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

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


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Risk Based Pricing Webinar

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 


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Risk Based Pricing Rule - Further Clarification

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.


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Don’t Get Bitten by Your Bird Dog

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.


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Whoopee, We're Bankrupt!

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.

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

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.



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Tempting Times Can Tempt the Best

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.


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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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F&I - KEEP A POSITIVE ATTITUDE AT ALL COSTS

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

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Turn Off the Damn TV in the Waiting Room!

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


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ESC Verses Extended Warranty

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.


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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

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

No More Evil Car Dealerships

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.

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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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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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