How to Measure a Well-Run Automotive Finance F&I Department

Objection Handling: How to Handle the "I'll Think it Over Objection"

2011-09-05T13:02:00.000-05:00

Even though this is an F&I blog, the techniques in this close are VERY GOOD GUIDANCE for anyone selling cars for a living. Whether you are a rookie or a veteran, I highly recommend taking 9 minutes to go through this clip with Mark and re-apply these tried and proven sales tactics.

Maybe send the clip to your GM to show during a sales meeting...

Feel Felt Found - Good Monday Sales Meeting!

2011-08-24T18:21:00.001-05:00

Objection handling. Simon Bowkett shows how one of the oldest objection handling techniques still works today.

Good Stuff !!!

Next Post: http://autofinanceinsider.blogspot.com/2011/05/compare-spending-habits-with-your-peers.html

Back to the Auto Finance Insider blog homepage:

FTC Announces $1.8 Million Settlement for Violation of Fair Credit Reporting Act

2011-07-11T21:55:00.001-05:00

Hmmmmm.... here is another example that the credit bureaus will continue to violate Federal Law and lose a few million ... while raking in hundreds of millions of dollars per year --- by selling YOUR credit report to whoever wants to pay them for it.

Read the article here: http://www.privacyandsecuritymatters.com/2011/06/ftc-announces-18-million-settlement-for-violation-of-fair-credit-reporting-act/

Next Post: http://www.autodealermonthly.com/79/4078/ARTICLE/Dealer-Practices-to-be-Scrutinized-by-the-FTC-and-CFPB.aspx

Following Post: http://autofinanceinsider.blogspot.com/2011/05/compare-spending-habits-with-your-peers.html

Back to the Auto Finance Insider blog homepage:

Dealer Practices to be Scrutinized by the FTC and CFPB

2011-06-28T13:44:00.003-05:00

“Bottom-Feeders” to Be the First Scrutinized...

By: Thomas Hudson

When you are a lawyer, it seems that all your friends insist on telling you every lawyer joke they hear. One of my favorite recent ones: “What’s the difference between a lawyer and a carp?” The answer, after my obligatory “I give up” was, “One’s a scum-sucking bottom-feeder, and the other one’s just a fish.”

I immediately thought of that one when I read that Federal Trade Commission Chairman Jon Leibowitz, in a speech to the U.S. Chamber of Commerce, used the term “bottom-feeder” in describing the FTC’s agenda for the coming year in light of the creation of the Consumer Financial Protection Bureau (CFPB), with which the FTC will share enforcement authority over financial services companies.

Read the rest of this excellent article here: http://www.autodealermonthly.com/79/4078/ARTICLE/Dealer-Practices-to-be-Scrutinized-by-the-FTC-and-CFPB.aspx

Next Post: http://autofinanceinsider.blogspot.com/2011/05/compare-spending-habits-with-your-peers.html

Back to the Auto Finance Insider blog homepage:

Compare Spending Habits With Your Peers

2011-05-10T11:24:00.000-05:00

This is a neat website that allows you to compare spending habits with your peers in the same geography. Very cool engine at http://www.Bundle.com

Man, I am bored. This probably should have gone out on Twitter. If anyone wants to follow my tweets, Auto Finance Insider is located at Twitter.com/financed1

Have a fantastic day!!!

AFI

Next Post: Rewriting the Rules of Credit

Back to the Auto Finance Insider blog homepage:

Former Automotive F&I Manager and Wife Face ID Theft Charges

2011-03-17T10:33:00.001-05:00

The former finance manager of a General Motors dealership in Harlan, Ky., and his wife face theft and identity-theft charges in Harlan County Circuit Court this week for allegedly using customer names and personal data to obtain loans for cars he bought and resold for profit, according to the Kentucky State Police.

Paul Anthony Casolari, 42, the former finance manager at Creech Chevrolet-Buick Inc. in Harlan, and his wife, Christy Casolari, 32, both of Cumberland, Ky., have been charged with alleged thefts that took place from 2008 to 2010, police said. Harlan is in southeastern Kentucky about 15 miles from the Virginia border.

Paul Casolari obtained loans and bought cars using personal information from real customers, said Trooper Walt Meachum, a spokesman for the Kentucky State Police.

“He was getting loans using stolen identities,” Meachum said. “He would try to resell them quickly, but if he didn’t get them sold in time, he was making payments on them until he did sell them for profit.”

Christy Casolari took part in the alleged thefts with her husband, but she was not employed by the dealership, Meachum said.

Customers found out cars had been bought in their names when they checked their credit reports, Meachum said. He said police believe the alleged thefts involved “about eight” vehicles, and that multiple charges are linked to each vehicle.

Reached by phone, dealership owner Joe Creech declined to comment.

The Casolaris are scheduled to be arraigned, or formally notified in court of the charges against them, on Thursday, March 17. They were arrested Feb. 21 and freed almost immediately after posting bond, police said.

Paul Casolari faces 106 counts of forgery, plus 12 counts of identity theft, nine other theft-related charges, plus trafficking in stolen identities, according to court records. Christy Casolari faces similar charges, minus the forgery counts, court records show.

A court clerk said court records did not identify any attorneys representing the Casolaris, and the Casolaris could not be reached for comment.

AFI's take on this: It could have been A LOT WORSE. So he was using stolen identities to buy and flip vehicles. That's just the first step toward taking everything and skipping town. Maybe that was the plan anyway and they got caught before they could run.

This is just another example that identity theves will get caught, and if it happens to involve an F&I Manager - throw the book at 'em. We have to trumpet honesty and integrity in the F&I profession.

Yet another reason for F&I Managers to become AFIP Certified. Contact me at: AutoFinanceInsider@yahoo.com for contact information of a dynamic and vivacious agent who will prepare and proctor the AFIP exam for your F&I Managers.

Link to original article: from: LEX18.com (Lexington, KY)

Next Post: Rewriting the Rules of Credit

Back to the Auto Finance Insider blog homepage:

Rewriting the Rules of Credit

2011-02-17T17:13:00.006-06:00

In his new book, A Call for Judgment: Sensible Finance for a Dynamic Economy, economist and Tufts University professor Amar Bhidé laments a banking system that bases decisions on complex algorithms rather than good old-fashioned loan reviews, a practice that has greatly choked off financing to small business.

AFI Interview excerpts:

Lending used to be a subjective matter. Why did we wind up with a system of stringent rules?

First, there was an ethos that developed in academia that said that all risks can be quantified. What economists did was say the stuff that we cannot quantify is really on the margin. And what's essential to risk, we can pretend to reduce to one or two numbers. Once you do that, then you can create a machine. If you're required to think of risk in a broad, holistic kind of way, it's much more time-consuming.

Implicitly and explicitly, the government embraced this view of risk. Almost unwittingly, [Fannie Mae and Freddie Mac] created the largest mechanistic model of lending in the world simply by saying we will underwrite the risk of mortgages if they meet XYZ criteria. If you followed the model for a loan, the government would take it.

The interesting part is that not all lending can be equally mechanized and scaled up. And therein lies the rub. It means that if I'm a bank, and I want to expand, I'm going to favor the activity where I can put pedal to metal fastest.

And small-business lending does not fit into that mold.

Correct. It was and remains an activity that requires a banker to go and talk to the borrower. Analysts can pretend that all housing loans are the same, but with small business, the pretending completely defies belief. So small business gets the short end of the stick.

What about the bank bailout? Why did so little money reach small businesses?

The way to get more credit into the hands of the small-business owners has been long impaired, and for the money to reach the people who need it, you need more channels. Small-business lending requires a mechanism that frankly will take a long time to rebuild.

How can the U.S. revive small-business lending?

The government should demand that any depository institution whose liabilities are ultimately guaranteed by the taxpayer make its loans prudently—where a banker and an examiner understand the risks and where each loan is made with a case-by-case examination of the risk in the bank. Small-business lending will remain risky. But there's a difference between a risk taken after a bank has obtained a deep understanding of the situation and a risk taken based on algorithms or rules that do not in fact make a lending decision safer.

What role should regulation play?

I think one of the great strengths of America is people's willingness to borrow and consume in the expectation of a better tomorrow. That is one of the things that distinguishes America from Europe. I think it's fantastic that three million iPads have been sold even in a recession. But that primal urge needs to have a brake applied to it sometimes and the brakes used to be provided by the banking system. Something healthy and useful was taken to extremes. It becomes insane. It's like, protein is good for you so you go on an all protein diet.

For regulators, instead of continuously experimenting with things like quantitative easing, why not pay attention to the things we know are bad?

But there's no hard and fast rule that says more regulation is good or more regulation is bad. You have to look at the facts of the case. And the facts said with banks that self-policing did not work. We ought to examine the brakes.

I agree wholeheartedly!

You should buy this book. It is awesome!

Next post: Risk based pricing webinar.

Back to the Auto Finance Insider blog homepage:

Risk Based Pricing Webinar

2010-12-09T16:15:00.000-06:00

RouteOne has a free Risk-Based Pricing webinar that in my opinion is worth a look.

Here is a link to register:

http://www.routeonecompliance.com/index.html

P.S. I am not affiliated in any way with RouteOne nor are they paying me for this endorsement. If they would like to... hint hint... send an email to autofinanceinsider@yahoo.com to receive the details.

Anyway - I hope all of you finish December very strong. Every F&I Manager I have talked with has had a better year than they did in 2009. Let December be no exception!

Cheers,

AFI

Next Post: Risk-Based Pricing Rule: Further Clarification

Back to the Auto Finance Insider blog homepage:

Risk Based Pricing Rule - Further Clarification

2010-11-10T09:11:00.002-06:00

Some of my dealer friends are thinking that compliance with this rule will be harder than it's going to be.

Let's look at it closer:

Starting Jan 1st 2011, you will just have to give consumers a new notice, called a Risk Based Pricing Notice.

The Government means to protect the consumers who, because of bad credit scores, won't get the same credit terms as those with good credit scores.

This notice is meant to make these consumers aware of this.

So dealers need to give EVERY applicant for credit - whether or not you get them financed - a notice that:

1. Shows them their credit score and which CRA it was pulled from,

2. Tells them what a credit score is and steps they can take to change it,

3. Displays a bar chart or other visual that shows where their credit score compares with the national average.

These notices will be available (at an additional charge) from the vendors that you use to pull your credit reports.

Simple.

Next Post: My original rant about the Risk Based Pricing Rule: CLICK HERE

The post also contains a link to the full 202 page text of the rule... exciting.

Back to the Auto Finance Insider blog homepage:

Risk Based Pricing Rule

2010-10-26T19:00:00.002-05:00

As the Risk Based Pricing Rule goes into effect Jan 1st 2011, how many of you already have a negative view against it? More government regulation inflicted upon automobile dealers. More of our taxpayer dollars spent on a useless and confusing program

What is the Risk Based Pricing Rule and how is the automotive industry required to comply with it?

Here is a link to a good article written by Randy Hendrick (Dealer Track) for F&I Magazine: http://www.fi-magazine.com/Article/Story/2010/03/New-Credit-Rules-Decoded.aspx.

Randy points out that "the new notices are intended to complement adverse action notices, which dealers are already accustomed to issuing when they can’t attain financing for a customer. The difference with the risk-based pricing notices is that they must be handed to consumers before the transaction is consummated; that is, before the customer signs the retail installment sales contract (RISC)".

So it sounds like this is another item that will be required to be included with the customer's paperwork, and moved from one paperwork stack to the other, at the step directly before they sign the RISC.

Ok, so why exactly do we need to do this?

Below is a link to the full 202 page text of the rule: http://www.ftc.gov/os/2009/12/R411009riskbasedpricingfrn.pdf

Basically, the FTC and the Federal Reserve Board are trying to look after the public, specifically those who have less than perfect credit. They are requiring creditors (yes - dealerships are creditors) to give notice to consumers when their credit caused them to receive higher interest rates.

A dealership would need to calculate their average contract rate per financed customer, and provide this required disclosure to anyone who doesn't qualify for this average rate.

??? Talk about opening up a can of worms. How many times could doing this cost a deal? Or almost as bad - giving them a reason to walk out of the dealership under the premise of checking with their credit union.

Let's look further into this...

The finalized rules implement Section 311 of the Fair and Accurate Credit Transactions Act of 2003. The rule states that dealers can determine which customers should receive the notices by using the dealerships average credit score or their average credit tier.

The Dealer Exemption

There is also a dealer exception that doesn't require a notice to be given, but will require that the dealer spend extra money buying a product from the credit bureau they used in their decision. This product will show the credit score of the customer and where the score falls within the national average of scores.

NADA's response statement:

“Due to the difficulty in determining which subset of credit customers must receive risk-based pricing notices, NADA strongly urged the agencies to create an optional compliance mechanism that would allow dealers to provide all of their credit customers with a simple notice that satisfies the requirements of section 311,”

The statement reads:

“The agencies adopted this recommendation by permitting an exception notice to be issued in lieu of a risk-based pricing notice provided it contains the consumer's credit score, date the score was created, certain information to put the score in context, and additional boilerplate language concerning credit scores, credit reports, and how consumers may access their credit report".

Like the risk-based pricing notice, this notice must be handed to the customer before the transaction is consummated.

In conclusion:

The rebel in me wants to find some "generic fill in the blanks" form for the F&I Manager to hand-write the days date and the customers credit score copied from the top of the pulled credit report (that we already pay for). I will be looking into this after this post is published.

My amazement at the use of our tax dollars is never-ending - this program is confusing at best. There also seems to be no "teeth" anywhere in the text of the regulations, unless I missed it. What are the exact penalties for non-compliance?

Hmmm...

Most dealers will probably go for the dealer exception - handing EVERY customer a Credit Score Disclosure Form. This will require the dealership to buy the form from either Equifax, Experian or Transunion, and spend resources to print it off just to comply with the rule.

Requiring compliance is going to basically create another profit for the three credit bureaus at the expense of the automotive dealer.

Ok, I need a break.

Next post: AFI's take on the new "Safe Harbor" Privacy notices: CLICK HERE

Back to the Auto Finance Insider blog homepage:

Safe Harbor - New Privacy Notices

2010-09-28T17:08:00.011-05:00

In November of last year, in order to produce uniformity in the privacy notices being issued to consumers, government agencies amended the Gramm-Leach-Bliley Act. The amendment called for the creation of an online form builder that would generate standardized compliant privacy notices.

The privacy notices that we have been commanded to provide to our customers since July of 2001 will not protect us from our government's wrath after Dec 31, 2010. It's been a good run though.

Anyway, there are new rules for the content that dealers need to have in their new privacy notices to give them the "safe harbor" that they enjoyed while providing the old privacy notice.

A "safe harbor" is a provision in the regulation that reduces a dealers potential liability if the dealer provides a privacy notice exactly the way the online tool dictates them to do. This makes the dealer compliant with federal law and protects them if any issues arise.

I am all for protection, so how do these privacy notices need to look?

Here is a link to the Privacy Notice Online Form Builder: This is where you will need to go to actually create your privacy notice.

http://www.federalreserve.gov/newsevents/press/bcreg/privacy_notice_instructions.pdf

and a FTC workshop on "Writing Effective Privacy Notices"

http://www.ftc.gov/bcp/workshops/glb/index.shtml

It looks like we will be giving a 2 page privacy notice doesn't it? Well, actually it could probably be tightened up into 1 page and still remain compliant. No - it states that there needs to be a Page 2 - and I quote:

"As in the proposed model form, the second page of the final model form provides additional explanatory information that, in combination with page one, ensures that the notice includes all elements described in the GLB Act as implemented by the privacy rule".

Maybe it can be front and back. Oh well - Still waiting to see what my main dealer group is going to roll out.

Wooooaaa...

Here's a link to the actual Rules and Regulations of this thing: http://www.ftc.gov/privacy/privacyinitiatives/PrivacyModelForm_FR.pdf

I continue to be amazed at the waste of our tax dollars.

Does anyone else have a headache?

Compare with the full text of Regulation P back from 2002: Regulation P - Compliance Guide for Small Entities

Seems like the Government continues to become more and more complicated in spite of itself - although I know that we still live in the greatest country in the world!

Actually - come to think of it...

I have been scanning this monstrosity of the rules and regs of the final rule, and I don't see the words "Safe Harbor" anywhere in the rule. It is just titled "The Final Model Privacy Form Under The Gramm-Leach-Bliley Act"

If anyone can find it and prove me wrong - please leave a comment.

In fact - do a Google search for "Safe Harbor Privacy Notice" and you'll see examples of the Safe-Harbor privacy rules of large companies such as Merck and even Ford Motor Credit on the first page of results.

BUT.......

Their notices keep these companies in compliance with information sharing policies between American companies and the European Union and Switzerland.

From MeadeWestvaco:

"MeadWestvaco Corporation is committed to protecting the privacy and security of its Employee Personal Information and has certified that it abides by the Safe Harbor privacy principles as set forth by the United States Department of Commerce. The principles regulate the use, collection, storage and transfer of data between the European Union and the United States. This Policy outlines the practices and procedures for implementing these principles."

So why are Automotive Compliance gurus all referring to our version as a Safe-Harbor Privacy notice?

It really doesn't matter does it.

I'll bet that I am the first to expose the truth though - ha.

Anyway - sorry to all of my readers for the lack of recent posts. Building a company is exhaustive work.

Please feel free to leave comments!!

Cheers

AFI

Next post: my comments on the U.S. Fidelis fiasco.

Back to the Auto Finance Insider blog homepage:

US Fidelis Collapse Sparks Service Contract Debate

2010-05-27T19:16:00.006-05:00

.
Remember those sickening comercials in 2009 with Rusty Wallace - smiling - "I would buy the extended warranty on all my family vehicles ONLY from US Fidelis".

It killed me too - as tough a year in the F&I box that 2009 was - having to listen to customers compare the prices of my esc's with "those ones on the TV" - US Fidelis.

All is better in 2010 though - check out a good article from Jim Henry: Automotive News

___________________________________________________________

The March bankruptcy filing for US Fidelis, the high-profile company that marketed extended service contracts directly to consumers, has rekindled debate over whether customers are best served by bypassing dealerships.

Customer-direct "is a growing business, to say the least," said, Marc Kamin, a spokesman for AA Auto Protection, of West Deptford, N.J., which markets extended service contracts to customers online.

"Our position is a lot of people didn't know that a service like ours is available."

Saturation-coverage TV advertising for US Fidelis, including a NASCAR sponsorship, fixed that problem by raising awareness, Kamin said.

AA Auto Protection is a broker for the administrators that actually sell extended service contracts, Kamin said. He compared this to an independent insurance agent who offers policies from several companies.

"We are able to give the best prices directly because dealerships mark them up. We can sell them more cheaply," Kamin said.

He estimated that the average consumer could save 40 to 60 percent off the price of an identical service contract bought through a dealership, depending on how much the dealership marks it up. Kamin quoted a price of about $1,800 for "bumper-to-bumper" coverage for a couple of common used vehicles, a 2005 Toyota Camry or a 2005 Ford F-150 pickup.

Kamin said a broker such as AA Auto Protection also can offer service contracts for older used cars with higher mileage -- contracts that dealerships likely would not offer.

Apples to Apples

Larry Dorfman, CEO of EasyCare -- the trade name for Automobile Protection Corp., of Norcross, Ga. -- said in a separate interview that if you compare apples to apples, consumer-direct marketers are not necessarily cheaper.

"Most of these companies claim they are a lot cheaper than a dealer, and the fact is, if you price them for similar coverage, they are actually more expensive," he said. Dorfman was commenting in general, not specifically about AA Auto Protection.

EasyCare primarily offers service contracts through dealerships, but it also offers them directly to consumers through a call center, Dorfman said. He said his company first refers all customer-direct consumers to a dealer in EasyCare's network.

Dorfman said retail prices at dealerships, which are set by dealers, range from $1,500 to $1,800 for his company's best coverage, called TotalCare, for an average domestic or Asian vehicle. Contracts have a $100 deductible.Even EasyCare's own internal customer-direct call center would charge an average of $300 more for the same thing, he said. He estimated that competing call centers would charge about the same, maybe $100 more.

Dorfman said dealers and call-center service contract brokers both pay the same wholesale costs for service contracts. That means call centers are middlemen, just like dealerships.

He said a dealership has other profit centers, such as parts and service, which make money in the long run from a service contract customer.

But a call center has to charge more because it makes all its profit from service contracts.

"Over the years, a customer who purchases a [vehicle service contract] at the dealership has always been more likely to service there," Dorfman said.

Buyer (and seller) beware

Dorfman said the US Fidelis bankruptcy should serve as a warning for all service contract providers. No matter what the contractual obligations are, dissatisfied customers understandably blame whoever sold them the contract, Dorfman said.

"If the customer purchases from a dealer, there is brick and mortar to go back to," he said. "Claims and cancellations are a lot easier, and if a dealer is no longer in business, the vehicle service contract providers offered now at dealerships will step up and do what is right.

*** My Point exactly! - AFI

"On its Web site, US Fidelis, of Wentzville, Mo., tells customers seeking a refund that the service contract is between the customer and the third-party administrator, not Fidelis.

Of Course.

"US Fidelis has agreements with each of these administrators, and some of those agreements state that when a customer cancels, US Fidelis will reimburse the administrator for part of the amount refunded to the customer," the company says.

However, bankruptcy means US Fidelis may be unable to pay its part of such refunds, the company says.Without commenting on a particular company, Dave Robertson, executive director of the Association of Finance & Insurance Professionals, said extended service contracts sold through dealerships can offer some advantages.

As a general proposition, a cheaper service contract may make it harder to make a claim that qualifies for coverage, Robertson said.

He also said that buying an extended service contract on the Internet with a credit card could be more expensive than it appears, if the buyer doesn't pay it off right away.

"The cost of the coverage plus the cost of credit likely makes the plan more expensive than one purchased in a dealership," Robertson said. "If I was an F&I manager, I'd put some hard numbers to this and use it when pitching vehicle service contracts in the store."

Moral of this story: You alwars reap what you sow.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Don’t Get Bitten by Your Bird Dog

2009-12-24T11:07:00.006-06:00

A good article by Patty Covington

Long-standing dealership practices aren’t necessarily legal dealership practices. Many of these questionable practices have been around for years - and often dealers keep using them, because “everyone does it.”

Dealers sometimes don’t think twice or consider whether the practices are legally permissible or even if they are good for business. Over time, these practices have simply become part of the dealership's operations.

Referral fees are a good example of these practices.

I’m not talking about leads purchased from a typical lead provider or the purchase of a marketing list. I’m talking about referral fees paid by one dealership to another dealership or payments between sales associates of different dealerships for the referral of a customer who buys a car.

This arrangement could be part of a formal referral fee program between dealerships. let’s say sales associate Frank at franchise dealership X agrees to refer his “turndown” customers to sales associate Tom at independent dealer Y.

The arrangement could even involve an individual not employed by a dealership.

No harm, right?

Well, maybe more than you might expect. If you, or your dealership, is involved with such a program, here are a couple of things you should consider:

State law may prohibit paying for a referral in connection with the sale of a car.

Some states specifically prohibit the practice, commonly called “bird-dogging.”

Louisiana is such a state. Some states, like Ohio, require that any commission or compensation paid for the sale of a car be to a person licensed as a salesperson in the dealer’s employ.

Other states have dealer and salesperson licensing laws that sweep in broker activities. Finally, some states have laws specifically targeted at the “brokering” of cars. Some of these laws require brokers to be licensed, while others simply prohibit the brokering of the sale of a car.

Information exchanged could violate privacy laws.

Even very basic information regarding a customer, like the customer’s name, could be “nonpublic personal information” under the federal Gramm-Leach Bliley Act (GLBA).

Credit applications and a customer’s FICO score also would constitute nonpublic personal information.

Under the GLBA, nonpublic personal information cannot be shared with unaffiliated third parties unless the dealership’s privacy notice specifically states that the dealership shares information in such a way.

If Social Security numbers are shared, other state privacy laws may be violated. A significant number of states have laws that prohibit certain disclosures relating to Social Security numbers.

In addition, if an employee shares customer information with another person against dealership policy, the disclosure could constitute a security breach. Some states have security breach laws that apply only to paper documents, but other states’ laws also cover electronic records.

Information exchanged could constitute a consumer report.

If credit applications or FICO scores are shared, the federal Fair Credit Reporting Act (FCRA) is implicated. These documents constitute consumer report information.

What does this mean?

First, the party giving out this consumer report information may be deemed to be a consumer reporting agency under the FCRA.

Secondly, the party receiving the consumer report information is required by the FCRA to have a “permissible purpose” for the information under the FCRA prior to receiving it.

The FCRA sets forth an elaborate set of rules, requirements, and conditions for consumer reporting agencies and users of consumer reports.

The implications of being a consumer reporting agency are enormous. In addition, some states regulate these practices.

Calling a potential customer could violate “Do Not Call” rules.

You will violate the federal Telemarketing Sales Rule (TSR) if you call a potential customer registered with the Federal Trade Commission’s Do Not Call registry.

State mini-DNC registries and rules may also apply.

Exceptions available under the TSR will likely not apply because the customer initially contacted and dealt with the referring dealership, not the dealership following up on the referral.

Finance and lender broker licensing may apply.

Some states have finance and lending broker laws that are triggered for finance transactions.

Since most cars are financed, these laws may be implicated. Rhode Island has such a law. These laws typically impose licensing requirements.

If your dealership sells its financing contracts to sales finance companies and banks, it has entered into a dealer agreement regarding those contracts.

Typically, dealer agreements contain representations and warranties from the selling dealer to the effect that the dealer is in compliance with all state and federal laws applicable to the sales and financing transactions reflected by the contracts.

If your referral program violates such laws, you might find yourself forced to repurchase those contracts. Not a good day.

Finally, in addition to the above legal issues, there may be some practical matters that should be considered. For instance, are dealership associates referring the “right” deals to another dealership?

Is it possible that a sales associate will earn more on a referral than he would have earned if he’d sold the car himself? That may be possible with subprime discount deals.

