A Compliance Officer is a Necessity

Over the past twelve decades, since the first car dealership was opened in 1902, the state and federal government have been quite busy in promulgating statutes and regulations for dealers, exposing them to enormous compliance risk. These laws must be strictly observed. How do dealers learn about these laws? How do they apply them? How do they stay abreast of them?

Government regulation often tracks commercial development. Consider these developments in the automobile world and what laws were spawned as a result:

  • 1891- First car accident
  • 1899- First speeding ticket
  • 1912- First traffic light
  • 1919- First captive finance company (GMAC)
  • 1927 – First company providing standardized dealer documents (Reynolds & Reynolds)
  • 1932 – First ancillary products (credit life insurance)
  • 1962 – First F&I Office developed (Pat Ryan)

One of the fastest growing occupations in American business is Compliance Officer. The reason is that American business continues to be more regulated by the year. Failure to observe these regulations has cost many enterprises substantial sums of money in damages and fines.

Operating a car dealership is one of the most regulated industries in the U.S. The cost of federal compliance is astounding as indicated in a study commissioned by the NADA entitled The Impact of Federal Regulations on Franchised Automobile Dealerships.

http://www.nadafrontpage.com/upload/wysiwy /NADA%20Fed%20Regulatory%20Report.pdf

It logically follows that every dealership should have a Compliance Officer because a good Compliance Officer can reduce these costs and liabilities. As a corollary of appointing a Compliance Officer, every dealer should implement a Compliance Management System that has a requisite Compliance Officer as part of the program.

A Compliance Management System would include the following:

  • Establish a compliance program
  • Establish a board with management oversight
  • Appoint a permanent Compliance Officer who reports to that board
  • Respond to consumer complaints with a protocol
  • Have routine audits examining how the program is functioning and can be improved.

This article only addresses the appointment and training of a Compliance Officer as it relates to the various issues in the Finance and Insurance Department. Unfortunately, there are many other compliance areas for which dealers must be cognizant such as human resources.

At this point, every franchise, independent, and BHPH dealer should immediately appoint a Compliance Officer.

THE PRESENT STATE
Presently, dealers should already have written Privacy and Safeguards programs with an appointed Privacy and Safeguards Compliance Office. These laws mandate a Compliance Officer. The Compliance Officer should discharge these privacy and safeguards duties.

Selecting a Compliance Officer
The person selected for the role should be a relatively high-ranking employee of the organization and would report to either the General Manager or Dealer Principal. This person must understand the car business and have the intellectual capacity to understand laws and regulations. This person will need to be educated presently and engage in on-going education, as the regulatory environment is dynamic. In addition, this person will be required to draft policies for the store and educate dealership employees. Unless a new person is hired or selected, most stores should select the General Manager, Sales Manager, or Controller for this role as an addition to their present duties depending upon the size of the business operation. The Compliance Office may need a support staff as well.

This person will also need a budget for these procedures.

Selecting a Dealer Attorney
As a corollary for selecting a Compliance Officer dealers should evaluate their legal counsel. The Compliance Office will be working with the dealership’s attorney directly. In this columnist’s Florida Attorney General days, dealers were, at times, represented by attorneys who did not understand the car business. In one deposition, in particular, a large store was represented by a prominent defense attorney who, through his own ignorance, implicated his client in civil infractions in the deposition. In another case, an attorney caused his dealer client to pay a substantially higher damages amount through his lack of understanding of F&I. Dealers should be certain that the attorney who represents them knows their business. If a dealer attorney is not a member of the National Association of Dealer Counsel (NADC) a dealer should ask why. If a dealer needs an attorney it should seek a member of the NADC. In the alternative, dealers need to educate their attorneys regarding dealer operations.

Education of a Compliance Officer
A Compliance Officer should have a two-tier track for education. He should avail himself of all the free information in the market place. Secondly, he should consider some form of formalized training.

There is a rich abundance of free materials, which a Compliance Officer should be reviewing.

Free Training Materials
There are many freely available training materials. All dealers and dealer Compliance Officers should take full advantage of the following:

  • Free Industry Publications
  • There are a number of fine free publications which are distributed on-line and as traditional magazines. Some of the premier dealer compliance attorneys contribute timely articles to them.
  • NADA and State ADA Websites
    • There are numerous free resources on these websites. They should be consulted on a monthly basis.
  • Federal Trade Commission
    • The FTC provides a number of helpful articles.
    • http://www.consumer.ftc.gov/topics/buying-owning-car
  • Federal Reserve Board
    • The FRB has an excellent in-depth explanation of leasing in its publication, “Keys to Vehicle Leasing” to which this columnist contributed.
    • http://www.federalreserve.gov/pubs/leasing/
  • Consumer Finance Protection Bureau
  • State DMV Websites
  • State Attorneys General Websites
    • These websites can be especially helpful outlining advertising rules.
  • AWARE (Americans Well-informed on Automobile Retailing Economics)
    • AWARE is an organization dedicated to educating the public about vehicle finance. It offers excellent articles and is a resource for both dealers and consumers.
  • http://www.autofinancing101.org/learning_suite/index.cfm
    • Vendors

    • Dealers should not hesitate to ask their vendors for any compliance materials they may offer. Some vendors have developed excellent materials.

