they’re going to deny the application of arbitration in the future,” he noted. “They haven’t done it yet, but in the meantime, there have been a series of cases that have changed arbitration agreements to be more balanced between the dealer and consumer. If your dealers haven’t looked at them in a while, they should do so now. And they should follow the federal Arbitration Act, rather than state law, is my recommendation.”

O’Loughlin’s final advice? “Start the new year by taking a look at all dealer documentation. Make sure everything is all marked with a current effective date, and that the most current groups of forms are in the library, so F&I managers aren’t using something out of date. It’s not a happy task, but starting on a new year, some forms do expire.”

Hudson wrapped up by quoting O’Loughlin. “Terry has an interesting concept that I agree with – we have been on panels together – and he is fond of saying that anything worth doing is worth doing poorly. That always makes everyone sit up. Dealers all have the obligation to put together privacy manuals, and things like that. The dealer who attempts to do something like that themselves, who sits down, studies the rules, and creates a policy that is homemade, and not bought from a professional – the dealer who makes a stab at doing something - is better off than the dealer who didn’t do anything at all. If the compliance police come in, and ask for a manual on privacy, the dealer who has one that’s not great because they did it themselves is way ahead of the dealer who didn’t do anything. Even a poorly done compliance system is better than none at all - effort counts, it really does.”

For Robertson, it all comes down to treating customers fairly and honestly, and then compliance just becomes a natural fit. “The dealer has to say, can I make a living treating people fairly and doing it right?” he noted. “And if they can’t, there’s a fatal flaw in the business plan. I’ve been in the business for 40 years, and I’ve had them tell me you can’t sell cars without screening, but they have done it wrong for so long, they don’t know how to do it right. For the dealer, though, it’s crucial that if there is ever an opportunity, always do the right thing. I’ve seen that in 50% of lawsuits, if dealer had handled it properly the first time, it wouldn’t have gotten to that point. I don’t want anyone to have something of mine they don’t want to have - if I sold you something you don’t want you’ll do whatever it takes to make sure you don’t keep it. But if the dealer did the right thing at the first opportunity, it wouldn’t have been a problem.”

About the author

Toni McQuilken

Editor

Toni McQuilken is the managing editor for AE Magazine and P&A Magazine. She has a decade of editorial experience in the trade publishing world, across several industries, including print and graphics, as well as hospitality and technology. To contact her, e-mail [email protected].

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