It’s better to carefully consider whether what “everybody else is doing,” is first legal and second, makes sense for your business. It’s not that unusual for commonly accepted practices to come under fire.

Patricia E. Covington is a partner with Hudson Cook, LLP, a Hanover, Maryland-based law firm that represents national and state banks, savings associations, credit unions, mortgage bankers, and licensed lenders in the development and maintenance of consumer mortgage, automobile finance, and other credit programs.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Former Ford Dealers Hit by Bank Fraud Charges

2009-11-03T11:04:00.003-06:00

Dealers facing up to 30 years in prison

This isn’t your everyday bank fraud story.

Authorities charge that the former owners of a Ford dealership in upstate Wisconsin defrauded a local bank in a scheme that lasted over four years and resulted in losses of over $2 million.

According to a press release from the U.S. Attorney’s office and reports in the LaCrosse Tribune and the Chippewa Herald, the accused men who are brothers, have agreed to plead guilty to charges stemming from a fraud that court documents say cost two banks more than $2 million.

You can’t blame this one on the lousy conditions in auto retailing.

The scheme allegedly began in January 2004 and wasn’t uncovered until August 2008.

Information filed by federal prosecutors indicates that the pair falsely claimed to be buying vehicles for their inventory. But it turns out that some of the loans were for vehicles the brothers never bought. In other instances, the pair were simply out of trust by failing to report to the banks that vehicles had been sold.

The fraud resulted in a $1,767,353 loss for Farmers and Merchants Bank and a $296,861 loss for First Bank.

The banks discovered the fraud in August 2008 and reported the matter to federal authorities in August 2008. The dealership is still operating but is under new ownership.

The former dealers each face a maximum penalty of 30 years in prison plus restitution.

A government spokesperson said that some funds have been repaid by selling personal property.

Wow.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Red Flags Q&A Webinar with Michael Benoit

2009-10-29T12:51:00.003-05:00

Compli Hosts Complimentary Webinar: Red Flags Q&A Webinar with Michael Benoit.

This is a very good webinar on Red Flags and is worth a look. November 1st is a few days away!!!

Cheers, AFI

Please fill out this brief form to view Compli's "Red Flags Q&A Webinar with Michael Benoit." Once you have submitted the form you will be directed to a page where you will be able to view the Webinar.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Good Motivation

2009-09-04T12:22:00.003-05:00

A message to all members of SELLING IRON

Any day we wish; we can discipline ourselves to change it all.

Any day we wish; we can open the book that will open our mind to new knowledge.

Any day we wish; we can start a new activity. Any day we wish; we can start the process of life change.

We can do it immediately, or next week, or next month, or next year.

We can also do nothing.

We can pretend rather than perform.

And if the idea of having to change ourselves makes us uncomfortable, we can remain as we are.

We can choose rest over labor, entertainment over education, delusion over truth, and doubt over confidence.

The choices are ours to make.

But while we curse the effect, we continue to nourish the cause.

As Shakespeare uniquely observed, "The fault is not in the stars, but in ourselves."

We created our circumstances by our past choices.

We have both the ability and the responsibility to make better choices beginning today.

Those who are in search of the good life do not need more answers or more time to think things over to reach better conclusions.

They need the truth. They need the whole truth.

And they need nothing but the truth.

We cannot allow our errors in judgment, repeated every day, to lead us down the wrong path.

We must keep coming back to those basics that make the biggest difference in how our life works out.

And then we must make the very choices that will bring life, happiness and joy into our daily lives.

And if I may be so bold to offer my last piece of advice for someone seeking and needing to make changes in their life—If you don’t like how things are, change it!

You’re not a tree.

You have the ability to totally transform every area in your life—and it all begins with your very own power of choice.

Happy Selling!
Keele Fishel

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

Everybody does it

2009-08-31T12:29:00.002-05:00

Another "reality check" by Gil Van Over

I’ve read more than a few depositions over the last couple of years. Some of the questions asked by plaintiff’s attorneys shed light on the risks faced in a dealership’s operations. Today I will discuss the best rate discussion.

Background

This consumer sued the dealership under the state’s unfair and deceptive practices act alleging that the finance manager arranged for a straw purchase and inflated the vehicle’s book value to the lender in order to obtain a credit approval. The consumer was also countersuing the lender to get the deficiency balance waived.

Interrogation

Attorney: Ms. Finance Manager, do you remember my client?

FIM: No.

Attorney: You don’t remember completing this transaction?

FIM: No, it was over three years ago.

Attorney: Let’s look at Exhibit A. This is from the deal jacket your dealership provided. Would you agree it is a credit application?

FIM: Yes.

Attorney: Can you read the name in the ‘Applicant” box?

FIM: Joan Straw.

Attorney: Now let’s look at Exhibit B. This is also from the deal jacket your dealership provided. What is this form?

FIM: It is a retail contract.

Attorney: Can you read the name of the buyer in the top left box?

FIM: Tom Purchaser.

Attorney: Is Joan Straw listed?

FIM: No.

Attorney: Did Joan Straw sign the contract?

FIM: No.

Attorney: Can you explain why Joan did not sign the contract, yet applied for credit?

FIM: It looks like we put the car in Tom’s name. Maybe Joan did not qualify.

Attorney: Moving on. Exhibit C is a condition report from the repossession company. Exhibit D is the NADA book-out sheet from the deal jacket your dealership provided. Exhibit E is a sheet listing the differences in the options on the vehicle. Can you explain why the book-out sheet lists more options than the condition report?

FIM: Maybe the bank needed a higher book value to approve the loan.

Attorney: Why would you put the car in someone else’s name and inflate the value of the vehicle to the lender in order to get a credit approval?

FIM: Everybody does it to sell cars.

Solution

First, realize that “Everybody does it” it both a lame excuse and a blatant misstatement of the truth. Most dealerships do not encourage or allow straw purchases or power booking or other forms of potential bank fraud.

That does not mean that a rogue F&I or Sales Manager won’t periodically cross the line and put your dealership at risk.

Protect yourself by implementing a few common sense policies.

Expressly Forbid Bank Fraud – I just finished watching the NCAA men’s basketball championship game. Memphis coach John Calipari will forever be questioned about why he did not call a time-out with ten seconds left in regulation to review and set up his defense. As the leader, he potentially left a question in his player’s minds about what was expected to close the deal.

Do not put yourself in the same situation in litigation. Let there be no doubt about your policy with your employees. Make it known, through your actions and through your employee manual and through your F&I and Sales Procedure Manual that bank fraud is not acceptable or tolerated. Fire the next person who you find committing bank fraud.

Belt and Suspenders Auditing – The guy in front of me yesterday at the airport security check-in line had to take extra time to get undressed for the Magnometer. First, the belt. Next, the suspenders. The TSA agent asked the obvious question, “Why both?” the man’s answer; “If one breaks, the other one will hold up my pants.”

Set up your own belt and suspenders approach to auditing deals. Start with the billing clerk. Make it part of the checklist to briefly review credit applications for alterations or numbers being printed after the rest of the application is completed. Require that every used deal have a book-out sheet signed and dated by a manager that is affirming that the options listed are indeed on the vehicle.

The second level audits should be completed by the Office Manager or Controller or Compliance Officer. Randomly pull five deals per F&I Manager on a monthly basis and scrutinize the file for potential bank fraud issues.

Finally, get independent help. Periodically, but at least annually, have a sampling of files reviewed by your attorney, accountant or compliance consultant.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I, Sales and Red Flag Rule compliance consulting and training firm (www.gvo3.com).

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

It's Time to Play Monopoly

2009-07-16T08:57:00.005-05:00

Do not pass “Go,” do not keep your franchise agreement

by PETER BRANDOW

In today's game of franchisee survival, only a few things are certain.

State-enacted rules and protections are no longer the controlling law of the land regarding dealers' rights, and very few people will ever again completely trust a manufacturer's word, warranty, or franchise agreement.

Perhaps even more bizarre than a belief that too many dealerships, rather than cheap products, cause failed manufacturers, is certainty that fewer dealers in the marketplace will somehow make failed products fashionable. I was raised to believe that monopoly reduces service levels and inhibits competitive pricing.

Somehow, a country that grew rich on the conviction that anti-trust was pro-American, now has decided that a smaller, less competitive, more monopolistic dealer franchise system will better serve consumers, while at the same time putting easier profits into corporate hands. Less competition does not usually result in increased customer value.

Am I to believe that those same hard- hearted and hard-headed martinets who are cutting dealers off at the knees will become caring, loving merchants as soon as the blood washes from the streets?

What will unhappy customers do when the dealer that has been fighting for them so long is no longer franchised? Will they petition the same Congress, that sanctioned that dealer's beheading, for legislation to insure that the manufacturer not sell more cars than its diminished dealer network can service? Will independent service centers finally have their day?

By what logic will a surviving dealer invest in facilities, inventory or service staff when the name of their once-proud predecessor arrives in their shop on the bumper of every other car to serve a daily reminder that the future is only as bright as this season's sales?

I can't figure out how this latest round of dealer terminations and “participation agreements” (based purely on unilaterally imposed standards thrown down by frenetic manufacturers) won't heighten the antagonism between retailers and manufactures to a level that pummels any chance of dealer investment in customers for life.

If the dealers terminated were too short sighted, what has changed to support their successors in adopting a different strategy?

I am confused by the complete lack of public and governmental demand for regulation over the attention to be paid to individual consumers by surviving dealers.

Recent stories of warranty customers turned away by dealership fearing a lack of payment is just the tip of the iceberg. I didn't see in the calculations put before Congress the historic measure of service costs borne by dealers.

Years ago, the rule of thumb was that as much as 15% of the expenses associated with consumer incentives and warranty service came out of dealers' pockets. Have the surviving dealers budgeted that burden?

The theory that fewer, but bigger, dealers will service customer equally well and cost the manufacturer less, is rooted in the notion that the critical difference between Toyota and Chevy is fewer Toyota dealers.

So if we limit the access to Chevys, they'll become more well-liked. While you're pondering that, recall that every Chevy on the lot has been paid for before it left the assembly line. So tell me again, how piling them up farther from my home will make buying one more attractive or more lucrative to its manufacturer?

We have moved from a society that so loved a discount, that its people are now craving the ultimate bargain, the steal. Customers are hovering in wait to buy over stock at huge reductions. I get calls almost daily suggesting that a good price today will trump the promise of future service.

What's more, dealers themselves are literally tripping over one another to pick over the inventories of recently terminated brethren without sufficient concern that they might be next.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

Questions Surround Cash-for-Clunkers Program

2009-07-07T07:08:00.004-05:00

AFI - We are all curious about this one.

By Byron Pope WardsAuto.com

Details of the federal government’s “cash-for-clunkers” legislation have yet to be confirmed, but a Ward’s analysis of the program reveals numerous holes and the possibility it may not boost vehicle sales significantly.

Under terms of the Car Allowance Rebate System (CARS), dealers largely will oversee implementation of an incentive that provides up to $4,500 for consumers scrapping used vehicles rated at 18 mpg (13 L/100 km) for new cars that achieve at least 22 mpg (11 L/100 km), or light trucks capable of 18 mpg or more.

Trade-ins must have been insured for the past year - (No pulling out of the backyard allowed).

One potential pitfall of the program is how dealers will provide proof the trade-in vehicles will indeed be scrapped and not wind up on used-car lots, which would negate a primary objective of taking inefficient cars and trucks off the road.

The program is tentatively set to begin Aug. 1, with final rules reportedly due by July 23.

NHTSA spokesman Rae Tyson says the agency “has a lot of details to work out,” but adds careful consideration is being paid to ensure dealers can’t exploit the program.

Potential fraud “is one reason we’re being very careful,” Tyson tells Ward’s. “In order to complete the process, (dealers) have to ensure (the vehicle is) scrapped.

Dealers must first be certified in the program. Go to http://www.Cars.gov for more information.

Following certification, a dealer accepting a trade-in would have to make proper disposal arrangements, then submit documentation to NHTSA showing the process had been handled correctly and the vehicle had indeed been scrapped.

Once NHTSA approves the documentation, the dealer would receive the refund within 10 days.

NHTSA already has warned dealers not to begin signing up customers for the program until the final rule has been released.

NHTSA says in a statement, noting violators face fines of up to $15,000 per transaction.

While NHTSA is working to ensure dealers don’t take advantage of the program, some argue most dealers wouldn’t attempt to do so even if the situation presented itself.

“Some dealers will take advantage, but if you’re going to be blatantly stealing from the government, which that would be, they're going to find out,”

Another issue yet to be addressed is how dealers would prove to NHTSA vehicles will be scrapped, as well as how the actual scrappage will be carried out, Tyson says.

In the U.K., which earlier this year launched its own cash-for-clunkers incentive plan, salvage yards disposing of vehicles must submit documentation available online, along with digital images of the destroyed vehicles, according to British salvage firm Douglas Valley Breakers Ltd.

“One (option) would be to figure out how to render the drivetrain inoperative, or at least the engine; and the other would be perhaps do something to the title to allow it not to be re-titled, or some combination (of the two),”

If the vehicle’s body is in good condition, its parts could be sold off, although NHTSA has yet to decide whether or not that would be allowed. In any case, the priority would be to render the vehicle inoperable, he says.

The program is capped at $1 billion and runs through Nov. 1, 2009, or when the funds are exhausted, whichever comes first.

If the entire $1 billion were used with an average rebate being $4,000, it would result in 250,000 additional new-vehicle sales, barely enough to impact even a down U.S. market, which last year totaled 13,493,165 units, according to Ward’s data.

In May, the U.S. seasonally adjusted annual rate was 9.9 million units. Assuming that figure holds steady, the program would result in a mere 2.5% annual sales increase. If the SAAR improves as many predict, the impact would be even less.

Although European scrappage programs have been deemed successful, it’s largely because their respective markets are much smaller than in the U.S.

Perhaps the most important question concerning the CARS program is what vehicles will qualify.

“There aren’t many cars that get 18 mpg or worse,” Wolkonowicz says. “(The program) is not going to do anything but get trucks off the road, but that’s not its intent. It is a classic example of people (writing legislation) who don’t know anything about (the industry).”

Rikess agrees most car owners won’t qualify for the program, and raises yet another question.

“Affordability is an issue for some people driving 14- (and) 15-year-old cars,” he says. “A typical family with a cash-for-clunkers car couldn’t afford a (new car) payment.”

“The problem for a lot of dealers is if this creates a stampede of traffic and hurts them when they try and figure out what kind of vehicle is eligible and there are a lot of questions from consumers,” he says. “That could eat up a lot of manpower, and the majority won’t buy a car.

“It’s just (going to result in) incremental business dealers wouldn’t have gotten,” Rikess adds. “It’s more of a green initiative than a dealer initiative. It shows politics is the real winner.”

Read the entire article at: WardsAuto.com

PRINT THIS PAGE FOR YOUR RECORDS:

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

Whoopee, We're Bankrupt!

2009-06-12T09:49:00.008-05:00

Auto Industry Finds Out Chapter 11 Has Its Benefits

by: PETER BRANDOW

Note from AFI: I have been reading Peter Brandows articles in Ward's Dealer Business magazine for the last several years - and am a big fan. It is impossible to find another dealer principal who writes with such clarity and emotion about current events as they affect his dealership and the auto industry as a whole. This article should live forever as the point of view of the dealers who are adversely affected by the madness in today's automotive industry.

Every dealer advocate I know is reeling from the news alerts about Chrysler and GM cutting dealers' throats to right their failing businesses. May 14, 2009 will go down in history as the day our government and Chrysler tore the heart out of our franchise system by endorsing the termination of 789 duly franchised dealers without paying them a dime for cars, parts, tools or goodwill.

GM followed that by announcing it will ax 1,100 dealers. GM big wigs are clearly taking careful notes on how the political and marketing winds are shifting. Their dealer nasty-grams come without the cover of bankruptcy; they've set the precedent for terminating dealers simply because they just don't want to deal with them anymore.

Time will tell whether and where that works. They are seeking absolution based on giving the death-row dealers notice that they may appeal. Could they not even deem to offer stock in the future GM should it prosper from their sacrifice? Clearly the bailout is fueled by the very taxes that suffering dealers paid.

Could it be right that they will be cut out of any way to recoup their investments? I may be cynical, but I suspect that the time they are giving dealers is the hammer with which they are pushing others to buy inventory or risk a similar fate (and this from companies propped up by taxpayer bailout money).

When I closed my Chevy store, I was forced to sell new vehicles for two thirds of what dealers were paying GM for the same vehicles.

Clearly the survivors will have very valuable franchises and improved territories at the expense of those forced out. They should recognize this, as should the manufacturers.

If federal bankruptcy or simple arrogance can be used to sidestep state-legislated dealer protections, even Ford (who prides its self on avoiding such tactics) will not likely resist the temptation of availing itself of some bankruptcy salve.

Once everyone is doing it, and the buying public accepts the “B” word, the spin doctors will turn Chapter 11 into a tonic for fixing the American economy.

But, look out before you slap on a bumper sticker “Bankruptcy — Leveling the Playing Field for Americans.” You're being played.

Chrysler's bankruptcy comes with 789 dealer closings leaving a wake of 38,000 lost jobs — American jobs. That's just the first round. One can only assume that the number of American tragedies occasioned by GM's cuts will take the number of victims to well over 100,000.

Bankruptcy is code for stiffing people who trusted you on the way to a reorganized payday.

Reorganization is a tool not a goal.

We have not yet been informed as to whom the emerging companies will most benefit.

Worse yet, no one has yet completed a plan for success.

We have only identified the first victims of past failure. We still need to find how future products will become popular.

No one seems to be asking that question. Everyone is so fixed on bailing out, that they have not decided who will still be in the boat when the holes are plugged and the ship is able to float unaided.

While forming an opinion on who should live and who should die, we should not forget that it is because the domestics provided so many benefits to our economy that imports were able to limit their investments to immediate profits, much of which was quickly shipped off shore.

This current dealer inquisition is brutal and neither the bankruptcy court nor our economy seems prepared for the potential fallout, or cognizant of the disproportionate sacrifices being made to build a brighter future.

The current gatekeepers have pitted us against each other on the appearance of having a handle on this. Let's hope we're not just helping them to dig a deeper grave and that those lucky enough to make fortunes off these changes not forget the debt they will owe to those suffering to get them through.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.

PRINT THIS PAGE FOR YOUR RECORDS:

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

The Day After - GM Dealers Get Letters

2009-06-03T15:20:00.004-05:00

A strong and emotional article by Greg Goebel

Today, June 2nd, was the day that 5969 dealers received FedEx packages of either good news, a Participation Agreement (OK, it's not-so-bad-news, your franchise agreement may be renewed), or bad news, a Wind-Down agreement and payment of some monies to help you liquidate your inventories.

My phone started ringing early this morning. Five friends/clients all with at least one Wind-Down, and some with Participation Agreements. Shortly after the calls I had copies of the agreements forwarded to me. Out of confidentiality I can't post copies here of the documents, but they weren't short.

Bottom line is that dealer have until June 12th to sign and return the documents to GM. They were absolutely as heavy handed as I predicted they would be in yesterday's blog. Incorrigible.

Wind-down dealers may purchase no more vehicles from GM, but must stay in business through at minimum January 2010, and up to October 31, 2010. They must continue to service and honor warranties. However, they may not return any parts - whether currently owned, or those bought from GM during the 18 month transition. Yeah, that's right. Order a part, have GM ship you the wrong one and you own it, regardless. The RIM program is gone. I have one client that has about $140 in GM parts in inventory. That is going to leave a mark. His Wind-Down incentive? $36K.

The smallest package I heard today was for a nearly new store in a smaller market that is losing Pontiac and Cadillac. (Cadillac was an addition from May 15th). $12,000 is all they get.

There are a number of friends and clients that I have not talked with today. I truly hope no news is good news, but based on the heavy handedness put forth by GM for those that get to keep their franchises (if they comply) there may not be any good news. Dealers are being asked to blindly agree that they "must substantially increase its sales of new [GM vehicles]" and that the dealer will be assigned goals each year that they must meet. (Sidebar: Has a manufacturer ever been overly optimistic on what their market share should be?) They must willing to use their best efforts to "stock sufficient additional motor vehicles" in order to hit these assigned sales goals. MORE INVENTORY?! Have you seen the seven, eight or nine month supplies that some dealers have? They want them to take more?!

No duals will be allowed with non-GM franchises. Expect to have facility upgrades mandated. (That has worked so well for Toyota dealers over the past 12 months...) Oh yeah...one last thing. You agree to indemnify GM and agree not to file suit.

Yes, you may call me cynical, but I am not sure which side got the worse end of the deal. OK, I have repeatedly stated, it is just incorrigible to have your independent profitable business terminated for you, so sure, they are getting the worse end, but I am not sure I would run out and celebrate for the other group. This is the ultimate "shotgun wedding."

Finally, what was my advice? It was simple - sign the agreements. If you don't, you get to pay an attorney to go to battle. Then, should you win the battle (and I assure you it won't be cheap), you still lose the war. You will be grouped with the Old GM assets (what few there are) and all the old liabilities. As wrong as it is, GM's offer is still better than what is being offered terminated Chrysler dealers. It at least gives them some time to plan to do something and a modicum of compensation.

For the rest, take it or leave it. (Wink-wink - we guess it is kind of hard to leave that big expensive facility we had you build.) I doubt the winners will ever forget the gun that GM has put to their heads. Of course GM says they want transparency and to be a good partner. That looks like lipstick on a pig to me...and this is one big pig contract. Sounds like to me they have been associating with some career politicians too long already.

Wow.

AFI's take on this: I hope all these dealers take care in securing all those deal jackets full of customer information. There is a GM dealership where I bought a car from several years ago on this list whose General Manager will be getting a personal visit from me to explain how their red flags and safeguards procedures will be protecting my private information. Keep this in mind if you purchased a vehicle from a closing dealership. What a nightmare - thinking about trash pickers looking through piles of deal jackets and all the info contained therin. Aarrgghh - Please wake me up.

View Greg Goebel's blog HERE

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Dealership Death Watch - Car Dealer Photos

Congress Mulls Significant Expansion of the False Claims Act

2009-05-11T10:41:00.003-05:00

AFI: Important to keep in mind as you design your Red Flags Rule program.

From: Metropolitan Corporate Counsel

Originally a Civil War-era statute, the False Claims Act (FCA) was significantly revised in 1986 to protect whistle-blowers who disclose activities at their companies that may defraud the government.

Now this unfamiliar act is at the forefront again as federal bailout money is injected into the economy with a need for greater visibility.

Every entity that does business with the federal government (or does business with another company that does business with the federal government) is potentially the target of an FCA lawsuit.

It is critical that companies take proactive steps to minimize their exposure to FCA lawsuits, such as setting up rigorous compliance programs, employee outreach programs, and putting structures in place to address potential areas of exposure.

Read the rest of the article: HERE

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

The Truth Behind OFAC Part 1

2009-04-30T13:48:00.003-05:00

by Justina Ly

OFAC checks might seem useless, but not complying could mean 10 to 30 years in prison. Find out why compliance is a good thing and how it can act as a first line of defense.

Bob Morrissey, an F&I manager for Scoville-Meno Honda in Oneonta, N.Y., had heard of others getting a hit, but he had never experienced one himself. That all changed on June 14, but as he said, the experience wasn’t all it was cracked up to be.

It happened on a Saturday. The name of the customer Morrissey was talking to on the phone partially matched a name on the Specially Designated Nationals (SDN) list, a compilation of individuals and groups sanctioned from conducting business in the United States.

Morrissey double checked the name with an online database, but couldn’t clear his customer. Since this was his first hit, he eagerly called the Office of Foreign Assets Control (OFAC), the federal agency that oversees and compiles the SDN list. Unfortunately, as he’d come to find out, the Washington, D.C.-based office was closed on weekends, which meant he’d have to leave a voicemail message with his name and contact information on the department’s automated answering machine.

...

Three days later Morrissey received a call back from an agency employee. He was asked for his customer’s name only, but no other information was requested. “Nothing about address, date of birth, Social Security number or anything,” recalled Morrissey. “He says, ‘No, it’s only a partial hit. You’re OK.’ That’s it, conversation over.”

The casualness and brevity of his encounter with the OFAC employee left Morrissey disenchanted by how the 58-year-old agency handled his situation. “If it was a typical handling of a hit, the process is so flawed that it will yield no results,” he said.

“I’m not asking to make a major case out of a partial hit, but at least there should be more of an effort to be certain it’s a false hit,” he added. “How about asking for additional info to see if there are any other similarities?”

Verifying a Hit

Morrissey’s question is valid for any auto dealer that comes across a partial or full OFAC hit. What are dealers suppose to do when their compliance solution indicates a positive hit? The answer is simple, but it may also confound dealers who get OFAC hits.

Officially, the OFAC office advises business owners who think they have a hit to contact the government agency’s 800-number to verify their customer’s personal information. An agency representative will ask for a customer’s first and last name. If there is not an exact match, then the dealer is free to conduct business with the customer.

However, if there is a match, then the representative will ask for more of the customer’s personal information, such as address, nationality, passport, tax ID or cedula number, date of birth, place of birth, former names and aliases, until the hit is verified.

The process is straightforward and low-tech, which is why dealers such as Morrissey question why the OFAC does not take a more rigorous approach to verifying customer information. Aside from asking a series of questions, the department does not employ any other method for validating an individual’s identity. To the agency’s credit, its staff is well versed on compliance issues involving financial institutions and other businesses, but only provides limited service to dealers with questions.

The agency takes thousands of calls each year from businesses nationwide, but has no record of how many of those businesses included automotive dealerships, said John Rankin, a former spokesperson for the OFAC. The agency also has no record of partial or full hits reported by auto dealers.

In addition, OFAC does not mandate that dealers use a specific compliance process to conform to its regulation. “We recognize that all businesses are different,” Rankin said. “What works for a huge operation might not work for a smaller outfit.”

Rankin said that hits recorded by a dealership’s compliance solution may be related to another list, such as the FBI’s Most Wanted List or the State Department’s Debarred Parties List. That’s because lists from various government and international organizations are often lumped into one database, and used by compliance solution providers. So, if a dealer runs a credit bureau report on a customer, it’s possible his or her name will be screened against all of these records.

