With the close of another year, most buy here, pay here operators will evaluate last year’s performance by comparing their financial results with the past. They will base their goals and strategy for 2013 by looking at financial and operating metrics like unit sales, gross sales revenue (in dollars), the growth in their installment portfolio and their net income. Although these represent the standard benchmarks for planning, they omit a very critical element: compliance!

The BHPH industry faces some important new legal and regulatory challenges from the newly formed Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC) and state attorneys general. All of these regulatory authorities will be monitoring consumer complaints to identify regulatory violations and those operators who are violating the rules. Regulators will investigate consumer complaints and have the authority to levy substantial fines for noncompliance.

During 2012, regulatory activity and monitoring of subprime auto compliance violations increased significantly. In 2013, compliance in the BHPH industry will be judged by how each individual operator complies with the rules and regulations.

To date, I have noticed that operators are taking different approaches in complying with these challenges. Some are waiting to see what 2013 will bring. Others are more proactive in their approach to compliance and a few are ignoring these compliance threats altogether. In the present climate, I recommend that all BHPH operators do the following:

1. Carefully scrutinize their advertising and Web sites for statements which could be construed as false or misleading.

2. Determine that their documentation matches their internal policies and practices.

3. Make written disclosures of all important contractual terms to every consumer.

4. Update and document their internal collection, underwriting and compliance policies and procedures in writing, and ask employees to sign a written acknowledgment that they have read and understand them.

5. Establish written consumer-complaint resolution procedures and protocols.

In 2012, many operators addressed the first four points, and appointed a chief compliance officer, as required. Written consumer complaint resolution procedures and protocols have not been priorities in the past, but need to be in the future. You should have a competent attorney review your disclosures and contract documentation and help you develop a compliance management system. This will be money well spent!

I also recommend establishing a welcome calling program shortly after each sale to ascertain whether the consumer had a positive buying experience. During that call, all consumer complaints should be taken seriously and addressed by the operator immediately. Consumer complaints are best resolved before they become a compliance issue with regulators.

In cases where the consumer is being unreasonable, an operator’s written policies and procedures can be used to demonstrate how that operator deals with consumer complaints. Upon investigation by a regulatory authority, the documented policies and practices will be considered in those circumstances.

Complaint resolution is important in building a positive bond between operators and their customers. The old saying that tells you to treat others like you would like to be treated applies here. Both the consumer and the operator must work together over the life of the deal to be successful.

In 2013 the regulatory authorities will carefully scrutinize collection procedures. Collectors must be particularly careful to avoid violations of the Fair Debt Collection Practices Act. This will require more individual knowledge and training.

Although the year ahead is full of legal and regulatory uncertainty, prudent operators should start the year with a proactive approach to compliance. You can’t control what others do, but each operator must be responsible and accountable for their own actions. Best wishes for a prosperous New Year!