Most dealers I've met know a heck of a lot about selling cars, but not much about things such as Regulation Z, M or B. If you don't know what these regulations are, this proves my point.

Dealers do know that first and foremost they must keep the metal rolling off the lot in order to survive. But, amidst a counter-business culture comprised of plaintiff lawyers and relentless state attorneys general, a dealer can no longer afford to ignore the details of regulatory compliance. To do so is to invite litigation.

So where does a dealer begin? I'll give you a simple way to implement a basic F&I compliance program. The steps are: 1) appoint a “compliance officer,” 2) establish a code of ethics, 3) train employees, and 4) monitor compliance.

Let's go down the list:

Compliance Officer

There are two potential traps that dealers often fall into while designating a compliance officer. The first is to name someone with absolutely no authority in the dealership. The second is to name someone with authority but no expertise.

Naming a compliance officer with no authority is like trying to sell cars without tires. Avoiding the second trap is as easy as allowing your designee to attend seminars, hire consultants and purchase reference materials.

Few small dealerships can afford a full-time compliance officer or an in-house attorney. So, the responsibility tends to fall (if at all) on an already overworked business office. This may be acceptable for certain compliance issues but definitely not for finance & insurance compliance. This responsibility should fall upon the finance director or general sales manager.

Code of Ethics

It can be a simple list of things your finance people promise to do (or not to do). It can incorporate both law and company policy. It should not be a complicated document written in legalese.

If your dealership's policy is not to mark up finance rates higher than 2%, one item in your list might read something like: “I will not write retail contracts at an interest rate that is more than 2% higher than the lowest buy rate available for a particular buyer.”

Another good one might read: “Once a cash transaction has been agreed upon, I will not increase the sale price if the customer elects to finance rather than pay cash.”

The compliance officer should draft the code of ethics with input from the dealer principal and legal counsel. The code should both educate your employees and protect your dealership. With a properly implemented code of ethics, employees cannot contend they didn't know the company's policy, and the dealership will have some ammunition to fight off lawsuits or government action.

Your code of ethics will likely require periodic updating due to changes in the law or company policy.


Once you have developed your code of ethics, training is simple. Your compliance officer goes through the code, item by item, explaining the purpose of each.

The employees should then sign a statement such as: “I understand that if I violate any of the above ethics and responsibilities, I have done so on my own and am thereby acting outside of the course and scope of my employment. I further understand that any such violation may result in discipline, up to and including termination.” That should be placed in the employee's file. Every employee should receive a copy of the code of ethics.


Unfortunately, some dealership personnel have the attitude that “it ain't illegal until you get caught.”

That's dangerous. It must be countered by internal enforcement of the code of ethics. At least twice per year, the dealer should audit the finance department for adherence to the code of ethics and impose discipline for transgressions. Ideally, the dealer should hire an outside firm to perform these audits, however, this is not always necessary.

Attorney Rob Cohen is managing partner of Auto Advisory Services, representing dealers in litigation cases. He sold cars and F&I products while a law student in California. He's at