There are concerns, and then there are elevated concerns.
When we conduct an audit, we score every compliance review so the dealer knows where he or she stands. We recognize that not every risk is the same and stratify our findings into three groups:
Elevated concerns
Process concerns
Documentation and training issues
“Elevated concerns” refer to high-risk areas that are federal crimes, such as credit application misrepresentation; that carry a potentially high fine, such as Office of Foreign Assets Control; are a significant risk, such as identity theft; or are considered deceptive sales practices, like payment packing.
Agents must address elevated concerns when discussing compliance with dealers. The dealership’s policy manual must provide practical solutions to confront and eradicate them. Let’s discuss four common examples.
1. Red Flags Rule Violations
Concern: Identity theft remains one of the fastest-growing crimes in the country, and the thieves are only getting better.
Solution: If you dealer doesn’t have a Red Flags Rule-mandated identity theft-prevention program that has been updated within the last year, start there. Dealers should opt in to the synthetic ID vetting available in most fraud-detection solutions. When a potential red flag pops up, it must be properly vetted and documented.
2. OFAC
Concern: This government office has been around in some form since the War Between the States. OFAC maintains a list of enemies of the state known as Specially Designated Nationals — terrorists, drug dealers and money launderers.
Solution: Every dealer must have a process to vet every transaction against the SDN list. Generally speaking, the dealer’s ID vetting software also offers OFAC checks. Dealers can also use the available list on OFAC’s website. Anyone you do business with must be vetted, including third parties, a common finding in our reviews. You must also vet the full surname if there are dual surnames, as well as suffixes, such as Jr., II or III.
3. Credit Application Fraud
Concern: Misrepresenting any of the five key determinants to a finance source is a crime and must never be allowed or accepted.
Solution: Every financed transaction must have two credit applications. Both must be signed by the customer. The five key credit determinants are time on the job, time at address, occupation, income, and housing expense. Each must be consistent between the two documents.
Some pitfalls include showing a small-business owner as an employee of the business, combining two income sources into one, or splitting the housing expense. The Federales expect the dealer to report what each consumer is contractually obligated to pay as his or her housing expense. Use the notes or text functions in the credit application portal to convey any specific information. The risks can be a chargeback on the deal or the filing of a suspicious-activity report with the finance source’s regulator.
4. Deceptive Sales Practices
Concern: The Federales were pushing a new regulation last year that contained some onerous requirements on dealers to address deceptive sales practices. Some of the deceptive sales practices that can cause consternation include payment packing, trading rate for product, and discriminatory pricing,
Solution: Your dealer’s policy manuals must lay out the requirement on managers to generate a defensible paper or digital trail in every deal. In chronological order:
First pencil
Final pencil
Menu presentation page
Accept-decline
Buyer’s/lease order, or “precontract disclosure” in California
Retail installment sales contract or lease
Voluntary protection product enrollment forms
The prices, terms and products must be consistent at each step of the process. The paper trail then becomes part of the dealer’s defense. If challenged, the dealer can prove they conducted the transaction in a transparent manner and that the customer consented at each step.
A structured first-pencil process in which the payment quote uses a consistent APR will help to deflect claims of payment packing and discriminatory pricing.
The transaction information at the top of the menu-presentation page both affirms the customer’s agreement to the negotiated terms and sets forth that the customer can take delivery of the vehicle with approved credit. Any VPPs the customer purchases are therefore considered optional and voluntary.
Continued good luck and good selling.
Gil Van Over is executive director of Automotive Compliance Education (ACE), founder and president of gvo3 & Associates and author of “Automotive Compliance in a Digital World.”
