How to Select Compliant Providers

It’s a new year and dealership operations have become more complex than ever before while margins continue to narrow. Digital innovations are occurring faster than the speed of a shiny new Lamborghini, with a growing blitz of new and established vendors vying for attention. 

Simultaneously, the automotive industry is facing higher levels of government regulation at both the state and federal levels. The Trump administration’s repeal of the Consumer Financial Protection Bureau’s controversial auto lending guidance effectively kicked enforcement of consumer protections back to the state level. 

Expect to see uneven application of regulatory and compliance standards that may ultimately have to be straightened out by the U.S. Supreme Court, should anyone care to take it that far. My thought is that this is going to end up being a state-by-state proposition. Many agents will have to serve multiple masters when it comes to the enforcement of relevant statutes by state attorneys general.

What does all this mean for automotive agents? It means the stakes have never been higher for delivering quality F&I product and service providers to dealerships. The wrong choice can cause operational problems and result in a damaged reputation or, worse, legal jeopardy and financial losses. Conversely, it affords smart agents an opportunity to set themselves apart in the cutthroat world you live in — if you can demonstrate to a dealer that you take the requisite steps and measures necessary to protect them at every turn.

This checklist can help agents evaluate three common areas of concern in three categories of concern — reputational, legal, and practical — when vetting compliant providers for your dealer clients: 

1. Reputational Considerations

What do customer reviews say about the provider?

Before investing time to meet with a prospective provider, go online and find out what others are saying about them. Three good places to start are Trustpilot.com, a website that publishes reviews of online businesses, the Better Business Bureau, and a simple Google search. 

Review sites like Yelp and TripAdvisor have taught us that people are more apt to share their opinions online after a really good experience or a bad one. If there is very little information available, then assume mediocrity or that the company is reluctant to be transparent. If a restaurant has 50 reviews and 35 of them are not very good, you’re probably not going to recommend that place. If it has five reviews versus everyone else’s 50-plus, you’re probably not going to go there. It’s the same with providers. 

This is one of the most basic steps to vetting a company, yet many agents don’t take the time.

Whom does the provider do business with?

The Greek fabulist Aesop said, “A man is known by the company he keeps.” This proverb still rings true today. 

Agents place a lot of faith — and risk — in the F&I providers they choose. Take the time to visit the company’s website and look for a list of partners. Are these companies that you would do business with? Do they seem to just work with anybody that comes along? It’s not very difficult to determine if integrity or the almighty dollar drives that company at its heart.

What does the provider sell?

Explore the details. Is it a quality product or service? If not, that’s a red flag that tells you the company doesn’t care about what they are selling, as long as they’re making money off of the deal. Look at all their products even if they aren’t the ones you are interested in. If the company is going to face litigation or financial pressure due to some disaster created by a sister product, that could still have a significant effect on their one product or service that you took to your dealers.

2. Legal Considerations

Does the provider hold the necessary licenses and bonding requiredfor their business?

Answers such as “I don’t know” or “I’m not sure” are another giant red flag. Yes, it can be mind-boggling to understand all of the myriad types of business licenses that are required for seemingly benign businesses like dog groomers to highly regulated doctors. But this is Business 101. If the provider did not care enough to find out what is required, it is a good indication of how little they care about the rest of their company operations, as well. 

And a simple “Yes” isn’t good enough either. Ask them to explain why they don’t think they need them or how they comply. That should be a simple, top-of-mind answer for a top-flight company.

Review the contract and confirmthe “choice of venue” clause.

As a licensed attorney, this is my favorite contract clause. It states that both parties must agree to the location of all potential legal disputes.

Typically, a company wants the homefield advantage where it’s more convenient and cost efficient for them to litigate any legal action. It also provides leverage. If someone lives in Wisconsin and wants to sue a Florida-based company, they have to obtain local counsel and travel back and forth for every legal proceeding.

A trustworthy company will not have a problem changing this clause to a venue that is fair — meaning equally inconvenient — for both parties. If they refuse, that is yet one more warning flag. 

Who is the provider’s legal counsel?

