The Industry's Leading Source For F&I, Sales And Technology

Article

4 Compliance Predictions for 2017

The magazine’s compliance pro dusts off his crystal ball to offer a few predictions for 2017. If he’s correct, F&I offices could be in for a challenging year.

December 2016, F&I and Showroom - Feature

by Gil Van Over - Also by this author

Prognostication isn’t an exact science, as evidenced by how wrong pollsters were about the outcome of November’s presidential election. The beauty of being a prognosticator is you can’t be held accountable for being wrong.

Take all those industry articles that came out at the end of 2015 claiming to know how things would play out in 2016. How many of them were right? Not many, I predict. With that said, here’s my attempt at reading the tea leaves for 2017:

Prediction No. 1: “Compliance Management System” Becomes 2017’s Buzzword

Remember how crazy everyone was about the internet before the dot-com bubble burst in 2001? Just about every vendor rolled out solutions that allowed them to leverage buzzwords like “internet” and “digital” in marketing pieces and messaging.

I believe 2017 will be the year dealers will finally embrace the need for a compliance management system (CMS). Finance sources have already done so, thanks to the Consumer Financial Protection Bureau (CFPB).

A CMS is nothing more than a structured approach to ensuring compliance with required regulations. Dealers who are compliant with the Federal Trade Commission (FTC)’s Safeguards Rule and Red Flags Rule have already effectively employed a CMS.

Prediction No. 2: The Dark Side Will Not Grind to a Halt

The CFPB may be reined in somewhat, but its charter is still to protect consumers. Whether the bureau has been overly aggressive is for others to debate. In the meantime, it’s business as usual. The bureau will continue to monitor our finance sources.

Unfortunately, that means dealers will continue to feel the effects of the regulator’s activities. It also likely means increased scrutiny of credit application submissions, deal structure, straw purchases, and powerbooking.

Let’s not forget that the FTC recently charged a nine-store dealer group in Los Angeles with payment packing and yo-yo transactions. Lost in all the noise about it being the first time the FTC charged a dealer with yo-yo financing is the fact that the agency has been quietly gathering information on questionable spot-delivery practices for at least five years. I sense more allegations are forthcoming from the FTC in 2017.

Prediction No. 3: Negative Equity Becomes a Compliance Issue

According to Edmunds.com, a record 32% of all trade-ins were underwater during the first nine months of 2016. If this trend continues, dealers will face a couple of potential compliance concerns.

The first involves deals requiring high advances. To get them approved, dealers may start cutting the deal to fit within their finance source’s guidelines. But that cuts into profits, right? This could pose a worse problem for dealers who do a fair amount of employee deals, as you can’t cut the price and still comply with the manufacturer’s employee purchase program.

One possible solution is leasing. Many leasing programs base the advance ratio off MSRP instead of invoice, allowing for greater room when structuring a deal. This, however, leads to the second potential compliance issue.

See, Regulation M, the rule governing lease disclosures, allows for the disclosure of the “prior loan or lease balance” in the itemization of gross cap cost. Some dealers tend to increase the agreed-upon value to accommodate negative equity rather than properly disclosing it as the prior loan or lease balance. This can lead to a high frequency of lawsuits alleging improper leasing disclosures.

Prediction No. 4: Subprime Funding Tightens

According to reports, subprime finance sources are gradually tightening funding for their portfolios. When times are good, finance sources tend to get aggressive to build portfolios at a greater speed than normal, causing them to start purchasing contracts outside their wheelbase. Equity lenders start to think they can buy deals at a higher advance ratio if the credit is slightly better, while payment lenders believe their collections departments can successfully collect from consumers who are overextended if there is equity in the deal.

Smart finance sources will recognize this trend — if they haven’t already — and go back to what they do well. For the industry, this means finance managers may not have a bevy of finance sources clamoring for business, which means they’ll have to be a little smarter to get deals done.

So there you have it. Just make sure to pull this column out next January to see how I did. Hey, you have to keep us prognosticators honest.

Gil Van Over is the executive director of Automotive Compliance Education (ACE) and the founder and president of gvo3 & Associates. Email him at gvo@bobit.com.

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

So Here's the Deal

Ronald J. Reahard
Capture Missed VSC Sales

By Ronald J. Reahard
In response to a reader question, the magazine’s F&I wiz updates his plan for re-pitching service contracts to customers who declined the protection at the time of delivery.

The Dealer Moved My Goal Posts

By Ronald J. Reahard
Top trainer has hard-earned advice — and a word of warning — for F&I pros whose dealers seem to change their pay plans every time they have a good month.

Addressing F&I’s Internet Problem

By Ronald J. Reahard

(Video) Selling Eight Products Without Losing the Customer

By Ronald J. Reahard

Done Deal

Gregory Arroyo
Game Almost Over

By Gregory Arroyo
With the CFPB’s controversial guidance officially repealed, the editor delves into what the bureau was really after in its targeting of dealer participation.

The Repair Is Covered

By Gregory Arroyo
The editor opens up about his first service-contract claim, which resulted in a covered and repaired vehicle as well as a few lessons.

Change Is Happening

By Gregory Arroyo

Who Will Take Up the CFPB's Torch?

By Gregory Arroyo

Mad Marv

Marv Eleazer
I Love F&I. How About You?

By Marv Eleazer
His Madness challenges F&I professionals to decide right here and now whether F&I is your career or just a job.

Is That Legal?

By Marv Eleazer
Is manipulating a sales agreement to accommodate a customer’s request to cash out of a dealer-arranged retail sales contract allowed? His Madness gets answers from the industry’s top legal mind.

Overcome Your F&I Weaknesses

By Marv Eleazer

Proper Deal Structure Moves Mountains

By Marv Eleazer

On the Point

Jim Ziegler
Bound to Fail

By Jim Ziegler
Da Man returns with a message to vehicle manufacturers jumping into the subscription waters: It ain’t gonna happen.

Sharpen Your Survival Skills

By Jim Ziegler
‘Da Man’ has a plan you can use to survive the collapse of the car business and remain profitable through the dealer apocalypse.

Sales Rock Stars Still Exist

By Jim Ziegler

The New Stooges

By Jim Ziegler