I am not a big fan of government commissions. Their formation generally seems tied to assessing blame. Conspiracy theorists, though, would argue that the Warren Commission simply perpetrated a cover-up.
I admittedly haven’t read the 9/11 Commission’s report, but instead have relied upon the talking heads for their assessment. I recall one of them reporting that a key finding from the commission’s report was the lack of a single federal agency responsible for overseeing our terrorist prevention efforts. Supposedly, all the pieces to the puzzle were there to prevent the attack, but we did not have a chief puzzle-meister. Instead, we had a loose affiliation of different agencies, all fighting turf wars for the preferred aphrodisiac in our nation’s capital, an aphrodisiac called “power.”
Somewhat loosely sounds like F&I compliance.
Who Ensures Your Compliance?
The evidence is out there. Consider: It seems every week or so a story breaks about a dealer or a dealer manager being charged with fraud; the IRS telling dealers about potential $25,000 fines for failure to properly report qualifying transactions over $10,000; the FTC snooping for spot delivery issues; and attorneys general publishing inflammatory rhetoric against car dealers on their websites.
The problem is there’s no central clearinghouse to help dealers with their compliance efforts. As a result, several players that sell products or services to dealers have put their compliance hats on and pledged that they are the compliance company.
It doesn’t matter whether you as an agent are as strong as a freshly mowed field of garlic or as weak as Bud Selig’s steroid testing program. As an F&I provider, you simply cannot be your dealers’ compliance cop.
Instead, you must be a resource for compliant sales training, compliant sales processes, compliant forms, and compliant menus. You cannot be the independent reviewer to ensure that the execution of these processes and forms is compliant.
As an agent, you can’t be your dealers’ compliance cop for three reasons:
Discoverability of results: Assume you set up a monitoring process in which you or your sales rep will review a sampling of menus, retail installment sales contracts, lease agreements, product enrollment forms, and checks for adherence to pricing guidelines.
What happens if you learn a F&I manager is stuffing products into deals without the customer’s knowledge? Or finds numerous forgeries on service contract enrollment forms? Or uncovers a pattern of discriminatory pricing against protected classes? Or worse yet, finds out that one of the managers you recommended and placed into the dealership is the culprit?
Who should you report it to? If you don’t report these practices, you may be just as complicit in the potential fraud or deceptive practices as the F&I manager. If you do report these practices to the dealer principal, the information is probably not protected by attorney-client privilege and potentially puts your agency at odds with the dealer, should a lawsuit or governmental inquiry arise.
You are paid for production: I have met several representatives from the various product providers over the last 20 years. For the most part, they are great people. They work hard. They work long hours. They have the dealer’s interest at heart. But they exist because of one reason: to provide the dealer with a profit center.
However, just like all of us, they are stretched thin with too many accounts to handle and with performance objectives to not only maintain and grow business at existing dealerships, but to acquire new accounts.
You can’t audit what you have a direct economic interest in: Independence in auditing, monitoring, or reviewing production is essential. Since you have an economic interest in how many service contracts are sold, you lack any semblance of independence in reviewing compliance.
I fully believe you must play a key role in your dealers’ compliance efforts. You must champion and teach compliant processes and word-tracks. You must watch for deceptive practices such as stuffing or bundling products. Your forms must provide as much safe harbor and best practices protection as possible.
You simply cannot be responsible for administering your dealers’ compliance programs.
Your Compliance Cop
We know you should not be your compliance cop. So who should be?
Your compliance cop must be someone with the independence, capability, and experience to handle the massive task. You should start with the dealer’s attorney and accountant to see if they are comfortable handling this task. If not, there are a few consultants who do it for a living.
Regardless of your selection, make sure the cop’s compliance program establishes a compliance management system (CMS) that checks for adherence to all the state and federal laws and regulations that govern our industry as well as the ability to catch deceptive practices.
These include but are not limited to the following legislation: Military Lending Act, Truth in Lending Act, Consumer Leasing Act, Fair Credit Reporting Act, Fair and Accurate Credit Transaction Act, Equal Credit Opportunity Act, Privacy Act, Safeguards Rule, Do Not Call Rule, and the Disposal Rule.
The compliance cop should provide you with confirmation of adherence to these additional regulations: Office of Foreign Assets Control, Used Car Rule, Magnuson-Moss Warranty Act, USA Patriot Act, and the FinCEN 8300.
Add to this list some of the various state regulations such as confirming Michigan’s Repeat Offender status, prior history disclosure in Colorado, the California and Minnesota Car Buyer’s Bills of Rights, disclosing trade in equity in Texas, and adhering to filed rates in Florida, among many others.
Having the right compliance cop in place just might help keep your dealer off the local I-Team’s next broadcast alleging deceptive practices. Choose this person or company wisely.