“It’s important that businesses understand the list and think about what process they have to make sure it’s a false positive or if it’s actually a real name,” Rankin said.

NEXT: The Truth Behind OFAC Part 2

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

The Truth Behind OFAC Part 2

2009-04-30T13:40:00.002-05:00

Origins of OFAC and the SDN List:

Good info.

The OFAC became actively involved in scrutinizing cash and other transactions with foreign nationals under the USA Patriot Act, which went into effect after the Sept. 11 terrorist attacks in 2001. Since then, the agency has monitored auto dealerships and other businesses.

The OFAC was originally created in 1950 during the Korean War in response to President Truman’s order to block all Chinese and North Korean assets subject to U.S. jurisdiction. The agency operates under the jurisdiction of the U.S. Department of the Treasury, and continues to be responsible for the administration and enforcement of the federal government’s economic and trade sanctions.

The agency’s SDN list is a 400-page document that contains more than 6,000 names of individuals and groups who are “owned or controlled by, or acting for or on behalf of, targeted countries.” The list also includes names of individuals, groups, and entities, such as terrorists and narcotics traffickers, designated under programs that are not country-specific. The assets of these individuals and groups are blocked and U.S. persons are generally prohibited from doing business with those on the list.

The SDN list is updated frequently, but not according to a predetermined timetable. The OFAC makes the list available to the public in a PDF or text document format through the agency’s Website. Users can search the list manually or use the “find” feature in the Adobe Acrobat Reader program to locate a name. Another option is to employ compliance software solutions to automatically screen a customer’s name against the list.

Effective Use of the SDN List:

Although the outcome of most inquiries can be anti-climatic, the agency’s SDN list is a good first line of defense for some dealers. “I think it’s a great regulation,” said Bob Dixon, an F&I manager at Lewes Auto Mall in Lewes, Del.

Dixon uses the OFAC checks to demonstrate the care his dealership takes with each customer, as he will often take the time to explain to customers what the OFAC screening entails and how it benefits them. He’ll even show customers their results from the OFAC test. “I show them the check mark and they’re impressed with it,” he said. “I haven’t had any complaints. It’s one extra step that protects us and them.”

That extra step may seem tedious, especially considering the numerous compliance regulations dealers must abide by. But it’s a step that must be taken, said Mark Thaw, a certified public accountant and partner of Morrison Brown Argiz & Farra LLP, an accounting firm that specializes in automotive dealerships.

“We are in some form of a financial crisis in the country. [F&I managers] are trying to make deals fly at all costs,” he said. “It’ll be more difficult for businesses to turn away customers, which leave the doors open for potential problems.”

Thaw said dealers must remain vigilant when it comes to compliance, as regulators and plaintiff attorneys are well aware of the pressures today’s credit crunch is putting on dealers. That’s why he recommends that dealers employ technology solutions that check for OFAC and other legal regulations. If anything, he added, software compliance tools demonstrate to state and federal regulators that the dealer is putting forth a good-faith effort to remain compliant.

But dealers can’t simply depend on technology to verify customer information. Morrissey points out that criminals or terrorists designated on the SDN list are savvy, and less likely to be caught using real forms of identity. “If someone is trying to pull a fast one, what are the chances they are going to give you the exact name? They’re not going to serve themselves on a silver platter,” he said.

The ease of using fake or stolen identities is one reason why Morrissey believes OFAC needs to shore up its defenses. He supports the OFAC regulation on credit and cash auto retail transactions, but believes F&I managers need more support in the case of an actual hit.

“If we’re going to add on the expense for compliance and burden F&I personnel, it seems like there should be additional support when a hit comes up,” he said. “What happens if someone tried to spot deliver a vehicle?”

His question is one that OFAC does not have a response to. “There is no simple rule for what an auto dealer should do if he or she is sure that he or she has a correct match to the list,” wrote OFAC’s Rankin in an e-mail. “As I said, such a circumstance would be very rare. In all cases, it is best to contact OFAC for guidance.”

Morrissey said he relies on his compliance solution provider’s instructions to verify his customer’s information. “It gave you steps to investigate further, the number directly for OFAC, and described what steps you could take,” he said. “It was more than thorough.”

However, he still did extra legwork and asked his customer additional questions about her profession. “She worked in the educational field and came up with names of people that I knew who worked in that district,” he said. Having a better idea of his customer’s background gave him the peace of mind to close the deal.

Although software solutions and online databases provide dealers with an instant method to verify a customer’s name, it never hurts to ask a few questions. What F&I managers need to remember is that the dealership and its profits are vulnerable, which is why F&I managers must be vigilant and use every tool available to them.

“As much as you detest or hate this, you don’t have a choice, because it’s a threat that can put you out of business in a worst-case scenario,” Thaw said. “At a minimum it’ll cost you money just with the lawyer, and dealerships don’t have money to do that right now.”

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

2009-03-12T16:31:00.004-05:00

Up until now, I had not heard of this organization. After doing some research, it seems that their risk management and compliance attitude is what I believe in. Check them out. AFI

Recent email:

Dear Editor,

Because you write about GRC issues on How to Measure a Well-Run Automotive Finance F&I Department , I thought you or your readers might be interested in nominating someone for the 2009 GRC MVP Awards. Submitting a nomination is simple - just complete the form at http://www.grcg.com/grcmvp-nominations/ by March 15, 2009.

The awards recognize individual achievement and professional contributions in governance, risk management, and compliance during the 2008 calendar year.

The GRC MVP Awards recognize achievement in the following disciplines:

Finance and/or Accounting
Information Technology
General Management
Legal and Ethics
Internal Audit

Against the backdrop of poor corporate decisions that fueled the current economic recession, the GRC MVP Awards serve to draw well-deserved attention to the professionals who work tirelessly to ensure that their organizations exhibit strong GRC leadership. In the process, their professional contributions raise the bar within the GRC field and their industry, as well as contributing to the betterment of society.

I hope you'll take a moment to let your readers know about this opportunity, and that you'll take a moment to nominate someone today.

All the best,
Sally Smith
Communications
The GRC Group
www.grcg.com

About the GRC Group:

Since 2003, the GRC Group has maintained its position at the leading edge in the domain of governance, risk, and compliance. The association's staunch commitment to developing best practices and sharing its expertise with businesses and professionals worldwide has established the GRC Group as a global leader in this ever-evolving field.

The GRC Group's educational efforts, ongoing research, and advisory services have formed the foundation upon which the association has successfully built the most comprehensive knowledge repository and only certification programs available on governance, risk, and compliance. Through the SOX Institute and the GRC Institute, the GRC Group accelerates professional education and provides its members with unparalleled peer-to-peer learning opportunities, world-class instruction, and advanced materials.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Tempting Times Can Tempt the Best

2009-02-21T19:46:00.005-06:00

by : Gil Van Over

AFI - I wish my picture looked this good.

Temptations abound.

Should I continue with my heart healthy diet and order the salad for dinner or go ahead and splurge just once (again) for a Reuben sandwich with fries?

Should I get another half hour of sleep before heading out to a dealership or get up and spend 30 minutes on the treadmill?

Should I write my article on the plane or expand my mind with the diabolical Sudoku puzzle?

Temptations play with our minds and our decision-making process. Temptations will sometimes lead us to do something we know isn’t right, but succumb anyway.

Examples:

Here are some examples of temptations leading employees or consumers astray:

An office employee at a west coast dealership was arrested and charged with felony embezzlement. According to published reports, she was in some personal distress due to health issues and her husband’s failed trucking business.

The United States Treasury Department is warning dealers that people are using fraudulent financial documents intended to resemble Treasury related instruments to purchase vehicles. These are identified as “personal promissory notes” or “private offset bonds.”

There have also been numerous stories over the last few months about sales or F&I employees stepping over the bank fraud line. The Feds are proclaiming that they are stepping up efforts to ferret out bank fraud.

As tempting times can tempt the best, dealerships should realize that even the most trusted employee, or the most unassuming consumer, could find themselves in desperate financial troubles. Here are some tips to help prevent this from happening at your dealership.

Employee theft:

The office employee who allegedly embezzled the money had the responsibility to open the mail, receive the bank statement, reconcile the bank statement and make the daily bank deposit. She was able to write personal checks to the dealership, take the cash and cover up the bounced checks when the bank statements showed up.

This dealership might have avoided the embezzlement if it had separated these various duties. The person who opens the mail cannot also be responsible for reconciling the bank statement. The person who makes the daily deposit cannot also reconcile the bank statement.

Many internal thefts are uncovered by other employees who see something that just doesn’t make sense and brings the suspicious transaction to a manager’s attention. Use employees to audit and review others’ work.

For example, have someone other than the department manager periodically conduct a physical inventory audit. Someone other than the accounts payable clerk should occasionally review all the checks written over a two-week period of time. Someone other than the rebate clerk should from time to time reconcile the rebates applied for and rebates credited.

Having independent audits conducted by other employees in the dealership can uncover theft and act as a deterrent. Just alternate the areas that employees review to minimize the likelihood of collusion.

Consumer fraud:

Many of the stories I read about con artists scamming dealers involves a certain level of either greed or stupidity or both.

One story involved a young couple presenting out of state personal checks to purchase two luxury vehicles. The couple agreed to prices in excess of MSRP. The apparently greedy sales manager approved the Saturday delivery. By Monday, the checks were no good and the couple (and luxury cars) were long gone.

This story includes both greed (prices in excess of MSRP) and stupidity (young couple, out of state personal checks, weekend delivery). The sales manager overlooked the obvious red flags.

There are usually some red flags or warning signs in a consumer fraud transaction. Identify them and train your staff on how to identify them and make the appropriate delivery decision.

Bank fraud:

Unfortunately, when times get a little rough, employees may be tempted to resort to old-school fraudulent practices to sell or finance a vehicle.

The temptation is to give someone a raise on a credit application, or arrange for a straw purchase, or to increase the vehicle’s value to the lender through non-existent options or falsify the amount of the down payment.

The rationale is apparently a combination of “everyone is doing it” and “I won’t get caught.”

Since bank fraud with a federally insured institution is a federal crime, this flawed rationale could end up in jail time for the offender.

First, not everyone is doing it. Most dealers have reputable employees who don’t commit bank fraud. Second, the likelihood of getting caught is increasing every day as the Feds continue to focus on the credit crisis and understand that bank fraud constitutes a part of the problem.

To protect yourself and to minimize the likelihood of bank fraud within your four corners, institute this four-part program:

• Unequivocally declare to all employees that bank fraud is not condoned and offenders will be terminated.

• Establish a credit application submission policy that requires the consumer to complete a handwritten credit application and that information is accurately submitted to the lenders.

• Periodically audit the handwritten credit applications to the application submitted via DealerTrack, Route One and others.

• Terminate any offenders.

The same process applies to minimizing potentially deceptive practices such as payment packing, stuffing products, trading rate for product or discriminatory pricing.

Anything less may be viewed by your employees as permission to commit bank fraud in your name.

Gil Van Over is the president of gvo3 & Associates, a nationally recognized dealer compliance consulting firm. He assists dealers with F&I and sales compliance.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Nissan Dealership in Orange County Raided

2009-01-24T11:05:00.011-06:00

District Attorney investigators are looking into accusations of identity theft. Thousands may be at risk, prosecutors say.

By: KIMBERLY EDDS
First published in The Orange County Register
Link to source article: Check out the video of the raid.

A Nissan dealership here was raided Monday by dozens of investigators from Orange County District Attorney's Office and the Orange police department as part of a months-long investigation in complaints of identity theft by the dealership.

The investigation into Douglas Nissan at 1140 W. Katella Avenue is still in its infancy, officials said at a press conference in front of the dealership, but there may have been thousands of fraudulent loans processed with the stolen identities of thousands of unsuspecting people in the scam. The vast majority of victims were Hispanic, prosecutors said.

GENERAL MANAGER: : Booking photo of Frank Ignacio Urbano, 54, of Anaheim. Urbano, a former part owner and general manager of Douglas Nissan in Orange, is charged with forgery, grand theft, and other counts in an alleged scheme to defraud banks and customers by artificially driving up the price of used vehicles.

Douglas Nissan remained open while uniformed police officers carted out more than 350 cardboard boxes packed with lease documents, dealer jackets, and loan applications. Potential customers wandered the lots of shiny new Altimas, Pathfinders and Titans. Salesmen patiently answered questions – about the cars – not the investigation. (I could only imagine - AFI)

“The only thing going on here is a big sale. Everyone knows that,” said a man who identified himself as a manager at the dealership, but refused to give his name. Other employees were pulled inside the dealership office when questioned by a small cluster of reporters and television cameras.

Prosecutors believe pilfered pay stubs, driver licenses and social security numbers were used to apply for – and get – fraudulent car loans at Douglas Nissan, said Susan Schroeder, a spokeswoman of the Orange County District Attorney's Office.

“This is something that frightens everyone – that their identity might be stolen and they're left holding the bad credit,” Schroeder said.

The multi-agency investigation – which included representatives of the Department of Motor Vehicles - began about three months ago after complaints of fraudulent loans being processed by the dealership flooded the District Attorney's office.

Anyone who believes they may have been a victim is asked to call the District Attorney's Office at (714)648-3626.

Comments?

More Pictures of Douglas Nissan:

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

2009-01-22T09:59:00.009-06:00

This was a recent question from my friends at ProfitDrivers.ca in Canada. Does anyone have some feedback?

ProfitDrivers asks:

I am looking for some help! I have been informed by an auto dealer here in BC that a recent Dealer 20 meeting (held in the U.S.) revealed that the F&I office was generating ON AVERAGE $4000-ish per unit - largely due to "consolidation" loans the dealership was managing to get approved (& include?) with a car loan for their customers.

I don't know about you but this really surprises me. Your northern neighbors typically don't see averages in this range. Is this common, the consolidation loan with an auto loan? I thought it was tough enough lately to get a deal approved at all, never mind to include consolidation?! Would this be done through a private financial company?

Any suggestions you can offer are appreciated!

AFI's take on this:

Every F&I Managers dream would be to continually "re-finance" a customers’ auto loan, right after the lender’s finance reserve charge-back period expires of course.

Unfortunately this is prohibited in every dealer agreement with every lender in my dealer group. Because of the obvious cost factor, the lenders don’t want the loans that they might have stretched and done favors for a dealer to be re-financed to a different lender through that dealer.

I have never heard of a dealership actually partnering with a lending source that will let the F&I manager “broker” a home-equity or any kind of consolidation loan and keep the reserve as if the dealerships were mortgage brokers or bankers. I think there are regulations prohibiting such activity.

Some of the ways that this could work is the dealership is “holding the paper” themselves and paying the F&I department a percentage of the reserve taken in – very risky. A dealership probably partnered with a mortgage company (probably hearing about it by hiring a previous employee), to send prospects to that company for consolidation loans in exchange for consideration or the sharing of reserve.

This way it would not violate their dealer agreements with their lenders. The vehicle and additional F&I products would essentially be considered a “cash purchase’. But $4000 F&I profit per unit? With rate mark-ups capped usually by 2 points - and operating in this age of full-disclosure and menu selling, it is pretty tough to AVERAGE $4,000 PRU on the back end.

I am curious about the other business practices of these dealerships.

Comments?

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Remember to Print a copy of this article for your records.

The Art of the Deal is Back

2009-01-06T16:32:00.022-06:00

By Steve Finlay, editor of Wards Dealer Business (one of my favorite magazines).

The art of the deal is back.

The lousy economy can be thanked for that.

Many car dealerships, out of necessity, are properly structuring deals, a talent that seemed like a lost art in recent times.

“You are going to see fewer customers; that’s just a fact” says Glenn Roberts, Zurich Insurance’s national training and business development manager and a dealership finance and insurance expert.

“So think about how to do the right deal.”

Glenn Roberts: “Switching cars easier on the sales floor than in the F&I office.”

That includes asking qualifying questions of consumers to determine wants and needs; knowing their financial abilities; requiring money down (100% financing is no more); and putting the right person in the right vehicle – one they can afford.

That may seem obvious to sales pros. But not to some showroom staffers, even some sales managers, who got accustomed to the boon years of brisk sales and easy credit.

Until vehicle sales dropped without a parachute, those people stumbled along, despite their failure to follow basic car-selling protocols. There is hope for them yet. They can be redeemed by learning how to do it the right way, Roberts says.

It starts with guiding customers to vehicles that fit their needs and budgets, “not necessarily one that they fell in love with or that the salesperson wants to sell,” he says at a F&I Management and Technology conference here.

Glenn Roberts: “Switching cars easier on the sales floor than in the F&I office.”
Often, it isn’t until the customer is in the F&I office, trying to get credit, that harsh realities mar the aspiration of owning a car beyond one’s budget.

“When a customer is on too much car, the house begins to work against itself,” Roberts says. “You cut front-end gross, cut out F&I products and put too much on a trade. With proper qualification and deal structure that won’t happen.

“Switching cars is a whole lot easier on the sales floor than in the F&I office or after the bank has nixed the deal,” he says. “You need to know a customer’s ability to pay long before he or she gets to the F&I office.”

With today’s credit being ice cold, a properly structured deal – one that is likely to get financed and not frozen to death – consists of:

1) A car that makes financial sense.

2) A down payment.

3) An accurately appraised trade-in.

4) Loan terms not exceeding 72 months, certainly not 84.

“Customers with no equity and no cash are not going to get financed,” Roberts says. “Cash is king, queen, prince and princess.”

Sales managers in particular must know the art and science of a deal structure, he says. “It is beneficial if a sales manager has had some hands-on F&I experience.”

A vital role of the sales manager is to make sure the F&I manager is presented with viable deals, ones likely to be financed, Roberts says.

A deal needn’t be “wrapped in a bow,” he says, but “the F&I office can’t make up for badly structured deals.”

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

The Dangers That a Spot Delivery Brings to a Dealership

2009-01-04T19:32:00.024-06:00

The following article does a good job of highlighting the dangers and fraud inherent in the misuse of conditional, or "spot" deliveries.

Spot deliveries: Slippery slope for dealers

By April Wortham, from Automotive News.

Bill Heard Enterprises Inc.'s Chevrolet empire was crumbling.

Rising fuel prices were gutting the dealer group's high-volume sales of SUVs and pickups.

As showroom traffic at Heard dealerships fell, so did the amount of customers getting into loans, says a former manager at one of the group's two Las Vegas-area stores.

The dealership began targeting what he calls the "credit-challenged customer."

It delivered vehicles to customers on the spot, sometimes at lower interest rates than those for which the customer was likely to qualify.

Handing over the keys before completing the financing is a sales tactic known as spot delivery.

It's a tempting tactic to move the metal in tough times, but as Heard Enterprises learned, it is a risky practice for dealers.

In the last days of the Las Vegas store, the bank rejected a submitted deal about 20 to 30 percent of the time. Some buyers had to return their vehicles.

Others had to re-sign with additional cash down or a higher interest rate. And some were switched into less expensive vehicles that met the bank's lending criteria.

"Those criteria seemed to be ignored a great deal of the time as the pressure was put on the managers to put vehicles on the street," says the manager, who asked not to be identified because he is searching for a new job.

"I think the philosophy was to throw enough stuff against the wall hoping some of it would stick.

As it got closer to the end, less deals were getting bought by the banks."

In September, Heard Enterprises filed for Chapter 11 reorganization, closing all 14 of its Chevrolet dealerships. While the case is extreme, it serves as a warning to dealers who routinely practice spot delivery.

Spot delivery is inherently risky

Done wrong, it can leave a dealer exposed to allegations of predatory lending and to the risk that comes with having millions of dollars in unfinanced inventory roaming the streets.

Yet spot deliveries are tempting for dealers who are trying to sell a car before the customer goes to a rival dealership. That's especially true now, as the number of Americans with tarnished credit grows and one sale can keep a dealership afloat.

There is no way to know for sure how many dealers use spot delivery, but Better Business Bureaus and attorney general offices in several states have fielded consumer complaints about the practice.

"Although the number of dealers spotting cars today has slightly decreased because of tighter lending practices, it is still a necessary evil in the subprime market for the long term," says Raul Vazquez, a dealer consultant and CEO of direct marketing agency Focus Inc.

Vazquez says it takes longer to get loans approved and funded for subprime customers. Yet most customers aren't willing to wait. Rather than watch a customer walk away, most dealers will hand over the keys right then and there, he says.

Dealers who offer spot delivery, he says, must be certain the terms of the sale will stick. "You have to know the lender guidelines. You have to have a sales manager who's watching the deals," Vazquez says. "There are too many guys out there that say, 'Let me put the car out there and maybe I'll get them into a loan.' You just can't do that, because it's too risky for the dealership."

Know the law

Several states regulate spot deliveries, and the rules can vary widely.

Contact your state attorney general's office or department of motor vehicles for details.

Don't leave decisions about when and how to spot-deliver vehicles to a sales manager or F&I manager.

Have a policy in place, and make sure all employees follow it.

Set limits. Auto loans can be approved in 10 days. Anything more than 30 days is asking for trouble. (30 days is freakin' crazy - AFI)

Communicate

Explain to customers that the vehicle purchase isn't final until financing is secured (use a bailment).

Just because they have the keys doesn't mean they own the car.

Put it in writing

Have the customer sign a form that clearly states what spot delivery means. The dealer and the customer also should sign a form stating that if financing cannot be secured the customer is under no obligation to sign another contract.

Deal with it

If a problem arises, tackle it immediately. Don't wait until the customer has gone to the attorney general or a lawyer.

Growing risk

The risk is growing. Almost every lender has tightened its guidelines, especially for subprime loans. Others have abandoned the subprime loan business. That leaves dealers competing for a shrinking pool of money.

On Oct. 28, Myers & Fuller P.A., a Tallahassee, Fla. law firm that specializes in dealer issues, sent a letter to its clients warning them against offering spot deliveries. Doing so, the letter states, could cause them to be considered in breach of contract with their floorplan lender, a situation known as "out of trust."

In essence, once a car leaves the lot, the dealer must repay his source of wholesale financing.

"It is important to understand what the phrase 'out of trust' means when used by a floorplan lender," the letter states. "It may mean that the lender considers any vehicle not in physical inventory on the dealership premises is deemed 'sold' and the lender demands immediate payment (yea...)

"This can occur with dealers who make many sales through spot deliveries and the lender changes the definition of 'sale' in midstream."

GMAC Financial Services LLC, Heard Enterprises' main financing company, denies that it is changing the definitions or rules.

When GMAC provides floorplan financing, the dealer has a window from the time a vehicle leaves the lot until payment is due, says spokesman Mike Stoller.

That window varies from dealer to dealer, but all dealers know exactly what their window is, he says.

It's not a new policy, and the window hasn't suddenly become smaller. But GMAC is "watching its risks" more closely now, Stoller adds.

In other words, dealers who might have gone unnoticed with sloppy spot deliveries in the past are under the microscope now, and GMAC won't hesitate to label them as out of trust.

'Yo-yo financing'

In fact, Stoller says, he wonders why any dealers would risk spot delivering now, unless they were sure that they could get financing.

"We're not outlawing spot delivery. They can do what they need to do to get by," he says. "But it just doesn't strike me as being very wise in this environment."

The current lending climate has exacerbated problems with spot delivery that until now were largely considered consumer issues.

Officials in state attorney general offices tell of dealers calling customers days, weeks, even months later to say that financing fell through.

The customer is usually given a choice: Renegotiate the loan, almost always at less favorable terms, or return the vehicle and pay for any damage or mileage incurred. In many cases the dealership already has sold the customer's trade-in vehicle, leaving the customer with little choice but to sign the new terms.

John van Alst, a lawyer with the National Consumer Law Center in Boston, says that in the cases he has seen, the dealer knew as the customer drove away that financing was unlikely to be approved.

In those cases, he says, the dealer intentionally misled the consumer with the intention of bringing the consumer back later in a disadvantaged position. It's why van Alst and other critics have another name for spot delivery: "yo-yo financing."

"They've already shown their friends and family that they've gotten a new car. And then the dealer brings them back in and forces them to agree to new and worse terms," he says, such as a larger down payment.

Differing opinions

Spot delivery is a necessary selling tool, says Michael Charapp, a Washington dealer lawyer and president of the National Association of Dealer Counsel. Something goes wrong only rarely, he says. Even then, it's usually because the customer made a mistake or lied on the credit application, not because the dealer sought to deceive.

In fact, the loan process is becoming more precise, not less, he says. Services such as DealerTrack and RouteOne allow dealers to submit digital credit applications to a network of lenders and learn almost instantly if a loan will go through.

Rosemary Shahan, president of Consumers for Auto Reliability and Safety in suburban Los Angeles, counters that those instant loan rulings are proof that the vast majority of yo-yo transactions are deliberate.

When dealers had to wait until the bank opened on Monday to fax over a stack of weekend sales contracts, there might have been an excuse, says Shahan. Not now. She says spot delivery is a "huge issue" that hurts dealers as much as consumers.

"It's like the industry is eating its young," she says. Consumers end up in cars they can't afford and take on more debt than they can handle. "People end up being so upside down that you drive them away from the market."

Weak waivers

Keith Whann, a dealer lawyer and former Ohio assistant attorney general, recommends dealers have customers sign what he calls an "acknowledgement of voluntary re-sign." (Bailment)

The form states that the customer understands the deal isn't final and that if financing can't be secured at the agreed-upon terms the buyer is under no obligation to re-sign the contract or purchase the vehicle.

Some dealers are deciding not to chance it. Emanuel Jones, a Georgia dealer who is buying Heard Enterprises' flagship Columbus store, says spot deliveries are part of the sales process. Banks aren't open seven days a week, but his Ford and Toyota stores are.

"However, when the credit market tightens," Jones says, "and you're still doing a lot of spot deliveries, you're going to run into a lot of problems. In my store we had to curtail a lot of spot deliveries for customers we thought were marginal."

