A Compliance Program That Won't Break the Bank

By Thomas B. Hudson


Sales and profits down? Business off? Guess who doesn't care?

Attorneys General and plaintiffs' lawyers, that's who.

Car dealers are more and more frequently the targets of lawsuits and enforcement actions.

Why? Because most of them are very easy targets. The legal requirements imposed on car dealers are staggering.

Consider the message I got from a dealership lawyer a couple of days ago. He asked whether I had a list of all the federal laws that applied to dealer car sales, lease and financing transactions. Here's my quick rundown of some of the federal laws and regulations that came to mind:

The Truth in Lending Act and Federal Reserve Board Regulation Z;
The Consumer Leasing Act and Federal Reserve Board Regulation M;
The Equal Credit Opportunity Act and Federal Reserve Board Regulation B;
The Fair Credit Reporting Act (including the new "Red Flags" Rule);
The Federal Trade Commission's Used Car Rule;
The FTC's Preservation of Consumer Claims and Defenses Trade Regulation Rule;
The FTC's Credit Practices Regulation;
The Magnuson-Moss Warranty Act;
The Federal Odometer Act;

The Gramm-Leach-Bliley Act and the FTC's Privacy Regulations (including the "Safeguarding" Rule);
The Internal Revenue Service's Cash Reporting Rules;
The Treasury Department's Office of Foreign Assets Control ("OFAC") "Specially Designated Persons" ("Bad Guy") List Requirements;
The USA PATRIOT Act;
The FTC's Do-Not-Call and Do-Not-E-mail Rules; and
The Federal Communication Commission's Telephone Rules.

That's a list of federal laws, mind you, and it isn't complete, but it illustrates my point. Many state laws also apply to dealers' activities.

All of these laws and regulations have some degree of impact on a dealership's forms and procedures. How many dealers are aware of them all? My bet is, not many.

Large dealer groups and dealerships can afford the substantial costs involved in trying to comply with this maze and keep their people currently trained regarding the requirements imposed on the dealership, but smaller dealers often simply lack the resources to do so. What are such dealers to do?

It seems to me that the choice is either to throw in the compliance towel, try to fly under the radar and hope for the best, or to try to come up with some compliance solutions that don't cost an arm, a leg, and a first-born child.
I've given some thought about how to have a compliance program that doesn't break the bank. Here's what I've come up with:

- Name a Compliance Officer. This person can, and probably should, be your Privacy Officer (the requirement for dealers to name a Privacy Officer has been around for several years). This person should report to the highest person in the dealership organization.

-Send the Compliance Officer to the Association of Finance and Insurance Professionals (or other such organization) for F&I training and certification. The Compliance Officer can then train others in the dealership.

-The Compliance Officer will need some resources. Some worthwhile ones will be provided by AFIP as part of its training program. Others should include at least the following (all of which are free or very inexpensive):

"Understanding Vehicle Finance" - a pamphlet available from the web sites of the National Automobile Dealers Association or the American Financial Services Association. It's free and isn't copyrighted. Download and print.
The FTC web site - there is a treasure trove of information on this site, including materials on advertising, the Used Car Rule, warranties and more. Free.

State consumer protection agency and Attorney General web sites - some of these are good, some not so helpful, but the Compliance Officer needs to check them out. Free.
State dealer associations - these run the gamut from great to awful. Many have compiled very helpful materials on topics like advertising that can make the Compliance Officer's job much easier. You will probably have to join the association to get beyond a firewall. Free if you are already a member.

National dealer associations - the ones that spring immediately to mind are NADA and the National Independent Auto Dealers Association. NADA, for example, offers dealer guides on a number of subjects such as adverse action notices and the FTC's safeguarding requirements, and the guides are available to members and to nonmembers, at a slightly higher price. The guides, even for nonmembers, are under $100, and well worth it.

Professional consultants and trainers - there are some good ones out there. You should get references, and you should be very nosy about the source of the legal materials these folks use. These resources can be pricey, but the good ones are worth their fees.

Vendors - here, you need to be very careful. I've seen some vendor training that is as good as it can get, and I've seen vendor training that made me reach for my 10-foot pole. Again, get references, and ask for the source of their training materials. The cost here is usually the business that the vendor hopes to get from you.

After the Compliance Officer avails himself or herself of as many of these resources as possible, he or she should begin to create written policies and procedures (note that such written programs are required by the FTC's Safeguarding Rule and the new Red Flags Rule). These need not necessarily be elaborate documents, but they do need to reflect accurately the legal requirements that the dealership faces. For that reason, they should be reviewed by the dealership's lawyer, if at all possible. That won't be free.

So, there you are. If you have the money to create a comprehensive compliance program, ignore this article and go do your thing. If you don't have the long green, use this article as a recipe for a rudimentary compliance program that can be developed over time into something more comprehensive.

Good luck.

Link to Original Source Article:

Copyrighted material.
Thomas B. Hudson, Esq. is the Publisher of Spot Delivery, a monthly legal newsletter for auto dealers, and the Editor and Chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by Counselorlibrary.com LLC.

Hudson Cook, LLP - Hanover, MD
tbhudson@hudco.com
410.865.5400

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