The retail automotive market has found itself in an interesting situation. On one hand, retail sales are rebounding nicely, with strong price pressure coupled with continued low interest rates. On the other hand, all signs are pointing to an increased environment for regulatory scrutiny from an hyper-focused Consumer Finance Protection Bureau (CFPB), Federal Trade Commission (FTC), and various local officials.
New leadership within the CFPB has signaled through their rulemaking agenda that automotive lending practices will garner increased scrutiny. New legislative bodies within state and local governments in many areas have followed suit to respond to discriminatory lending practices and perceived predatory consumer behavior.
Couple this renewed regulatory interest and sales environment, with a host of new fraud and cybersecurity schemes that can trip up any company, no matter how big, and the situation gets even more convoluted.
According to a new study from TransUnion, the percentage of suspected digital fraud attempts in financial services more than doubled in the U.S. during the first four months of 2021 versus the final four months of 2020. Specific to the automotive industry, cases of identity theft reported to the Federal Trade Commission jumped 35 percent quarter-over-quarter at the onset of the COVID-19 pandemic last year and have remained above normal levels ever since. The increase is driven by identity theft through phishing schemes while the consumer is applying for credit online. With many consumers completing a larger portion of their purchase online, the identity verification burden for dealers increases dramatically.
Fortunately, there are a few steps dealers can take now to better prepare for the heightened environment for regulatory oversight. Recently, I had a conversation with Shannon Robertson, the Executive Director of the Association of Finance and Insurance Professionals (AFIP). According to Robertson, regulators with the Consumer Federal Protection Bureau (CFPB) have increased their focus on two areas:
- Excessive markup above retail
- Unfair, deceptive or abusive acts and practices (UDAAP)
Under the Consumer Protection Act, state attorneys general can levy fines against a retail automotive dealer under the Federal Trade Commission. For example, in one instance a current case against a dealer might result in levying fines of up to $50,000 per unit sold where excessive mark-up or false advertising was present over the course of the last four years
Key steps for regulatory compliant
Robertson agrees with experts at EFG on some key areas for dealer principals to evaluate, making sure the business does not risk expensive fines and regulatory scrutiny.
- Evaluate your product portfolio for ‘zero claim record’ products
- Manage website inventory to stay current and consistent with in-store pricing
- Implement NADA’s Fair Credit and Compliance Policy & Program to ensure consistent pricing on all products
EFG also recommends dealers implement the following practices to stay ahead of regulators:
- Name a compliance officer, or at least have a non-F&I manager ensure that compliance policies are in place and followed
- Conduct ongoing training to foster buy-in for consistent compliance within your team
- Audit your deals regularly to ensure compliance
According to Robertson, simply making an effort is key when it comes to compliance, and regulators have viewed efforts to maintain due diligence in a positive light. At the end of the day, it is a dealer’s responsibility to protect their business, their employees and their consumers. Failing to protect against fraud and compliance errors can cost your dealership in the long run, and can have long-term effects on your reputation as well.
You can listen to the full podcast interview for more actionable recommendations on what you can do right now to stay compliant.
EFG Companies is the leader in driving compliant profitability for its clients and works in partnership with AFIP to provide industry-leading compliance training. Contact us to learn more about how to protect your business.