Chrissie Thompson contributed to this report

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

F&I - KEEP A POSITIVE ATTITUDE AT ALL COSTS

2009-01-02T07:42:00.004-06:00

Nothing will lower your PVR faster than a bad attitude.

by: Michael Finnan

Maybe the first deal you see is 15 minutes prior to closing and it is a cash deal. The check is completely filled in from the customer’s lender; a lender you know you are able to beat their rates, terms and carries. Now what???

There is nothing you can do at this point that is going to change the fact that this customer is your customer and this deal is your deal. The thing you can control is your attitude, your response and your actions.

Try these 4 steps to a positive attitude:

1. Smile!

2. Deep Breath.

3. Every time a deal, a customer, Sales Manager or Salesperson cross the threshold into your office everything must be positive. You still have to do the deal so why not do it with a positive attitude? Do you think that a positive or negative attitude will produce a higher PVR?

4. Always thank a customer for their business, no exceptions! Smile!

Have you noticed that these 4 steps begin and end with a smile? That is not by accident, a smile indicates you are a friendly person and people will trust and like you more if you smile. Smiling is free and what if it could boost your PVR?

Today’s F&I Manager must be a closer, a banker, an attorney and your paperwork must be 100% correct or it is wrong. Typically the F&I Manger is the most professional sales person in the dealership and makes the dealership the most amount of profit in the shortest amount of time. Most dealerships could not continue to run with out the income their F&I offices produce. Your role in the dealership is crucial.

Here are some final thoughts:

Never let the things that other people do wrong upset you or cause you to be unprofessional. They have not earned that right; do not give it to them

Keep in mind that although cash deals can be more challenging they are still an opportunity. A good menu presentation will sell products to a cash customer.

Keep your head and attitude up - good selling!

Fantastic article.

AFI

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Turn Off the Damn TV in the Waiting Room!

2008-12-24T23:27:00.008-06:00

We are being bombarded with analysis - much of it trying to predict when we will bounce off of the bottom of this painful recession.

Earlier in December Dealers Edge hosted a Web Conference that featured seven of the brightest minds in dealership fixed operations. These seven experts spent 30 minutes each offering their best advice for how to cope with the recession as a service manager. Over 700 locations registered for this event and their post-Webinar comments were almost universally enthusiastic - (I actually missed this webinar).

In his presentation, one of Ed Kovalchick's recommendations was for you to "Turn off the damn TV in the waiting room."

Ed went on to explain that most often the TV is tuned to a cable news channel and that could only depress your customers even more as they waited for their vehicle to be serviced. Great advice! (He further suggested that you play DVDs of classic movies instead.)

For most news outlets, it's not news, unless it's bad news. I am a "glass half-full" guy and while I like to be well-informed, I am also very skeptical when listening to pundits and other so-called experts as they attempt to predict what the most savvy economist will tell you cannot be predicted.

So it is with that caveat that I offer to you some economic analysis from one of my favorite economists -Brian Westbury is the Chief Economist with First Trust and is often seen on business news shows and quoted in newspapers and magazines.

I like him because he is not always so negative and within my limited ability to understand what economists are saying, he makes sense to me.

But that is only my opinion - you make up your own mind. Westbury recently wrote and article entitled, "We Are the Catalyst," exploring the concept of an event or happening that will signal the reversal of the downward spiral the economy appears to be in.

It's an interesting take on the current state of affairs and I invite you to read it for yourself. Westbury's- "We Are the Catalyst" While you are on the First Trust Website, you might want to look at a couple of videos at "Westbury's 101." The first is dated from December 3rd and is entitled "Perspective on Recession."

Both short video clips offer some insight into our present down-turn that you are unlikely to here while watching the mainstream news shows. To view "Retail Sales Show Bounce in Velocity"

I know there are plenty of economists that will take the same data and project an opinion 180 degrees from Westbury's. But it is good to know that someone has a bright outlook.

And please take Ed Kovalchick's advice - "Turn off the damn TV" - at least until next Monday.

Merry Christmas to all and to all a good night.

AFI

Good Stuff by: Dealers Edge

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE: http://www.AutoFinanceInsider.blogspot.com

Sales Manager Admits Supplying Customers' Personal Data to ID Theft Ring

2008-12-18T22:13:00.019-06:00

Have we even scratched the surface?

By Vanessa Blum | South Florida Sun-Sentinel

A former employee of a Plantation car dealership pleaded guilty today to mail fraud conspiracy, admitting he supplied personal data from dozens of customers to an identity theft ring.

Dayton Diaz, 26, of Miramar worked as a sales manager at Rick Case Acura in Plantation until September 2008. He sold information from roughly 75 customers, including their names, addresses and Social Security numbers, to another man for $9,000, federal prosecutors said.

That man, Fitzroy Carter, 30, of Plantation, used some of the stolen identification to purchase Hewlett Packard computers worth more than $130,000.

The computers were shipped to victims' home addresses.

Knowing the approximate date and time of deliveries, members of the identity theft ring would wait for delivery and claim the computers by presenting fake drivers licenses , prosecutors said.

South Florida Crime & Safety Another man charged in the fraud, Kearn Matthew, 26, of Lauderhill, also pleaded guilty today in Fort Lauderdale federal court.

Diaz, who has no prior criminal record, faces a likely sentence of two to three years. Matthew, who has two previous convictions for credit card fraud, could be sentenced to more than six years in prison.

Diaz's attorney, Jared Bossola, said his client is remorseful and has cooperated with law enforcement. (I'll bet he is).

"My client regrets this whole situation and regrets his relationship with those individuals who thrive off identity theft," Bossola said. "He basically succumbed to peer pressure."

Vanessa Blum can be reached at vblum@sunsentinel.com or 954-356-4605.

AFI's Take on This:

This is surely desperation on the part of Diaz, an unfortunate sign of the times in the car business today.

I heard this story at my dealer group's annual Laws & Regs "refresher meeting" that started promptly this morning at 8:30.

My dealer group barely slid in the minimum requierd annual training to enforce our bona-fide error defense.

On the 18th of December.

Talk about cutting it close.

It seems funny that when times are tight, the first thing that is postponed is paid training.

Oh well, at least something is better than none at all.

Everyone can't be self motivated, like are myself, and YOU, the readers of this blog.

We will define together the meaning of a well-run F&I Department.

I was told that Diaz had a one year old child. It is a shame.

I feel sorry for his child and the victims of his identity theft, but not for him. We are in the car business during trying times.

The strong and compliant will survive.

Sigh,

Now, I am going to continue my evening by finishing this bottle of very good Merlot and watching some old James Bond movie in Hi-Definition.

Cheers, AFI

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE:

ESC Verses Extended Warranty

2008-11-21T18:47:00.008-06:00

By: AFI

Ok, I need to vent for a minute.

Every automotive related website seems to post advertisements offering the sale of “extended warranties”. I even have an affiliate source which I will not allow on this site because they are labeling the products they sell as extended warranties.

A "warranty" is defined as coming with the sale of a product and is included (at no extra charge) in its purchase price.

An "extended service contract" is an optional agreement for product service that is available for purchase. It provides additional protection beyond what the warranty offers on the product.

Extended service contracts are similar to warranties in that both concern service for a product. However, there are important differences.

Section 106 of the Magnuson-Moss Warranty Act describes a warranty as “part of the basis of the bargain”.

Service contracts on the other hand, are agreements that are separate from the contract or sale of the product. They are separate either because they are made some time after the sale of the product, or because they cost the customer a fee beyond the purchase price of the product.

If you offer a service contract for sale, the Magnuson-Moss Warranty Act requires you to list conspicuously all terms and conditions in simple and readily understood language. Unlike warranties, however, extended service contracts are not required to be titled “full” or “limited”. They are also not required to contain the special standard disclosures. Using warranty disclosures, as noted by AFIP, could confuse customers about whether the agreement is a warranty or an extended service contract.

For a booklet containing texts of the Magnuson-Moss Warranty Act, the related FTC Rules, and the FTC Warranty Advertising Guides, send a written request to:

Federal Trade Commission
Consumer Response Center
Washington, D.C. 20580

Let’s all try to do it the right way. Call it an extended service contract not an extended warranty.

BACK TO AUTO FINANCE INSIDER HOMEPAGE:

Turning Compliance into Profits

2008-11-20T19:50:00.003-06:00

This is a good article by Denny Long

Many dealers see new regulations as nothing but a burden. Denny Long sees them as an opportunity to sell more cars.

For auto dealers, “compliance” doesn’t have to be a dirty word. The most successful dealers I know all use compliance as a way to ensure more consistency in their sales process, make more sales and increase their profits. Let’s take a quick look at the rules regarding Adverse Action Notices, then learn how the aggressive creativity of one dealer totally transformed new compliance rules into a highly effective system for creating additional sales and profits.

You are required to provide Adverse Action Notices

It’s a common belief that financing sources, not dealerships, are responsible for issuing Adverse Action Notices. That is incorrect. Dealerships are considered to be participating creditors because they make decisions on which finance source to use and, in some cases, the decision not to send an application to a finance source. All participating creditors are required to provide Adverse Action Notices. So if you’ve got to do it, let’s look at the positive aspects of these rules.

What triggers the need for an Adverse Action Notice?

Another common misconception is that an Adverse Action Notice is only required once a credit report is requested. In reality, any time a full or partial credit application is submitted to you by a consumer, you may owe that consumer an Adverse Action Notice. The entire interpretation of the law cannot be covered in this article — the NADA Adverse Action document is larger than this magazine! But I would like to provide a brief explanation to help you understand how this law makes it possible increase sales and profits. So let’s get into the good stuff.

You may detect a sense of frustration in articles written by marketing people. Why are we frustrated? Because we work so hard to generate leads and many are never contacted, let alone properly worked. I’m sure this is not a problem at your dealership, but it does happen. You can probably imagine how excited I get when a law is introduced that states you must contact all your credit applicants. Because there will need to be recordkeeping to prove that the notices were provided if you are ever audited, you must have a tracking system in place. Follow-up and tracking that’s required by law — is this a great country or what? Again, we can’t cover all of the laws in a short article, but we do want to discuss a couple of areas that will really pay off for you.

Getting creative

As mentioned above, I know a dealer who took the rules and got creative to make them work to his advantage. First, he has software with automatic triggers to search his system each week for Adverse Action Notices that need to be printed. He then contracted with a printing company to produce full-color, 8 1/2” x 14” notices that stand out from the boring, black and white, standard-size letters that meet the minimum requirements of the rules. He uses the additional space and added impact of the color to add coupons and other offers to get more bang for his buck. Using this software and his creativity, he has a foolproof system that turns every Adverse Action Notice into an awesome-looking sales and service marketing program ... Genius!

Notice of Incomplete Application

If you receive credit applications from your Website or a lead provider, you must first ask for the consumer’s name and address so that you have the minimum required information to provide an Adverse Action Notice. If any of those applications are missing the minimum information required to submit the application to a creditor, you must send the applicant a Notice of Incomplete Application. This alone is significant because your employees now are required to follow up on every application.

You may find this hard to believe, but some of the consumers who receive a Notice of Incomplete Application actually call the dealership to complete the application. The more completed applications, the more vehicles sold (there’s that sense of frustration again).

The creative dealer has set up his system to automatically scan the required fields. It looks for the blanks and then lists the missing information in the letter. In most cases, there are only one or two pieces of information missing, such as previous employer or Social Security Number. This assures the consumer that they’re not going to have to start all over again. This dealer then takes the additional room in his larger format letter and adds coupons for things such as free DVD players or gas cards just for stopping in to complete their applications.

Minimum required income

This is another field that often causes leads to be “cherry picked” and ultimately ignored. Again, if someone submits an application, you can no longer just toss it because the income is too low. You will need to set up a version of a letter that lets the customer know that you can’t process their application because their stated income is below the level required by your available lenders. I suggest that you actually show the minimum amount required by your lenders on this letter.

Some of the consumers who receive that letter will realize that their income is above the stated figure and call in to correct the information. Another found prospect and, possibly, another found sale! The creative dealer takes the process one step further and suggests other sources of income such as alimony, child support or Social Security that can be added to exceed the minimum requirements. He then adds two coupons to the bottom of the letter — one that gives an incentive to come to the store (such as the DVD player or gas card mentioned above) and the other for a great deal on an oil change. He figures that if they can’t buy a newer vehicle, they’re going to need to take care of their current vehicle. (Excellent Idea - AFI).

There’s another bonus to these rules: It’s a lot easier to get your employees to do the follow-up and tracking of these consumers when it’s required by law, not just because that’s what the boss wants. After all, fines can be as high as $1,000 per incident, not to mention the potential for costly class-action litigation. If you are required to send just 500 letters per month, you can certainly afford to spend a little extra to mail letters that might turn into sales.

I suggest that you look into software that will make Adverse Action Notices easier if you don’t already have such a system. If handled properly, there can be great benefits to following these rules. There’s a good chance you will sell a few extra vehicles every month thanks to the tracking and follow-up that is required, and more sales is always a good thing. Good luck and good selling!

Denny Long is senior vice president at Dealer Marketing Services. E-mail him at dlong@special-finance.com.

BACK TO AUTO FINANCE INSIDER HOMEPAGE:

Cutbacks Put Top F&I Managers On the Street - AFIP Career Center Puts Them Back in the Box

2008-11-14T08:29:00.012-06:00

I am not being compensated by AFIP in any way for this endorsement *** If Dave Robertson would like to, my email address is AutoFinanceInsider@yahoo.com - hint hint.

The Association of Finance & Insurance Professionals is launching the industry's first F&I-targeted job board.

The AFIP CareerCenter will bring together well-qualified potential employees and the employers in need of specialized talent.

It benefits the individual, the company, and the industry at large by letting the right company find the right employee at the right time.

Benefits to Job Seekers:

Get free direct access to industry-specific jobs and employers online.

Post your resume online - for free.

Make your resume public or maintain your confidentiality, sending it to only the employers you select.

Convenient searching by multiple criteria.

Save time and money by applying for targeted jobs online.

Receive email alerts when jobs matching your needs are posted.

Benefits to Employers:

Access a specialized talent pool quickly and easily.

Recruit qualified job candidates more cost-effectively.

Put your recruiting budget to work for the betterment of the industry - with rates that are competitive with major, non-targeted job search websites (discounts available for AFIP Industry Members).

Post job announcements in real time right from your computer.

Confidentially search the resumes of people qualified for the job you need filled.

Track your recruiting results online.

The AFIP CareerCenter will officially launch within the next fifteen days, but interested employers and job seekers are encouraged to start now by going to careers.afip.com.

If you have any questions, email AFIP at heather.barnett@afip.com or call 817.428.2434.

________________________________________________________

This seems like a very good idea. I support it as I believe in AFIP's certification program. Having AFIP certified F&I managers is definitely a sign of a "well run" automotive F&I Department.

AFI

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE:

Tags: Automotive Finance F&I Finance & Insurance

Creative financing

2008-11-04T19:44:00.003-06:00

by Gil Van Over

I recently had a conversation with a dealership manager about creative financing.

As sales tighten, some employees are tempted to use shortcuts or whatever means necessary to sell a vehicle.

One such means is to give cash back to the customer in order to seal the deal.

This type of creative financing could put you at risk of having to pay off the deal if the lender finds out about the cash back.

My point
Most lender agreements in place today define the amount financed that the lender is willing to advance as the cost of the vehicle plus tax, title, license, registration fees, doc fees and approved options and F&I products.

Increasing the vehicle cash price (and subsequent amount financed) to include a check to the customer for whatever purpose is a potential violation of the lender agreement.

The manager’s point
The manager was adamant that the lender allowed up to 125% as an advance guideline and he only needed 105% to cover the price of the car and the tax, title and license. Why shouldn’t he be able to give the customer the difference?

It is an interesting concept, but here’s the flaw in his thinking.

The lender’s guideline on advance is to provide the dealership with a maximum structure. It is not permission to take any or every transaction up to the maximum advance to provide customers with a side loan. The lender agreement limits what comprises the advance.

Not bank fraud
However, if the lender knows about the cash back, for whatever reason, and still approved the advance, it is not bank fraud. If you do obtain the lender’s approval to make a side loan, make sure you get it in writing and keep copies of the approval.

Advertising?
As an aside, you may also be running a risk of a deceptive advertising claim if you advertised the vehicle at one price and sold it for a higher price.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I, Sales and Red Flag Rule compliance consulting and training firm (www.gvo3.com).

BACK TO AUTO FINANCE INSIDER HOMEPAGE:

Selling Lenders on F&I Products

2008-10-30T09:17:00.006-05:00

By Denny Sims

The goal of the F&I office is to sell a customer on a product, but in today's reality it's the lender that needs to be sold. F&I expert lays down a five-step plan for making the dealership's F&I products more appealing to the lender.

With auto sales plunging to a 15-month low in June, maximizing profits on every deal is the challenge every dealership faces in today’s tough economic climate. In other words, this is not the time to dwell on how tough it is out there.
One of the most common challenges I hear from business managers across the country is that lender policies unrealistically cap the advance amount on certain F&I products. Some finance companies are even refusing to advance on certain products. Make no mistake about it, this is a challenge but it is not necessarily an uncontrollable one.

In order to understand the lenders' reasons for this policy, we must first ask the question, "Why have lenders adopted these policies?" The question really answers itself when we consider the way we priced F&I products in the past. As a result, many dealerships are now setting maximum and minimum selling prices to insure higher product penetrations, compliance with lenders, and to show the consumer greater value.

A successful product sale is achieved because the customer sees the value is equal to or greater than the cost. However, the lender is, in essence, the ultimate buyer of what we are selling for the term of the loan. The first thing we need to do is show lenders that allowing the customer to choose these protections and conveniences is worth their risk in advancing for the product. We need to do this for all F&I products.

We need to step up and become better business managers rather than having no business being managers. We sometimes accept situations as uncontrollable, when, in fact, there are proactive things we can do for our dealership. Understanding this lender-created challenge we must determine what attitudes we need, what solutions are viable, and what actions we must take to overcome these obstacles. With that said, let's discuss the practical solutions and proactive actions we need to take.

READ THE REST OF THE F&I MAGAZINE ARTICLE HERE:

Tags: Automotive Finance F&I Finance & Insurance

Inconsistent signatures

2008-10-25T20:33:00.005-05:00

Inconsistent signatures are a crime.

As a dealer, you shouldn’t have to tell an employee it is not permissible to commit a crime, yet it happens every day in a dealership somewhere in the country.

Most of the time, inconsistent signatures are not put onto forms in the deal file in order to further an ill-begotten gain for some Salesperson, Sales Manager or F&I Manager. Most of the time, inconsistent signatures are affixed onto forms in order to meet a compliance requirement.

And there is the rub. Because inconsistent signatures are not generally found on retail contracts or lease agreement, some Dealer Principals or General Managers don’t see the harm.

Types of Inconsistent Signatures

There are generally three types of inconsistent signatures: an employee signs a customer’s name, an employee allows someone else to sign a customer’s name or an employee uses the term “Signature on File” instead of obtaining a customer’s signature.

All three are forms of forgery and a criminal offense.

An employee signs a customer’s name – this usually happens when the employee fails to get the customer’s signature on a document, a menu, for example. The employee knows the dealership has a rule that the F&I Manager is not paid on a deal unless there is a menu in the file, and rationalizes that the customer knew she was purchasing the service contract, so he signs her name to the menu.

Forgery.

An employee allows someone to sign a customer’s name – a prime example here is a spouse signing a credit application for the other spouse. The employee knows that the deal cannot be submitted to the lender without a signature on the credit app and allows the spouse to sign for the other spouse. The employee rationalizes that the spouse probably signs the other spouse’s paycheck to deposit it into the bank, so what’s the harm?

Forgery.

Signature on file – an employee generally uses this method when he forgets to get a form signed and again rationalizes that the customer wouldn’t mind. After all, the customer signed the contract and knows what the payments are.

Forgery.

A dealer must make it known that these three types of inconsistent signatures are not acceptable and make it an offense that could lead to termination. Regardless of the form, regardless of the motivation.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I, Sales and Red Flag Rule compliance consulting and training firm (www.gvo3.com).

Tags: Automotive Finance F&I Finance & Insurance

FTC Extends Red Flags Compliance Deadline to May 1, 2009

2008-10-23T08:36:00.004-05:00

Some of you might have heard this already, but this is a good article:
Link to source: F&I Magazine

WASHINGTON — In an unexpected move, the Federal Trade Commission (FTC) announced that it will delay its planned enforcement deadline of the Red Flags Rules to May 1, 2009. The rule, which was designed to deputize lenders and creditors — including auto dealers — in the federal government's campaign against identity theft, went into effect Jan. 1 of this year. The original compliance deadline was Nov. 1.

The FTC explained the decision in an official Enforcement Policy Statement. "Given the confusion and uncertainty within major industries under the FTC's jurisdiction about the applicability of the rule, and the fact that there is no longer sufficient time for members of those industries to develop their programs and meet the Nov. 1 compliance date, the Commission believes that immediate enforcement of the rule on Nov. 1 would be neither equitable for the covered entities nor beneficial to the public. Delaying Commission enforcement of the rule as to the entities under its jurisdiction by six months ... will allow these entities to take the appropriate care and consideration in developing and implementing their programs. It also will give the Commission time to conduct additional education and outreach regarding the rule."

The delay impacts organizations that fall under the FTC's jurisdiction, such as auto dealers. However, organizations such as banks and financial institutions, which fall under the jurisdiction of other regulatory agencies, will still need to have their Red Flags program in place by Nov. 1.

Despite the delayed compliance deadline, dealers are still expected to have policies in place by Nov. 1 to address the two other rules passed in conjunction with the Red Flags Rules. One of the rules covers notices of address discrepancies when a credit bureau is pulled by a dealer. The other mandates that credit and debit card issuers have policies in place to address a change of address.

"There are two tiers of liability for dealers when it comes to the address discrepancy rule," said Michael Goodman, an attorney with Hudson Cook LLP. "First of all, for all users of consumer report info, your burden kicks in when you get a notice of address discrepancy from a credit bureau. You need to have procedures in place to try and resolve the discrepancy. That means going through the identity info you have for the consumer, going through your own records, or using a third-party source to resolve the discrepancy."

The address discrepancy rule also applies to dealers who provide information back to credit bureaus. "If you're a dealer that furnishes info and you get a notice of address discrepancy and you're able to resolve it and you end up doing business with the customer, then you need to report your verified result to the bureau," said Goodman. "This rule also reaches dealers such as buy-here-pay-here operations because they have a continuing relationship with a customer. So they are likely to furnish information to the credit bureau."

Like the Red Flags Rules, the two obligations and related penalties fall under the Fair Credit Reporting Act, which caries fines of up to $2,500 per violation.

"What I've heard is that people who are subject to the [Red Flags Rules] under the FTC's jurisdiction were basically scrambling leading up to Nov. 1 to get into compliance," said Goodman. "I think it's fair to say there were pretty widespread problems meeting that deadline."

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE:

Suspicious activity reports

2008-10-10T18:26:00.005-05:00

by Gil Van Over

Last year many economists, including some from NADA, were predicting that the subprime mortgage crisis would not affect the auto industry because mortgages are different from auto loans.

Balderdash I said. They may be two different lending instruments, but they are both originated from the same customer base.

I bring this up because I have been writing about Suspicious Activity Reports (SAR) for over two years now.

Now comes a news report that the FBI is assembling a task force to investigate the substantial increase in Suspicious Activity Reports in the mortgage industry. Can the car industry be far behind?

Suspicious Activity Report

As a refresher, a federally insured institution must file a SAR whenever it suspects bank fraud. This means that whenever a fraudulent deal is uncovered by a bank, credit union or other federally insured institutions, this entity is submitting a report to the Department of Treasury providing the details of the fraud.

In the car business, any deal that is considered a straw purchase, or is power booked, or has falsified income, or discloses a non-existent down payment is considered fraud and the institution will file a SAR.

Mortgages First, Car Loans Next

Just like the subprime crisis has affected subprime customers the ability to obtain a mortgage, subprime customers are now finding it difficult to obtain auto loans.

Likewise the mortgage industry is going to incur the Fed’s wrath based on an escalating filing of SARs and the car industry may not be far behind.

If you aren’t submitting straw purchases or power booking used cars or jacking up customer’s incomes or creating phony down payments, you don’t have anything to worry about.

If, however, you are…you do.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I, Sales and Red Flag Rule compliance consulting and training firm (www.gvo3.com).

Link to Original Article:

Thanks for another fantastic article Gil!

GM’s Top-Selling Chevy Dealer Out of Business

2008-10-06T09:35:00.010-05:00

Seems like it always comes back to ethics and the principle of "reap what you sow". I wonder how many more dealers are up there on the cliff looking down - AFI

By Cliff Banks (embellishments by AFI)
WardsAuto.com

General Motors Corp.’s top-selling Chevrolet dealer group is closing all of its 13 dealerships this week, citing various reasons for the drastic measure.

Bill Heard Enterprises Inc. sold more than 40,000 new vehicles – most of them Chevrolets – in 2007 and was ranked 11th on the Ward’s Megadealer 100 this year with $2.2 billion in total revenue.

W.T. Heard Sr. opened the group’s first dealership in 1919 in Columbus, GA. The group had dealerships in Alabama, Arizona, Georgia, Florida, Nevada, Tennessee and Texas with more than 2,700 employees.

All 13 of Heard’s stores ranked on the Ward’s Dealer 500 list this year.

A statement released by the company cites rising fuel prices, truck and SUV-laden inventory and the overall economic slowdown as reasons for going out of business.

Within the last couple of weeks, GMAC Financial Services stopped financing the inventory for several of Bill Heard’s stores, hampering the group’s ability to floor plan and order vehicles.

It looks like it all comes down to ethics:

GMAC did not say why it did so, but several Heard stores have come under fire the last several years for a slew of allegations regarding violating business and ethical regulations in the states in which they operate.

GMAC reportedly threatened to pull its financing last year after Bill Heard sent 10,000 customers what appeared to be a recall notice but actually was a bid for service-department business. Probably sounded like a good idea at the time.

Georgia’s Governor’s Office of Consumer Affairs filed a $50 million deceptive-advertising lawsuit against the group’s four Georgia dealerships for the same offense.

