December 20, 2024
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
Gone are the days of asking whether you have a compliance program because they are essential to dealership operations. The question is now whether your compliance programs on fair lending and voluntary programs practices are effective.
A compliance program must have several critical elements.
- Training – Employees must understand what they can and cannot do.
- Roadmap – A program will include a checklist to help employees through transactions so the appropriate steps are taken and necessary forms are properly completed.
- Review – The program should include reviews of transactions to identify wrongdoing and potential problems.
- Resolution – if wrongdoing or a problem is identified, the dealership should try to resolve the issue with the customer and the finance or lease source if it is affected.
- Discipline – If you identify employees engaging in wrongdoing or causing problems, take the opportunity to counsel, reprimand, or even dismiss them if necessary.
- Retraining – If you find a pattern of wrongdoing, retraining will be critical to be sure employees understand what you require.
How can a good compliance program help? Here are some of the more important benefits.
- It helps you actually comply with the law. We need not explain the importance of staying on the right side of the law. Whether we are talking about the time, effort, and expense in defending lawsuits, the losses you may incur in losing lawsuits, expenses related to buying back retail installment sale contracts and leases, expenses and burdens of dealing with government investigations, and other troubles and costs, compliance is critical.
- It will help you identify those working for themselves and not for you. Do you have an F&I person engaged in wrongdoing to improperly work their pay plan at your expense? How about a salesperson doing similar bad acts? A program will help you detect those.
- The training involved in any program is essential to help employees understand what they can and cannot do. Solid dos and don’ts will increase employee satisfaction.
- A program can help detect wrongdoing by employees so you can put an end to it.
- A solid program may be the basis for escaping civil penalties and even criminal action from enforcement agencies that find wrongdoing despite your efforts to detect and stop it.
The consequences of wrongdoing have escalated dramatically in the last decade. Misrepresentations could lead to lawsuits by customers. If a retail installment sale contract or lease was affected, the dealer might face a buy back demand. Bad practices lead to government enforcement. Today government intervention for a pattern of wrongdoing is often the result, which is most evident by the last 4 years at the Federal Trade Commission and the numerous cases that it has brought against car dealers as well as increased regulations.
In addition to the need for a good compliance program due to customer and government actions, your lending sources are requiring one. It is now standard practice for your indirect lending sources to ask for your F&I and VPP programs, so at the very least you need one to comply with their requirements.
Each dealership should ask whether its compliance program is sufficient.
- Do you have a written compliance program?
- Do you train employees on proper practices under your program?
- Do you use a deal completion checklist?
- Do you use it as a roadmap through a deal to ensure proper behavior, appropriate disclosures, and completion of all necessary documents?
- Is the deal completion checklist used to audit deals to detect problems or wrongdoing?
- Does the checklist include not only listing documents that should be in a deal but also reminders to check for problems leading to government action such as
- customer income information in the handwriting of the customer?
- Verification that the downpayment is real and was received?
- Confirmation that the vehicle model and equipment represented to the finance or lease source are correct?
- Confirmation that all equipment or services sold were installed or a We Owe was issued.
- Do you use a menu that starts with standardized product prices and is it properly completed and signed?
- Do you document compliance with your fair lending program?
- Do you use a checklist when creating advertising, particularly requiring follow-on disclosures if you use trigger terms under the Truth in Lending Act or the Consumer Leasing Act?
- Do you have a document for deviations from standard lending rate?
Government enforcement agencies are raising the stakes on dealers without an effective compliance program. If employees engage in a pattern of wrongdoing and you do not detect it, your dealership is at risk. A compliance program could mean the difference between a seven-figure civil penalty and a demand for compensation of victims. There is no better compliance guides for F&I and VPP programs than those guides published by NADA, and those compliance guides should be implemented as of yesterday at your dealerships.
To read NADA's compliance guide on Fair Lending, click here.