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Compliance

Investigatory Etiquette

August 2008, F&I and Showroom - Feature

by Michael Benoit

Many dealers I talk to have an appreciation for the value good compliance practices bring to their operation. Being prepared to demonstrate your good faith compliance efforts will go a long way toward a favorable resolution when an attorney general or the Federal Trade Commission (FTC) comes knocking on your door.

Many dealers are under the mistaken impression that it takes something really bad to trigger an investigation about their compliance practices. While it’s likely that an allegation of some bad dealer behavior may capture the attention of law enforcement and regulators, it is rare for small compliance violations to pique their interest. But that’s no reason to give short shrift to your compliance efforts. An investigation into an advertising practice can easily morph into a deeper investigation into all of your compliance practices, especially if you don’t handle the investigatory body with care.

My partner, Lisa DeLessio, attended a recent seminar sponsored by the FTC and the Better Business Bureau of Metropolitan Dallas. Regulators shared their thoughts on things you should keep in mind if you are the target of an investigation. Here are a few tips she picked up:

1. Know the government doesn’t call without a reason: By the time a government agency contacts you, the agency has already received complaints filed against you. You might be surprised to know that these complaints often come from your competitors, not just consumers.

2. Lawyer up right away: Make sure to get someone who is competent in the subject matter. The panel, which included representatives from the Texas Attorney General’s Office, the local district attorney and the FTC, unanimously agreed that they would far prefer to work with your lawyer than you. And this is true at every stage of the process. Why? I don’t know they’re specific reasons, but I suspect it’s because they tend to be lawyers themselves and they don’t want to have to spend time explaining the law to you.

3. Cooperate: This one might seem obvious, but the panel revealed that after the agency makes a request ­— usually for documents or information about a product, service, or advertisement ­— they are often met with long, unexplained delays or no response at all. They found this to be frustrating (and I imagine not conducive to a favorable resolution for you). Government agencies don’t like to deal with targets who are defensive or argumentative. And any attempts at intimidation just harden the government’s position.

4. Share information about your business: If you think you’re doing things right and there is nothing to hide, then why not? The Texas AG’s rep candidly stated that he is always surprised when a company provides documents or an initial response and then never contacts his office again. While you may think they have an obligation to follow up with you, your follow up can help support your view that you’ve done nothing wrong (or if you have, that you certainly didn’t mean to). In any event, you and your lawyer will need to decide on the best strategy.

5. Sometimes the government will see your side of the story and close the investigation: Some of the panelists were more enthusiastic about this point than others. For example, the DA rep said the DA’s office frequently drops cases after hearing your side of the story. But the office needs to hear the whole story first. This was not the same view held by the FTC. My firm’s experience with them indicates that they like to leave their options open. Even so, they have been known to close investigations because they didn’t have legs.

6. An investigation is not litigation: Government agencies have loose and flexible guidelines when investigating complaints about bad practices. This means you are not playing on a level field. You don’t have rules of evidence or the benefit of procedural requirements. In fact, when I asked if the agencies could share any protocol or guidelines (preferably written), the answer was no. The government agencies can ask you for all sorts of things, but you can’t ask them to tell you everything they have against you.

Keep these tips in mind if you ever receive a “request for information” from one of these agencies. Remember that your best defense is a good offense, so keep abreast of your compliance obligations and exercise good faith efforts in meeting them. Do that and the odds of hearing that knock on the door become mighty slim.

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at michael.benoit@bobit.com. This article is based upon Lisa DeLessio’s impressions from the panel “If the Government Comes to Call,” which was part of May 29 seminar entitled “Green Lights & Red Flags: FTC/BBB Rules of the Road for Advertisers.” Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.

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