As trusted advisors to dealers and the dealerships they own, they look to us to provide expertise in a number of areas. We are smart enough to know what we know and how to look for help for those things we do not know.
For example, if a dealer asks me to help with OSHA compliance, I know enough to know I don’t know enough to provide the level of expertise the request deserves. I set up a referral.
Likewise, when you are asked to be the compliance cop for a dealer, you suggest that your expertise is in helping to run a profit center profitably. You want to be the compliance monitor, not the compliance cop.
Still, it never hurts to learn a little bit more so you can help with an informed referral. To that extent, here are the hottest compliance concerns dealers face today, who is driving the issue, and what a dealership should do to protect itself.
We have been saying for the last decade that identity theft is the fastest-growing crime in the United States, and it remains so this year. You would think that, after a decade, the law of mathematics would catch up and slow down annual double-digit growth, but it hasn’t slowed down.
Dealers have a statutory obligation to confirm the identity of the person they are selling a vehicle to. The Red Flags Rule, for example, requires a dealership to have a robust program to vet the identification being used by the purchaser and to document the clearing action used to demonstrate it performed this task.
I am receiving too many calls from attorneys and insurers looking for an expert witness to help defend a dealer in actions brought by consumers whose identity has been stolen and used to finance a vehicle.
If you get the same call, or have a dealer who is not sure if a sufficient identity theft program is in place, review these questions with the dealer:
- Who is your compliance officer and do the employees know that?
- Do you have a written identity theft policy?
- Can you demonstrate you provided training to your employees on the policy?
- What were the results of your last audit?
- What changes were enacted to your policy as a result of your last audit and can you document how you shared that with your employees?
Finally, review last month’s Red Flags report in the software used to vet Red Flags, and look for sold units that still show uncleared or incomplete alerts.
Credit Application Fraud
Every day, it seems like there is a new breaking news case of a dealer or a manager or both either accused or convicted of credit application fraud. Yet many people in the industry still believe credit application fraud is a victimless crime.
The Federales are putting pressure on the finance sources we do business with to enforce the representations and warranties of the lender agreements a dealer must sign with every indirect finance source. So to pass their regulator audits, they have to show they are enforcing those agreements.
When your dealer has an epiphany that he doesn’t look good in orange and is concerned about credit application fraud, you are a likely resource to help assuage their fears.
Your conversation with the dealer should include:
- The finance sources are focused on five key credit determinants on the credit application: Income, housing expense, time on the job, time at the residence and what the customer does for a living.
- Any enhancements or improvements to one or all of these five determinants could be considered credit application fraud.
- You need to retain the credit application the customer gave you to show the finance source what you were told.
- You need to retain the credit application you submitted to the finance source.
- You need a process to compare a sampling of source to submitted credit applications to ensure the information is consistent or that differences are documented in the file.
Payment packing has been taking place since payments were first quoted in the sales process. In the late ’90s, the National Association of Attorneys General passed a resolution calling it a “deceptive sales practice.” Essentially, this organization of regulators set the standard that a customer has the right to a payment quote that accurately reflects the deal being contemplated at that time.
This is where your expertise can shine for your client. You know how to desk deals the right way. You simply need to assist your dealer in desking deals in a transparent fashion with no indications of payment packing.
As an aside, it is my experience that deals using old-fashioned four-squares and Sharpies are more likely to exhibit traits of payment packing than those deals desked using an edesking software package.
Finally, some of the Federales have been rattling sabers about F&I product pricing. Some states have filed or regulated rates on one or more products. Some dealers go one step further and have established a one-price policy for F&I products.
While I am agnostic to one-pricing, I am a firm believer that a dealer must establish a product pricing guideline if the state it operates in is silent on product pricing. I’ve developed an industry standard for these products based on what I have seen in the marketplace.
If your dealer is asking about a product pricing guideline, feel free to drop me a line and I’ll share my thoughts with you, product by product.
Good luck and good selling!