A good policy manual demonstrates to any investigative agency that you have the appropriate internal controls in place.
The other week, I stopped in the local fast-food joint that ballyhoos its fabulous lemonade. Don’t ask why, but I needed a lot of lemonade.
“May I help you?” an employee asked.
“I’d like three gallons of lemonade,” I said.
“Will that be for here or to go?” she asked without hesitation. I simply smiled, she stopped for a few seconds, then said, “Yeah, I guess that will be to go.”
While I waited for her co-worker to fill up three gallons, the place got busy. The young woman behind the counter stayed with the word tracks she had used with me. She kept to the scrip and the process.
Even though the place was getting crowded, her training and word tracks helped her manage the surge in business and keep things moving.
Now that sales have picked up, dealers around the country are getting busy again. The busier you get, the tighter your processes must be. Dealers who implemented sound policies and processes during the slump now have the ability to handle the increase in business.
There also is a protective reason to have policies, processes and a compliance program in place. The Consumer Financial Protection Bureau and the Federal Trade Commission are ramping up resources to use their investigative powers granted under the Dodd-Frank Act.
If the two agencies come knocking and follow their compliance-investigation playbook, here’s their game plan. They will be asking a dealership about its policy manual, how it was developed and how it fits into an overall compliance program.
With a business and a regulatory reason, now is the time to have your processes, policies and compliance program in place. It’s easy enough to say that, but another thing altogether to do it. Here’s one approach.
First put together a list of the processes. Examples include:
- Payment-quoting methodologies.
- Handling negative equity.
- Use of a menu for selling finance and insurance products.
- Accepting credit applications.
- Employee use of social media.
- Product-pricing guidelines.
Next, list the various state and federal requirements, such as:
- Checking red-flag rules on each transaction.
- Sending adverse-action notices.
- Notifying the government of large cash transactions.
- Observing rules involving the sale of used vehicles.
Now comes the fun part: research. Understand what your requirements are in each area. Some will be federally driven, some state. Some may be best practices intended to protect against potential class action-litigation.
After you’ve completed your research, it’s time to start writing. Construct each process with two sections: definition and policy.
Under definition, give the background or reason for the policy. The Definition for Truth in Lending, for example, could read “The Truth in Lending Act, and its FTC Rule, Regulation Z, provides the regulatory underpinnings of the retail finance transaction between the company and the consumer.”
The policy section should detail how the employee is expected to execute the process to comply with a policy.
The section for the cash-reporting rule could read: Any employee aware of triggering events by any customer is responsible for notifying the Office Manager, who will then:
- Using the current version of the form, file form FinCEN 8300 within 15 days of the trigger event.
- Place a copy of the FinCEN 8300 in the customer’s deal jacket(s) and keep a separate file of FinCEN 8300s filed during the calendar year.
- Mail a letter to each customer notifying the customer of the FinCEN 8300 filing by Jan.15 of the following year.
- Place a copy of the customer notification in the customer’s deal jacket(s) and keep a copy with the FinCEN 8300 calendar-year file.
- Retain filed FinCEN 8300s for five years.
Next comes perhaps the most important part. A compliance program is not complete until you train your employees on the policy manual and periodically audit their output to ensure they are following the rules.
Our experience is that most employees will follow the rules once they understand them. People who don’t need to work elsewhere.
Having a policy manual in place as part of an overall compliance program will help employees understand the processes so that deals flow smoothly.
It also demonstrates to any investigative agency that you have the appropriate internal controls in place, and ideally deflecting a drawn-out probe.
Good luck and good selling.
Gil Van Over is president and founder of gvo3 & Associates, a national compliance consulting firm that specializes in F&I and Sales compliance. He is at firstname.lastname@example.org.