Hello Friends, 

     It’s been awhile. I had to take some time away to assist in an explosive expansion of my company. As a part of that explosion, I recruited people I knew from the business.  In doing so, I always ask, “Who is your Compliance officer?” The most common answer is “I don’t have one”, or “My F&I manager” or “My (You fill in the blank)”.

Why is this significant for 2014?

One acronym – CFPB. If I need to explain what that means then maybe you should rethink your future plans and find a new business to work within.

The CFPB is the newest government agency with incredibly broad authority and oversight, with little accountability from others.  We all know that the Federal Government knows how to operate your business better than you [insert laugh here].  Let’s face it, our current business methods as a whole are being audited by overzealous people with little to no experience in our industry, much less any expertise.

Take for example the latest Consent Order signed by ALLY Financial in December of 2013.  That decree levied very expensive penalties for allegedly no wrong doing while agreeing to change their business model.  In addition, the Consent Decree acknowledges and accepts that the CFPB will complete yearly audits of ALLY’s business practice and assess further more expensive penalties as needed.
 
    Here is the salt in the wound - the CFPB as of today has NOT disclosed any evidence of the alleged discrimination that the CFPB charged ALLY with.  There is no expectation that the CFPB will ever disclose who and why they target, much less share how they will assess a charge. If the CFPB targets a business, that business will settle, sort of like the mob protecting a racketeering deal.

You may be asking “How does this apply to me? I am a Dealer!”  That is a great question.  I will answer that with another question - “How else did ALLY get their loan portfolios? How does any lender for that matter build their auto loan portfolio?” If you answered, “I submit what they approved and what I sold to the customer.” You are right. Now go read the back of all your lender agreements. There is a binding clause that makes you a third party lender working on behalf of your lender.

To be clear, as of now the CFPB does NOT have direct regulatory control of New Car Franchised Dealers.  Your oversight will come from your lenders who are attempting to avoid the magnifying glass. If you do business with Chase Auto, then you have already received your letter from them about their ability to perform at will audits of your current business practice, as an example.

I know, your shoulders are slumped, your hands are on your bowed forehead and you are thinking. “I just want to sell cars.” You can, and you will make more money than you ever did before IF, that’s a big IF, you are willing to step into the 21st century and use technology to manage your changed process. You must also be willing to take a hard look at your management team. Are they willing to step into the 21st Century? If not, it might be time to invest in training them or promote them to friends. The following are steps you should do.

 1. For years we have been asking you “Who is your Compliance Officer?”  Even today I get a deer in the headlights look. If you do not have one, GROW ONE.  Think back to the early days of the internet manager. Usually, that person was the guy or gal who understood that technology better than anyone else. They usually where not your best salespeople, but they were dependable.  GM’S, GSM’S even Dealer Principles discounted the real value they brought to a dealer then. Today, the BDC Director has as much accountability and responsibility as any GM in a high performing BDC store.
That is your new Compliance Officer today. This person is separate and apart from your GM, Comptroller, or any other business in your dealership. They operate autonomously and report directly to you, the Dealer Principle or an assigned officer working on the behalf of you as a Dealer Principle. This individual must be able to hold accountable all other executives and managers and be responsible for all process changes that support a compliant but profitable process.  Once you have chosen this person then get them trained. There are a few great education programs out there. If you need assistance please reach out to me.

2. Create a FAIR LENDING POLICY.  This policy clearly outlines how XYZ Motors will treat their customers, regardless of the new GM, desk manager or any other manager that is newly hired. It defines a clear, transparent and equitable process that XYZ Motors will deliver regardless of the 7 discriminatory potholes. Actually, I need to make that 8 because lack of education and being a “not so smart” consumer is now a protected class via litigation.  It is no longer Caveat Emptor it is Caveat Venditor.  Again, if you need assistance with this, go to the CFPB website or you can research the public records for Consent Decrees that Dealers have agreed to and already have a Fair Lending Policy. Or, you can call me.

3. Create a standard desking and finance process that treats all consumers within certain beacon score bands, one equitable way or you can use a generic Customer Rate Exception Form.  Completely eliminate the F&I managers discretion for rate mark- up based on what they think they can get. Set a standard across the board. If they must deviate from your policy for any reason, they need to fill out the Customer Rate Exception Form.

4. Retrain your entire team on your newly defined process.  The FTC identifies people who handle Non Public Information in one of two categories:
a) Secure Document worker – These are people who will touch any form of NPI in your store. Remember your customers trust and expect that you will protect their information.
b) Compliance Officer – They ensure that everyone is compliant.
Any one else has no business touching a deal jacket.

5. F&I products are on the radar too. Implement a menu selling process that has standard pricing for all your products. You already know the 300% rule:  100% of your customers will be presented 100% of all your products 100% of the time.  Regardless of what your F&I manager thinks he or she can sell, they MUST show all products. Lastly, present a final menu that clearly defines what your customers accepted  and declined. That disclosure needs to be date and time stamped, signed and kept on file for a minimum of 5 years. Check with your state automobile dealer association for your document storage guidelines.

6. Insist that your Compliance Officer perform quarterly audits. As per your Identity Theft Prevention Plan you must implement a process, assess and test its effectiveness, change it if it is weak and implement another change when necessary. Rinse and repeat.
Remember, as our business returns to profitability, Plaintiff Attorneys see you as an easy target. After all, you are a dealer.  I can provide many examples where an enterprising and hungry plaintiff took a practice that is “BAU” for us and bilked hundreds of thousands out of the pocket of good dealers.  As a matter of fact, one I can think of is now the director of the CFPB.

Caveat Venditor
Paul John Machin
Director of Sales
347-756-1263