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5 Steps to Compliance

Building a compliance program doesn’t necessarily require a big investment, but it does take a commitment. Expert lays out a plan for improving your dealership’s level of compliance.

May 2011, F&I and Showroom - Feature

by Jim Radogna

In many dealerships, the thought of putting together a compliance program is similar to contemplating a diet-and-exercise regimen: You know it’s something you
need to do or, eventually, your unhealthy lifestyle will catch up with you.

And like getting in shape, keeping up with regulatory changes can seem like a daunting task — not to mention costly. Many compliance programs on the market are quite expensive and simply out of reach for the average dealership’s budget. As a result, some organizations give up on implementing a compliance program and just hope they can fly under the radar.

The truth is, setting up and maintaining a strong compliance program in your dealership doesn’t have to be difficult or expensive. In fact, here are five steps you can take to dramatically raise the level of compliance in your store without breaking the bank.

1. Get Committed: Ignoring compliance just doesn’t make good business sense. The automotive industry is changing dramatically and it is coming under more scrutiny with the passage of the Dodd-Frank Act. Dealerships that continue to operate without a focus on compliance will invariably struggle. So what are you waiting for? Make a commitment to establishing a culture of compliance and ethics in your dealership.

2. Follow the Leader: The change in culture needs to start at the top, but someone in the organization needs to champion the cause. All too often, dealerships will adopt an “everyone’s-in-charge-thus-no-one’s-in-charge” attitude toward compliance, which tends to fragment a store’s efforts.

You must designate a company compliance officer. Ideally, this will be a senior-level employee who reports directly to company ownership. This person will be responsible for monitoring all aspects of compliance. He or she will also be afforded the resources to learn as much as possible about state and federal regulations.

Don’t forget that two federal requirements that govern your dealership’s sales and F&I processes — the Safeguards and Red Flags rules — require that you designate a compliance officer, so you’ll be killing three birds with one stone here. And it’s not as though appointing an in-house compliance officer requires an additional salary. That being said, it would be wise to consider some compensation for the employee’s additional duties. This is an important position and must be taken seriously. In larger organizations, a compliance committee consisting of department heads may be a better way to go.

3. Assess Your Compliance Level: Dealers should not assume their employees are well-versed in compliance simply because they’ve been in the business for a long time. The “old school” way just doesn’t cut it in today’s regulatory environment. Plus, your veterans may not be aware that the lessons they learned over the years are no longer legal or ethical.

The vast majority of dealership employees are well-meaning, honest people just trying to earn a living. However, if they have never been properly trained in compliance matters, they are likely to rely on doing business the way it has always been done. Bottom line, assuming that your dealership is doing everything right without verification is risky at best.

So, when was the last time you performed a comprehensive risk evaluation? If it’s been a while (or never), you need to get on it. It can be completed by someone on staff who is well-versed in federal and state regulations or by hiring outside compliance professionals. The key is to get a baseline reading and uncover areas where your store is most vulnerable.

Forms, advertising materials and deal jackets should be thoroughly evaluated. Policies related to the Red Flags Rule, information safeguards and privacy should be reviewed. Vehicles should be checked for proper display of buyers guides, Monroney labels, etc., and signs and notices should be verified. Chances are you may be unpleasantly surprised by the results.

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