Regulators' Expectations: The Onus of Compliance
January 2014, Auto Dealer Today - Feature
What do the good people at the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB) and other, assorted Washington initialisms expect of you, the American automobile dealer, in 2014? The all-encompassing answer is that regulators expect your customers to get a fair shake when they buy a car from you. A lofty notion, when the applicable state and federal laws govern a realm as vast as it is diverse. And the rules must accommodate the fact that one of the last vestiges of the negotiated transaction keeps a world-leading 255 million — and growing — vehicles on the road.
Car sales are consummated in the cosseted confines of Bentley showrooms, on used car lots and curbside between two private parties. The buyers mirror the socioeconomic and educational levels, consumer acuity and negotiating skills of the American people. Those charged with crafting and enforcing the rules tend to work outside the automotive industry, and are driven by their own agendas. In nearly every case, the laws promulgated in response to the most egregious breaches of public trust, committed by a handful of car dealers, apply to all dealers.
The eight answers to the title question aren’t ranked in order of importance. Their relative significance depends of the severity of the breach of trust and how you handle it.
1. A prospective buyer’s inquiry as to monthly payments on a chosen vehicle must be based on the agreed-to trade difference dollar amount — not that amount plus an undisclosed extra $35 “leg” for the F&I department. Also, the “term” used to calculate the monthly payment must be commensurate with the transaction.
2. When a monthly payment is quoted before an accurate assessment of the customer’s creditworthiness is known, the APR must be commensurate with that transaction and statistically verifiable. The payment can’t be “packed” as to rate. A suggested best practice is to employ a running average of the APRs assessed for new-vehicle sales — factoring out any zero-APR deals — for the past 60 to 90 days, with a similar calculation made for used vehicles.
3. All of the elements necessary for a buyer to make informed decisions throughout the course of the vehicle purchase, funding and owner protection product presentation processes must be accurately portrayed and clearly disclosed. Do not attempt to sell a vehicle, aftermarket product or service the customer doesn’t need, doesn’t understand or can’t afford.
4. The manipulation of the variables incidental to the transaction — the retail prices charged and dealer margins — must be based on factors germane to the deal and not on the customer’s race or other prohibited factors. A suggested best practice response to lender-initiated disparate pricing challenges is to use one of the “rate modification forms” available from AFIP, Dealertrack, RouteOne and others.
5. Employees whose job descriptions require a working knowledge of the state and federal laws must be conversant with them.
6. The recurrent training required to maintain knowledge of the applicable rules must be made available to those charged with following them. It must be supported by managerial oversight to ensure that proctored testing yields an acceptable level of competence.
7. A formal policy for monitoring compliance with the state and federal laws, lender and vendor policies and company procedures must be in place. It must be supported by written documentation of each audit, and a record of the remedial action taken. Every employee must be held accountable, regardless of the number of marks on the sales board, their profit per vehicle retailed or their DNA.
8. You will be faced with the occasional, inevitable customer miscue. In every case, at the first opportunity, always do the right thing.
Implementing these eight regulation-based policies is neither expensive nor time-consuming. It costs as little as $230 per year per employee to command the necessary knowledge to solicit, negotiate, populate and disclose binding legal contracts on your behalf in accordance with state and federal laws. And easily affordable, comprehensive virtual audits are but a phone call away.
These measures do not inhibit your ability to make a reasonable profit on every aspect of the transaction — plus they increase the likelihood of repeat business. If you’re already integrating and enforcing these eight expectations, the odds are good that you aren’t under imminent danger from the CFPB — or anyone else, for that matter.
David Robertson is executive director of the Association of Finance and Insurance Professionals (AFIP) and an expert in auto retail and finance compliance matters.