Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
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industry expert / special finance The Ninth Component: Keeping It Between the Lines Special Finance Requires Strict Compliance with Federal and State Laws and Regs An 18-year former dealer principal with focus on Special Finance since 1989, Greg Goebel is CEO of Auto Dealer Monthly, LLC, the parent company of Greg Goebel Training & Consulting. He is a leading industry consultant, trainer, author and speaker serving retail automotive dealers. Contact Greg at 941.685.9629. Greg@AutoDealerMonthly.com you start discussing compliance with the innumerable federal and state laws and regu- lations that govern the sale and assignment of a motor vehicle on a retail installment sales contract. I I know most dealers do notwant, nor do they intend to violate federal, state or local statutes. The problem is, the retail automo- bile industry is one of the most regulated and watched that exists in this country. To top it off, over the past four years, a new, all-power- ful, über-funded and much-talked-about federal agency—the Consumer Financial Protection Bureau (CFPB)has been formed and is now in full-blown audit and enforcement mode. This means there is a new sheriff in town that can use states' attorneys general and private local counsel to help it ensure dealers and finance companies "keep it between the lines." It also means the Federal Trade Commission (FTC), which up to this point has been the only real dealer-policing authority, is now free to spend more time in- vestigating consumer complaints. These two agencies share data with each other to en- sure all issues are investigated to the fullest. What does this mean to you? Well, consider the following list: 1) Gramm-Leach Bliley Privacy Policy notifications 2) Dealership privacy safeguarding 3) Proper and secure storage of credit applications 18 must preface this month's column by saying I didn't mean for it to be a downer. It just seems to turn out that way once 4) Red Flags rules 5) Adverse Action notifications 6) Truth-in-lending violations 7) Regulation Z 8) Regulation M 9) Risk-based pricing notifications 10) Fair Debt Collection Act 11) Compliant and non-contradicting documents 12) Spot Delivery (or bailment) agreements 13) Integrated deal documents 14) FTC Buyer's Guides 15) OFAC "Bad Guys" list Every item on this list affects a dealer involved in indirect auto financing. A dealer and all of its personnel must be aware of and under- stand the proper procedures relating to each and every one of the items on this list. With the ridiculous number of lawsuits and whistle-blowers facing dealers across the country, especially in the subprime credit market, you simply cannot make compliance training a once-a-year effort. "Bear traps" await even the most honest and straight-laced dealers, let alone those who push the envelope. You can't just sit around and wait for an issue to blow up in your face. Additionally, simply buying a "compliance package" from one of the many quality vendors serving the industry won't suffice. Nothing short of being proactive and pos- sessing the knowledge and understanding of the many laws and regulations will do. A good example of what can happen if you don't stay on top of compliance issues in- volves two dealer clients of mine. In the past 12 months, they experienced the wrath of the FTC. Both are very straight-up dealers who had no intention of using deceitful advertis- ing. Both have excellent CSI and online reviews from customers. Unfortunately, they ran afoul of the FTC through a missing disclaimer and poor wording on a video they each posted online. Fortunately, they escaped the horrific fines they could have faced (though not the attorney fees), but they did have to sign a consent decree stating they will subject all of their ads to a cumbersome review process prior to running and take vari- ous other steps for a lengthy period of time. Additionally, I have seen dealers skewered by their own deal documents. Many dealers haven't read the front and reverse of their own documents, which may have language either inapplicable or contradictory on the same form or between forms. I have seen sit- uations where dealers adopt a form a dealer in their 20 Group uses (in a different state), not realizing it is in violation of their own state laws. When was the last time you paid for a document review by a consumer attor- ney? It is a lot cheaper to do it before your documents are called into question in court. Proactive dealers are members of their local, state and national dealer associations. They arm themselves with as much information as they can from sources such as Hudson and Cook, Spot Delivery and CarLaw, and then they read and continually train their staffs on new laws, regulations and rulings. The odds are that at some point every dealer is going to find themselves on the wrong side of a law or regulation, no matter how hard they try to avoid it. The difference is, by being proactive, this type of problem will be considered a "bonafide error" that can be corrected immediately with no liability rather than resulting in a deal-breaking class action claim or someone walking out in handcuffs! Until next month (when I promise to be cheerier), be diligent.