It was the first lawsuit filed by the OCA in its 32-year history against a dealership, according to a report in the Atlanta Business Chronicle last year.

The report also claims Bill Heard has paid more than $280,000 in fines to the state of Georgia since 1991.

Other states, including Florida, Texas and Arizona have been investigating the false recall notice claims, as well.

In early September, Bill Heard closed its Scottsdale, AZ, store which opened to great fanfare less than two years ago. And last year, the company sold its dealership in Antioch, TN, which at one time was selling more than 1,000 new and used vehicles a month. (a grinder dealership for sure - AFI).

GM likely will reopen several, if not all, of Bill Heard’s stores once buyers are found and the deals completed. GM spokeswoman Susan Garontakos says the auto maker will look to find new owners to keep the stores running.

In 2005, GM named Bill Heard one of its “Dealers of the Year,” an exclusive list of auto retailers demonstrating strong sales performance and customer service. Each of the 110 dealers on the list received the 2004 Jack Smith Leadership Award.

WOW. No other comments.

BACK TO THE AUTO FINANCE INSIDER HOMEPAGE:

Extended Service Contracts are a WIN for everyone.

2008-09-30T16:11:00.005-05:00

I originally wrote this for a new salesperson's orientation to the F&I department. Please tell me if it's too corny - it was meant to increase understanding of some of the purposes of Extended service contracts.

1. Peace of mind for the customer is an obvious benefit of owning an extended service contract. The customer can feel great knowing that if their $3500 navigation screen or rear DVD viewing system burns out, they will only have to pay a small deductable for it’s complete repair or replacement.

The electronic components in cars and trucks today are what will be costly to the customer once the factory warranty expires. As warranty periods are statistically decided on by the manufacturer, one can logically assume that major repairs will probably not occur within that factory warranty period. Murphy’s law states that the $1250 power seat track and motor will probably need to be replaced the first month that the car is out of warranty.

2. Dealership service departments benefit greatly from the sale of ESC’s. In most cases, the administrator of the ESC pays the dealership’s service department the same fees as if it were the customer writing them the check. How hard do you think the writer has to work to convince Mrs. Jones that she should have the $1200 “noise in the steering wheel” fixed at the dealership when she thinks that she could take it to a service station and get it done cheaper? Would it be a disservice to let her have her car “experimented on” by a jack-of-all-trades? Of course. A service station cannot properly diagnose all of the potential problems with the technology in today’s automobiles.

If the customer has an extended service contract, there is no reason for them to have needed work to their vehicle done anywhere other than at your dealership. In addition, having the ESC gives the writer a major advantage for additional product sales. “Mrs. Jones, the steering assembly is completely covered by the terms of your extended protection plan and you saved $1200. Would you like to go ahead and get the transmission service for our $300 special while the car is already here?” The writer psychologically saved Mrs. Jones $1200, as that repair is covered by the ESC, while making the equivalent of a $1500 customer pay sale - All because an ESC was sold.

3. Front-end profit. Obviously there is a financial benefit to the dealership in the direct sale of an ESC. From the layers of profit added to the true cost of the ESC to the F&I manager’s commission on the net markup, the service contract income is an important part of the bottom line in the profitability of dealerships in today’s economic environment.

Sell some ESC's!!!

AFI

NJ car salesman pleads guilty to charges of fraud and identity theft

2008-09-19T08:17:00.007-05:00

18 fraudulent loans were detected with a total value of $715,000

Link to source article.

Salvatore Rivello is expected to get five years in jail when sentenced, according to the details of a plea deal. On Sept. 3, he pleaded guilty to one count of second-degree theft by deception, four counts of third-degree identity theft and one count of fourth-degree deceptive business practices, according to police reports.

The dealership, Chrysler of Eatontown was under investigation by the New Jersey Motor Vehicle Commission when the fraudulent loans were discovered. As a result of the Commission’s investigation the dealership was closed and its license suspended.

Four of the loans in which Rivello was directly involved defrauded PNC Bank by using the identities of others without their knowledge or consent, according to a report published in the Atlanticville newspaper. Overall, four separate financial institutions were defrauded, including PNC Bank, Capital One Bank, Bank of America and North Fork Bank.

The Safeguards Rule imposed by the FTC in 1999 is supposed to require adequate protections for customer information and data so that it cannot be used in schemes like this one. It appears that the Safeguards system was either non-existent or ignored in this dealership.

"Rivello's fraudulent criminal conduct caused substantial pecuniary losses to financial institutions and victimized numerous innocent individuals," Monmouth County Prosecutor Luis A. Valentin said.

"The state prison sentence anticipated by the plea agreement will punish Rivello and, hopefully, deter those who would engage in similar conduct," Valentin added.

November 1st is the compliance deadline for a sequel regulation commonly known as The Red Flags Rule that will require that the dealership be able to identify the telltale indicators that a customer might be using a false identity to arrange for credit and purchase a vehicle.

J.R. Wilson of PatriotDealer.com tells us that this new regulation will include a self-revealing feature. Under the Safeguards Rule it almost always required that an investigator come to the dealership and examine dealership records to detect violations- as in the case mentioned above. Apparently this is not so with The Red Flags Rule.

Wilson expects that cases will be brought to the attention of the authorities by customers whose identities were used to apply for fraudulent loans and purchases. If it can be determined that the dealership was in violation of The Reg Flags Rule, they then could be subject to fines and penalties.

AFI's take on this:

Wow. Each time I read of a court dispensing justice to these criminals, I wonder how many more operators are out there that haven't gotten caught yet. How many other times do you think this guy has committed identity theft outside of the car business?

He probably has a house full of nice furniture, electronics, clothes and toys that other people are already getting collection notices for.

The old rule "you reap what you sow" should hit home to this guy in jail (no further elaboration). There will always be corruption in this world, but one has to wonder, how many more criminals are still out there? One would hope that each prosecuted case should bring this age of corruption closer to an end. Are the large corporate accounting scandals finally over?

I can't even look at my 401k.

Maybe I'll check the balances Jan 1st - after I take a xanax.

Back to blog homepage:

Capital One survey: Americans don't know loan rates

2008-09-12T15:18:00.009-05:00

"A majority (61 percent) of Americans who currently have auto loans do not know the interest rate they are paying on their loan, a new survey from Capital One Financial Corporation suggests. In a challenging economy, when saving money is particularly important, many consumers may be paying more than necessary and could benefit from a lower interest rate and a lower monthly loan payment by refinancing, the company notes..."
Read the rest of the article here.

Are you kidding me???

Where is Capital One getting the data for this survey?

I get beat up all the time over the interest rates. The majority of my customers want to know, and my procedure manual dictates, a full disclosure of exactly what the interest rate will be before any F&I products are mentioned.

Does this article imply that if the customer falls into the sub-prime catagory, the F&I manager might not be practicing proper disclosure? By reading this article, it appears so at least 61% of the time - right?

Would Capital One be admitting that they are buying paper from automotive dealerships who are not properly disclosing what their customers are signing?

Having a 61% portfolio ratio of customers who have no idea what their interest rate is would scare me to death.

This creates visions of an F&I Manager putting one hand over the truith-in-lending disclosures while at the same time pointing toward the bottom of the r.i.s.c. while leading the customer to just "sign right here".

Are we heading back to the "good 'ol days"?

Scary.

Back to blog homepage

No More Evil Car Dealerships

2008-09-05T09:12:00.012-05:00

What do you think?

Each time I read an article warning about a car dealership taking advantage of a supposed helpless customer, I find myself thinking about the other side of the story and ask: "what would your car buying experience be like if there were no more independent franchised new-car dealerships?'"

Sorry to interrupt the cheering, but think about this for a moment: First, if you remove the system of independent dealerships competing with each other in free-enterprise, you will create a system where all of us would pay the full window sticker price from manufacturer-owned "outlet stores".

Were you thinking that the price would be lower if you removed the dealerships?

One might protest: "Of course it would be lower. We would be cutting out the middleman. Without an evil car dealership sucking up all the profits, the manufacturer could pass that savings on to us the consumers."

Really? The only true way to cut out the middleman by this theory is to commute to the assembly plant in Detroit or whichever state (or country) the model you wish to purchase is built. Once your ordered vehicle is tested and ready for delivery (which might be days or weeks after you were told it would be ready). You would pay with cash and drive your new vehicle home to do your own DMV work - before the temporary transport license plates expire.

Do you have a vehicle you need to trade? Well the factory has no interest in helping you with that one. They are in the business of assembling and selling NEW vehicles. What are they going to do with your old worn-out piece? Do you still owe money on it? Uh-oh. If the "outlet" has no interest in taking your old vehicle on trade, why should they care about helping you with potential negative equity? Nope, with the trade-in, you're on your own. Good luck trying to sell it. It's not that hard.

It is assumed that you have better things to do than changing your vehicles oil or doing other regular maintenance and would prefer to have it done for you. Until a convenient network of (probably independent) service centers was established, you would have to take it back to the assembly plant where you bought it.

You might think that to be ridiculous, "there are service stations everywhere" you respond. Yes, but do you really think the guy at the Exxon station is completely knowledgeable about how to fix the technology and many complicated electronics in today's brand-new vehicles?

Technicians at dealerships now are pressed enough to stay on top of service bulletins for just one brand much less every one out there. Do you want your car "practiced on" by a jack of all trades?

The furious public would demand that the manufacturer set up sales and service centers close to where they live and work to make buying and servicing their vehicles more convenient. Should these outlets operate as non-profit entities or at a loss just to give you a convenient place to purchase and service your new vehicle?

I think not. The factory would expect these outlets to be profitable, as would the owners of any retail outlet. Instead of an independent franchise, the "middle man" would then become a manufacturer-owned outlet store. Operations of these sales and service centers would then be conducted in one of two ways:

1) Similar to the independent franchised dealer with the freedom to adjust retail prices of sales and service to compete in the marketplace. Pay plans for all staff would be based on net-profit. This competitive environment allows informed consumers to get better service and a much better deal.

2) Or it could be like Ford's failed experiment in trying to operate factory-owned dealerships 10 yrs ago. In keeping sale prices identical at each one of their outlets, it was assumed that more profit would be made through price-fixing.

There were numerous reasons why Ford's experiment, failed. A big part of it was that there were many different choices in the marketplace. Ford found out that there are other dynamics, in addition to the huge overhead involved in operating a dealership. Ford also recognized that the outlets had to be profitable (kind of sounds like any car dealership doesn't it?).

We need to support the local dealers and ethical f&i managers that want to do business the right way. They are the vast majority. Let them make a profit. The alternative is manufacturer-controlled outlets where you are guaranteed the privilege to PAY HIGHER PRICES when buying and servicing your vehicle.

By: Robert W Linkonis Sr.

Back to blog homepage

F&I Can Aid Internet Sales

2008-08-26T15:30:00.005-05:00

By Bryan Dorfler, Ward’s Dealer Business

Today’s consumers still don’t know as much as you do about auto finance and insurance. But they know a lot more than before.

With vast amounts of information available to the consumer, the F&I department must be managed to remain a profit center while helping promote vehicle sales earlier in the shopping process.

As studies keep showing, virtually all consumers today do vehicle and purchase research on the internet prior to buying.

Studies also show the buying process now is longer than ever, with consumers starting several months before the final sale. All customers are internet customers to some degree.

F&I tends to be overlooked in helping vehicle sales through internet leads.

Instead, the website is usually limited to a static credit application; a minimal listing of manufacturers’ finance incentives and sometimes a special finance tab. These are a start but really just the minimum.

Compounding these self-imposed constraints is the internet manager, who likely lacks significant F&I exposure. The average business development center representative probably has even less.

These often are the consumer’s first dealership contacts, while the F&I department is relegated to the final act of the sale. With closing rates on internet leads averaging below 10 percent, it makes sense to leverage F&I sooner and with increased frequency throughout the process to improve closing ratios.

The opportunity to engage customers sooner is vital to keeping them interested in your dealership. Toward that goal, F&I should be a more integrated part of the internet sales process.

What could possibly be a stronger tool to tie a consumer to the dealership than a completed credit application and approval?

Steps that could help include:

*Highlight promotional finance offers early and often.

*The sooner consumers can be encouraged to complete the credit application to see what the best program available to them might be, the greater the tie to that dealership. Include links to the credit application in all customer emails.

*Eventually 85 percent of them will require financing, so keep that business at the dealership and engage them early.

*With the sales cycle now over three months, the captive finance firms’ programs will likely change several times after the initial purchase request. Following up on old leads is hardly an internet manager’s favorite job, but these customers are looking for that call to action that gets them to buy now. Older leads have value and must be contacted regularly.

*Mystery shop your internet department, both directly through the website and third-party lead providers. Setting up free email addresses is simple, as is getting a temporary phone number for this exercise. Ask for lease quotes or other finance information and see how long it takes to get the information returned, if it is returned at all. Check for accuracy.

*Review the emphasis and placement of finance option with the website designer. There are now interactive credit applications that generate significantly increased customer completion and subsequent sales that are worth investigating.

*Use F&I products to help close the sale. Rather than simply lowering the vehicle price yet again to close the deal, look to see if particular aftermarket accessories or a discounted vehicle service contract are hot buttons.

*Regular F&I training for the BDC and internet departments. Be sure they are aware of all current rates and programs and can speak inteligently to the consumer.
Use internet communications to market accessories and extended service contracts to those customers that did not buy at time of delivery. There is additional revenue there, but it needs to be asked for by your dealership.

The F&I department can help improve Internet sales, if given the chance.

This article reprinted with permission from Ward’s Dealer Business.

Back to blog homepage

12 Things That Keep You Awake at Night

2008-08-21T18:27:00.004-05:00

August 19th 2008 by James Perrin.
Link to Source Article:

1. Your sales manager is sleeping with your receptionist (and her sister).

2. Your salespeople have stacks of credit applications in their office drawers.

3. The heat case your sales manager just threw off the lot works for the attorney general (and was a heat case because you packed her payment).

4. Your suppliers are sponsoring your service manager’s race car.

5. Your controller is secretly a compulsive gambler.

6. Your body shop manager has a thriving business doing side work in your facility.

7. Your F&I manager can get anything bought by filling out and signing a credit application.

8. Your technicians can save seconds of time by simply dumping the oil in the storm sewer.

9. Your manufacturer’s rep is being paid by your closest competitor.

10. Your spouse wants you to hire yet another in-law.

11. Wholesalers are appraising your used cars (because they have paid your used car manager enough to take a vacation to Aspen).

12. Your parts driver’s narcolepsy is about to act up.

Relax! It’s just a bad dream. Go back to sleep.

Back to blog homepage

Link to Experian Red Flag Webinar

2008-08-18T14:36:00.005-05:00

F&I Insiders,

Here is a link to Experian's Red Flags Rule Webinar. I just finished listening to it and recommend all who profess to working in a well-run automotive f&i department do the same.

There is also a Red Flags Rule Data Sheet that you should print out and put in your procedure manual.

All of you have a fantastic day!

Here is the link:

http://www.bulldogsolutions.net/ExperianDecisionAnalytics/EXD_RedFlagSite/index.aspx?bdls=15828

Back to blog homepage

NY car dealer hit with $150K fine for bait-and-switch promotion

2008-07-17T07:49:00.009-05:00

Customers thought they had won valuable prizes until they read the fine print

The New York Attorney General wants a car dealer to pay customers for persistently using misleading promotions intended to lure them into the dealership. The customers, once inside the dealership, were also subject to other fraudulent and unfair sales practices, according to Consumer Affairs.com and the North Country Gazette.

Five Towns Mitsubishi must pay $115,000 in restitution to consumers and $35,000 in penalties and costs to the state.

The authorities received more than 50 complaints regarding the dealership’s business practices.

Five Towns was charged with mailing advertisements to thousands of consumers featuring a scratch-off ticket called Dash-for-Cash in which a consumer could win a cash prize, a free vehicle, a vacation, a free gas voucher or a $1,000 shopping spree. A winning ticket contained 3 like symbols in a row but it did not explain, what, if anything, the consumer won. Instead, they had to bring the ticket to the dealership in order to claim the prize.

Once at the dealership, customers found that nearly all of them had won the vacation or $1,000 shopping spree. However, the vacation and shopping spree prizes had minimal value due to either blackout periods or expenditure requirements, including shipping and handling costs.

In addition, the dealership was charged with:

–Obtaining signatures on contracts and finance agreements when customers mistakenly believed that they were filling out paperwork for vehicles they had won as part of the Dash for the Cash sweepstakes

–Offering false discounts off the sale price of a vehicle by selling it at a higher retail sale price, which essentially nullified the value of the discount offered

–Having customers sign documents with blank sections for figures and terms, and then later filling them out with terms that were not agreed upon

–Promising consumers that they could refinance at a better interest rate after making several car payments, or promising to pay one or more months of the insurance payments for the vehicle – and then reneging on those agreements

–Inserting additional cost items without consumers’ knowledge or consent, including VIN etching, service warranties, theft deterrent systems, GPS devices and other options.

Wow.

AFI's take on this:

I was just thinking about how else could you sell a Mitsubishi (bad thoughts), and was reminded of Gill Van Over's latest article in Dealer Magazine: Outside Sales Commit Inside Jobs. (June '08). It is about the compliance issues associated with hiring outside sales promotion companies.

Yes it seems that this dealership has a huge ethics issue. I wonder how the F&I department is run - signing bank contracts when they thought they were getting a free vehicle and packing all the back end products on top of that. No wonder car dealers seem to be thought of as no better than pond scum with stories like this continuing to break.

Shouldn't the vendor who supplied the scratch - off tickets bear some of the responsibility? Gil said in the article: "Like it or not, transgressions are your responsibility. It is your dealership; you simply are using contractors, not employees".

Sends shivers up my spine.

Back to blog homepage

Recent FTC Business Alert - Red Flag Requirements

2008-07-10T09:06:00.005-05:00

Here is a link to the Recent FTC Business Alert concerning the red flag requirements.

http://www.ftc.gov/bcp/edu/pubs/business/alerts/alt050.shtm

The written identity theft prevention programs must be in place by November 1. (creeping on up isn't it?).

Insiders - check your email in a couple of days for a rough draft of the program.

Talk with you soon,

AFI

Back to blog homepage

District Attorney Charges Car Salesmen with Multiple Counts of Fraud

2008-07-10T07:49:00.006-05:00

When negotiating the sale of a vehicle, just how much disclosure is really required?

A common sense ruling by a California Superior Court judge resulted in the dismissal of theft charges against three Toyota salesmen. The question that lingers, however, is why the charges were brought in the first place.

The case hinges on the difference between a lease deal and a finance deal when selling a vehicle. A vehicle lease may often carry a lower monthly payment than a straightforward car loan on the same vehicle. Yet, internally, the “price” of the vehicle, or “cap cost” in industry jargon, may be higher for the lease.

The judge had to decide: Are dealership sales reps obligated to disclose the difference to their customers?

According to a report in the Cerritos City News Service, a Los Angeles assistant district attorney said “yes” and indicted the three salesmen on charges of grand theft of personal property.

In dismissing the charges the judge said in a five-page ruling, "There is no evidence that the defendants' actions were illegal or were prohibited by state or federal statute. Defendants owed the victims no duty to offer them a lower price, or a particular price."

The prosecution claimed the men, while assistant sales managers with a Toyota dealership in Cerritos in 2004 and 2005, used misrepresentations - including the amount of monthly payments in a purchase - to persuade customers who wanted to buy vehicles to enter into higher-priced lease agreements instead.

"Although the prosecution introduced evidence that the defendants inflated the projected cost of the monthly purchase payments versus monthly lease payments, defendants were free to inflate the price in order to negotiate with the victims," the judge wrote in his ruling.

Link to source article:

AFI's Take on This:

When I was first trained to "sell" leases to customers two main advantages were given. First, it puts the customer in a shorter trade cycle. That idea seemed like a good one. Second, you could "hold more money" by increasing the price. The customer would not understand this. I did NOT feel comfortable with this because the lease was being used to get a higher price without the customer's knowledge. When I did a lease, I used the same price to the customer as a purchase price. We need to make higher grosses but I don't think we should play games or appear to be playing games with the customer. It is not just a question of what is legal but also one of what is ethically right.

Back to blog homepage

A Compliance Program That Won't Break the Bank

2008-06-26T09:56:00.011-05:00

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

Back to blog homepage

Car Salesman accused of stealing 33 identities

2008-06-13T10:43:00.019-05:00

Shawn Lee McDonald was charged with grand theft and fraudulent use of personal information according to Crestview, Florida police and as reported in the Northwest Florida Daily News. He reportedly initiated 73 credit applications and received 20 credit cards. Link to source article:

McDonald sold his dealership's customer, Jim Dohse a Chevrolet HHR back in March. Allegedly while completing the transaction, McDonald stole Dohse’s personal information and started to make credit applications using his identity. When he was applying for credit, McDonald used the victim’s name and then requested a second card be issued where he was an authorized user.

What tripped up this ID theft scam quickly was that Dohse had invested in LifeLock
,a credit monitoring service that notified him every time someone applied for credit in his name. It was not long after the car purchase that a wave of credit applications were made in his name. This, of course, prompted him to contact the local police.

So far, McDonald is being accused of stealing 33 identities of dealership customers of Hub City Ford from which he made at least 73 credit applications, netting him 20 fraudulent credit cards. The police have identified charges to those accounts totaling nearly $8,000 from Overstock.com, almost $7,000 at a Marriott in Fairfield, California (must have been some vacation!) and even nearly $3,000 toward restitution at the Mobile County, Alabama district attorney’s office. Can anyone spell “background check?”

McDonald is also listed as President of a company called Premier Brokers, Inc. and courtesy checks drawn on some of the fraudulently acquired credit card accounts totaling $7,000 were also issued. We can only guess the nature of this company’s business activity, but it is interesting to note that McDonald even used the fraudulently acquired credit cards to order business cards for the venture..

LifeLock Identity Theft Prevention is credited with uncovering the ongoing and extensive scam.

The Crestview Police are asking anyone who thinks they might be another victim of identity theft in this case to come forward by calling 682-4157.

Throw the book at him.
AFI

Back to blog homepage

7 Ways to Legally Shield Your Dealership

2008-06-12T07:56:00.008-05:00

An excellent checklist for every F&I professional.

By: Joe Bartolone

F&I auditor goes soft, points out the seven best practices he’s seen on the front lines. Employing these tactics will be your best defense.

How many times have you heard, “I’ve got good news and bad news — which do you want to hear first?” As a compliance auditor, I often find myself saying, ‘I’ve got bad news and more bad news — where do you want me to start?’ It’s not that I enjoy being negative, but that’s what my clients pay me to do. As one dealer executive put it to his management team, “I’m not paying him to tell us how good we are.”
This year our firm, gvo3 & Associates, will conduct compliance reviews at hundreds of dealerships across the country, documenting numerous potential compliance issues. At the same time, we do observe many compliance “best practices” dealerships have incorporated into their sales and F&I processes. In this article, I would like to focus on the positive and share some of those best practices.

The Sales Process

Let’s start with the sales process. Most dealers use a four square, a preliminary buyer’s order or some other worksheet to work the deal. The multi-colored Sharpie presentation is also very popular. No matter what style you employ, your presentation can be deemed deceptive if it appears confusing. Trying to figure out what the customer agreed to shouldn’t be like trying to find Waldo.

A best practice is to have the customer initial a summary of the deal terms. This allows you to keep a record of the deal, and eliminate any chance for error. Some dealers refer to this process as the “five square.” The summary should include the selling price, agreed trade value, down payment, rebate, monthly payment, rate and term. The deal terms should agree with the deal terms at the top of the F&I menu, providing evidence that you are not packing payments.

Today, the credit application process has migrated into the sales department with both salespeople and F&I personnel taking credit applications. Our recommendation is to have the customer complete the credit application with the assistance of a trained F&I professional. If you find it necessary to interview the customer and complete the application, then you should have the customer initial his or her income, time in present job and time in current residence. In addition, you should have the customer sign the agreement at the bottom of the application. Dealerships that incorporate this best practice avoid accusations of altering customer information, bank fraud and violations of their dealer/lender agreement.

Electronic Menu Selling

The F&I menu is a great sales tool and a great compliance tool if used properly. Let’s assume you’ve finally convinced your dealer to invest in an electronic menu. It discloses the deal terms, including the base payment, rate and term. It also lists all products, coupled with great benefits statements for each product. The menu also discloses product pricing, as well as the appropriate disclaimers. A best practice is to take it one step further by having your customers acknowledge with their initials that the following elements were disclosed: base payment without products, the final payment with products and all disclaimers.

Another best practice is to recap the final menu structure and have the customer acknowledge the products accepted and the products declined.

The Purchase Agreement

The final buyer’s order/purchase agreement is a document that can easily demonstrate a dealership’s level of compliance. Those willing to embrace the spirit of full disclosure will use this document to recap and finalize all deal terms agreed upon, and use it as a stepping stone to the retail installment sales contract (RISC). They will disclose the list price and additional accessories, any discounts, agreed trade value, trade payoff, down payment, rebates applied and all the F&I products with pricing the customer agreed to on the F&I menu. The cash due at delivery will equal the amount financed on the RISC. With this best practice you have a very logical transition to the RISC, eliminating the confusion most customers feel when they try to figure out the origin of the numbers on the RISC — a problem plaintiff attorneys don’t have.

Book-Out Sheets

Book-out sheets are another area requiring compliance controls. Dealerships with the most control are using automated inventory control applications that allow them to electronically value a vehicle when it comes into inventory. These applications include VIN decoders that automatically determine the standard manufacturer equipment for the model and trim level of the vehicle. The applications are password protected, allowing only the general manager, general sales manager and used-car manager to have access to add any additional options.

Dealership personnel are also required to take digital pictures of the vehicle, confirming the mileage, equipment and condition of the vehicle. A best practice is to print the book-out sheet at the time the vehicle comes into inventory, and then again when the vehicle is sold. If a book-out sheet is required by the lender, then it should be OK’d by the general manager, GSM or U/C manager. Dealerships using this process virtually eliminate any chance of “power booking.”

