I heard loud jubilation when the courts rescinded the Consumer Financial Protection Bureau (CFPB)’s guidance on dealer reserve. Dealers flooded my inbox and voicemail with “Great news! Now we can take our eye off the ball on this compliance stuff.”
“Au contraire,” I responded. And with good reason, I believe. Here’s why.
Bureau of Consumer Financial Protection
The CFPB is now the BCFP, or Bureau of Consumer Financial Protection. Neither of them had or have direct regulatory oversight of automotive dealers. The CFPB tried a Trojan horse approach of attempted regulation through finance sources.
Simply rescinding flawed guidance, which most dealers and many finance sources struggled to follow with varying levels of compliance, is welcome news. But reading into one decision with one Federale that doesn’t have regulatory oversight of our industry as a reason for dealers to rescind their compliance management systems is shortsighted and a poor risk management decision.
There are other Federales who have been active or are ramping up, that do have regulatory oversight of the automotive industry:
• Federal Trade Commission: Los Angeles’ Sage Auto Group settled with the FTC last year for the tidy sum of $3.6 million for unfair and deceptive sales and financing practices, deceptive advertising, and deceptive online reviews. The FTC also alleged payment packing and yo-yo transactions. Sage agreed to settle. In August, the FTC announced its first action alleging credit application fraud against Tate Auto Group in the Southwest.
In the press release announcing the charges against Tate, Andrew Smith, director of the FTC’s Bureau of Consumer Protection, stated, “When consumers tell an auto dealer how much they make and how much they can pay upfront, the dealer can’t turn those facts into fiction. The FTC expects auto dealers to be honest with consumers from the first advertisement to the final purchase.”
• Department of Justice: In the Midwest, the Weaver Auto Group reached an agreement with the U.S. Attorney’s office to settle claims of bank fraud. Two people, including the dealer principal, received jail time and the dealership agreed to restitution. According to published reports, the dealer principal is returning ownership to his father, who founded the business more than 35 years ago.
Assistant U.S. Attorney Christian Trabold told the judge, “You have the opportunity here today to send a strong message to the Erie business community and the Erie auto sales community. You have the chance to send a message to a community that is very likely to listen — that if you engage in this conduct, you are going to pay a price.”
• State Attorneys General: The New York AG recently announced a six-figure settlement with the Queens-based Nemet group of dealerships. In its press release, the regulator mentioned the consumer complaints revolved around “unwanted charges, fraudulent sales practices, and other deceptive maneuvers.”
“We have zero tolerance for those who seek to defraud New York consumers,” said Attorney General Barbara Underwood.
These are just three topical examples of today’s regulatory landscape with a few of the Federales from the left coast, the right coast, and the flyover region. You can find other examples with the state attorneys general, state DMVs, FinCEN, and others.
How Can I Help My Dealer?
F&I professionals, agents and other trusted advisors who assist automotive retailers with their compliance initiatives should ensure your dealers have an active, robust compliance management system in place.
A CMS is the method by which an automotive retailer manages the entire consumer compliance process. The compliance program consists of the policies and procedures that guide employees’ adherence to laws, regulations, and potential litigation defense. The compliance audit function is an independent testing of the retailer’s transactions and processes to determine its level of compliance with consumer protection laws, as well as the effectiveness of, and adherence with, policies.
The process to develop and implement a CMS is consistent with the requirements outlined by the FTC in its guidance with the Safeguards Rule and the Red Flags Rule. Every dealer must appoint a compliance officer; conduct a risk assessment to measure current practices against requirements; develop a policy and procedure manual; provide and document employee training on the policy and procedure manual (preferably including industry testing and certification); and perform periodic audits to confirm compliance with the policy and procedure manual.
Good luck and good selling.
Gil Van Over is the executive director of Automotive Compliance Education (ACE), the founder and president of gvo3 & Associates, and author of “Automotive Compliance in a Digital World.”