Find out who represents the company. How much work do they do in the automotive sector? Do they have a good reputation? What type of law do they primarily practice? Are they in the business of defending companies in lawsuits or helping companies build solid reputations? 

Some lawyers are like general practitioner doctors. Not that this is a bad thing, as they are very valuable on many levels. However, at some point, you need a specialist. 

If you are not personally familiar with the provider’s lawyer or law firm, ask your attorney. If they don’t know, they have the resources to find out.

Run a litigation search.

This investigation also will require the assistance of your attorney. Ask them to run a litigation search and provide a brief summary of the facts and outcome of each case. How often has the provider been in court? How often were they the plaintiff versus the defendant?

Don’t be concerned simply by the number of lawsuits the search uncovers or if the provider has been on the receiving end of one or more lawsuits. Reputable companies spend a lot of money defending their good names against bogus claims. This is another situation where it is wise to seek the evaluation of your legal counsel.

3. Practical Considerations

At this point, assuming the provider has overcome the legal and reputational hurdles without any major dealbreakers, it’s time to explore some practical considerations.

Conduct a site visit.

You can tell a lot about a company by its office space and its people. A site visit gives you a firsthand opportunity to look and listen. Does the company spend money to create a nice office and comfortable working environment for its people? Or again, does the desire for higher net profits come at the expense of their human capital?

A perfect example is a company that does business with mine. The owner was building a new office and offered to show me around. One of the first stops was the men’s room with its expensive fixtures and high-end tile on the walls and floor. While not where I expected to begin the tour, my first impression was that if he is spending this much on the restrooms, what will the rest of the place look like? This was someone who was thinking about every detail of his business, making a good impression from beginning to end, and going beyond what is required. That is a company you want to partner with.

It can also be revealing to listen to how management talks to the employees, and how the employees interact with each other. Is it a positive or negative environment? If employees don’t care for where they work, they probably won’t care about your clients.

Another way to learn about a provider’s company culture is GlassDoor.com, a website where employees can anonymously talk about their employers. Again, like Trustpilot.com, there will be employees who love the company and others who hate it. Taken with a grain of salt, this is another opportunity to gain insight. Patterns can be recognized when taken into consideration with other data you’ve already seen.

What are the provider’s operationaland security protocols forprotecting private information?

These are essential questions to ask of any F&I provider who will be handling protected personal information on behalf of your dealer clients, and it will probably require the expert help of an IT professional.

Can the provider produce third-party audits of its IT and operational systems? Two critical ones are an SSAE 16 report regarding compliance controls and an SOC 2 report that focuses on the integrity, confidentiality, and security of their IT system. Most large companies will have these, but it can be cost-prohibitive for mid-size to small providers. However, they should still be able to produce something similar that is appropriate in size and scope for their business activities. The answer can’t be “We can’t afford that kind of stuff.”

Does the provider perform penetration testing to exploit security vulnerabilities and determine how to mitigate any risks to important business data? While some companies conduct this testing in-house, there is a greater degree of confidence when it is performed by a reputable third-party cybersecurity firm.

Audited financial statements are also a necessary cost of doing business. This is one of the places where you don’t want to see a provider cutting corners. Whereas I certainly understand that companies don’t like to show the world all of their financial dealings, there are ratios that CPAs can share that reflect the financial health of the business without giving out exact numbers.

What level of customer supportdoes the provider deliver?

Is the size of the company’s customer support team adequate for the product or service they provide? Are their hours of operation sufficient for the dealer’s market locations? Is customer support available on the weekends, when dealers do most of their business? Are support personnel mainly housed in a corporate office or are they at-home workers with babies and barking dogs? Are they here in the U.S.? 

Ask yourself this: “Whom do I want answering the phone if it was my problem that I needed efficiently resolved?” Your dealers deserve the same.

Agents don’t have to be Clarence Darrow or Sherlock Holmes to conduct basic due diligence. With this checklist, common sense and a little time and money, you can ensure that the providers you deliver to your dealers are professional, compliant and will be around for the long run. Anything less is a direct reflection on the agent that could turn out to be very co