FTC Used Car Buyer’s Guides

Proper disclosure of the FTC Used Car Buyer’s Guides continues to be one of the top three issues we uncover. The biggest problem occurs when dealerships use an outside service to affix the FTC guide to the window. On average, we find 15 to 20 percent of the dealership’s inventory without the guides prominently displayed.

There are only a couple of choices to disclose the dealership’s warranties: either “as is” or “implied.” That all depends on the state you’re in or the warranty you have, which is usually a LTD Warranty. If you elect to disclose that there is a balance of the factory warranty remaining, you must use very specific language provided by the FTC. You also have the option of checking the box indicating the availability of a service contract. Once you’ve determined how many different versions you’ll need, have them pre-printed with the reverse side — which requires the dealership’s name, address and phone number, as well as the phone number and position of the contact person — included.

The U/C manager determines the appropriate warranty for each vehicle and has the “get-ready” department place a temporary guide inside the vehicle until the outside service or an inventory specialist gets to the lot. The temporary guide is then placed in an inventory file until the vehicle is sold. At the time of sale, the customer is asked to sign the temporary guide and is then given a copy. The original is retained in the deal file. At $11,000 per violation, this should be a no-brainer. If you need to catch up on the dos and don’ts of the FTC Used Car Rule, visit: http://www.ftc.gov/bcp/conline/pubs/buspubs/usedcarc.pdf. You’ll find this to be an excellent tutorial.

The Deal Jackets

The contents of your deal jackets can be your best defense or a smoking gun — the decision is really up to you. Here are some questions you need to answer to get yourself on the right track:

• When was the last time you surveyed all the forms used in the sales and F&I process, especially those in your showroom control system?

• How many of those forms are outdated or redundant?

• How many are photocopied forms?

• If you’re using a generic credit application, does it have all the required ECOA, FCRA and Reg. B disclosures?

• When was the last time you updated your deal checklist?

• Do you have a plethora of disclosures and disclaimers customers are required to sign?

I have two favorites. The first one is having nonprime customers sign that they agree not to quit their job or get fired in the next 30 days, will not disconnect their phone and will not move. Violating any of these terms, the agreement states, means they risk losing their deposit or trade vehicle. The second is having customers acknowledge that you are increasing the selling price and trade allowance on the deal to cover the negative equity and to accommodate their financing needs. When was the last time you had an attorney review all of your forms? Have you ever considered purchasing LAW forms from Reynolds and Reynolds? Reynolds invests hundreds of thousands of dollars each year on legal reviews to ensure their forms are compliant in all 50 states.

Employing the Buddy System

Consider using the “buddy system” if you have a problem with sloppy paperwork, and have two people complete the deal checklist. This will make them both accountable for any errors and omissions. You’ll definitely see rapid improvement.

Check the quality of your programming by entering a test deal that includes all possible deal elements, such as a trade with negative equity, a rebate, cash down and all the F&I products you offer. Then print a copy of the RISC for each lender, a final buyers order and the product enrollment forms. Look for proper disclosures, product descriptions and product pricing. Don’t forget to manually check the math on the final buyer’s order to see if it balances and that it is printing the proper disclosures.

Make sure you can produce at least three documents that confirm that the customer knew the product he or she was buying and the price he or she paid. These documents could include the F&I menu, final buyers order, the retail installment contract and the product enrollment forms.

Encourage the general manager, general sales manager, controller and even the dealer to select five deals a month and have them go through them document by document.

And finally, consider having a formal compliance risk assessment of your sales and F&I departments. It’s a great first step in developing a formal litigation defense strategy at your dealership.

Source to original article:

Back to blog homepage

Vetting your Red Flags rule provider

2008-06-05T11:37:00.011-05:00

by: Gil Van Over

They are everywhere, providing Red Flags Rule solutions.

Complying with the Red Flags Rule can be broken down into seven words: policy, train, detect, prevent, mitigate, oversight and ensure.

Before you sign up with a provider and believe you are fully covered, you need to ask seven questions.

The final rules and guidelines of the Identity Theft Red Flags and Address Discrepancies under the Fair and Accurate Credit Transactions Act of 2003 were issued by several federal regulatory agencies late last year. Dealers are required to have a program in place by November 1, 2008.

The PDF version I have of the final rules is 125 pages long. About 13 pages apply to car dealerships. Seven words summarize dealership requirements.

When you are approached by a vendor who claims to have a Red Flag Rules (RFR) solution, ask the vendor how its solution helps the dealer in these seven areas.

Policy

The RFR requires that the dealer have a written policy that outlines the program and the processes within the dealership.

Ask the vendor, “Show me the template you are using to help me develop a dealership specific RFR policy.”

Train

You are required to train your employees in your program and the processes within your program. To protect yourself, you should keep track of which employees were trained and when the training was administered.

Ask the vendor, “How do my employees receive training in the RFR program with your solution and how do you keep track of which employees were trained and the date they were trained?”

Detect

The RFR provides a list of potential Red Flags. While the rule does not require that a dealer develop a program that incorporates the detection of each of these potential red flags, try explaining why you didn’t if it would have flagged a transaction.

Ask the vendor, “How does your solution help me to detect the potential red flags identified in my program, both electronic and manual red flags?”

Prevent

Here the agencies are ambiguous. They simply require a dealer to have processes in place to help prevent identity theft from occurring in a transaction at your dealership. Most ID theft experts agree that asking out-of-wallet questions provides a higher degree of prevention than simply comparing application data to credit bureau data.

Ask the vendor, “Does your solution require that consumers answer out-of-wallet questions as a way of protecting both the consumer and my dealership from identity theft?”

Ask the vendor, “Does your solution guarantee that my customers’ identities will not be stolen?” (If the vendor will give you a guarantee, get it in writing)

Mitigate

If a security breach happens at your dealership, you will be required to mitigate the damage to the consumer.

Ask the vendor, “Even with a solid program in place and conscientious, trained employees, I know you can’t guarantee that a consumer’s identity can’t be stolen. What steps does your program offer to mitigate the effects of identity theft on my customer?”

Oversight

The owner, or Board of Directors, is required to approve the initial program, ensure oversight of the development, implementation and administration of the program, training staff and overseeing service provider agreements.

Ask the vendor, “How does your solution help me with the oversight requirements under the RFR?”

Ensure

Another way to say audit. The rule requires that dealers ensure the program is updated periodically, the program is tested for sufficiency and an annual written report is provided to the owner of the dealership on an annual basis.

Ask the vendor, “Does your solution provide the program audits, update my program as needed and write the annual written report to me (or my owners)?”

Only when these seven questions are answered to your satisfaction should you be comfortable with a RFR provider.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I, Sales and Red Flag Rule compliance consulting and training firm (www.gvo3.com).

Link to Source Dealer F&I Article:

Back to blog homepage

‘Red Flag’ Rules For Banks Target Identity Theft

2008-06-02T22:16:00.005-05:00

By: Greg Bordonaro
Hartford Business Journal Staff Writer

Banks have until November to implement new federal “red flag rules” aimed at curbing identity theft by protecting the most sensitive data they keep on their customers, including deposit account and personal information.

The vulnerability of that data was exposed last month when a backup tape containing vital information on more than 550,000 Connecticut depositors and investors was lost while being transported by a storage company working for the Bank of New York Mellon.

As Connecticut residents receive their notifications of the security breach, local banks are working behind the scenes to establish the procedures required under the new law.

Connecticut banking officials noted that the red flag rules aren’t aimed at preventing the incidents like the missing computer tape. Rather, they are meant to prevent fraud after the sensitive information it contains falls into the wrong hands.

“You can only legislate so much to prevent things like this from happening,” said Barry Abramowitz, senior vice president and chief information officer of Liberty Bank in Middletown. “They knew what they were supposed to do, but they didn’t do it. It’s universally acknowledged that you don’t send out any unencrypted data with customer information.”

16 Thefts Per Minute

A survey conducted by the Federal Trade Commission in 2006 found that 8.3 million Americans, or 3.7 percent of the adult population, were victims of some form of identity theft in 2005. That means about 16 U.S. adults had their identity stolen every minute that year.

Now that sensitive information, including names, birth dates, Social Security numbers and bank account details for hundreds of thousands of Connecticut residents is lost — and possibly in the hands of potential identity thieves — Connecticut banks are taking steps to minimize the damage.

“The banking industry has always been subject to very strict regulations when it comes to preventing and detecting identity theft,” said Lindsey Pinkham Senior Vice President and Secretary of the Connecticut Bankers Association. “This regulation codifies existing precautions taken by financial institutions.”

The purpose of the new regulation, which will apply to all financial institutions and businesses that provide credit or allow payments or transactions by consumers and small businesses, is to authenticate the identities of customers, essentially to ensure that people are who they say they are, Pinkham said.

It will force financial institutions to implement a written theft prevention program to detect and prevent identity theft in connection with new or existing accounts.

The written program must be able to identify relevant patterns, practices, and specific forms of activity that are “red flags” signaling possible identity theft, and then respond to them appropriately.

Change Of Address

Jorge Santiago, vice president and branch administrator of Milford Bank, said his bank already has been very aggressive in detecting identity theft associated with a change of address. He said his bank does not accept address changes over the phone. Instead, it requires a written note signed by the customer so they can compare the signature to a previously signed check.

He said the red flag rules have been relatively easy to implement.

“I would hope for most banks this is just formalizing many of the procedures they are already performing to protect customers from possible identity theft and fraud,” Santiago said.

Other local bankers see it differently.

“It’s a little overkill,” said Bill McGurk, president and CEO of Rockville Bank. “The regulation is redundant, forcing us to institute rules and procedures we already have in place. It’s also an unfunded mandate. If you are already doing it right in the first place, then why should you go through the process again.”

Karen Bryant, vice president and compliance/security officer of Rockville Bank, said redundancy exists because the regulation requires banks to show a separate risk assessment of all its processes, products and services based on the red flag indicators. They must then cross reference the red flag rules to their current procedures.

Bryant tends to agree with consumer groups that have argued that the rules give banks too much discretion over how to implement their written program.

“There may be a danger in flexibility only because everyone can interpret the rule differently,” Bryant said.

‘Tailoring’ The Rules

Susan Stawick, a spokesperson for the Federal Reserve, said that the flexibility was necessary so written programs “can be tailored to the institution’s size, complexity, and the nature of its operations.”

Auditors will be checking to ensure proper red tag guidelines and precautions are instituted at financial institutions, said Pinkham, noting that penalties may be imposed on those who fail to comply.

Change of address followed by unusual customer activity such as a request for an additional or replacement debit card, is one of the most common indicators of identity theft and fraud that the program is supposed to detect.

Other common indicators the program should detect include unusual credit activity such as an increased number of accounts or inquiries, documents provided for identification that appear altered or forged, phone numbers associated with pagers or answering services, a lack of correlation between Social Security number range and date of birth, and personal identifying information associated with known fraud activity.

Back to blog homepage

‘I Don’t Remember that Deal’

2008-05-13T09:01:00.005-05:00

Another fantastic article
by : Gil Van Over

One of the lawsuits I helped a dealer defend against had a memorable exchange between the dark side attorney and the salesperson on the deal.

Attorney: Tell me, Mr. Salesperson, do you remember selling my client his car?
SP: Yes, I do. And I know I did everything right.
Attorney: How many cars do you sell a month?
SP: Fifteen to 20. And we always do things legally.
Attorney: And you sold this car three years ago?
SP: Yes.
Attorney: So, in the three years since you sold my client his car, you’ve sold maybe 500 or 600 cars?
SP: Sounds right.
Attorney: And you remember selling my client his car?
SP: I sure do. And we did everything legally.
Attorney: What color shirt was my client wearing?
SP: I don’t know.
Attorney: Was it raining or was the sun shining?
SP: I don’t remember.
Attorney: Was there anyone with my client when he bought the car?
SP: Ummmmmmmm.
Attorney: How can you really sit there and tell me you remember this deal when you can’t even remember anything else about that day?

Case closed

As soon as the salesperson admitted that he could not recall any other details about a day three years back, the rest of his testimony was tainted. He thought he was helping the dealership defend itself in the lawsuit, but instead created a headache for the dealer’s attorney.

Admit you don’t know

You must admit you don’t remember the deal, but you do know your processes and testify to how you do things.

The paper trail

If you want the deal jacket to be your defense witness instead of an employee who may or may not still be employed with your dealership three or four years down the road, you must believe in and require a paper trail.

This paper trail must show definitively that you sold the vehicle and ancillary F&I products in a transparent fashion.

A typical paper trail (except in California), will include the four square or selling document, a preliminary buyer’s order, a menu, a final buyer’s order, a retail installment sales contract and certificates for every F&I product sold.

Not only do these forms need to be in the deal jacket, but also they must flow. It must be readily apparent to the six jurors in the box, whose math skills vary from guzintas to statistics, whose reading pleasures range from comic books to Shakespeare, whose musical tastes may include rap and classical, that you didn’t hide anything when you sold the vehicle.

Selling document

It doesn’t matter whether you use a manual four square or a desking system or whether you work the trade difference instead of payments. Most dealers use some sort of selling document to start the deal. The agreed upon transactional details are normally transferred to a preliminary buyer’s order.

Preliminary buyer’s order

This form is used to affirm the customer’s purchase intention and to provide F&I with the agreed upon deal.

The vehicle purchase price, down payment, trade-in information and payment amount and term are some of the transactional details contained on the PBO.

Menu

This is the form that helps F&I to memorialize the sale. The cash sales price, the down payment and trade-in information must match the PBO. If payment and term were quoted, they must match the base payment information on the menu.

Final buyer’s order

The terms on the final buyer’s order, including optional F&I products purchased and the premiums for these products, must be consistent with the menu.

Retail installment sales contract

The amount financed on the RISC must match the amount due on the buyer’s order. The final term, payment and APR on the menu must match the term, payment and APR on the RISC. The F&I product premiums must match on all three documents.

Product certificates

The premium for each of the products as disclosed on the certificates must match the menu, final buyer’s order and RISC.

Common sense

I know this sounds like common sense, but don’t fool yourself. Either through operator error or inadequate computer programming, these simple paper trail elements may be missing from your deals.

Call to action

Go ask your F&I manager to print a test deal for each lender that requires a separate RISC (normally your captive and the generic contract the rest of the lenders accept). Review each of the documents discussed above and see if the paper trail passes the common sense test. If not, you know where to start your corrective actions.

Gil Van Over is the president of gvo3 & Associates, a nationally recognized dealer compliance consulting firm. He assists dealers with F&I and sales compliance.

Back to blog homepage

Waving the Caution Flag at Red Flag Solutions

2008-05-13T08:49:00.006-05:00

Article by : JR Wilson

This entire Red Flag issue has started to consume, and confuse, many in the industry. I myself have been scratching my head wondering “what are these guys thinking” when reading about some of the so-called solutions that are now available. It really is amazing the number of red flag/compliance “experts” that have, all of a sudden, appeared out of no where touting their knowledge and promoting their wares to dealerships. But that’s a discussion for another time; let’s dissect the topic at hand.

The Red Flag Rule is 256 pages long but the portion that governs a dealership’s Identity Theft Prevention Program can be summarized in six words. Yes, six simple words. These are the requirements of the program and deciding on your compliance initiative is very simple. You either have all six of these included or you do not have a compliant program.

The six required areas for a Red Flag compliance program are:

1. Policy
2. Training
3. Detection
4. Prevention
5. Mitigation
6. Audit

Policy: The rule requires you to design and implement an Identity Theft Prevention Program that encompasses the other five areas.

Training: You must train your employees on the policy.

Detection/prevention: You must implement a process to detect and prevent identity fraud during your transaction processing. For dealerships, this means vehicle deliveries and parts/service purchases.

Mitigation: Within the policy, you must have measures that reduce the chance of 1) internal identity fraud via employee involvement and/or a customer information breach; 2) lessen the risk of fraud on any existing customer accounts (not really applicable to dealerships); and 3) minimize the possible impact on your current customers in the event of future identity fraud exposure.

Audit: You must perform a policy review, at least annually, to determine the results and make the necessary adjustments to ensure the ongoing effectiveness of the policy.

Currently, the majority of the noise about the Red Flag Rule deals with the detection and prevention requirements. A lot of people think: 1) the 26 ‘red flags’ are steadfast and written in stone, and 2) if they check these 26 ‘red flags’ they are a) compliant; b) protected; and c) have satisfied the regulation’s requirement. Neither of these could be further from the truth. Dealers that implement such programs are not to blame (except in their lack of research) as they trust solution providers to implement protective solutions. The problem lies with misinformed people designing compliance programs through either an abbreviated understanding of the law or, worse, a tainted interpretation that allows them to promote their product through the fear factor. Listening to the wrong people and implementing an incomplete program could be devastating for a dealership!

As far as detection and prevention there will be four different possibilities that arise during the vehicle delivery: 1) No red flags and the deal is not fraudulent; 2) red flags and the deal is fraudulent; 3) Red flags and the deal is not fraudulent; or 4) No red flags and the deal is fraudulent. The last two should be of the most concern when designing the detection and prevention portion of your program. How do you account for all of the possibilities (policy design) and educate (train) your employees to detect, decipher, escalate and resolve these variables while maintaining a customer friendly and expedient delivery process? The answer is you can’t. Relying on statistical analysis of imprecise indicators will result in varying levels of results. Does this sound like something you want governing your program? Words like variance, statistically, probability and imprecise should never be the underpinning structure of a compliance program.

There was a recent fraudulent vehicle purchase in Cincinnati, which is a glaring example of why the red flags will not detect identity fraud. A couple enters a dealership and the female purchases a Jaguar.

The female used a stolen identity but let’s take a closer look and see what red flags appeared on this deal:

• She looked like the picture on the driver’s license

• She filled out the credit application with the:
- Current address (matched with the bureau)
- Current phone number
- Current employer (matched with the bureau)
- Correct SSN (matched with the bureau)

• There was no fraud alert on the bureau

The real “customer” called the dealership several weeks later “in a panic,” as stated by the newspaper story. Also in the story, the dealership owner was quoted as saying, “What more could we have done?” Unfortunately, four things transpired in this transaction: 1) a car was stolen; 2) there is now a new identity fraud victim; 3) the dealership received negative press and expressed ignorance in protecting their customers; and 4) it’s been made evident that a policy of checking the ‘red flags’ would not have prevented any of the above. The only bright spot for the dealer is this deal happened before November 1, 2008 (deadline for RFR compliance). Otherwise, we would be adding 5) the dealership was found to be in violation of federal law because of its lack of effort in implementing a program to “detect, prevent and mitigate identity fraud” and has been sued by the identity victim for the damages the fraud has caused.

Carefully reviewing every possible offering that is being touted as a ‘red flag solution’ is the diligence you must take to protect your dealership. Before you decide on a solution, make sure it includes all six...and there is no deviation here...of the requirements and truly has a detection and prevention aspect that is not reliant on statistics or possibilities. You are putting your dealership’s name and reputation on the line with every delivery. You deserve definitive results, not possibilities.

J.R. Wilson is an expert on identity fraud and the president of PatriotDealer.com, which provides identity verification and compliance services to dealerships.

Excellent article. This is a way to measure a well-run automotive F&I department.
AFI

http://www.AutoFinanceInsider.com

Back to blog homepage

Controller for Toyota dealership arrested on theft charges

2008-05-12T12:38:00.005-05:00

Some simple precautions can prevent problems like this

LEBANON TOWNSHIP — A five-year employee at a local car dealership has been arrested on charges of stealing almost a half-million dollars from the business, according to a statement from county officials.

Elizabeth L. Pearson, 33, of 28 Dennis Road, Bloomsbury, was arrested after a five-month investigation into money missing from Muller Toyota, 2019 State Highway 31 South, the Hunterdon County Prosecutor's Office said in a news release Friday.

"We're not making any commment on that," said Jim Pesce, general sales manager of Muller Toyota. (of course not).

The dealership had a forensic audit done and contacted the prosecutor's office's Major Crime Unit after receiving the results of it, authorities said. Police found that from June 2002 through September 2007, Pearson diverted more than $400,000 from accounts maintained by Muller Toyota to herself, authorities said.

Pearson, charged with second-degree theft by deception, second-degree misapplication of entrusted property, and third-degree forgery, surrendered to detectives today and was put in Hunterdon County Jail on $75,000 bail with a 10 percent option, police said. She had worked for the dealership for five years.

Anyone with information about the case can call Dan Hurley, deputy chief of
Investigations, at (908) 788-1492.

Let Justice be served.
AFI

Chrysler dealer, ad agency sign consent decree over deceptive ads

2008-05-10T12:59:00.005-05:00

Customers will each get $550 settlement!.

A New Orleans-based marketing company and a Maine Chrysler, Dodge, Jeep dealership have signed a consent decree to prohibit ads that the state attorney general called "unfair and deceptive," according to a report in the Portland Press Herald.

Level 10 Marketing of New Orleans and the dealership did not admit wrongdoing in signing the agreement.

According to the Maine Attorney General, ads for a November 2006 car sale offered "vouchers" that suggested buyers could receive "$4,000 Instant Savings," but those savings were never realized. (any wonder?)

The agreement also said that the marketing company and dealership can't use other promises of savings without documenting those savings. Those promises, including offering cars for sale for "pennies on the dollar," savings of "up to 90 percent off original M.S.R.P," prices "slashed for immediate liquidation” or "wholesale pricing direct to the public.”

Twenty-two customers who purchased vehicles at the Chrysler Dodge Jeep sale will receive refunds of $550 each. The two companies also must pay a civil penalty of $6,250.

Level 10 designed the advertising flyer for the sale and provided a team of salespeople at the dealership to attempt to sell the cars.

INSIDERS ADVICE:

*If you are in the market for a vehicle and hear of a current sale such as the one above, call the dealership and make contact with a salesperson (if you are interested in that particular brand of automobile).

*Set an appointment away from the "festivities".

*Do research online and negotiate a fair deal with a DEALERSHIP EMPLOYEE ONLY.

*You should think twice about buying a car from a dealership that hires a promotional company who brings in it's own salespeople for the "event". It just sounds shady to me. How compliant do you think their F&I practices are?

AFI

Back to blog homepage

Why Background Checks are a Good Idea

2008-05-09T13:11:00.003-05:00

Why background checks are a good idea: Dealership employee the subject of identity theft investigation

More than 200 customers could be at risk. A little pre-employment checking could have avoided trouble

A woman working at a Sanford, Florida, car dealership is accused of trying to steal the identities of customers. Authorities said more than 200 customers of the dealership could have been targeted, according to a report on WESH-TV.

The woman was pulled over by police for speeding last Sunday. Investigators said they found more than 200 Social Security numbers that were jotted on pieces of paper, in notebooks and on sales contracts for cars.

According to the woman’s family, she used to work for Drive Time Auto Sales. Police claimed she used her job at the dealership to steal identities.

The accused woman’s sister said she was surprised to learn of the investigation. She shouldn’t have been. It turns out the woman had an outstanding warrant in Georgia for similar identity theft and fraud charges.

Investigators said they spent all day May 5 running the 200 Social Security numbers through a national database to alert potential victims.

Back to blog homepage

Local Car Salesman Arrested, Charged With ID Theft

2008-04-23T17:07:00.005-05:00

By Som Lisaius, KOLD News 13

His legal name is John Clement Savage III, but he almost has as many names as he does different faces. A suspected identity thief wanted in at least three states, most recently Tucson, Arizona, where he worked as a salesman at Quebedeaux Pontiac-GMC.

"Our concern is," United States Postal Inspector David Birch says, "we just want to make sure that all the victims have been notified or made aware. If there are other victims (we want to know)."

Dating back to last October, authorities say Savage--who then went by the name George Robert Harris--ripped off the identity of customers at the east-speedway dealership. Since then, Savage left the state and moved to Tennessee. That's where he was arrested and charged with multiple counts of identity theft.

Says Inspector Birch, "When he was arrested, he indicated he was in charge of shredding some information, customer information and he--instead of shredding it--kept it and used that information for his own benefit."

"He had my husband's drivers license. He had everything of my husband's. Our address, our home phone number, my name. Everything."

Naomi Rodriguez and her husband bought a GMC pickup at Quebedeaux last fall, just before he was deployed to Iraq. About two months later, Naomi started receiving all sorts of information about loans and new lines of credit.

Turns out, somebody had a hold of her husband's information. Information that savage reportedly stole while working for Quebedeaux late last year.

Says Naomi, "They still to this day have not contacted me with an apology or just letting me know we found out this happened to you, we are sorry--nothing. Not once have we been contacted by them."

We spoke with Quebedeaux's general manager this afternoon and he says he was unaware of any local victims. He did confirm that this man worked at the dealership for a short period of time, but said it would be premature to comment further without knowing all the facts.

(Cruelly covering their behinds - AFI)

As for Naomi Rodriguez, she realizes bad things happen. But based on her experience with Quebedeaux, she'll never look at this dealership the same.

"I'm really upset with Quebedeaux. I understand Quebedeaux is a victim also by him because he fraudulently worked there and I understand that; I respect that. But as a company when you know you have sensitive information you need to take full blown responsibility for things like this that happen."

(Exactly right! - AFI)

Says Inspector Birch, "As a customer you want your information protected. In order to apply for credit to purchase certain items at a dealership, you need to be able to provide that information and all it takes is one bad seed."

If you applied for credit at Quebedeaux between March and December of last year, authorities suggest taking a close look at your credit. If you suspect foul play, you're asked to contact the US Postal Inspectors or the Tucson Police Department.

Original article found here.

Wow. Actual examples really increase my awareness of identity theft. I hope this guy get's what he deserves.

AFI

Are You Compliant? Part 1

2008-04-19T14:47:00.004-05:00

A Review of Recent Developments Part 1
By: Todd Clarke

Fantastic article! AFI

You may be aware of these five compliance rules, but do you know how to stay off the radars of regulators and plaintiff attorneys?

Compliance expert provides a quick review, and offers his secrets for keeping regulators and attorneys at bay.

Every vehicle needs a regular tune-up to keep it running at peak performance. And a car dealership’s compliance efforts are no different.

