Those storage boxes of dead-deal jackets stacked near the dealership’s customer lounge are potential weapons of mass destruction.

Failure to protect consumer information puts customers at risk of identity theft. Compliance laws require dealerships to safeguard such documents. Failure to do so can run as high as $16,000 per violation.

Automated compliance systems are beginning to appear. These systems secure and protect consumer information in the sales, accounting and finance and insurance departments. They make sure that, once sound compliance practices are in place, they stay there.

A compliance strategy based on hope is a shortcut to all sorts of problems, Doug Fusco, president of Dealer Safeguard Solutions, says.

“Locking up customer and deal paperwork in a desk or file is so archaic,” says Eric Maas of Classic BMW in Plano, TX.

His dealership uses compliance software to eliminate human error, assure consistency and enforce standardization. The system alerts management if the staff attempts to override prescribed practices and processes.

Crest Auto Group, also in Plano and No.11 on the WardsAuto Dealer 500, uses compliance-enforcement software to control procedures and eliminate paperwork.

“Our process dictates that at every step where customer information is needed, whether the driver’s license and insurance cards or credit report, it is bulletproofed,” says Crest managing partner Mike Brosin.

He tells of an incident of a customer complaining that the dealership ran the husband’s credit without his permission.

“I was able to pull up his application instantly on our compliance-enforcement- software dashboard,” Brosin says. “She agreed it was her husband’s signature. She told us she felt very comfortable with our process and that we had her family’s best interest at heart.”

Without compliance-enforcement software, a dealer has “at best a 50-50 chance of protecting their customers’ private information,” he says. “We came to the realization that compliance starts long before we pull credit, and one of the biggest liabilities we needed to standardize was the discretionary behavior of our sales process.”

Dealers aren’t in the compliance-regulatory business. The rules change and new ones are added.

Regulations cover areas such as ensuring customer privacy, avoiding unfair and deceptive practices, getting permission to check credit histories, implementing anti-identity theft plans and notifying customers in writing when a loan application is rejected (and explaining why).

Regulators are looking more closely at dealership practices than ever before.

“Our compliance-enforcement software makes it a certainty that as we start to work with a customer we have collected all the key information we need,” says Crest Auto controller Greg Lustik.

“Our Automated Compliance Enforcement dashboard gives us a green light that then allows us to pull a credit,” he says. “If we miss steps or try to override them, the dashboard goes red.”

Proper compliance keeps dealers out of red-faced situations, says David N. Robertson, executive director of the Association of Finance and Insurance Professionals.

“More often than not, when dealers find themselves as the subject of a TV expose or in court or paying a regulatory fine, it wasn’t because an employee wasn’t aware of the rules,” he says. “It’s because the rules were not being applied to every deal.”

Jim Leman writes about automotive retail operations from Grayslake, IL. He is at lemanbizwriter@comcast.net