What is the Costliest Error Your Dealership Made Today?

Jul 31, 2013 | | 14631 |

What is the Costliest Error Your Dealership Made Today?

By Paul Rindone
Note: This article is not intended to provide legal or compliance advice. You should review your specific compliance needs with an attorney or other appropriate regulatory compliance professional.

Every day it is inevitable.

Someone is going to do something at your car dealership that costs you extra time and money. Whether Johnny CarSalesman misses an opportunity to upsell on a deal or your Service department loses a customer, mistakes will be made.

The key is recognizing them and doing your best to prevent them from happening again. Right?

While this course of action is acceptable for some issues, it definitely cannot be applied dealership-wide. There are some problems that can have even greater consequences than missing out on a few hundred dollars or losing a customer now and again.

These are mistakes you need to prevent from happening in the first place.

Your dealership could be making costly compliance errors as we speak … and you may be completely unaware of it. Everyone knows that understanding compliance laws can be difficult. It seems that new—and sometimes confusing—compliance rules and regulations for deals are put in place every few years, adding extra time to closing a deal. In response, some dealers try to cut corners or skip steps, but this tends to end up with mistakes and lost time correcting errors.

Fixing a few mistakes and losing a few minutes here and there is just the beginning. Skipping even a single compliance step can ultimately lead to civil suits, hefty fines or possibly even jail time.

What if one of your employees gave a car away for free? Would you be upset? Of course you would. Ignoring or overlooking compliance laws could end up costing you as much as or more than one car per violation.

Get to know your compliance laws

Has it been awhile since you brushed up on current compliance laws? If so, here are a few of the bigger ones to get you started:

When a Credit Authorization is run to assess the creditworthiness of a potential buyer, the dealership must make sure to include the following activities in its compliance process:

  • Risk Based Pricing Notification – Dealers must provide a risk-based pricing notice (RBPN) to a consumer when using a credit bureau report in connection with a credit application to extend or provide credit to the consumer under terms that are less favorable than the most favorable terms available to a substantial proportion of consumers. Enforcement actions by the Federal Trade Commission (FTC) can result in penalties for private right of action or fines in a civil lawsuit.
  • Privacy Notice – Dealers are required to provide information to a credit applicant stating how the applicant’s personal information will be used by the dealership, how it will be shared with other entities, and what the applicant’s legal rights are if they want to limit that sharing. Violation of the federal Gramm-Leach-Bliley Act (GLBA) could result in a civil action for penalties against a dealership for each violation.
  • Red Flag – When a consumer applies for credit through a dealership, the Red Flags Rule requires that the dealership conducts a review as a part of a documented identity theft prevention program designed to detect the warning signs or "red flags" of identity theft. The FTC could enact penalties for each independent violation of the rule, and individual states, on behalf of their residents, may recover costs for each violation, as well as attorneys' fees.

When conducting any transaction, you must check:

  • OFAC – Dealers must determine if individuals are listed on a U.S. Treasury Department SDN (Specially Designated Nationals) List, which contains names of individuals and organizations believed to be acting for, or on behalf of, terrorist organizations, narcotics traffickers or countries under U.S. trade sanctions. Civil penalties can be assessed for each violation and criminal penalties may also apply, depending upon the circumstances.

When a potential buyer applies for credit (or is offered credit on different terms than those requested), you may need to send an:

  • Adverse Action Notice – This notice indicates which credit-reporting agency was used to provide a credit report and how to contact them. Adverse Action letters let potential buyers know why they were not offered the financing terms they applied for, and for what reason. They may use this information to investigate, with the credit reporting agency, if they believe the report was in error. Actual or statutory damages for each violation, as well as punitive damages and attorneys’ fees, may also be assessed.

The right tools help avoid compliance errors

Typically, your dealership has one or multiple compliance tools within your workflow, which you use to help keep your deals in order. However, many of these solutions are not fully integrated with your Dealer Management System (DMS) and need to be run separate from the deal that is currently open. This can lead to redundancies and gaps in the workflow, wasting customers’ time, creating more opportunities for errors, and complicating the entire process. A simpler solution that directly integrates into your deal workflow can be very helpful.

Having a solution that helps you complete multiple compliance tasks on every deal is also essential to running a successful dealership. Inconsistent and complicated compliance solutions tend to cause more problems than they prevent. Just because compliance laws are complex doesn’t mean your solution needs to be perplexing. It should be easy like Sunday morning.

While helping to simplify your deal workflow, you should also look for a solution that can be implemented easily across multiple rooftops. The same brand product at each one of your stores helps deliver accountability, as well as flexibility, in case you need to transfer an F&I Manager. Training is the key to consistency at all levels of the dealership. A compliance solution that is the same at every one of your stores will give each of your employees, new or old, an edge over the competition.

The scope of compliance can be wide, so a new approach with an intuitive solution is a great start. Every store should be addressing as many aspects of compliance as possible in order to avoid potentially harsh penalties that could affect your business as a whole.

The last compliance check listed above, Adverse Action, is a relatively new requirement. In certain instances, dealers are considered “participating creditors,” and so you, not the bank, may be responsible for sending notices. Complying with this regulation can also be challenging due to the complex process of determining if an adverse action has even occurred (e.g. if the customer and financing source agree to a different financing amount or other terms, a notice may not be required). Finding a solution that can help dealers determine which customers need to receive an Adverse Action notice can help save you time, reduce confusion and keep customers satisfied.

Many compliance issues can be caused simply by a dealer being unaware which checks need to be made before completing a specific deal. While this seems like an innocent misstep, ignorance is not an acceptable excuse for federal and state laws. Every dealership needs to make sure that each of their stores has a robust compliance solution and every deal is reviewed before it is completed.

Although it is ultimately the responsibility of the dealership to ensure that it is satisfying all of its compliance obligations, and this article is not intended to be a complete statement of all of a dealership’s compliance obligations, a robust compliance tool could help you meet your deal compliance obligations.

You can also review the NADA and ATD Regulatory Compliance Chart for more information.


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Paul Rindone