In December 2013, the Consumer Protection Financial Bureau’s first blow to the automotive financing industry hit – and it hit hard. After an in-depth investigation, the CFPB ordered Ally Financial to pay $80 million in consumer restitution and another $18 million in civil penalties for having practices that made discrimination possible in their partner dealerships.
According to some consumer advocates, those dealership partners could now be sued by the same consumer’s receiving a refund check from Ally Financial. Why? Consider this situation.
Sally checks the mail one day and receives a letter stating that the lender backing her auto loan was forced to reimburse her and others who were discriminated against when purchasing their vehicle. She now has proof that the dealership where she purchased her vehicle employed discriminatory practices against her. With hard proof in the form of a check from Ally Financial, she contacts a lawyer and puts together a class action with all the other consumers the dealership allegedly discriminated against.
Now, another blow is about to hit. A consumer advocacy group in California is trying to place a proposal on the state’s November 2014 ballot that would prohibit dealerships from marking up interest rates on their auto loans. If this bill passes, it could provide the tipping point for lenders to change their policies and disallow dealerships from increasing their interest rates.
With the industry avidly watching to see how this will play out, now is the time to ensure the highest standard of compliance practices in your dealership. So ask yourself:
Do you have a compliance officer at your dealership? A compliance officer takes ownership of dealership compliance. They are responsible for the compliance strategy or business plan, determining holes, and the best and most efficient way to plug those holes.
How often do you provide compliance training? Automotive retail has always been a high turnover industry. Compliance training needs to be at the forefront as you add new employees, promote, and add new rooftops, etc. If your people don’t know the ever-fluctuating rules, how can they ensure they are abiding by them?
Do you perform regular compliance audits? By performing regular audits, you can be on top off inconsistencies within your dealership and address them before they get out of hand.
With this highly regulated industry, compliance is nothing new. However, the vague guidelines from the CFPB leave a lot to be desired in forming hard- and-fast rules. The best thing to do is consult with your legal counsel to ensure that your compliance strategy incorporates practices relative to the CFPB and general discriminatory laws. Some examples of these practices include:
- Establish a published internal and external audit process that includes specific guidelines on the consequences of compliance violation.
- Publish a schedule of training for both new and veteran employees to ensure all personnel are aware of the established guidelines.
- Provide evidence of proper consumer disclosure.
- Establish a “code of ethics” reviewing the policies and procedures signed off by all employees and new hires.
In addition, it is equally important to conduct thorough due diligence that all service providers, not just lenders, understand and are capable of complying with all state and federal laws by:
- requesting and reviewing the service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents who have consumer contact or compliance responsibilities;
- ensuring the contract with the service provider includes clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities;
- establishing internal controls and on-going monitoring to determine whether the service provider is in compliance; and,
- taking prompt action to address any problems identified through the monitoring process.
With over 36 years in innovating and implementing proven go-to-market strategies in the dealership space, EFG Companies has made compliance a core facet of their business, influencing everything from product development to claims and client support.
Find out how compliance training from EFG can fortify your business to thrive while remaining compliant with current and future regulations.