Safe Harbor - New Privacy Notices

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.


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US Fidelis Collapse Sparks Service Contract Debate

.
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.


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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?


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

The Art of the Deal is Back

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.”


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The Dangers That a Spot Delivery Brings to a Dealership

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

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Turning Compliance into Profits

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.


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

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

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Tags: Automotive Finance F&I Finance & Insurance

Selling Lenders on F&I Products

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

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

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

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!

Extended Service Contracts are a WIN for everyone.

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

Capital One survey: Americans don't know loan rates

"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.

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F&I Can Aid Internet Sales

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.

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District Attorney Charges Car Salesmen with Multiple Counts of Fraud

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.


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A Compliance Program That Won't Break the Bank

By Thomas B. Hudson


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Good luck.

Link to Original Source Article:

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

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

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7 Ways to Legally Shield Your Dealership

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:

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Vetting your Red Flags rule provider

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:

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‘I Don’t Remember that Deal’

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.

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Waving the Caution Flag at Red Flag Solutions

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

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