Dealers Exempt From New Finance Law, But Not Forgotten

Recently passed financial-reform legislation exempts auto dealers, but that doesn't mean the law won't affect them.

“We looked at this and asked, ‘Are dealers home free?’” says Glenn Roberts, national training and business development manager for Zurich, a provider of finance and insurance services.

The answer: Not really.

The National Automobile Dealers Assn. convinced a Congressional majority that dealers are not lenders and should be excluded from legislation that, among other things, creates a new Bureau of Consumer Financial Protection.

Although dealers will stay out of the fire, they'll be close enough to feel the heat of both the new law and the impending enforcement bureau. The agency opens July 21, but already calls itself the new “cop on the beat.” Its website includes an image of a badge.

“This will be a super agency with a huge budget and vast data-collection capabilities,” Roberts tells Ward's. “This bureau means business.”

Describing the legislation as stringent, lenders worry it largely is undefined. “The bill was open-ended and gives the future director a lot of power,” says Chris Stinebert, president and CEO of American Financial Services Assn.

To get dealers up to speed and make sure they understand how the law can affect them despite their legislative exclusion, Roberts' firm has come out with “The Zurich F&I Legal Issues Handbook.”

It aims to guide dealers through a maze of new laws and regulations, as well as provide an understanding of responsibilities. Zurich will use the book at 120 dealer seminars it plans this year.

“Darkness won't be falling July 21, but that is when things get under way,” Roberts says. “Dealers will need to pay attention. They shouldn't be afraid, but they should know if they are in compliance with new and existing regulations.”

The new law can touch dealers in various ways.

“Dealers are exempt from direct supervision by the bureau but their lenders are not, so dealers can expect ‘push down’ from finance companies that will put new requirements on them,” Roberts says.

The bureau might decide it dislikes certain F&I products sold at dealerships. If so, banks likely will balk at financing them.

Congress also has given the Federal Trade Commission more power to regulate dealers for acts deemed as unfair and deceptive.

Dealers can expect the FTC to step up its regulation and enforcement of dealer practices, Roberts says. “The FTC has been given tremendously expansive powers. The FTC plans town meetings asking people what they think of dealers.”

Dealers will stay out of trouble if they abide by regulations such as correctly quoting payments, protecting consumers' privacy, making proper disclosures and following Red-Flag Rules that took effect this year in an effort to fight identity theft.

“If you get the compliance down and you are transparent, there are no surprises and no problems,” Roberts says.

That not only protects dealers, but helps F&I sales, he says. “Customers buy more if they know what's going on, are not worried and feel in control.”

In creating the legal-issues handbook, Zurich worked with Hudson, Cook, a law firm specializing in dealer issues.

“It is written in non-legalese so the average person can understand it,” Roberts says.

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