Worn out by increasing compliance obligations? It seems that every year dealers face added responsibilities under federal and state laws.

While compliance with all laws is important, a dealer should understand where losses are most predictable and should implement active programs to prevent the most likely losses. Here are some suggestions of where a dealer should concentrate.

  1. Implement an F&I compliance program

    The most frequent sources of litigation at dealerships are problems in F&I. Suits can arise not just from improper practices, but also from customer misunderstanding of F&I processes and the terms of a vehicle sale. Develop a policy and train your employees.

    • Do a regular audit of your forms used in selling vehicles and F&I. Do they provide you the latest protections?
    • Have a set closing presentation. F&I people must lead customers through a deal in a meaningful way. If disputes arise about the nature of the closing process and the representations, an established process can be valuable in justifying the dealership's practices.
    • Make sure your F&I personnel fully explain the deal. Many lawsuits arise simply because of customers' failure to understand their obligations.
    • Use a deal completion checklist. Often, disputes arise when customers feel they are being called unnecessarily for documents or materials that they feel they should have signed or been asked to provide in the closing office.
    • Have a deadline for deal funding. The longer a deal goes unfunded, the harder it is to finalize it.
    • Spot check compliance. Review completed deals to judge the performance of F&I personnel.
  2. Hire soundly

    Employment claims arise mostly from poor hiring decisions. Train managers to recruit, interview, and select employees wisely. Make sure that managers understand the qualifications they are looking for in an employee. Make sure they interview appropriately to determine applicants' qualifications.

  3. Pay minimum wage and, where applicable, overtime

    When sales are tough, sometimes sales people don't earn minimum wage for each hour worked based on their draws. Sometimes employees who should earn time and a half overtime are misclassified. Wage claims, especially the class-action variety, can be expensive, including treble damages and attorneys' fees. Make sure non-exempt employees are not mistakenly classified as exempt from overtime pay requirements.

  4. Respond promptly and effectively to discrimination and harassment claims

    These are the most expensive personnel claims against dealers. Have a strong policy. The law may give you some protection if an employee does not let you know of a problem, but only if employees know how to make their complaints known. Put your complaint process in writing, preferably in your personnel handbook. Cover it in meetings from time to time. Treat every problem seriously. Investigate a potential claim. Assess the situation. Take action consistent with prior actions under similar circumstances. Have zero tolerance for retaliation.

  5. Know your customer

    Implement and use your Red Flags program. Compliance with the Federal Trade Commission's Red-Flags Rule is important to help your dealership know your customers and avoid becoming a victim of identity theft. Some dealers have put off Red-Flags compliance, viewing it as a costly government mandate. But it helps the dealership avoid becoming a victim by delivering a vehicle to an ID thief.

  6. Safeguard customer information

    The law mandates this. If you don't have a program in place, the legal consequences can be expensive. Also, your customer records are your assets. A salesperson who leaves with your customer information to work for a competitor is improperly taking your assets. Safeguard that information as a company asset.

Attorney Michael Charapp of Charapp & Weiss LLP represents dealers. He can be reached at (703) 564-0220 or mike.charapp@cwattorneys.com.

Questions or comments about this column? Send us an e-mail at Dealers@wardsauto.com.