There’s a reason that compliance looms large for auto dealers – and it has everything to do with the bottom line. Failing to establish and follow consistent compliance practices can cost a dealership in two ways:

Fraud

On one hand, you have fraud risk, which is growing at an alarming rate. According to the 2023 Auto Fraud Trends Report from Point Predictive, auto loan fraud increased by $400 million between 2021 and 2022, totaling more than $8.1 billion in origination risk exposure. Fraudulent entries on those buyers’ loan applications included fake or falsified employment, income and identity information, often combined to create a synthetic identity unrelated to a single, real person.

That’s one reason identity verification is such a vital compliance step. Not only does it help the dealership comply with the OFAC checks and the FTC’s Red Flag Rule, but it lets the dealership confirm that the buyer is who they say they are before that person has the opportunity to take possession of a vehicle under false pretenses.

Fines and Penalties

OFAC is a good example of the second way non-compliance can be costly because violating it can come at a steep cost in criminal and civil penalties and fines. OFAC stands for the Office of Foreign Asset Controls and it requires car dealers to check consumers against its Specially Designated Nationals and Blocked Persons (SDN) list to make sure they aren’t tied to illegal activities. Anyone on the list is prohibited from making a purchase.

Violating OFAC SDN requirements falls under five different regulations: Trading With the Enemy Act (TWEA), International Emergency Economic Powers Act (IEEPA), Antiterrorism and Effective Death Penalty Act (AEDPA), Foreign Narcotics Kingpin Designation Act (FNKDA) and Clean Diamond Trade Act (CDTA). Each regulation carries civil penalties ranging from tens of thousands to more than $1.5 million. (31 C.F.R. § 501, App. A).

Each of the regulations includes criminal penalties for knowing violations that can lead to a decade or more in prison and additional fines for the dealership up to $10 million, depending on which rule has been violated.

Although OFAC is an extreme example, there are fines associated with all of the regulations that a dealership’s compliance program addresses. Here are some of the maximums for potential dealership violations in 2022:

• Red Flags Rule and Risk-Based Pricing Rule Notice – up to $4,705 per knowing violation
• Privacy Notices and Adverse Action Notices – up to $50,120 per instance

Download the Dealertrack Compliance Guide to reference the Guide to Penalties (starting on page 217) for a list of the 2024 fines. Keep the guide on hand throughout the year to serve as a useful compliance resource.

Need help making sure your dealership stays on top of compliance? Dealertrack Compliance has integrated checkpoints and monitoring from leads to contracts to help you maintain compliance on every deal. Schedule a demo to find out how.