Five Questions to Ask About Your Compliance Program

Some may say that the cost of compliance comes with the reality of doing business. That it's just a fact of life. And while that may be true, according to The Center for Automotive Research (CAR) that expense is pretty high. In a 2014 study conducted for the National Automobile Dealers Association (NADA), CAR found that the average dealership spends close to $200,000 annually on overall regulatory compliance. Put another way, “regulatory costs comprised 21.7 percent of the average dealership’s 2012 before-tax net profits...or nearly $2,400 per dealership employee.” The study, which included exhaustive research along with interviews with dealer managers and owners, found that the “dealership financial burden is greatest for the regulations included in the vehicle financing category (which includes items such as Equal Credit Opportunity, Fair Credit Reporting, and Truth in Lending rules).” *

But wait. Dealers can help ease the cost of F&I compliance by integrating a robust program throughout the sales and F&I workflow, starting with effective document storage and including the ability to monitor deal activity. Check out the following five questions to find out if your approach to compliance is cost-effective and efficient, or just costly and confusing:

1. How do your employees handle their compliance requirements?  

Create a culture of security in your dealership. Train employees on spotting unfair, deceptive, and abusive acts and practices; emphasize honesty and transparency in all customer interactions. And make sure you have a compliance dashboard that monitors activity from a single screen.

2. Is the FTC Red Flags Rule fully integrated into your workflow?  

Verify that you’re meeting FTC and OFAC requirements – and mitigating fraud – by including these checkpoints in your current sales workflow. Remember, document everything you do and keep copies of all identity-related documents in the deal jacket in case you are audited, and be sure to apply your ITPP process to every customer.

3. Do you include menu selling in your compliance program?  

Reduce your compliance risk with consistent presentations and full disclosure. It’s the 300% rule: 100% of your products to 100% of your customers, 100% of the time. Use a good electronic menu product for consistency, and understand what is legally required by your state’s law.

4. Are you aware of 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. Do you have a document management program?  

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 more than just convenient. Being consistent in storage and security provides peace of mind and creates efficiencies just in case auditors do come calling. 

If you answered no to any of these questions, or if you are not sure whether your compliance program offers this level of integrated support, consider enlisting the help of qualified legal counsel and applying some basic compliance tips.

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*The Center for Automotive Research. (2014). The Impact of Federal Regulations on Franchised Automobile Dealerships.