From Pop Warner to the NFL, football is typically played with 11 players on each side. In some parts, though, seven-on-seven football’s popularity is growing. Seven-on-seven essentially sheds four linemen from each side. There is no blocking or tackling allowed, just running and defending pass routes.
A full football team counts on its offensive linemen to protect the quarterback and help drive the deal to a score. Protecting the quarterback is protecting the team’s asset. Driving to a score is driving to achieve a goal. For dealers who are dedicated to regulatory compliance, only a full team will do.
Dealers with a robust compliance model in place have a full football team mentality. Everyone is committed to protecting the company’s assets and helping drive to reach profit, sales, and compliance goals. Dealers with a seven-on-seven compliance mentality aren’t engaged in the blocking and tackling of a full compliance model. They are merely hitting some of the compliance requirements. These dealers tend to rely solely on technical solutions provided by vendors’ compliance dashboards to gauge their compliance.
Let’s review a few examples of the shortcomings of a seven-on-seven compliance model:
• Red Flags: Many dealers rely on vetting Red Flags through their credit bureau vendor. If the report indicates a potential case of identity theft, the seven-on-seven dealer will usually either ignore the red flag or manually override it without obtaining any clearing documentation.
Full compliance requires the review of every red flag, the obtainment of documentation needed to clear it, the creation of a copy for the file, and <ital>then<ital> the manual override. In both cases, the vendor supplied software identified the potential issue, the dealers took differing approaches to making the report look good.
• Credit application fraud: A handful of Federales with three-letter monograms are actively and successfully pursuing dealerships, owners, and managers for fraudulently misrepresenting the consumer’s key credit determinants on credit applications to enhance the likelihood of obtaining a credit approval.
The seven-on-seven dealership may be happy to have one signed credit application in file and think that is the extent of what is necessary. Robust compliance demands the information the customer provided be forwarded to finance sources. Two documents are thus created — the source credit app and the submitted credit app — and both are required to be in the deal file.
• Payment packing: This deceptive practice has been around for a long time and takes many different forms. Payments can be packed on the Sharpie four-square, the edesking printouts, or the menu base payment. Essentially, if the payment quoted does not accurately represent the contemplated terms at that point in time, it can be construed as a packed payment.
Ferreting out payment packing requires auditing. A seven-on-seven approach would include confirmation that the worksheet and a menu are in the file. The full compliance dealer will do the math on the forms to see if it adds up and check the timestamps of approvals to confirm the appropriate interest rate was used.
• Third-party OFAC: The vendor who provides the Red Flags solution usually also provides the OFAC solution. Unfortunately, the vendor can only provide reports if the bureau is pulled. With transactions that do not rely on the bureau being pulled — or if the dealer does not subscribe to an OFAC search — a manual OFAC vetting is required.
Often the missing OFAC searches in deals involve a third party who is making the down payment for the customer or is assigning the title on a trade but is not part of the contract. A bureau is usually not pulled on these transactions. A seven-on-seven dealer will find their dashboard will not report on required, but missing, OFAC searches.
• Paper trail: The paper (or digital) trail contains the documents that will defend a dealer’s actions against many claims. Included are the final pencil, the menu and accept/decline page, the buyer’s or lease order, the RISC or lease agreement, and the product enrollment forms.
Full-compliance dealers vet the paper trail during the checklist process to ensure they tell the full story. Seven-on-seven dealers have a piecemeal checklist process or none at all.
We can make similar cases for Truth in Lending, Truth in Leasing, deceptive practices, front-end improvement, and others, but hopefully you understand the trend. You can decide to be a seven-on-seven compliance dealership and have a cursory, lackluster compliance program. Or you can work to better manage your risk and put a full compliance team on the field.
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.” Email him at [email protected]