Part one of this article discussed some key steps necessary to ensure that your dealership is operating in full compliance with all legal and regulatory requirements. Even more importantly, it addressed how to build a self-sustaining culture of compliance among your employees.

To this point, the discussion has focused on the human side of things. Now, we'll turn to the policies and procedures used by dealerships to successfully develop a compliance culture.

Responsibility Starts at the Top

It is the responsibility of the dealership's owners and executive management to develop operating policies and procedures, communicate them clearly to the employee body and revise them as necessary. Top management must play an extremely active role in designing and developing policies and procedures for the dealership.

Ownership and platform management must avoid promulgating edicts from the ivory tower. Instead, general managers and department managers should be welcomed into the process of developing policies.

This way, the policies will be adopted with the field's buy-in and are more likely to be workable in the real world.

Leaders must also ensure that the policies encourage and reward behavior that is consistent with applicable laws and regulations and produce profitability and long-term customer relationships.

A dealership's policies and procedures should be clearly drafted and understandable. Policies and procedures cannot simply be excerpted from technical legal memoranda. Instead, as necessary, they must be translated into less technical language. Clear policies containing plain English have a much better chance of being followed.

Consistently communicating the expectations contained in the policies is important at all levels of management. Your dealership personnel must know that compliance with the policies is extremely important to the highest levels of management in the organization. The direction of the organization regarding its compliance efforts must be crystal clear.

Revision of the policies will be necessary from time to time. This happens whenever management learns of a better way to ensure compliance, or as changes in the laws or regulations occur. And sufficient effort must be expended to create an appropriate modification to the policy and, again, one that is workable in the real world.

However, a process that is workable in the real world must never be allowed to undermine the compliance efforts of your store. In many cases, there may be several ways to skin a cat, all of which are compliant. Your objective is to adopt the one method that will generate the highest profitability and highest customer loyalty, with the least degree of risk of non-compliance.

Job description & compensation. In the previous article in this series, Ferman's list of F&I non-negotiables was mentioned. It is further discussed on page 24 as a sidebar to the "Recognizing and Reducing Litigation Risk" article. This list summarizes quite easily what missteps constitute terminable offenses. This prevents possible excuses when an employee violates one of the items on the list.

In addition to this list, Ferman provides an extremely detailed job description to each F&I manager. This job description includes a significant number of the dealership's F&I-related policies, clearly stated and in writing, for easy reference.

We also do our best to instill in our new F&I personnel a comfort level with asking for help on compliance matters. We have many well-trained managers in each of our locations so, rather than guessing, an F&I manager is encouraged to seek help when confronted with an unfamiliar compliance challenge.

Encourage Desired Behavior With Pay Plans

If product sales penetration percentages are what you'd like to drive, then shift your compensation emphasis toward that objective.

Personally, I view legal and regulatory compliance as a performance minimum, so I believe that compliance should not be rewarded monetarily. However, consistent compliance excellence would certainly distinguish an F&I manager from the field when he or she is being considered for a promotion into an F&I director's position.

Audit, train and discipline. As discussed earlier, the three functions of training, auditing and doling out appropriate discipline are of critical importance to supporting the compliance initiative. Top-level store management, such as general managers, can also commit policy violations. There is no reason for the store's general manager not to participate as fully (if not more so) in the compliance culture initiative than those at the F&I manager level. This makes it absolutely necessary, but perhaps quite difficult, to impose disciplinary actions in those instances.

Dealership owners and executive management must train general managers to support and participate fully in the compliance effort. In fact, we require our general managers to become AFIP-certified, audit each deal file and personally sign the RISC or lease when assigning the customer paper to the financial institution buying the deal. General managers need and deserve training on what to look for and how to improve the compliance efforts. Having more well-educated eyes in the review process will always serve your organization well.

Lead by example. A dealership's owner can be considered an icon, a symbol of the fundamental values of the dealership organization. Employees might see the dealership owner or executive manager on site only infrequently, but they take their cues from the statements and gestures of the key leaders whenever they are visible. Accordingly, when the owner or executive manager acts personally on a matter of compliance, that single example will impact the entire employee body. It will send a strong message about how important (or unimportant) the compliance effort is to the organization.

