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Dealer Fines and How to Avoid Them

Compliance guru outlines the simple steps every dealer must take to avoid violations of federal OFAC, Used Car, Red Flags, and IRS standards — and the steep fines that accompany them.

March 2018, F&I and Showroom - Feature

by Gil Van Over - Also by this author

There are times when I overhear industry conference participants moan about a presentation they just attended. “All gloom, doom, and scare tactics, but no solutions.” Sometimes that speaker was me.

Because of that, I made a New Year’s resolution to be certain I offer solutions when I point out a potential risk and liability. With that said, below are some of the federal regulations dealers are required to comply with and the potential fines and jail time associated with each regulation. Sticking with my New Year’s resolution, I’ve also include best practices solutions to hopefully avoid those penalties.

• Office of Foreign Assets Control (OFAC): This is the grand poobah of all potential fines. The OFAC is the agency within the U.S. Treasury that compiles a list of Specially Designated Nationals (SDN). All U.S. citizens are required to check the OFAC list of these suspected despots prior to entering into a business arrangement.

Depending on the program, criminal penalties can include fines ranging from $50,000 to $10 million and imprisonment ranging from 10 to 30 years for willful violations. Civil penalties range from $250,000 or twice the amount of each underlying transaction to $1.075 million for each violation, according to the Treasury.

Solution: Arrange with your credit bureau provider to automatically check OFAC with each credit report. Train your sales and F&I managers to confirm the OFAC check is clean or to clear any potential hit. Also establish a process to check OFAC on any third-party contributions to a contract, whether it is the trade or down payment gifts.

• Used Car Rule: This rule has been around since 1967, yet many still struggle with the proper disclosures — even with the recently revised Used Car Buyer’s Guide. This struggle is not necessarily from a willful desire to defraud a consumer, but rather a view that this is just one more piece of paper to complete the deal jacket. Dealers who violate the rule may be subject to penalties of up to $40,654 per violation.

Solution: If a vendor is responsible for posting the guides, check the guides for correctness. Whether posted by a vendor or a lot porter, conduct regular lot walks to ensure a guide is prominently displayed on each used vehicle and demonstrator available for sale.

• Red Flags Rule: The latest attempt at deputizing car dealers in the fight against identity theft has been the law for a few years now. The Federal Trade Commission (FTC) can seek both monetary civil penalties and injunctive relief for violations. Currently, the law sets $3,500 as the maximum civil penalty per violation. And each instance in which a company has violated the rule is considered a separate ­violation.

Solution: Contract with your credit bureau provider’s automated Red Flags solution. These offerings will alert the sales and F&I managers to any potential red flags of identity theft. Develop and implement a robust identity theft prevention program as required by law. Train every manager on the proper clearing actions of any identified red flags.

• Internal Revenue Service (IRS): Ah, the venerable IRS. It has been rumored to be out actively auditing businesses for compliance with the FinCEN 8300 report.

Dealers may be subject to penalties if they fail to file a correct and complete Form 8300 on time and cannot show that the failure was due to reasonable cause, according to the IRS. They may also be subject to penalties if they fail to furnish a correct and complete statement to each person named in a required report in a timely manner.

“A minimum penalty of $25,000 may be imposed if the failure is due to an intentional or willful disregard of the cash reporting requirements,” the IRS notes.

Solution: Train all managers on the various requirements under the 8300 reporting rule. Some dealers have purchased software designed to sort through transactions in the DMS to identify any potential filing requirement.

The lesson here is it truly is all about the processes. Dealers must have written policies in place that lay out the steps for handling each compliance procedure. They must also periodically train all employees in the approved process. Finally, you must have checks and balances in place to be sure your employees are properly following the approved policies. These checks and balances include checklists and a monthly audit of a sample of deals.

Without these processes in place, a dealer really is taking a huge chance with complying with these regulations.

Good luck and good selling!

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

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