Even the most comprehensive compliance program needs to be reviewed and updated regularly.

Otherwise, just like the cars we sell, compliance can break down and lead to serious headaches.

Adverse Action Notices

One of the most significant compliance issues to arise in 2007 has to do with adverse action notice requirements. These are the notices sent to customers when they are turned down for credit, or when they are offered different credit terms than what was originally applied for.

There hasn’t been a lot of formal guidance on when dealers are required to send out notices. Many dealers have made it a practice of sending all their deals to a finance company regardless of the customer’s creditworthiness. They do this in an attempt to transfer the responsibility of sending the notice to the finance company. The problem is, even if that practice is compliant, which is debatable, you are putting your dealership in the hands of someone else.

If the matter went to court, what would you do if you had to prove that the finance company did send the notice?

Recognizing the lack of guidance in this area, the National Automobile Dealers Association (NADA) recently issued dealer guidelines covering an array of scenarios. Now, these guidelines are just suggestions on how to navigate this regulation, but many courts and regulators tend to rely on these guidelines since they represent the only formal guidance available to dealers. And that’s good news for you.

Here’s what the guidelines say about when a dealer is required to send an adverse action notice:

• When a customer’s credit is so bad that you don’t send the deal to any finance company.

Next page: part 2

Back to blog homepage

Are You Compliant? Part 2

2008-04-19T14:39:00.003-05:00

A Review of Recent Developments Part 2

• When you send a deal out to one or more finance companies and no one extends credit to the customer

• When you send a deal out, the finance company wants to extend credit with different terms and the customer refuses the new terms

Additional legwork on the part of the dealer may be required, but compliance will be in their own hands instead of someone else’s. And that’s a good thing.

Document Disposal

Under the authority of the Fair and Accurate Credit Transactions (FACT) Act, the Federal Trade Commission (FTC) developed the Disposal Rule. It went into effect in 2005. Under the rule, dealers must dispose of sensitive information included in their customers’ credit reports. The rule is simple: “You have to take reasonable and appropriate measures.” While the rule doesn’t define what “reasonable” is, it does suggest certain measures that a dealership should consider. These include having a written disposal plan; hiring a certified destruction contractor; auditing the contractor to make sure data is properly destroyed; and taking appropriate measures to dispose of both physical and electronic data.

How the recommendations protect the dealer is similar to how the NADA guidelines work. The rule only asks for reasonable efforts when disposing of a customer’s personal information. But if you get sued by a customer because his or her data was not disposed of properly, the court may ask if you followed the FTC recommendations. If you didn’t, it may look like you didn’t take the reasonable steps.

Next Page: Part 3

Back to blog homepage

Are You Compliant? Part 3

2008-04-19T14:21:00.008-05:00

A Review of Recent Developments Part 3

Document Preparation Fees

Many dealerships charge various fees when a vehicle is delivered, including a document preparation fee. However, the so-called “doc fee” frequently comes under fire. Recently, consumer attorneys have developed a new attack on the doc fee. They are now arguing that a dealership is essentially practicing law without a licence by charging a fee to prepare documents. And as you know, that’s illegal. Just like you need to be a doctor to practice medicine, you need to be a licensed attorney to practice law. I don’t buy the argument that charging a doc fee equates to the unauthorized practice of law, but several courts have. This is why many states regulate the fees dealers charge. While dealers need to be familiar with these laws, they may not always help defend against this new attack on doc fees. If you’re charging a document preparation fee, it may be a good idea to contact your legal counsel to discuss the matter.

Credit Card Truncation

Under the FACT Act, credit card numbers on receipts have to be truncated so only the last five digits are shown. However, did you know the rule also requires that receipts not show expiration dates? Unfortunately, many people miss that part of the rule.

There was a lot of litigation about the expiration date after the rule went into effect at the end of 2006, especially in California. The good news is that this is an easy matter to handle. You just need to check every credit card machine in the dealership and make sure they’re all printing out receipts with the card numbers properly truncated — and without the expiration date.

Privacy Rules

Most dealerships know about their general responsibilities for safeguarding their customers’ personal, non-public information under the Gramm-Leach-Bliley Act. But do they know all the details? For instance, the Safeguards Rule requires a dealership name a specific employee to oversee safeguard activities.

The rule also requires a written information security plan that is periodically reviewed. Do you have a written plan? Has your dealership designated someone to oversee the program? Have you yet to fill the position after the person you designated left the dealership? Have you done the required periodic evaluations?

Now, you may be doing your best to comply with the rule, but you aren’t compliant if you aren’t meeting the detailed requirements of the Safeguards Rule.

Just remember that many of these rules governing how we operate our business act like moving targets. This is why periodic reviews of your compliance efforts is required. Just remember, even the best compliance programs can get better. Thankfully, there are plenty of resources available to help. So take advantage and don’t get caught with an outdated policy.

Todd Clarke is an associate counsel for JM&A. For more information, visit www.jmagroup.com.

Link to source article here

F&I Manager profile:
http://www.AutoFinanceInsider.com

Back to blog homepage

Former Honda store GM pleads guilty to fraud charges in leasing case

2008-04-19T12:21:00.004-05:00

My objective when I display content within this blog is to promote the federal laws and regulations that will help you to understand the operations of a compliant f&i department. There is much to learn from lawbreakers who get caught. AFI

U.S. Attorney pursues dealership manager over altered lease documents

Duane Clark, the former general manager of Chezik Honda in Kansas City, Mo., pleaded guilty in federal court to a wire fraud scheme that involved falsifying paperwork on car leases in order to obtain higher commissions for himself, according to a release from the U.S. Department of Justice.

READ THE REST OF THE ARTICLE:
http://www.AFItoday.blogspot.com

Back to blog homepage

F&I Tips: Setting the Proper Image

2008-04-15T11:32:00.004-05:00

In business, image is everything. Your customers will make assumptions about you based on your image. If you look professional, they will see you as professional. This positive image sets the stage for sales success. Remember: you never get a second chance to make a first impression. The same hold true for the product as well, which is why the presentation should be polished and informative. Factors essential to creating a successful overall image include the quality of your wardrobe, grooming, politeness, voice, size, posture, body language, etc.

THE PROPER ATTIRE

It’s a well-known fact that people make assumptions based on a person’s attire. While there are certainly exceptions to this rule, the surest method of maintaining success is consistently putting your best foot forward. Your customer’s first impression will lead them to form assumptions about some important attributes, which will, in turn, influence the way the customer responds to you during the business transaction. Should your appearance lend itself to a poor first impression, you have sabotaged yourself from the start. Some of the assumptions your customer may make based on your appearance are your:

Professionalism

Education

Economic well-being

Success level

Moral fiber

Take whatever time is necessary to select the proper wardrobe. If you want to be taken seriously by customers who are going to spend a lot of money at your dealership, honor them by wearing appropriate attire. Customers should have an idea if they like you or not, if they feel comfortable with you or not, based on your appearance. This gives you a significant advantage during the sales process: if your customers take you seriously in your capacity as an advisor, they will be listening attentively as you discuss product knowledge and other aspects of the sales process.

BE COURTEOUS

Your customers are hoping to spend a lot of money with you – that’s why they are at the dealership. Treat them with respect. These are people who generally have worked hard for the money they are about to spend, and they deserve to be treated accordingly. Be polite to them, and remember where you are: You are in a professional dealership, be careful with the car lingo!

ADDITIONAL PERSONAL ATTRIBUTES

Always smile, let your customers see that you care about them. Your facial expressions and body language communicate a great deal; in fact, communication is primarily non-verbal. No matter how courteous your words are, they will be undercut by body language and facial expressions that seem disrespectful or insincere. Let your non-verbal communication say you have an interest in presenting your products to your customers, rather than trying to force them into a particular decision. Let them feel that the decision is their choice, not yours. In other words, don’t give them an opportunity to dislike you. That’s self-defeating, and will result in fewer sales.

How you project your voice is important too. Project with confidence, and convey enthusiasm and sincerity. In the old days, customers were wary about fast-talking salesmen. They still are. Remember, these are people, not dollar signs! Look at them. Talk to them. After all, you know your product. Let them hear your expertise in your voice.

The way you shake hands never goes unnoticed by the recipient. Let it represent your professionalism and attention. Let the customer know you really are pleased to meet them, that you’re not just saying that.

In the end, you are responsible for what your customers see. If you put forth the effort to present a polished, friendly appearance, your interactions with your customers will be more productive and more enjoyable for everyone involved. Taking the time to create a professional image for yourself is an investment in your own success.

AFI

Source article by: Arzu Algan

AutoFinanceInsider.com

Back to blog homepage

The Right Attitude in Sales

2008-03-28T18:24:00.004-05:00

By Dean Arzu Algan

Your attitude toward yourself and your customers is critical to your success. Attitude influences our behavior and our actions, and ultimately defines what we can or cannot do. Once a negative attitude takes hold, success becomes an uphill battle. Much like a disease, a negative attitude can become a chronic problem, constantly eating away at your success. You become programmed to accept losing. Unless you break free of that cycle of negativity, you simply cannot succeed. Toward that end, it is essential that you leave personal and other problems at home. Customers don’t want to know about them – they want to interact with someone who is knowledgeable, and who exudes professionalism.

POSITIVE ATTITUDE

The power of a positive attitude must be realized. There is no other way to become a success, whether in sales or in any other endeavor. Think successful, become successful.

The individual who feels like a failure will find a way to fail. There is a definite relationship between positive attitude and accomplishments. Professional people cannot afford to give out negative energy. The more positive your attitude, the greater your prospects for achieving success. A positive attitude helps generate the energy to get things done. Attitude, like health and diet, can be changed. It can be improved.

Seek opportunities at every turn. If things do go wrong – and they sometimes will, it is the human condition – view them as a learning experience. In other words, strive to find a positive angle on what otherwise might be a negative (and destructive) incident. Keep striving for success, and realize that if you take two steps forward for every step backward, you are still making progress. Take pride in ethics and legal compliance. Exercise self-control. Your customers will appreciate it, your company will generate more business, and you’ll feel better about yourself.

AVOIDING A RUT

Human beings, by their very nature, are creatures of habit. Some habits, as we all know, are better than others. Often, the difference between success and failure are the quality of their habits. Think about it, and the kind of habits that will generate success.

Those who continually fail generally often find it difficult, if not downright impossible, to abandon the immediate pleasure bad habits may offer. Consequently, they have low expectations which they may or may not realize. Successful people have learned that they are responsible for their own success. They are willing to put their long-term goals ahead of short-term pleasures by cultivating proper habits. They strive to make each day – and each deal – count, even if the odds appear against them.

LISTENING WITHIN

Developing a good understanding of ourselves is an important phase of human growth and development. Self-awareness, a thorough understanding of our own identity, sets the stage for improved relationships. To become meaningfully involved with others and to make a positive impression we must have an awareness of self. Without first understanding the persona you current project, how can you change the way others perceive that persona?

Few people are aware of how they feel about themselves, of what is important to them, and thus are relatively unaware of the feelings of others. Individuals who are not aware of self tend to lack superior judgment and wisdom. When we discover that something we do bothers someone else, we have the option of altering our behavior. Greater self-awareness also improves our communication skills.

When faced with a toxic, unproductive outlook or negative habits, many people refuse to examine the source of their problems: themselves. Rather than undergo the sometimes painful process of introspection, they continue in their destructive practices. If you hope to succeed, you must avoid this trap. If you want to be successful, you must be willing to face the unpleasant possibility that you are the cause of most of your failures. Your courage will be rewarded with a greater insight into yourself, and, subsequently, a more successful career.

Excellent article.

AFI

Automotive News - With a Twist:
http://www.AutoIndustryNews.blogspot.com

Top Compliance Concerns for 2008

2008-03-22T15:52:00.010-05:00

Top Compliance Concerns for 2008
by : Gil Van Over

There are risks, and there are risks. If you are late to an important appointment, meeting or date, you balance the risk of exceeding the speed limit and making the meeting on time versus the risk of obeying the law and potentially losing face if you are late.

If you are trying to reduce your belt size, you balance the risk of adding pounds versus the pleasure of a Reuben sandwich with cottage fries at lunch.

If you are a movie star or a recording artist, you run the risk of losing your audience when you use your star status to forward an unpopular opinion or belief or religion.

A dealership faces risk every day in every part of the business. The smart dealers understand that they must have the information available to understand how to manage these risks. Here is some information…

Higher risks

There are innumerable risks in a dealership’s sales and F&I processes. Some are pretty low risks, while others are a relatively higher risk. Here is my list of the higher risk areas a dealership faces in 2008:

• Identity theft
• Packing payments
• Forging signatures
• Falsifying income
• Power booking
• Straw purchases
• Sub-prime acquisition fees
• Forms execution
• Adverse action notification
• Rebate administration

One at a time:

Identity theft – The bad guys are out there and they ain’t going away. Many people are focused on the meth heads that use ID theft as a way to fuel their habit. However, many of the articles flowing through the Internet now uncover the ID thieves as employees at dealerships and banks. Make sure that you have a solid Safeguards program in place, including periodic audits and training. Keep a vigilant eye on those employees that have access to consumer’s non-public, personal information. Finally, ramp up your organization to embrace the Red Flags Rule requirements. You should have already started to develop and implement the program with a drop dead date of November 1.

Packing payments – This potentially deceptive practice is specifically illegal in California and other states are looking to pass similar statutes. The dark side opines that a consumer has the right to know the right payment amount for the item being negotiated at any point in the negotiations. The judges and juries tend to agree with this notion. With the number of desking systems now available to dealerships, payment packing should become as ancient as 8-track technology, but it still makes occasional appearances. You should implement a process that prohibits payment packing, whether you use a desking system or a sharpie.

Forging signatures – Logic dictates that this criminal offense should not be on this list because it should not even be a course of action any reasonable person would take. Think again. Perhaps out of laziness, perhaps out of oversight, perhaps out of brazenness, forgeries are happening every day at dealerships. Most of the time it is not on a contract or an enrollment form. Most of the time it is on a menu or an odometer statement or a rebate form. Regardless of the document, any signature not affixed by the consumer is a forgery. You must make it a policy that forgers will be fired and follow up if you find a forgery.

Falsifying income – This is bank fraud. Let me repeat, bank fraud. If the bank or credit union catches you, they will report you to the Feds using a form called a Suspicious Activity Report. I don’t know about you, but I shudder to think that my name is associated with a suspicious report on file with the government. A few dealers have had enough SARs filed against them that the banking regulators turned the case over to the FBI, who investigated and raided and still retains the files. You can help avoid the FBI raids by diligently monitoring credit application information. Look for strikeovers on credit applications, or an inordinate amount of Social Security income as additional income. Have your IT people run a scan on your systems looking for paystub templates or Social Security award letter templates. Review a sampling of deals and compare the income in the file to the income listed in Route One, Dealer Track or CUDL transmissions.

Power booking – Bank fraud II. Like falsifying income, dealers found guilty of power booking deals will have an SAR filed against the dealer. Same scenario as above. Too many SARs and the FBI comes calling. Set up a process where a manager is required to sign and date every bookout sheet that leaves the dealership. That person is responsible to accurately represent the vehicle’s options and miles. If the manager lies to the bank, the manager is looking for a job somewhere else.

Straw purchases – Bank fraud déjà vu. Straw purchases generate SARs. Straws are also specifically against the Texas state statutes. You need to establish a policy that straws are not acceptable and enforce the policy.

Sub-prime acquisition fees – With the current focus on sub-prime lending, regulators, politicians and opportunistic plaintiff’s lawyers will put a magnifying glass on sub-prime transactions. Add to the mix that the vast majority of consumer lawsuits against dealers that I have worked on as an expert witness involve a sub-prime customer as the plaintiff. If you have a process that increases the price of a vehicle to accommodate a sub-prime acquisition fee, you are running the risk of a Truth in Lending based lawsuit. You must take the sub-prime acquisition fee as a cost of goods sold.

Forms execution – As simple as it sounds, it appears to be just as difficult in execution. The forms used to close a deal are pre-printed. The computers used to complete the forms can be programmed to properly fill in the blanks. Some dealers just don’t get it and fill them out incorrectly. The lenders continue to accept the deals instead of kicking them. Now, plaintiffs’ attorneys are using this as evidence that the dealership intended to confuse the consumer, thus committing fraud. Have your F&I manager print a sample retail and lease deal. Make sure everything is printing where it is supposed to.

Adverse action notification – This issue is likely the most confusing one that a dealer faces. Should I or shouldn’t I? Unfortunately, like those old commercials, we don’t have a hairdresser with the magic answer. Some plaintiffs’ attorneys are funding their retirement incomes on this single issue. The NADA provided direction late last year with a management guide. You should review the guide with your attorney and decide what you need to do.

Rebate administration – Some manufacturers apparently consider rebate audits as an income center. I have heard of seven-figure chargebacks at single point stores. You should consider conducting your own periodic audits to ensure that you don’t owe the factory any more money.

Gil Van Over is the president and founder of gvo3 & Associates, a national compliance consulting firm that specializes in F&I and sales compliance and training.

Link to Dealer Magazine Article

LUCKY EBAY SEARCH BOX

Visit AutoFinanceInsider.com

Red Flag Rules: The Devil is in the Details

2008-02-23T14:36:00.008-06:00

How to implement an effective compliance program to help ensure best practices and preclude costly errors.

Take some notes from this question and answer session.

Compli - We have compiled the most commonly asked questions below, and Michael Benoit of Hudson Cook LLP has provided his comments:

Q: To what extent are these Red Flags requirements duplicated at the Finance Company (assignee) level? Thus, if the dealer does this, does the Finance Company also have to do the same things?

A: Both the dealers and finance companies will have obligations under the rule. There will be some overlap, but the different parties may focus on different things given their somewhat differing roles in the transactions. For example, dealers are probably in a better position than a finance company to verify the authenticity of identification documents because the customer is in the store.

In fact, because the finance company is not a party to the retail installment sales contract (it gets sold to the finance company after the sale closes), it is the dealer who is opening the installment sale account with the customer, and the dealer who has the correspondent obligations under the Red Flags Rule. The finance company buying the paper may still do its own verification, but it may need to rely on the dealer to do certain things for them. For example, if the dealer sells paper to banks that are subject to the "Know Your Customer" rules under the USA PATRIOT Act, the bank probably requires the dealer to follow certain identity verification protocols. Those protocols may satisfy the banks' requirements, but those are independent of the dealer's obligations to comply with the Red Flags Rule.

Q: Much of your comments referred to what the dealer has to do to comply; is it safe to assume that this also applies to finance companies that purchase the retail installment contracts from the dealers?

A: Yes. Finance companies also have obligations to comply with the Red Flags Rule. While the dealers will have primary responsibility for complying with the Rule during the account opening process, the finance companies will have additional obligations during the life of the account.

Q: Provide a full citation to the rules and regulations.

A: The rule was mandated by the FACT ACT, which amended the federal Fair Credit Reporting Act. The mandate is codified at 15 USC 1681m(e). The rule itself can be found at 16 CFR Part 681.

Q: Does the training schedule pose a problem in dealerships because of the attrition rate of sales people?

A: A good training program always includes periodic refreshers. Dealers should take into account their attrition rates when determining the appropriate period between refresher trainings.

Q: Finance companies are already using technology for id verification that the dealers don't have. How much do you feel the inconsistent address flag will affect sub-prime dealers?

A: While an inconsistent address may be a Red Flag, it may be one for which there is a legitimate reason. Special finance departments may find that they receive more notices of address discrepancy than prime finance shops, but it just means that the F&I department will need to make additional inquiries to verify the address. Many finance companies and F&I departments already require a utility bill or other supporting proof of address, so existing procedures may need only a little tweaking to comply with the rules regarding address discrepancies.

Q: Please define "covered account."

A: A "covered account" is:

(i) An account that a financial institution or creditor offers or maintains, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions, such as a credit card account, mortgage loan, automobile loan, margin account, cell phone account, utility account, checking account, or savings account; and

(ii) Any other account that the financial institution or creditor offers or maintains for which there is a reasonably foreseeable risk to customers or to the safety and soundness of the financial institution or creditor from identity theft, including financial, operational, compliance, reputation, or litigation risks.

For purposes of most dealers, "covered accounts" will be installment sale and lease transactions.

Q: We purchase installment contracts from a retailer that sells restaurant machinery. Are we required to comply with those contracts, is the seller required to comply?

A: If these are commercial accounts, you have some leeway. The Red Flags Rule includes commercial accounts in its coverage to the extent you determine that there is a reasonably foreseeable risk of identity theft, or risk to the safety and soundness of your organization from the potential for identity theft relating to these accounts.

Q: Do we have to follow up after we sell customer contracts to finance companies?

A: Once you sell the contract, your obligation for ongoing monitoring of the contract transfers to the assignee. If you keep your contracts and service them yourself, you need to monitor them for evidence of identity theft. This may sound worse than it actually is -- to the extent your accounts are "closed-end" (in the sense that additional charges cannot be made to the account) there may be little opportunity for identity theft. But beware of the account you open that misses the first payment -- that could be a red flag!

Q: Do service providers need their Red Flag guidelines in writing so the dealer can file it.

A: Not necessarily. Dealers will want to contractually require service providers that handle covered accounts to meet certain obligations under the Red Flags Rule. This is because service providers may not themselves be subject to the Red Flags Rule, but the Rule requires dealers and other creditors to oversee their service providers. Your approach may be different with different service providers -- you should work with your legal counsel on how best to address specific situations.

UPCOMING: Complimentary Red Flags Webinar (Part 2):

Red Flag Rules: The Devil is in the Details

Join Michael Benoit of Hudson Cook as he drills down into the details of the 26 different Red Flags identified by the FTC.

Note: Webinar attendees will have the opportunity to have their specific questions on Red Flags answered.

Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/280809328

I am promoting this webinar only to advance the cause of ethics and compliance in the F&I profession. As always, post feedback, or email as usual to: autofinanceinsider@yahoo.com. I always answer every email. Attend the webinar and run an ethical F&I department!

No, I am not receiving a check or other compensation from Compli or Hudson Cook for promoting this webinar - but the sponsors slot is still open... email to AutoFinanceInsider@yahoo.com

AFI
www.AutoFinanceInsider.com
www.Auto Industry News-with a twist

Back to blog homepage

Excerpt from new article: "The Essentials of a Compliance Process"

2008-02-18T12:30:00.006-06:00

hot off the presses from Gil Van Over:

Dealers have seen two federal rules promulgated on them in the last five years along with an update to another federal guideline.

The Safeguards Rule (2003) and the Red Flags Rule (2008) both require that dealers adapt processes that most did not have in place prior to the requirements.

The Safeguards Rule, of course, requires that dealers protect consumers’ personal, non-public information from being fleeced by identity thieves.

The Red Flags Rule mandates that dealers escalate their responsibilities to help detect and prevent identity theft.

The Federal Sentencing Guidelines (2004) are a set of rules that judges must follow when imposing sentences on guilty parties. With a good compliance and ethics program in place, a judge can reduce potential fines and penalties by up to 95 percent.

All three (Safeguards Rule, Red Flags Rule, and Federal Sentencing Guidelines) provide a dealer with insight of what the federal government considers to be an effective compliance process.

Safeguards Rule
The Safeguards Rule contains five elements a dealer must follow to be in compliance:
• Name a compliance officer
• Conduct a risk assessment
• Develop a policy and procedure
• Provide employee training
• Conduct periodic audits

Red Flags Rule
Compliance with the Red Flags Rule requires six elements.
• Name a compliance officer
• Conduct a risk assessment
• Develop a policy and procedure
• Provide employee training
• Conduct periodic audits
• Write an annual report on program’s effectiveness

Federal Sentencing Guidelines
The sentencing commission has outlined the elements it considers necessary for an effective compliance and ethics program:
• Standards and procedures to prevent and detect criminal conduct
• Peonnrsel screening related to program goals
• Training
• Auditing, monitoring and evaluating program effectiveness
• Non-retaliatory internal reporting systems
• Incentives and discipline to promote compliance
• Reasonable steps to prevent further offenses upon detection of a violation

The elements of a compliance program
Not surprisingly, a dealer looking to establish a compliance process in sales and F&I should follow the model the government provides.

Name a compliance officer – Put someone in charge. Depending on your size, it can become the additional responsibility of the person responsible for your risk management functions, or it can be a newly created position. Either way, make it someone’s responsibility to develop the processes, the procedures, and the policies and report to you.

Conduct a risk assessment – Figure out where your compliance shortcomings are. It could be an inconsistent payment quoting methodology, or the inconsistent use of a menu, or the inconsistent completion of forms. It could be a lack of safeguarding consumer information, or the lack of a crosschecking process to detect employee fraud or the lack of buyer’s guides on used cars. The compliance officer is to conduct a thorough risk assessment to determine where your risk is.

Develop a policy and procedure manual – Once the compliance officer has determined where the risks are and how the processes are supposed to work, he or she should develop policy and procedure manuals for both sales and F&I. These manuals must define and describe the organization’s expectations on how an employee is to complete certain tasks.

Provide employee training – Now that you have a manual on how the employees are expected to perform their jobs, let them know. Give them a copy of the manual a week before starting the training so that they have ample time to review the material. Then provide the training and have the employees sign an acknowledgement form certifying that they have read the material and agree to abide.

Conduct periodic audits – Ah…the trust but verify stage. This is why I call this a compliance process, not a program. A process must be continually monitored and refined as new information becomes available. A program is like a manufacturer’s incentive, it comes and goes and no one remembers it a year later. You must conduct periodic audits and document any shortcomings and corrective actions you took, including disciplinary. You must also refine your policy and procedure manuals to reflect your actual process if the employees find a better way to do something.

Back to blog homepage

The Electronic Red Flags

2008-01-25T21:27:00.003-06:00

by Gil Van Over

So far in my discussion of the Red Flags Rule, I listed the potential red flags that the Feds suggest you should address in your final policy, as well as delineated the potential red flags that require a manual process. Today, I will discuss the potential red flags of identity theft that will require an electronic, or software, solution.

