Tag: F&I Compliance

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.  

How Operations Oversight Aids in F&I Compliance

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It seems that you can’t read the news without learning of yet another massive corporate data security breach. As much as we all hear about the importance of safeguarding customer information, studies show that a majority of data breaches are caused by employees.

In your showroom, that means your compliance is at risk from staff members leaving deal jackets, credit reports or credit applications lying around for anyone to see – or from weak passwords or “phishing” scams with untrustworthy links. Whether data is exposed through negligence, error or the deliberate acts of untrustworthy employees, it’s important to have a plan in place to protect your dealership.

Dealership management should be proactive and prepared with comprehensive data security training and real-time monitoring. It’s vital to oversee your operations via tracking of employee access to your electronic databases, including a compliance dashboard.

Protecting your dealership 

There are two key steps to keeping your dealership protected and compliant. Begin by educating your employees and giving them the tools they need to keep information secure. This includes training on data security best practices about things like strong passwords, avoiding clicking unknown links, and guarding against social engineering attempts by strangers attempting to get information.

The second step is to create a monitoring program that allows you to oversee data flow into your systems, user access, user activity, and patterns that indicate irregularities. When you closely and regularly monitor the sales process, you are better equipped to step in to head off problems and help ensure that your dealership remains compliant.

Creating your compliance process 

As you’re developing your process, make sure it includes a real-time compliance dashboard within a single screen. That will allow you to immediately identify any potential issues. You’ll also be able to observe how your employees handle and safeguard customer data they receive.

Data management is something you need to do actively, with policies in place to handle data over time as well. Beyond requiring secure passwords and authentication, consider two-factor authentication that includes a complex password and a randomly-generated number from an ID token.

Manage user permissions so that only employees with a legitimate business need can access customer information. Have a plan for purging non-public personal information once you no longer need it.

A culture of security in your dealership starts with senior management and filters through the ranks. Emphasize transparency and honesty in every customer interaction and make sure to train employees on unfair, deceptive and abusive practices to ensure that each interaction with customers complies with federal and state regulations.

If you haven’t gotten your copy of the Dealertrack 2024 Compliance Guide, download it today! 

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. 

Streamline Operations and Boost Satisfaction

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Think for a moment about the interactions your dealership has with your customers. How many people really want to spend more time buying or servicing a vehicle? They want to get in, get out, and get on with their lives. But the unfortunate reality is that most customers dread the in-dealership experience. And it has more to do with the day-to-day operations of your business than you might think.

 

The Frustration of Buying a Car

In the minds of consumers, visiting a dealership isn’t far from a trip to the DMV. That’s because in-dealership inefficiencies lead to customer downtime and a prolonged sales and services process. And when customers have to wait, customers get annoyed. In fact, 41% of customers label the amount of time it takes to complete a purchase as the single most frustrating aspect of buying a car. That’s a higher level of frustration than dealing with salespeople, negotiating a deal, getting a good trade-in offer, or applying for financing.

As you might expect, customer satisfaction and the amount of time a customer spends in the dealership are closely correlated. According to an AutoTrader.com study, average customer satisfaction scores are highest when a customer spends less than an hour in the dealership. And those scores begin to fall off dramatically at the 90-minute mark, with scores dipping below the average at the 2.5-hour mark. The study also reported that every dealership analyzed failed to meet this 90-minute customer-cycle objective, regardless of the operational or sales tactics employed.

 

The Divide Between Dealers and Customers

Yes, it takes time to buy a car. But it’s obvious that there’s a real disconnect between dealers and customers about just how much time is considered acceptable. Most customers come to the dealership already having researched everything about their car of choice for weeks, even months. They want to show up long enough to sign a financing agreement, pick up their keys, and drive off the lot. In their minds, there shouldn’t be a difference between buying a car and walking into any other store to purchase a product. If inventory is available, they want to be able to buy the car and be on their way.

Dealers, on the other hand, understand that the process is more complicated. And yet, many of those complications can still be avoided. When dealerships use non-linear sales processes that involve multiple, potentially deal-breaking decision points and multiple technology systems (that don’t always play well together), tasks get duplicated, processing time increases, and customers wait.

 

A Wholesale Shift in Operations

To improve operational efficiency and improve the customer experience, dealerships need to think about people, processes, and technology as one and the same. In other words, every means available to the dealership should be used to bring about the singularly-important goal of providing a better customer experience.

Dealership and customer expectations will more closely unite when dealerships:

  • Hire, train, and retain talent with the customer experience in mind.
  • Review and improve technology and processes with the customer experience in mind.
  • Inform and incentivize customers about new and improved operational capabilities and efficiencies built with the customer experience in mind.

This wholesale shift toward an improved customer experience can begin when the customer first begins researching vehicles. By moving part of the sales process online, including online trade-in tools, F&I education and offerings, and having qualified salespeople available via chat, more decisions can be made when the customer is most interested. This also cuts down on in-dealership wait time and improves transparency.

By streamlining processes, implementing technology that simplifies operations, and emphasizing a customer-centered culture (including fostering transparency and trust), dealerships can get closer to the ideal in-and-out car-shopping experience. And eventually, dealership by dealership, sales will increase and the negative perception of the car-buying process will begin to change in the minds of consumers.