Modestly Priced Materials
In addition to the free legal resources there are reasonably priced books and manuals worth every penny.

F&I Legal Desk Book
This book is written by the attorneys at Hudson Cook and should be on the bookshelf of every dealer in the U.S. It is written in a question and answer format addressing the most common questions practitioners would ask about F&I Compliance. It is the training manual for AFIP.

NADA
The NADA produces various guides for franchise dealers which are available for a modest cost. They are written by legal experts who are extremely conversant with dealer operations and demystify the legalese.

Auto Dealer Law (ADL)
This organization produces an excellent comprehensive dealer manual which addresses all phases of the store. It is not inexpensive. However, it is quite thorough and written by automotive compliance legal experts.
Dealer Compliance Officer Organization

ADCO
The Association of Dealer Compliance Officers, or ADCO, has been established to provide training, ongoing support, and certification for the dealer community’s Compliance Officers. Dealer ethics are also addressed. The mission of ADCO is to provide the dealership’s Compliance Officer with the educational opportunities and resources to build and maintain an effective dealership compliance and ethics program.

Training Organizations
There are various other training programs offered for dealer compliance purposes. Some are excellent whereas others need to be scrutinized.

AFIP Certification
The Association of Finance and Insurance Professionals (AFIP), a non-profit organization, has been training dealer personnel for many years. This columnist has personally participated in assisting in this training in two of its modules. It is an excellent training program.

Consumer Credit Compliance Certification
The National Automotive Finance Association (NAF) offers this new in-depth program for training and it is designed by leading national attorneys who specialize in these areas.

Mosaic Compliance Services
Mosaic offers training modules and programs regarding dealer compliance.
There are certainly other merit-worthy organizations which offer training programs. However, some programs are not especially competent. Dealers should investigate any of these training organizations carefully.

A Beginning Checklist of the Laws the Compliance Officer Must Understand
Compliance Officers should acquaint themselves with the following list of laws and regulations. Some of them are quite complex and others are not but, nevertheless, Compliance Officers should print the relevant sections of these laws from the internet and place them in a folder or binder. As a Compliance Officer’s understanding progresses he will be able to identify the relevant sections of these laws. The many resources indicated above will translate these laws into more understandable language.

Federal Law
• The Truth in Lending Act and Federal Reserve Board Regulation Z
• The Consumer Leasing Act and Federal Reserve Board Regulation M
• The Equal Credit Opportunity Act and Federal Reserve Board Regulation B
• The Fair Credit Reporting Act (including the “Red Flags” Rule)
• The Federal Trade Commission’s Used Car Rule
• The FTC’s Preservation of Consumer Claims and Defenses Trade Regulation

Rule
• The FTC’s Credit Practices Regulation
• The Magnuson-Moss Warranty Act
• The Federal Odometer Act
• The Gramm-Leach-Bliley Act and the FTC’s Privacy Regulations (including the

Safeguards Rule)
• The Internal Revenue Service’s Cash Reporting Rules
• The Treasury Department’s Office of Foreign Assets Control (“OFAC”) “Specially Designated Persons” List Requirements;
• The USA PATRIOT Act
• The FTC’s Do-Not-Call and Do-Not-E-mail Rules
• The Federal Communication Commission’s Telephone Rules

State Law
• Unfair and Deceptive Acts and Practices (UDAP)
• Advertising
• Retail Installment Sales Acts
• Motor Vehicle Leasing Disclosure Acts
• Titling and Licensing Statutes
• Insurance and Ancillary Products
• Document Storage and Destruction
• Documentary Fees

Conclusion
Compliance efforts can seem daunting, intractable, and impossible. They are not. They can be managed, and managed with reasonable cost. A Compliance Officer has many options to enable him to protect dealer interests thereby controlling costs and, most significantly, avoiding liability. No matter the size of a store, there should be an organized, educated Compliance Officer serving as protection to the dealership’s interests.

© 2019 Terry O’Loughlin. All right reserved. Single print publication right Dealer Compliance Today.

Terry O’Loughlin, J.D., M.B.A.
Terry O’Loughlin, J.D., M.B.A., director of compliance for The Reynolds and Reynolds Company, has nearly 30 years of legal and regulatory experience in motor vehicle-related fields. From 1989-2006, O’Loughlin served with the Florida Office of the Attorney General, investigating and prosecuting automobile dealers, manufacturers, and financing and leasing companies. He led a task force that examined more than 100,000 motor vehicle files and settled with over 1,600 vehicle dealers for more than $15,000,000.00. O’Loughlin helped to draft and served as mediator of Florida’s Motor Vehicle Lease Disclosure Act. He has served as a consultant to the Federal Reserve Board’s Leasing Education Committee and has routinely advised numerous states’ agencies on motor vehicle fraud. Admitted to both the Pennsylvania and Florida Bars, O’Loughlin graduated from the University of Pittsburgh and received his graduate degrees from the University of Dayton.