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Turning Compliance into Profits

October 2008, F&I and Showroom - Feature

by Denny Long

For auto dealers, “compliance” doesn’t have to be a dirty word. The most successful dealers I know all use compliance as a way to ensure more consistency in their sales process, make more sales and increase their profits. Let’s take a quick look at the rules regarding Adverse Action Notices, then learn how the aggressive creativity of one dealer totally transformed new compliance rules into a highly effective system for creating additional sales and profits.

You are required to provide Adverse Action Notices

It’s a common belief that financing sources, not dealerships, are responsible for issuing Adverse Action Notices. That is incorrect. Dealerships are considered to be participating creditors because they make decisions on which finance source to use and, in some cases, the decision not to send an application to a finance source. All participating creditors are required to provide Adverse Action Notices. So if you’ve got to do it, let’s look at the positive aspects of these rules.

What triggers the need for an Adverse Action Notice?

Another common misconception is that an Adverse Action Notice is only required once a credit report is requested. In reality, any time a full or partial credit application is submitted to you by a consumer, you may owe that consumer an Adverse Action Notice. The entire interpretation of the law cannot be covered in this article — the NADA Adverse Action document is larger than this magazine! But I would like to provide a brief explanation to help you understand how this law makes it possible increase sales and profits. So let’s get into the good stuff.

You may detect a sense of frustration in articles written by marketing people. Why are we frustrated? Because we work so hard to generate leads and many are never contacted, let alone properly worked. I’m sure this is not a problem at your dealership, but it does happen. You can probably imagine how excited I get when a law is introduced that states you must contact all your credit applicants. Because there will need to be recordkeeping to prove that the notices were provided if you are ever audited, you must have a tracking system in place. Follow-up and tracking that’s required by law — is this a great country or what? Again, we can’t cover all of the laws in a short article, but we do want to discuss a couple of areas that will really pay off for you.

Getting creative

As mentioned above, I know a dealer who took the rules and got creative to make them work to his advantage. First, he has software with automatic triggers to search his system each week for Adverse Action Notices that need to be printed. He then contracted with a printing company to produce full-color, 8 1/2” x 14” notices that stand out from the boring, black and white, standard-size letters that meet the minimum requirements of the rules. He uses the additional space and added impact of the color to add coupons and other offers to get more bang for his buck. Using this software and his creativity, he has a foolproof system that turns every Adverse Action Notice into an awesome-looking sales and service marketing program ... Genius!

Notice of Incomplete Application

If you receive credit applications from your Website or a lead provider, you must first ask for the consumer’s name and address so that you have the minimum required information to provide an Adverse Action Notice. If any of those applications are missing the minimum information required to submit the application to a creditor, you must send the applicant a Notice of Incomplete Application. This alone is significant because your employees now are required to follow up on every application.

You may find this hard to believe, but some of the consumers who receive a Notice of Incomplete Application actually call the dealership to complete the application. The more completed applications, the more vehicles sold (there’s that sense of frustration again).

The creative dealer has set up his system to automatically scan the required fields. It looks for the blanks and then lists the missing information in the letter. In most cases, there are only one or two pieces of information missing, such as previous employer or Social Security Number. This assures the consumer that they’re not going to have to start all over again. This dealer then takes the additional room in his larger format letter and adds coupons for things such as free DVD players or gas cards just for stopping in to complete their applications.

Minimum required income

This is another field that often causes leads to be “cherry picked” and ultimately ignored. Again, if someone submits an application, you can no longer just toss it because the income is too low. You will need to set up a version of a letter that lets the customer know that you can’t process their application because their stated income is below the level required by your available lenders. I suggest that you actually show the minimum amount required by your lenders on this letter.

Some of the consumers who receive that letter will realize that their income is above the stated figure and call in to correct the information. Another found prospect and, possibly, another found sale! The creative dealer takes the process one step further and suggests other sources of income such as alimony, child support or Social Security that can be added to exceed the minimum requirements. He then adds two coupons to the bottom of the letter — one that gives an incentive to come to the store (such as the DVD player or gas card mentioned above) and the other for a great deal on an oil change. He figures that if they can’t buy a newer vehicle, they’re going to need to take care of their current vehicle.

There’s another bonus to these rules: It’s a lot easier to get your employees to do the follow-up and tracking of these consumers when it’s required by law, not just because that’s what the boss wants. After all, fines can be as high as $1,000 per incident, not to mention the potential for costly class-action litigation. If you are required to send just 500 letters per month, you can certainly afford to spend a little extra to mail letters that might turn into sales.

I suggest that you look into software that will make Adverse Action Notices easier if you don’t already have such a system. If handled properly, there can be great benefits to following these rules. There’s a good chance you will sell a few extra vehicles every month thanks to the tracking and follow-up that is required, and more sales is always a good thing. Good luck and good selling!

Denny Long is senior vice president at Dealer Marketing Services. E-mail him at dlong@special-finance.com.

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