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.

Monitor Dealership Activity: F&I Compliance Tip

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One of the biggest threats to dealership compliance is inside the showroom. That’s right: your employees. Some studies claim that a majority of data breaches are caused by workers, a sobering statistic that may be due to negligence or mistakes – such as leaving credit applications, credit reports and deal jackets open and in plain sight – or could be caused by willful acts of disgruntled employees. Point is, 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.

Why it Matters

By providing your employees with the education and tools they need, and by monitoring activity, you can help protect the dealership and keep it compliant. That includes taking steps such as implementing basic security requirements from your Safeguards program, and teaching employees best practice actions around issues such as opening unknown links and creating appropriate passwords. Most important of all, however, is an effective monitoring program that gives oversight into critical areas such as data flow into the system, user activity, access, and even patterns of irregularities. Follow these best practice tips to better monitor the sales process and help ensure compliance.

Best Practice Compliance Tips

  • Put a robust monitoring program in place. It should include a real-time compliance dashboard that monitors activity in real-time, from a single screen.
  • Quickly identify and contain any customer information breach and make sure all employees safeguard customer information provided to them. Actively manage your data and develop policies to manage it during its lifecycle. Require secure passwords and authentication – consider two-factor authentication: something you know (a complex password) and something you have (a randomly-generated number from an ID token).
  • Manage user permission to give customer information access only to those employees having a legitimate business need. Don’t keep non-public personal information (NPI) longer than you need to do so.
  • Create a culture of security in your dealership and get senior management buy-in. Train employees on unfair, deceptive, and abusive acts and practices; emphasize honesty and transparency in all customer interactions.

Get more tips and recommended compliance practices. Download the free 2024 Dealertrack Compliance Guide. 

Adverse Action Notices: F&I Compliance Tip

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An “adverse action” is, basically, a refusal to grant credit, the termination of an account, or the changing of an account’s terms in a manner unfavorable to the consumer — such as unwinding a spot delivery contract.

Why it Matters

As creditors, dealers are required to give adverse action notices to consumers in three situations:

  1. When a dealer takes a credit application but does not send it to any financing source, typically because the consumer is credit-challenged.
  2. When a dealer unwinds or re-contracts a spot delivery deal.
  3. When the dealer is unable to get the customer financed on terms acceptable to the dealer, or because the customer declines the dealer’s final offer of credit after concluding negotiations.

Auto dealers are viewed as creditors because they are involved in negotiating the credit terms, and are typically named as the creditor on the retail installment sale contract (RISC) – which is later sold to a financial institution. A lender’s adverse action notice does not contain the necessary disclosures that must be given by the dealer. That includes, but is not limited to, naming the credit bureaus used by the dealer and the federal agency that administers compliance.

How it Works

An adverse action notice must do the following:

  1. Inform the consumer of the adverse action either with two to four reasons, or by notifying the consumer who to call at the dealership within 60 days to get the reasons.
  2. Identify any consumer reporting agency that provided a credit report or credit score.
  3. Provide the consumer’s credit score, information about the credit score, and up to four to five “key factors” that adversely affect the credit score (four key factors unless one is the number of recent credit inquiries).

The notice must contain other mandatory language as well. To view a sample notice and get more detail about adverse action notices and more compliance advice, download the free 2024 Dealertrack Compliance Guide.

Learn more about Dealertrack Compliance and register for a demo to find out if you’re meeting Adverse Action notice requirements today.

 

May the 4th (and Force) Be With You: Four Ways Auto Retail is Kind of Like Star Wars

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There may not be light sabers involved (one hopes), but when it comes to Star Wars and the technology that drives auto retail, we can make a few fun comparables.

After all, the last thing any sales manager or dealership controller wants is to get stuck on a virtual outpost, searching for solutions like a desert scavenger. The sunset might be nice, but that outpost is no place to find cutting-edge workflow technology. So in the spirit of the day, and the pursuit of connected retail, here are four ways auto retail technology is (kind of) like Star Wars:

1. Jumping to light speed is like using Accelerated Title.

When it comes to title release, Accelerated Title gets you from start to finish 70 percent faster than the industry standard* — a time that’s sure to be quicker than any old Imperial TIE fighter. It’s technology that streamlines payoff quoting, release, and even tracking and reporting.

2. Using the force is like integrating F&I Compliance into your workflow.

It’s so much a part of process that you barely notice it’s there…until you need it. Then it becomes a powerful way to protect and defend your dealership from ID fraud, potential audits, and more.

3. Droids are a symbol of advanced technology – with a smart human touch.

The concept is like our Menu Selling solution: technology that helps build engagement and improve the aftermarket experience. F&I products like GAP, warranty and maintenance options are presented in a friendly and consultative way — thanks to the use of personal technology.

4. Sometimes, what you need is a simple, fast, and effective Podracer to get the job done.

More than that will slow things down, when the most important thing is a fast and efficient finish. Keep that in mind when it comes to your Reg & Title operation. Simple and powerful functionality such as an accurate calculation of taxes and fees, as well as automated error-checking, help ensure that this final step in the process meets the customer’s expectations.