So when an owner or executive manager is presented with a compliance decision, he or she must act with integrity and full compliance. Make no exceptions regarding the discipline of personnel who violate the policies and send a strong message that compliance is as important (if not more important) than extra profitability. Remember, the cost of non-compliance will ultimately be an enormous and perhaps embarrassingly well-publicized chargeback. Your goal, when it comes to F&I compliance, is to ensure the amount of F&I net profit that you report on your financial statements stays there.


Visionary thinking. Dealership owners and executive managers must participate in forecasting industry developments. This involves changing dealership policies and procedures in advance of a legal or regulatory development and spearheading and supporting change in the industry.

Do not wait for the industry to change around you. Do not sit and complain about the state of the law, how the customer refuses to accept personal responsibility or how aggressive plaintiffs' attorneys have become. Instead, do something about it.

I'll bet many of you are asking yourselves, "How can we NOT whine or complain?" or "Can you believe how our time-tested, fundamental and successful economic notion of capitalism is being attacked and debased?" or "Are we becoming a nation of socialists?"

We have all read our share of whines printed in the trade press and I admit that I have done my fair share of whining and complaining over the last couple of years. However, if you don't like the landscape, you can try to change it.

Changing your dealership's culture accomplishes this goal. Assemble a group of your key managers, attorneys and other industry experts and examine the threats from outside sources, such as plaintiffs' lawyers, regulators, the media and consumer groups.

Then, develop a set of strategies to improve within this new landscape. Create policies that reduce your risk of legal liability while increasing or maintaining profitability. Communicate those clear policies to your dealership employees and ensure that everyone follows them. Don't lose a lot of sleep whining and complaining about it. Pick up the ball and run with it.

Participate in and support your trade associations. Support NADA and your state's and city's trade associations and, if so inclined, their political action committees. Many trade associations offer valuable dealership education on compliance issues, and they are also working with industry insiders and regulators on initiatives that will provide clear rules for dealers and financial institutions to follow, encourage consumer education on vehicle finance and lease transactions and limit frivolous lawsuits against automobile dealerships. In fact, I have participated in the first steps of an effort by the Florida Automobile Dealers Association and a group of committed dealers and outside advisers to consider the development of a compliance safe harbor for vehicle finance and lease transactions, one that would ultimately receive the blessing of the appropriate regulators. In this way, dealers and banks would gain certainty and comfort that their compliance efforts are effective and successful, and the regulators could turn the safe harbor into a consumer education piece, thereby improving customer knowledge about vehicle transactions. It's a win-win solution (except, of course, if you're a plaintiff's attorney).

Review other resources. Keep with trade publications, NADA bulletins and training materials, advice from your state and local trade association, bulletins from the financial institutions with which your dealership does business, and other news services. Read these publications with an eye for compliance issues. Identify these issues and determine, as you read them, if your procedures are satisfactory. Don't let a compliance improvement opportunity escape you.

Undertake positive public relations efforts. Dealership owners and executive managers should conduct positive public relations efforts on behalf of their stores and the industry as a whole. By and large, dealerships and their owners are awfully good community citizens, and the good deeds of dealers should become more known among the general public. When interviewed, dealers should take the high road: call for integrity on the part of all dealerships and support the fair treatment of consumers. By contrast, if you are not well-versed in the particulars of a subject on which you are being interviewed, dealers should decline the interview.


This article is intended to distill the process down to some fundamental principles that can be fairly easily implemented in your stores.

Avoid being the low-hanging fruit by conducting a programming audit using a hypothetical deal and make appropriate programming changes.

Set clear compliance policies and communicate them with consistency and force from the top down.

Focus on your employees and key outside personnel by hiring them wisely, using their expertise to improve compliance, auditing the effectiveness of the compliance efforts, training religiously and dishing out discipline swiftly and consistently when policies are violated.

Steve Straske serves as the vice president and corporate counsel of Ferman Management Services Corp., which is the management company for 11 family-owned retail automobile and motorcycle dealerships in the greater Tampa Bay, Fla., area.