Tag: compliance guide

Minimize Risk and Help Ensure Compliance on Every Deal

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It’s understandable that dealers do not enjoy having to think about compliance. The myriad, ever-changing laws, rules and regulations that apply to each deal can be confusing and frustrating. But non-compliance can lead to thousands of dollars in fines, class-action penalties, and damage to the dealership’s reputation – so it’s important to do everything possible to keep up.

Engaging qualified legal counsel is the most effective approach to full compliance, but here are other ways that dealers and their staff can work to protect their deals and the reputation of their dealerships.

Every pencil counts 

As you know, a pencil is the proposal that a salesperson uses with customers to outline deal scenarios as the final agreement is being reached. It’s important for your desking solution to automatically save a record of pencils in each customer’s deal jacket.

This will give you the ability to show a regulator, auditor, or plaintiff’s attorney the progression of the deal, and will help head off any claims that a consumer misunderstood the deal. This is particularly important in that the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have emphasized the need for transparency in consumer financing of automobile purchases and leases. For example, The Dodd-Frank Act of 2010 has a category for “abusive” trade practices, designed to protect consumers from being taken advantage of due to their lack of understanding.

Consistency is key 

Prepare scripts, FAQs and presentations that fairly and honestly state what the aftermarket product is and how much it will cost. This helps ensure that there won’t be credit discrimination.

Create a paper trail – even if it’s digital 

Solid documentation creates an environment of transparency for the consumer and a “paper trail” for auditors and regulators.

Each customer’s deal jacket should not only contain a record of pencils, but copies of every document, including all four squares and even less formal correspondence that shows how the deal was formed. Keeping the pencils record, a signed menu, and a plain-language buyer’s order reveals the detailed steps and trade-offs made by both the customer and the dealer.

Make sure that all pertinent deal information is stored in an easily searchable and highly secure location. That will help you build a consistent and transparent sales process and also give you the ability to track pencils by deal, date, user or vehicle status for auditing purposes.

When you follow these steps, you will help protect your dealership and your customers.

For more compliance tips, download the Dealertrack 2024 Compliance Guide. It’s a handy resource for questions about sales and finance compliance all year long.  

5 Ways to Make Sure Your Compliance Program Is Effective

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Compliance can be a costly part of doing business as a dealership. A 2022 article in Auto Dealer Today estimated that the average dealership spends between $162,385 and $276,925 per year to address regulatory compliance.

Fortunately, dealers can address F&I compliance more affordably by integrating a robust program throughout the sales and F&I workflow. This starts with effective document storage and includes the ability to monitor deal activity.

Here are five questions to ask to make sure your compliance program is operating at full efficiency and effectiveness:

1. Have you created a culture of compliance and security?
It’s important to train employees on spotting unfair, deceptive, and abusive acts and practices. Training should also emphasize honesty and transparency in all customer interactions. And make sure you have a compliance dashboard that allows you to monitor activity from a single screen.

2. Is the FTC Red Flags Rule fully integrated into your workflow?
Your sales workflow should include checkpoints throughout the deal process to verify that you’re meeting FTC and OFAC requirements and mitigating fraud. Always stay audit-ready by documenting everything you do and keeping copies of all documents related to identify in the deal jacket. Finally, be sure that you follow your identity theft policies and procedures (ITPP) process with every customer.

3. Does your compliance workflow include your menu selling?
Cox Automotive research has found that customers who are aware of F&I product options before they go to the dealership are more likely to buy. As these product introductions become more prevalent online, it’s vital to make sure they are fully consistent with the in-store presentations and include the same full disclosure. Your electronic menu product should help ensure consistency and legal compliance with your state laws and regulations.

4. Do you have full visibility to all deal activity?
Your compliance program should give you the power to track, report, and audit activity as needed, and from a single screen. Today’s dealership management must be prepared and proactive, with comprehensive training and real-time monitoring. For example, electronic databases should give you the ability to track employee access, and oversight of operations should include a compliance dashboard.

5. Are you consistently managing all documentation?
Regulations demand that you store a wide range of documents, including credit applications, privacy notices, credit reports, contracts, and menus, in secure electronic deal jackets. It’s about more than just convenience. Being consistent in storage and security provides peace of mind and creates efficiencies just in case auditors do come calling.

For more compliance tips, download the Dealertrack 2024 Compliance Guide. It’s a useful resource for safeguarding your dealership. 

Keeping Aftermarket Products In Line: F&I Compliance Tip

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Aftermarket products are important to dealerships’ bottom line. Recent NADA research has shown that 50 percent of profits for the average dealership come from the sale of aftermarket products.

A majority of these profits come from vehicle service contracts but, but other products driving profits also include guaranteed auto protection, credit life, and disability insurance, among others.

When selling aftermarket products, a dealership must disclose the products separately from the vehicle, indicating that the purchase is voluntary and that it is not required to obtain financing. Several states even have detailed regulations about how items need to be disclosed to the customer.

This is important to keep in mind as the FTC and CFPB continue to actively investigate and look for any unfair and deceptive practices in the sale of aftermarket products. The CFPB has made aftermarket products a priority since its inception and have the authority to bring actions against certain independent and buy-here-pay-here dealers while also referring other dealer violations to the FTC or a State Attorney General.

Best Practices

So, when selling these aftermarket products, how can dealerships protect themselves? We recommend the following to keep the FTC and CFPB away:

  1. Eliminate Excluded Customers from Your Target Direct Marketing Lists – There are consumers that opt out of all types of solicitations. If you have customers that do opt out, remove them from your lists. You can take it a step further and obtain the customer’s written consent to receive auto-dialed or prerecorded calls or texts. Cross-checking numbers with the FTC’s National Do Not Call Registry will save you headaches and potential issues.
  2. Understand Warranty Disclaimers for Each State – Service and insurance contracts can be structured in many different ways, all of which have different tax and liability issues. Dealers need to make it clear as to whether or not they have “entered into” a service contract. Both retro and reinsurance policies are subject to state insurance laws and customer claims. Dealers need to run the structure of service contracts with their lawyers and accountants.
  3. Charge the Same Price for Everything – Each product needs to be priced the same. If you surcharge a customer, that is considered part of the “finance charge” under TILA (Truth in Lending Act). As a result, that then must be calculated into the APR and disclosed in the RISC (Retail Installment Sales Contract).
  4. Be Consistent – The way you sell aftermarket products in the F&I office needs to be consistent. As a dealer, you are responsible for what is legally required in your state in terms of scripts, FAQs, and presentations that outline products and what they will cost.
  5. Adjust Your Practices to Address Customer Feedback – As laws change and consumers have positive and negative reactions, you need to adapt your selling of aftermarket products. Your employees need to be on board with this as well.
  6. Review and understand the CFPB Bulletin Incentives – When incentives concern products or services that could cause harm to consumers or not benefit them as strongly, they need to be reined in. Always have consumer interests in mind.

Start protecting your dealership from federal fines and audits: download your 2024 Compliance Guide today.  Learn more about the Dealertrack Compliance solution here.