Like a football team’s defensive coordinator, dealers must constantly shift their strategies for defending their stores against what I affectionately call the “dark side.” Well, the dark side has added a new twist to its offensive scheme, which means dealers will once again have to shift their strategies for protection.

To get you caught up, “dark side” refers to anyone who attacks car dealers, including the Federal Trade Commission, Consumer Financial Protection Bureau, banking regulators, the National Association of Attorneys General (which, appropriately, creates the acronym “NAAG”), uninformed news media, consumer advocacy groups and plaintiff attorneys. We can mock, deride and abhor the dark side, but make no mistake: We had better respect and fear them, and we must understand their motives to defend ourselves against their attacks.

Civil Defense

It was more than a decade ago when I first started helping dealers develop compliance strategies. Back then, the enemy’s game plan was clear. They used disclosure violations under the Truth in Lending Act (TILA) and similar state statutes to develop class-action claims.

After all, if a dealership does not have its DMS properly programmed to correctly disclose required disclosures on one deal, it’s likely the same mistake is being made on a lot of deals. That was enough to satisfy one of the class certification requirements.

But with TILA’s one-year statute of limitations, the size of the potential class and potential settlement was limited. However, adding a fraud or deceptive practices claim of some sort to the complaint allows the class to include sales from the last three to five years, depending on the state. This strategy funded many private planes for some members of the dark side. Thankfully, most dealers responded.

A defense against this offensive was crafted. Dealers corrected the programming issues, trade associations worked with state and federal agencies to clarify disclosure requirements, and attorneys created associations to assist in fighting claims.

The time it took to litigate these cases — some of them took a decade to settle — did play into the industry’s favor. But, for the most part, dealers tightened up their defenses and the dark side took notice.

New Plan of Attack

Evidence now points to the dark side asserting claims of criminal wrongdoing against dealers rather than less serious civil complaints. For example, asserting a potential violation of the TILA is a civil claim. Accusing a dealer of forging documents is, potentially, a criminal claim. The same goes for alleging that a dealer committed bank fraud by pulling a credit report without permission.

So, why are they doing that? Well, the rationale behind this strategy is rather simple: Make a claim that a dealer committed a criminal offense and the dealer is more likely to settle. File more claims, settle quicker; and the expense of class-action litigation is eliminated. Not only does the dark side get its money in a few months, they get to upgrade from a commercial flight to a private jet a little sooner.

The most prevalent criminal claims being utilized by the dark side are forgery and bank fraud. Regarding forgery, think back to all of those times you allowed spouses to sign on behalf of their partners. You might have received verbal permission from the individual not present at the time, but try proving that two years later when you’re getting sued. Signatures on file can also be considered forgery.

Bank fraud includes falsifying credit application information, disclosing nonexistent cash down payments, straw purchases and power booking. All of these once seemingly innocent practices are now felonies.

Criminal activity is a serious, emotional and reputation-damaging claim. Treat it as such and protect yourself, your managers, your employees and your business by taking it seriously.

Gil Van Over is president and founder of gvo3 & Associates, a national compliance consulting firm that specializes in F&I and sales compliance. Email him at [email protected][PAGEBREAK]

SIDEBAR: Shifting Strategies

Just as dealers must establish compliance programs to protect against civil claims, they also must have compliance programs for criminal charges. The good news is dealers can take the same steps they took to comply with the Safeguards and Red Flags rules. Just remember that the program you create must reflect what a judge can take into consideration when applying the Federal Sentencing Guidelines for someone convicted of a federal crime. Here’s a
five-step plan:

1. Conduct a Risk Assessment: You need to determine your exposure points. Include all points at which a customer is required to sign documents and provide personal information. Also be sure to review how that information is submitted to your lenders.

2. Establish and Deploy Policies: These procedures should outline what is acceptable and what is not in regard to criminal activities.

3. Training: Once your procedures are in place, you need to get your staff trained on what you expect. You also must require that employees acknowledge that they’ve been trained on your procedures and that they agree to abide by them.

4. Audit the Plan: Just like the Red Flags Rule, you must establish a routine to regularly audit your program and your exposure touchpoints to determine the effectiveness of your procedures. You also want to use this review to identify any additional threats your program needs to cover.

5. Terminate Violators: If you uncover a case of criminal activity, you must immediately terminate the offender once you have enough proof to defend a wrongful termination claim.

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