The red flags that will require an electronic solution are:

1. A consumer report indicates a pattern of activity that is inconsistent with the history and usual pattern of activity of an applicant or customer, such as:
a. A recent and significant increase in the volume of inquiries.
b. An unusual number of recently established credit relationships.
c. A material change in the use of credit, especially with respect to recently established credit relationships.
d. An account was closed for cause or identified for abuse of account privileges by a financial institution or creditor.
2. The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration’s Death Master File.
3. Personal information provided is associated with known fraudulent activity. For example:
a. The address on an application is the same as the address provided on a fraudulent application.
b. The phone number on an application is the same as the number provided on a fraudulent application.
4. Personal information provided is of a type commonly associated with fraudulent activity. For example:
a. The address on an application is fictitious, a mail drop, or prison.
b. The phone number is invalid, or is associated with a pager or answering service.
5. The address, SSN, or home or cell phone number provided is the same as that submitted by other persons opening an account or other customers.
6. Personal information provided is not consistent with information that is on file.
7. An employee has accessed or downloaded an unusually large number of customer account records.

Next, we will talk about solutions.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I and Sales compliance consulting and training firm (www.gvo3.com).

Back to blog homepage

Dealer Trak Red Flags Webinar TODAY 2:00 EST

2008-01-22T08:29:00.001-06:00

Ok guys, I have been registered for this meeting for the last couple of weeks. Due the the fact that our store has been busy as of late (thank God), I haven't had time to remind anyone. The plans for this blog are to post a thorough Red Flag Rules practical application guide for your store, this can be done by using the information as it is released and using it to create your program. We will create it together with our combined input. Show your F&I Director, GM or Owner that you are on the ball and join the discussion. Send all emails to AutoFinanceInsider@yahoo.com

I'm not sure what you have to do on Dealer trak's site, so if you cannot register yourself try the link I was sent and go from there. Send a quick email after the webinar.

AFI

Link to webinar.

Red Flags Rule - Mandatory Compliance Is Coming. Are You Prepared?
Tuesday, January 22, 2008 2:00 PM - 3:00 PM EST

1. At the time above, click the Join Webinar button or this link to join the Webinar:
https://www1.gotomeeting.com/join/216795315/106088596

2. Audio: 1.877.720.7899, access code 29760484

Webinar ID: 216-795-315

Implementing an Effective Red Flags Program - Webinar Pt1

2008-01-16T13:11:00.003-06:00

By: Michael Benoit – Hudson Cook
Robert Miller – Co-founder/Attorney Principal - Compli

Webinar, Jan 16, 2008

This is what I took from the webinar. These notes will document my dealership’s compliance with both the Safeguards Rule and the Red Flag Rule.

A Red Flag is a pattern, ……, or specific activity that indicates possible existence of identity theft.

The Federal “Red Flag Rules” requires automobile dealerships to implement an “Identity Theft Program” on January 1, 2008. Compliance is required on November 1, 2008. Hudson Cook recommends the program to be implemented on October 1st to give a margin to evaluate effectiveness.

“Dealers are Lending Institutions” states Michael Benoit of Hudson Cook. If a dealership enters into retail installment sale agreements with a customer, they are lenders under the FCRA and the FTC and subject to laws and regulations affecting lending institutions.

If you have successfully implemented a Safeguards program, you can implement a successful Red Flag program, Benoit states. The two programs are very similar. As the first step to comply with the Safeguards rule is to develop a written Information Security Program, the first step in implementing the Red Flag Rules would be to develop a Written Identity Theft Program.

Each dealership needs its own written “Identity Theft Program.” The implemented Program must:

• Identify the Red Flags
• Detect the Red Flags
• What the responses will be if a Red Flag is found
• Periodically audit the dealerships operations to insure compliance with the policies and procedures.

Benoit states that a more detailed webinar explaining the 26 Red Flags that the FTC has included in its guidelines will be available on Feb 27th 2008 from Compli’s website.

Again Benoit stresses: “Take a deep breath. If you have successfully implemented a Safeguards Program, you can implement a successful Red Flag Program. They are very similar.”

PENALTIES for violating the Red Flag Rule could be a combination of multiple avenues of enforcement:

• $2500.00 per violation for violating the FCRA Act.
• $11,000.00 per violation of the FTC Act.
• Possible violations of state unfair and deceptive practices laws.

WHAT IS COVERED BY THE RULE?

• Retail Installment Sale Contract transactions only.
a. All consumer and business retail installment sale transactions whether or not you intend to hold the paper.

ADVICE FROM HUDSON COOK:

• For Red Flag, just treat all info for starters as if it is subject to the Safeguards Rule.

• Appoint a Joint ISP/ITD Program Coordinator. Include Patriot Act customer ID requirements.

MUST CONTAIN REASONABLE POLICIES AND PROCEDURES TO:

• Identify relevant Red Flags for your business and incorporate into a written program.

• Detect relevant Red Flags that have been incorporated into your written program.

• Respond.

• Periodically update ITP program.

KEY POINTS:

The Initial Identity Theft Program must be approved by the dealership’s Board of Directors or appropriate committee of the Board of Directors. If no Board, an authorized Principal must approve.

TRAINING – must train as necessary to effectively implement the ITP program.

SERVICE PROVIDERS – must exercise appropriate & effective oversight of service provider arrangements.

WHICH FLAGS TO INCLUDE? –

1. The ones that the corporation has experienced.

2. The ones that the FTC has included in its guidelines. All 26 of them.

*** Include in your ITP program those things that you already do to control reasonably feasible risks.

(You should already be doing this by complying with the Safeguards Rule).

RISK FACTORS:

• Types of accounts you offer or maintain.

• Methods used to open accounts.

• Methods through which you allow access to accounts.

• Previous experiences with Identity Theft.

SOURCES OF RED FLAGS:

• Dealership experience.

• New experiences of identity theft.

• Applicable Supervisory Guidance. See: www.FTC.gov.

DEVELOPING YOUR CORPORATE POLICY AND PROCEDURE MANUAL:

Bookmark: http://www.AutoFinanceInsider.blogspot.com. This site will become the authority on Automotive F&I policy procedure and compliance.

Back to blog homepage

Red Flag Rules: Your Webinar Invitation for tomorrow A.M.

2008-01-15T08:46:00.001-06:00

All F&I Managers running a "Well-Run Automotive Finance Department" need to attend this webinar TOMORROW MORNING. It is hosted by attorney Michael Benoit of Hudson Cook. I have been reading his articles for several years and am excited to hear him speak. Everyone needs to attend tomorrow morning!

P.S. This blog is not affiliated with Michael Benoit, Hudson Cook or the sponsoring company Compli (actually our sponsor's slot is still open...). The point is - if you want to keep your F&I office ahead of the game, you need to absorb this info.

AFI

From: Jonica Smith jonica@compli.com

Subject: Red Flag Rules: Your Webinar Invitation

Implementing an Effective Red Flag Rules Program

Join Compli for a complimentary one hour webinar hosted by industry
expert attorney Michael Benoit of Hudson Cook.

Understand how the New Red Flag Rules and Regulations will affect your
dealership.

Learn how to implement an effective compliance program to help ensure
best practices and preclude costly errors.

Title: Implementing an Effective Red Flag Rules Program

Date: Wednesday, January 16, 2008

Time: 8:30 AM - 9:30 AM PST

System Requirements
PC-based attendees
Required:
Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.3.9
(Panther®) or newer

Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/802250591

Link to the Original FTC Red Flag Rule Text

2008-01-13T14:53:00.002-06:00

Here is a link to the Original FTC Text of the proposed Identity Theft Red Flags and Address Discrepancies Under the Fair and Accurate Credit Transactions Act of 2003.

It will definitely put you to sleep. Do not read while driving.

The manual red flags

2008-01-08T16:12:00.002-06:00

Following is an article that came out in the latest Dealer Magazine, hot off the presses today. It is written by Gil Van Over, one of my favorite authorities on automotive dealership compliance.

Because of reading and applying this man's articles, my dealership is compliant in all areas. This article is worth printing and putting in your procedure binder.

The information is directly relevant to achieving our immediate goal of building a compliant red flags program.

The manual red flags
by: Gil Van Over
Dealer Magazine

When last I addressed you, I gave you the list of the 31 red flags the Feds identified as potential indicators of identity theft. Some of these red flags, such as the address change and the anomalous use of the account categories, obviously do not apply to car dealers unless you are running a buy-here, pay-here operation. Other of the red flags will be caught using electronic methods. The remainder of the red flags will have to be observed manually.

The manual red flags which will require manual observation and action include:

1. A fraud or active duty alert is included with a consumer report.

2. A notice of address discrepancy is provided by a consumer reporting agency.

3. Documents provided for identification appear to have been altered.

4. The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification.

5. Other information on the identification is not consistent with information provided by the person opening a new account or customer presenting the identification.

6. Other information on the identification is not consistent with information that is on file, such as a signature card.

7. Personal information provided is inconsistent when compared against external information sources. For example:
a. The address does not match any address in the consumer report.

b. The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration’s Death Master File.

8. Personal information provided is internally inconsistent. For example, there is a lack of correlation between the SSN range and date of birth.

9. The person opening the account or the customer fails to provide all required information on an application.

10. Personal information provided is not consistent with information that is on file.

11. The person opening the account or the customer cannot provide authenticating information beyond that which generally would be available from a wallet or consumer report.

12. The financial institution or creditor detects or is informed of unauthorized access to a customer’s personal information.

13. The person opening an account or the customer is unable to lift a credit freeze placed on his or her consumer report.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I and Sales compliance consulting and training firm (www.gvo3.com).

Section 114 of the FACT act

2008-01-07T18:12:00.003-06:00

Following is a summary of the Red Flag Categories and Examples taken from the the Fair and Accurate Credit Transactions Act of 2003, Appendix J Section IIb and Supplement A to Appendix J. These will form the basis of our Compliance Management program.

Categories of Red Flags:

I. Alerts, Notifications, or other warnings received from consumer reporting agencies or service providers, such as fraud detection services;

a. A fraud or active duty alert is included with a consumer report.

b. A consumer reporting agency provides a notice of credit freeze in response to a request for a consumer report.

c. A consumer reporting agency provides a notice of address discrepancy, as defined in § 334.82(b) of the interagency guidelines.

d. A consumer report indicates a pattern of activity that is inconsistent with the history and usual pattern of activity of an applicant or customer, such as:

i. A recent and significant increase in the volume of inquiries;

ii. An unusual number of recently established credit relationships;

iii.A material change in the use of credit, especially with respect to recently established credit relationships;

iv. An account that was closed for cause or identified for abuse of account privileges by a financial institution or creditor.

II. The Presentation of Suspicious Documents

a. Documents provided for identification appear to have been altered or forged.

b. The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification.

c. Other information on the identification is not consistent with information provided by the person opening a new covered account or customer presenting the identification.

d. Other information on the identification is not consistent with readily accessible information that is on file with the financial institution or creditor, such as a signature card or a recent check.

e. An application appears to have been altered or forged, or gives the appearance of having been destroyed and reassembled.

III. Suspicious Personal Identifying Information

a. Personal identifying information provided is inconsistent when compared against external information sources used by the financial institution or creditor. For example:

i. The address does not match any address in the consumer report; or

ii. The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration’s Death Master File.

iii. Personal identifying information provided by the customer is not consistent with other personal identifying information provided by the customer. For example, there is a lack of correlation between the SSN range and date of birth.

b. Personal identifying information provided is associated with known fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:

i. The address on an application is the same as the address provided on a fraudulent application; or
ii. The phone number on an application is the same as the number provided on a fraudulent application.

c. Personal identifying information provided is of a type commonly associated with fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:

i. The address on an application is fictitious, a mail drop, or prison; or

ii. The phone number is invalid, or is associated with a pager or answering service.

d. The SSN provided is the same as that submitted by other persons opening an account or other customers.

e. The address or telephone number provided is the same as or similar to the account number or telephone number submitted by an unusually large number of other persons opening accounts or other customers.

f. The person opening the covered account or the customer fails to provide all required personal identifying information on an application or in response to notification that the application is incomplete.

g. Personal identifying information provided is not consistent with personal identifying information that is on file with the financial institution or creditor.

h. For financial institutions and creditors that use challenge questions, the person opening the covered account or the customer cannot provide authenticating information beyond that which generally would be available from a wallet or consumer report.

IV. Unusual Use of, or Suspicious Activity Related to, the Covered Account

a. Shortly following the notice of a change of address for a covered account, theinstitution or creditor receives a request for new, additional, or replacement cards or a cell phone, or for the addition of authorized users on the account.

b. A new revolving credit account is used in a manner commonly associated with known patterns of fraud patterns. For example:

i. The majority of available credit is used for cash advances or merchandise that is easily convertible to cash (e.g., electronics equipment or jewelry); or

ii. The customer fails to make the first payment or makes an initial payment but no subsequent payments.

c. A covered account is used in a manner that is not consistent with established patternsof activity on the account. There is, for example:

i. Nonpayment when there is no history of late or missed payments

ii. A material increase in the use of available credit;

iii. A material change in purchasing or spending patterns;

iv. A material change in electronic fund transfer patterns in connection with a deposit account.

v. A material change in telephone call patterns in connection with a cellular phone account.

d. A covered account that has been inactive for a reasonably lengthy period of time is used (taking into consideration the type of account, the expected pattern of usage and other relevant factors).

e. Mail sent to the customer is returned repeatedly as undeliverable although transactions continue to be conducted in connection with the customer’s covered account.

f. The financial institution or creditor is notified that the customer is not receiving paper account statements.

g. The financial institution or creditor is notified of unauthorized charges or

transactions in connection with a customer’s covered account.

VI. Notice from Customers, Victims of Identity Theft, Law Enforcement Authorities, or Other Persons Regarding Possible Identity Theft in Connection with Covered Accounts Held by the Financial Institution or Creditor

a. The financial institution or creditor is notified by a customer, a victim of identity theft, a law enforcement authority, or any other person that it has opened a fraudulent account for a person engaged in identity theft.

Back to blog homepage

$50,000 Fine for Tossing Borrowers' Credit Reports in Dumpster

2008-01-05T11:08:00.002-06:00

A mortgage company that left loan documents with consumers’ sensitive personal and financial information in and around an unsecured dumpster has agreed to settle Federal Trade Commission charges that it violated federal regulations.

The FTC’s complaint alleges that Northbrook, Illinois-based American United Mortgage Company violated the Disposal, Safeguards, and Privacy rules by failing to properly dispose of credit reports or information taken from credit reports, failing to develop or implement reasonable safeguards to protect customer information, and not providing customers with privacy notices.

“Every business, whether large or small, must take reasonable and appropriate measures to protect sensitive consumer information, from acquisition to disposal,” FTC Chairman Deborah Platt Majoras said. “This agency will continue to prosecute companies that fail to fulfill their legal responsibility to protect consumers’ personal information.”

According to the FTC’s complaint, American United collects personal information about consumers, including Social Security numbers, bank and credit card account numbers, income and credit histories, and consumer reports. Since at least December 2005, the company engaged in a number of practices that, taken together, failed to provide reasonable and appropriate security for consumers’ personal information.

Among other things, the company allegedly failed to implement reasonable policies and procedures requiring the proper disposal of consumers’ personal information, including consumer reports; to take reasonable actions in disposing of such information; and to identify reasonably foreseeable internal and external risks to consumer information. The company also allegedly failed to develop, implement, or maintain a comprehensive written information security program.

As a result of the company’s failures, the complaint alleges, on multiple occasions American United documents containing consumers’ personal information were found in and around a dumpster, near its office, that was unsecured and easily accessible to the public. In February 2006, for example, hundreds of such documents were found, many in open trash bags, including consumer reports for 36 consumers.

In March 2006, FTC staff notified the company in writing about this situation, and on at least two occasions afterward, more such documents were found in and around the same dumpster.

The complaint charges American United Mortgage Company with violating the FTC’s
Disposal Rule, which requires companies to dispose of credit reports and information from credit reports in a safe and appropriate manner, and the FTC’s Safeguards Rule, which requires financial institutions to take appropriate measures to protect customer information.

The complaint also alleges that from July 1, 2001 until March 2006, the company failed to provide its customers with a privacy notice describing its information collection and sharing practices with respect to affiliated and non-affiliated third parties, as required by the FTC’s Privacy Rule.

The stipulated judgment and final order requires American United to pay a $50,000 civil penalty for violations of the Disposal Rule and prohibits the company from further violations of the Disposal, Safeguards, and Privacy rules. The settlement also requires American United to obtain, every two years for the next 10 years, an audit from a qualified, independent, third-party professional to ensure that its security program meets the standards of the order.

This is the FTC’s first Disposal Rule case and its 15th case challenging faulty data security practices by companies that handle sensitive consumer information.

link to source article

WOW, I really wonder how much more of this is really going on !!!

Back to blog homepage

Regulators Finalize Red Flag Rule Part 1

2007-12-26T18:30:00.003-06:00

__________________________________________________________
RED FLAG RULE GOES INTO EFFECT IN 5 DAYS !!!
Compliance is required by Nov. 1, 2008 but why should a Well-Run Automotive F&I Department wait? Start by taking notes from this fantastic article. Post a response.
__________________________________________________________

Part 1 from F&I Management & Technology Magazine
Feature Article: December 2007 edition
By: Gregory Arroyo, Executive Editor

Regulators say they aren’t looking for perfection, and only want dealers to formalize a process for protecting consumers from identity theft. Legal analysts add that compliance will provide dealers with another layer of protection against lawsuits.

Starting Jan. 1, 2008, dealers will have 305 days to comply with the “Red Flag Rules” approved by Federal regulators in late October. Legal analysts say automotive dealers are already ahead of the game, and say the guidelines are a lot more flexible than first proposed.

Compliance will require a combination of dealer-created procedures, legal counsel and technology. Legal analysts advise dealers to view the 26 Red Flag Rules as more of a roadmap to formalizing an identity verification process, and not as strict rules to which dealers must adhere.

“We’re not looking for perfection, we’re looking for reasonable efforts in implementing procedures,” says Naomi Lefkovitz, attorney for the Federal Trade Commission (FTC). “The guidelines track all the components of the regulation itself, and they provide more guidance as to how each entity should implement those components.”

Several items of the Red Flag Rules have changed since they were first proposed in July 2006, with regulators compromising with concerns expressed by credit industries during the public comment period that followed. The Federal Deposit Insurance Corp. (FDIC) received a total of 128 comments. Some comments requested that regulators grant flexibility in how banks and creditors develop a program for preventing identity theft. Others asked for clearer, more structured guidance in how these compliance programs should be constructed.

The rules were first finalized on Oct. 16 by the FDIC Board of Directors. Banking and thrift regulators followed suit later that month. Aside from adding more flexibility on how institutions comply with the regulation, regulators decreased the number of Red Flags from 31 to 26. The question now is whether the November 2008 deadline provides dealers with enough time to comply.

Originally, regulators proposed a nine-month implementation schedule. However, after concerns were raised by credit industries — which pushed for 18 months — regulators decided to give businesses one year to comply.

“What regulators are going through is a balancing act with the timing of the effective date and giving people time to comply. On the other hand, this is a consumer protection tool and they want to get it into play as soon as they can,” says Michael Goodman, an attorney with Hudson Cook LLP. “And from what was proposed in 2006, this regulation isn’t the worst-case scenario.”

Under the finalized rules, Goodman says regulators sought to clarify how their list of sample Red Flag activities should be used. He adds that many credit industries feared that to comply, they would have to adhere to all Red Flag Rules, which is not the case.

Goodman also adds that regulators narrowed the scope of what kind of accounts are subject to the rule. The biggest change, he says, was in regards to business accounts. Referring to automotive fleet dealers, Goodman says dealers need to address that segment if there is a reasonable fear of ID theft. However, he warns, that could change if there is a spike in ID theft for business-to-business transactions.

“Regulators knew it would be way too burdensome to comply with all the Red Flags,” Goodman adds. “All they want you to do is make sure that whatever you’re doing is appropriate for the size of your business. The 26 rules are simply a list of examples. They are not a check list.”

Currently, there is no private right of action under the Red Flag Rules, which will be enforced by the FTC. However, compliance will provide dealerships with a layer of protection against consumer lawsuits.

Back to blog homepage

Regulators Finalize Red Flag Rule Part-2

2007-12-26T18:25:00.003-06:00

Part 2 from F&I Magazine

“If my identity was used to buy a car that was later wrecked and my credit report is negatively affected by that, which prevents me from buying something, I might want to sue that dealer,” says Randy Henrick, associate general counsel for DealerTrack. “And failure to have an accurate program would fall under the FTC Act for unfair and deceptive trade practices.”
Dealers also need to remember that the guidelines will be a moving target, which means they will be updated as new trends and risks arise. As a result, dealers will need to update their programs periodically and conduct their own internal reporting each year.

Identity Theft is a Growing Concern.

One of two remaining components left over from the implementation of the Fair and Accurate Credit Transaction (FACT) Act of 2003, the Red Flag Rules were regulators’ response to what is the fastest-growing crime in the United States. Identity theft currently accounts for more than 42 percent of all complaints filed with the FTC.

The F&I industry has also been warning dealers that ID thieves are now targeting dealerships and are moving away from credit cards. According to an analysis by the Center for Identity Management and Protection of 517 U.S. Secret Service identity-theft cases closed between 2000 and 2006, a business was the point of compromise 50 percent of the time. It also reports the most frequent type of employment from which personal information was stolen was retail stores (43 percent), such as car dealerships, gas stations, casinos and restaurants.

A recent poll conducted by Harris Poll also supports the finalization of the Red Flag Rules. It reports that 60 percent of Americans say they will not support a store with questionable privacy protections.

“I think it’s going to increase CSI tremendously, and I think many dealers are already well on their way to complying,” says Henrick. “And if it helps you sell one less car to ID thieves, it already paid for itself. This is not going to be hard to do.”

Complying With the Red Flags

The first step for dealers is to audit their current methods for spotting ID theft, including a full review of how the dealership handled past incidents. The dealership will then have to create a company-wide procedure on how to identify when a Red Flag is raised and what the employee should do thereafter.

“Think of this as a menu process. Identify the issues and set up the processes from there,” Henrick says. “You don’t want the employee to think; he should just execute the steps.”

The last step for dealers is to appoint someone who will supervise the program and provide guidance on what the dealership should do once a Red Flag is raised. Henrick says a dealer’s response to an incident will fall into place on its own. However, putting the responsibility on dealers as to how to respond is what has some industry insiders concerned.

“Remember, the rules aren’t saying that a dealership won’t be hit by an ID thief,” Henrick explains. “All regulators want is for dealers to have a reasonable process in place to mitigate the situation.”

Back to blog homepage

Regulators Finalize Red Flag Rule Part-3

2007-12-26T18:17:00.003-06:00

Part 3 from F&I Magazine

Some examples of appropriate responses listed in the guidelines are contacting the customer or law enforcement. Others relate to how credit accounts are opened and accessed by customers. Another appropriate response, Goodman adds, is for the dealer to conduct further investigation.

“Not opening a new account is just one of several responses that a dealer can consider,” he says. “While a dealer may decide to discuss this with legal counsel, it is not a dealer’s only option. The key is for the dealer to think about the incident at issue to gauge the risk of identity theft associated with the red flag, and to respond accordingly based on the risk.”

A good starting point is the 26 rules, which are broken up into five sections of identity theft patterns. Henrick says there are at least five or six rules that don’t pertain to dealerships.

Goodman adds that dealers shouldn’t forget about the other component regulators passed under the FACT Act, which is a completely separate requirement from the Red Flag Rules. It focuses on how users of consumer reports respond to address discrepancies. Both Goodman and Henrick say this is a big concern with regulators, especially since multiple addresses can be recorded under one Social Security Number.

Dealers will also have to wrestle with how to handle transactions done over the phone or via the Internet. They will probably need to do a little more investigation and ask more questions, and not accept photocopied documents and identification cards. Legal advisors warn against relying on credit reports to verify a customer’s identity, as the potential ID thief might already have the credit report with him or her.

“Ask things you can’t get from a stolen wallet,” recommended Henrick. “There will be services where they’ll be able to tell you who sold the person’s last house, which is a perfect question to ask. Just be prepared to verify things not on the credit report.”

Compliance Creates Industries

While the road to compliance is simple to map out, the costs associated are still unknown. Training and retraining will definitely be part of the added costs, especially when it comes to employee turnover. Legal fees will also have to be considered. Another cost to factor in is technology.

“There will be electronic solutions, but the regulations specifically say you can’t outsource your entire program,” said DealerTrack’s Henrick, whose company expects to introduce its solution at the National Automobile Dealers Association (NADA)’s February show.

Many compliance software and technology providers have been monitoring the movement of the Red Flags since they were first proposed. Some, like First Advantage CREDCO, have been prepping dealers for the regulation since early last year. Its product will integrate Red Flag alerts into a credit report a dealer orders through its service.

“This past summer, we ran a promotion between June 1 and Sept. 18 where we gave away our BuyerID Index free to dealers nationwide,” said David Woodruff, company spokesperson. “It was an awareness program to help dealers understand and prepare for the proposed Red Flag Ruling. Our position was, ‘Hey, this is coming. You may not be taking this seriously, but we are.’”

Other companies looking to help dealers comply are PatriotDealer, 700Credit, Firewall Dealer Solutions and Compli, which will be working with the attorneys at Hudson Cook on a program that will be integrated into its Dealership Compliance Management System. Expect several more companies to announce technology and software solutions at NADA.

“Undoubtedly, the new Red Flag regulation will result in many different compliance offerings from various providers,” said J.R. Wilson, president of PatriotDealer, Alpharetta, Ga. “And as with any solution, whether CRM, inventory control or F&I delivery, it will take a combination of process, people and technology to become compliant. And this is what dealers need to keep in mind.”

Back to blog homepage

Merry Christmas and Happy Holidays !!!

2007-12-21T23:06:00.002-06:00

Mery Christmas and Happy Holidays !!!

Maybe now I'll have to start working on my 2007's resolutions.

AFI

Honest Credit Repair in Virginia va