FINANCIAL BENCHMARKS HELP THE BOTTOM LINE,
BUT COMPLIANCE BENCHMARKS PROTECT IT!
By: Keith E. Whann
When dealers think about benchmarks, financial and numerical items such as
profitability, expenses, inventory turn, and F & I penetration come to
mind. Often overlooked are benchmarks for legal and regulatory compliance,
which can have a significant impact on a dealership’s bottom line. We frequently
receive inquiries requesting advice on what a motor vehicle dealer should be
doing in this area. The following list of suggestions will help you set legal
and regulatory compliance benchmarks for various areas within your Dealership:
Paperwork: Dealers should have their paperwork
reviewed and, as necessary, updated on a yearly basis. Having a
relationship with a paperwork vendor capable of keeping you apprised
of compliance issues as they develop will help streamline this
process. You should also limit who within the Dealership has authority
to revise the paperwork and have procedures in place to ensure
that employees do not use paperwork brought from outside sources,
such as the last Dealership where they worked. Regularly auditing
actual deals can help to ensure that paperwork is being properly
completed and that computers are properly programmed to print information
in the appropriate places.
Advertising: The persons who create your Dealership’s
advertisements should be familiar with the Federal Truth in Lending
and Leasing Acts and State Advertising Laws and/or your advertisements
should be reviewed for compliance with these Laws. Regardless of
whether they appear in the newspaper, on television, in a letter
to a potential customer, or on the Dealerships’ store window, your
advertisements must contain mandated disclosures if you use any
of the “triggering terms” defined in Regulations Z and M. They
must also contain any material limitations or exclusions disclosed
in a clear and conspicuous manner. Direct mailers and telephone
solicitations or follow up calls can raise a whole host of other
issues. If mailers are sent to a list of “prescreened” customers
or “guarantee financing”, for example, there are numerous other
laws to consider, including the Fair Credit Reporting Act, Federal
and State Privacy Laws, the Driver’s Privacy Protection Act, and
your State’s Credit Repairs and Services Act. On a final note,
remember to keep copies of all advertisements in case you need
to respond to a consumer or regulatory inquiry about an offer or
the contents of an advertisement.
Finance and Insurance: Dealers should start their
list of compliance benchmarks in the F & I Department with
making sure they have a copy of a dealer agreement for each lender
and service provider with whom the Dealership does business. These
agreements and any related materials should always be reviewed
by someone who has knowledge about both the products being offered
and our industry. Reviewing dealer agreements and properly training
employees on how to sell service contracts, GAP agreements, insurance
products and any other “after-market-products” sold at the Dealership
can go a long way in protecting your Dealership from potential
liability. All too often we find that Dealers rely on representations
made by the third party as to the compliance of its marketing materials,
the products it offers and even the training it provides to the
Dealership’s employees. For those who use an F & I Menu, remember
to revise it whenever you begin or cease offering a product so
that it accurately reflects the products and services available
at the Dealership. If product disclosures, finance charges and
payment terms in the retail installment contracts and lease agreements
are calculated by a computer program, you should also take time
to verify that the required information and related calculations
are in compliance with applicable laws.
Employees: All potential employees should be
required to complete an employment application and, at a minimum,
you should contact references to verify that the individual is
qualified for the position. Depending upon the job responsibilities
and access the applicant will have to confidential information
about your Dealership and customers, you may also wish to conduct
background investigations or obtain a credit report. All employees
should also receive an employee handbook that contains information
about the Dealership’s internal policies and procedures. Remember
to address issues such as who has access to pull and/or review
credit reports, whether customer information belongs exclusively
to the Dealership and whether employees are permitted to remove
such information from the Dealership both during the term of employment
and afterwards. If specific agreements are made with respect to
commission payments and bonuses, you may also wish to enter into
a separate written employment or compensation agreement. Employee
handbooks should be updated regularly and employees should always
be required to acknowledge in writing that they have received and
read the materials. Just as important is requiring all employees
to attend training and/or educational seminars related to their
duties at the Dealership, not just at the time they are hired,
but on an ongoing basis.
Privacy Policies and Customer Identification Procedures: Every
Dealer should have a Privacy Policy that accurately reflects the
Dealership’s business practices with respect to collecting and
sharing customer information and a comprehensive written information
security program that describes how the Dealership protects the
confidentiality of the information collected. Access to customer
information and other Dealership records should be limited to authorized
employees who need the information to complete their employment
responsibilities. Customer information must be obtained to verify
the identity of customers and the Dealership has to have procedures
to ensure that it does not enter into transactions with any individual
or entity that appears on the list of Specially Designated Nationals
and Blocked Persons maintained by the Office of Foreign Asset Control
(OFAC). Motor vehicle dealers are responsible not only for implementing
their own privacy policies and procedures, but must also take steps
to ensure that the lenders and service providers with whom they
share information have taken steps to maintain the confidentiality
of customer information.
Dealership Website and Computer Systems: The
same policies and procedures that apply in your day-to-day transactions
apply when conducting business online. Online advertisements must
comply with Federal and State Advertising Laws and should be updated
and deleted on a regular basis. Dealers who permit consumers to
submit credit applications electronically must post their privacy
policies online and, if they obtain credit reports online, they
must be capable of retaining copies for a minimum of 25 months.
Keep in mind also that many of the same precautions taken with
respect to your paperwork apply to your Dealership’s computer system.
Computer systems and programs should be reviewed and updated regularly.
You should also limit who has the ability to update software applications,
take steps to prevent and prepare for a systems failure and ensure
that data is eliminated or hard drives removed when disposing of
computers and any other electronic media and records.
If you have already developed legal and regulatory compliance benchmarks and
they meet or exceed those discussed in this article, then you are on the right
track. As you read this article, however, if you found yourself thinking that
we raised a lot of good “ideas”, then its time to take the next step and put
a plan of action in place. Formalizing legal and regulatory compliance benchmarks
that help ensure your Dealership’s paperwork and day-to-day sales and business
activities are in compliance with the law will not only help minimize overall
legal exposure, but will help your Dealership sell more cars and keep them
sold, increasing the Dealership’s overall profitability.
The information contained herein has been provided
by Keith E. Whann and Deanna L. Stockamp of the Law Firm of Whann
Associates, LLC, and is for general information purposes only.
You should contact legal counsel for specific application. |
