Lessons From an I-Team Investigation

I use Google Alerts to help stay current on compliance issues. This software uses a couple of keywords and searches the internet daily for stories containing those keywords.

The solution is to have a written and acknowledged policy and procedure manual, documented training, and periodic auditing of the processes and their outputs.

One of my alerts is “credit application fraud.” Yesterday’s Google Alert report had a breaking story of the 41 Action News I-Team investigation of a new car dealership. Two I-Team reporters asserted that the dealership had a prevalent policy and practice of inflating consumers’ incomes to obtain finance source approvals. Reading between the lines of the story, I deduced a variety of lessons to be learned.

We Don’t Have the Full Story

When I arbitrate disputes between two parties, I know that there are three sides to each story. This side, that side, and somewhere in the middle is the truth. I am also keenly aware that the age-old journalistic principal of unbiased reporting does not seem to apply anymore. Many of today’s reporters seem to allow a personal bias to bleed into the reports they file. We have one side of this story; we do not have the dealer’s side. The truth will likely be somewhere in the middle.

The I-Team story suggests there is a whistleblower that alleges sales managers routinely inflated incomes. He further admitted to taking potentially damaging documents before he left. There is a hint that the dealership may be engaged in bait and switch advertising. Finally, the whistleblower claims that the owner was aware of and encouraged the deceptive practice. This creates a possible RICO claim against the dealer principal.

Let’s look at each of these issues.

Whistleblower: The apparent source for this story is an individual who resigned his position because it was damaging his reputation. He was responsible for handling customer complaints. Whether he was terminated or resigned under pressure, he can be considered a whistleblower. Human resource experts outline a three-pronged approach to help a business mitigate potential whistleblower claims: Don’t retaliate; implement a complaint policy; and investigate all credible complaints or claims.

Safeguards: The whistleblower probably provided the reporters with documents and a list of consumers they reference in their story. These documents are the dealership’s property, not the whistleblower’s. He absconded with these documents despite the dealership’s safeguards policy or because the dealership did not have a safeguards policy. Safeguards experts suggest that a dealership have a documented, current, and robust safeguards program in place. This program would include a policy and procedure manual, training, periodic audits, and updates. Employees must be told that they cannot downloads lists or copy any documents for use outside of the dealership.

Credit Application Fraud: The story details that the income stated on the source credit application had been inflated on the credit application submitted to the finance source. One instance claims the income was increased 500%. Assisting attorneys, I’ve helped a few dealers accused of credit application fraud avoid wearing orange. In my discussions with the federales on these engagements, I know they focus on five key credit determinates to prove credit application fraud: income, time on job, time at residence, occupation, and housing expense. If any of these are enhanced to improve the likelihood of obtaining a credit approval – that’s credit application fraud in their eyes. A dealer must have a policy that the credit application received from the customer and the credit application submitted to the finance source must be retained. Compliance or billing clerks should review these five key credit determinants for consistency on every deal.

Advertising: The federales are actively pursuing dealerships for false advertising. There are many standards and regulations surrounding advertising. NADA has helpful materials in this area. Advertising experts recommend tasking your agency to not only create traffic driving advertising, but to also ensure the advertising meets all standards and regulations. Ultimately, though, it is the dealer’s responsibility, so you should periodically review all forms of advertising.

RICO: Finally, the article broaches the topic of a RICO claim. This is serious stuff if the federales can prove an owner orchestrated a scheme to commit bank fraud, then ordered the managers to execute the scheme.

The solution is to have a written and acknowledged policy and procedure manual, documented training, and periodic auditing of the processes and their outputs.

Good luck and good selling!

Gil Van Over is the executive director of Automotive Compliance Education (ACE), the founder and president of gvo3 & Associates, and author of Automotive Compliance in a Digital World.

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