Avoid Going Into Compliance Overload

If you are a dealer who thinks you face more compliance challenges than ever, you are not alone. Many dealers are overwhelmed by the challenges of new government mandates and actions.

The Consumer Financial Protection Bureau appears to want to mandate entirely new and untested finance and insurance practices for the entire industry. 

The Federal Trade Commission is using its enhanced powers and funding from the Dodd-Frank financial reform law to take enforcement actions against individual dealers. The intent is to scare other dealers into operating as the agency prescribes. Emboldened state attorneys general have stepped up their efforts, and consumer attorneys don’t appear to be reducing their work load.

No industry is as heavily regulated as the motor-vehicle dealer business. A simple listing of federal laws that affect dealers goes on for pages. Add state laws, and the burden becomes greater.

So what should a dealer do?

Dealers wishing to avoid the expenses and losses of legal actions resulting from compliance failures must install processes to maximize the chances of employees conducting themselves in ways that avoid trouble.

Here are some actions to take:

Create a culture of compliance. It starts at the top. Compliance is important to employees if you make it important. Establish a clear policy of full legal compliance. Employees sometimes believe they must choose between compliance and profit. But losses from compliance failures reduce profit. Compliance enhances profit. Emphasize that.

Adopt an ethics policy or standards of conduct. Your employees are not lawyers. They cannot always know all the legalities. However, if you create a policy of wanting all decisions to be ethical and right, you run a good chance that doing right will comply with the law. Or at least it will satisfy a customer who won’t look for reasons to sue.

Train daily. The car business is rife with misconceptions. Help employees understand what the law requires. Make sure they know you want them to operate honestly and honorably.

Don’t treat training as a new-hire or monthly classroom event. Training should take place daily throughout the dealership. You oversee and train your senior managers who then do the same with the managers under them, and so on.

Managers must know a function of their job is constant training.

Monitor employee activities. You know what you want. Through constant training, employees know what you want. But are they operating as expected? Have a process for reviewing vehicle deals and other transactions. Make contacting and listening to your customers a priority.

Take Action. When employees operate contrary to your policies, act. Solve the problem. Make sure the employee knows what went wrong and why. If the employee’s behavior is over the line, take disciplinary action, including termination if necessary.

Establish a strong complaint-handling system. At some point in defending any lawsuit, dealers invariably wish they had simply solved the problem when it arose.

No part of a compliance system is more important than handling complaints before they get out of control. The majority of legal problems dealers face stem from customers who register complaints without obtaining satisfaction.

What do they do? They retain a lawyer who files a lawsuit after sending a letter to the dealership that yields no results. Or the disgruntled customer goes to the local consumer affairs office, the state attorney general or even the FTC, which may open a file and ultimately bring an action against the dealer. 

What is the lesson to learn? Satisfy customers to the best of your ability. If the dealership gets a complaint, it should be logged in and properly routed to a responsible manager for handling. It should be tracked and satisfactorily closed. An attorney’s demand letter should get high priority. Early money paid to solve a problem is generally the cheapest money you will spend.

Michael Charapp is a lawyer who represents auto dealers. Based in McLean, VA, he is at 703- 564-0220 and [email protected].