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Bulletproof?

When it comes to regulatory compliance and protection from litigation, there’s no such thing. The most effective strategy is to make your dealership as small a target as possible.

by Thomas B. Hudson, Esq.
September 1, 2008
3 min to read


One of the services we offer at our law firm is a dealership compliance audit. When we do those audits, we actually visit the dealership to observe the practices and procedures that the dealership is using in connection with its credit sale and lease activities, and we also review every scrap of paper the dealership uses.

After we’ve completed our review and communicated our sometimes critical conclusions to the dealer, we often get the request from the dealer to address the dealership’s documents, policies and procedures, and “make them bulletproof.”

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There’s only one problem. We don’t do bulletproof.

If a lawyer tells you that your operation is bulletproof from attacks by plaintiffs’ lawyers, we suggest you consider changing lawyers. Of course, it could be the case that your lawyer is just a lot smarter than we are, and that he or she carries around some bulletproof in that alligator hide briefcase. But we can tell you that we have never seen bulletproof, and we don’t think it exists.

When I tell dealers that we’re fresh out of bulletproof, I go on to explain what I think we actually can do to reduce the dealership’s lawsuit exposure. I ask the dealers to imagine that they are out in a field with a bow and a quiver of arrows. Then I ask them to imagine a barn, 100 feet away, with targets plastered all over the side, and to imagine that some of the targets are 4-foot circles, others are 2-foot and 1-foot circles, and some are tiny 6-inch circles. I tell the dealers that what we try to do is to make them the smallest, most difficult-to-hit target for the plaintiffs’ lawyers.

We shrink the dealership’s target by making sure that all the forms the dealership is using comply with federal and state law, and that the forms work properly together. We rework, if necessary, the dealership’s written policies and procedures, and we make sure that the implementation of the policies and procedures doesn’t stray from their written description.

We suggest that the dealership have a designated Privacy and Compliance Officer, and, if it is large enough, a “customer representative” whose job it is to help customers who have complaints. We urge F&I compliance certification and ethics training for those dealership personnel whose duties would benefit from such training.

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We recommend that the dealership use consumer-education brochures, such as “Understanding Vehicle Finance” (available free from the National Automobile Dealer Association’s Website) and “The Keys to Vehicle Leasing” (available from the Federal Reserve Board’s Website), and that copies of these brochures be displayed in the dealership and included with the documents given to every customer.

We suggest that the dealership visit with the appropriate state regulators, both to determine whether the regulators have resources that would help the dealership, and to make sure that the dealership doesn’t have its first contact with the regulators in connection with a customer complaint.

And, finally, we recommend that the dealership incorporate a mandatory arbitration agreement into its contracts with customers as a first, best line of defense against class action lawsuits and outsized jury awards.

Bulletproof? Nope. But a mighty difficult target.

Thomas B. Hudson, Esq. (thudson@special-finance.com) is the author of several books, available at www.counselorlibrary.com. He is also the publisher of Spot Delivery, a monthly legal newsletter for auto dealers, and CARLAW, a monthly report of legal developments in all states for the auto finance and leasing industry. He is also a partner in the Maryland office of Hudson Cook LLP.

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Copyright CounselorLibrary.com 2008, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to Special Finance magazine. HC# 4811-1608-3202 (8/08).

Topics:F&I
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