The Federales have been making headlines in the last three months with news about their investigations into selected dealers’ credit application processes.
After recent conversations I’ve had with dealers and finance sources, the question can be asked of a small number of people in our industry: “Where’s your moral compass?”
Here are capsulations of a few suchconversations.
A dealer friend called the other day to complain about having to fire a finance manager he had just hired because of a forgery.
He was particularly perturbed by two issues. First, he had just hired this finance manager within the last month and they had already decided to forge the customer’s signature on a contract.
But more disturbing was the financemanager’s reply when presented with the evidence. “I don’t see why you are making such a big deal about it. The customer’s payment stayed the same, I just forgot to have him sign the GAP section on the contract and he knew he bought GAP.”
The finance manager didn’t understand why the dealer was making a big deal about forging the customer’s signature to any document. Where’s their moral compass?
A risk manager at a finance source recently lamented about the number of buybacks the institution was faced with and the strain it was putting on their relationship with dealers. Most of the buybacks were a result of the dealer misstating the income on the credit application.
The risk manager shared that they were amazed by the responses received when they asked why the income was wrong. The biggest lie was “It was an honest mistake.” The next biggest lie was “I don’t know.” The most honest answer was “I know what your payment-to-income ratios are and I had to adjust the income to fit the deal to your guidelines.”
Whatever the reason, lying is lying. Where’s your moral compass?
The bank or finance company gets the last laugh on many of these transactions. All federally insured financial institutions are required to file a top-secret “suspicious activity” report with their regulators whenever they suspect a transaction of bank fraud. Lying on the credit application is bank fraud. Each violation the finance source finds requires this top-secret report to be filed identifying the dealer in the “suspect information” portion of the report as committing bank fraud.
Everyone’s a Manager
In a recent compliance review, I noticed that the job titles on the credit application submissions through Dealertrack and RouteOne were different than what the customer wrote on the credit application obtained during the sales process. For example, a greeter at Walmart became the “customer relations manager.”
When I asked about the differences, the employee said, with a straight face, that everyone manages something in their job, so everyone is a manager.
Now, in a previous life, I either helped create or managed the creation of internal scorecards for financial institutions. We used to consider job type as a partial predictor of the likelihood of default. For example, nurses got extra points because they usually paid their bills and didn’t default.
Today, job type is no longer a factor inthe internal scorecards because it can be and was manipulated.
Still, another reason for a financial institution to file a suspicious activity report and require a deal to be bought back — and another example of a misplaced moral compass.
The Agent’s Responsibility
I’ve written previously that an agent should focus on production, training, and income development for its dealer clients, not be the compliance cop.
That opinion hasn’t changed.
I do believe that agents have a responsibility to ensure that their forms, processes, and training pass the compliance test. This, in part, also requires that agents help to monitor compliance, and if any of the types of moral strayers are working in a dealership, it must be brought to the dealer principal’s attention.
Good luck and good selling!
Gil Van Over is the executive director of Automotive Compliance Education (ACE). He is also the founder and president of gvo3 & Associates.