By Don Ray, Portfolio
OK, you have a target dealership you are considering acquiring. Is this potential acquisition keeping you awake at night? I was reading recently that stress is a major cause of insomnia and other sleep disorders. Transient and intermittent insomnia are particularly related to lifestyle factors such as increased or unmanageable stress.
Good thing late night cable TV is available for car dealers, because with all that stress, you must be losing sleep. Here’s another reason to lose sleep…F&I-related compliance issues not only in your target acquisition, but perhaps in your existing stores as well.
According to the January 2017 NADA Convention Magazine’s article “The Regulatory Maze”, there are nine major federal regulations relating specifically to your F&I department. These are:
- Dodd-Frank Financial Reform Law
- Equal Credit Opportunity Act
- Fair Credit Reporting Act
- FACT Act of 2003
- FTC Credit Practices Rule
- FTC Holder-in-Due-Course Rule
- Gramm-Leach-Bliley Act
- Producer-Owned Reinsurance Companies
- Truth in Lending and Consumer Leasing Acts
Getting “to the best of my knowledge” representations from the seller in a buy/sell agreement may not be enough in this area. From the conversations I have had with dealers, they are, many times, as surprised as their customer at what goes on in their own F&I Departments.
I believe that while all dealers want to make a profit, most want to do it the right way but find it difficult to continuously police their own employees and processes.
Dealers are turning to third parties to perform on and off-site F&I compliance reviews. These reviews look not only for rogue employees, but also flawed dealership sales processes and preprinted forms. The reviews have discovered various areas of concern including:
- Lack of a standardized sales tool such as a Four Square
- Inconsistent use of an F&I sales menu
- Payment packing
- Illegible driver’s license
- Practices that slow the processing of finance contracts and the resulting cash receipts
- Violation of ECOA credit report retention requirements
- Missing GAP insurance disclosures
- Non-disclosure of the name of the vehicle service contract company on the Retail Installment Sales Contract
Additionally, many finance companies are asserting their rights under the Dealer-Lender agreements in place between the two parties and are seeking recoveries from the dealers. Once again, dealers are a target. They are targets of customers, lenders and even the watch dogs of our society including the state attorney generals. Bet you are really not sleepy now!
As you lie awake and ponder what actions you should take, please answer these questions:
- How much of your money is at risk?
- How do you check for compliance at your current dealership?
- How do you check for compliance at your target dealership?
- Do you depend on the managers?
- Or do you depend on an internal auditor or even your CPA firm?
- Are those on whom you depend familiar with the regulatory issues in effect today?
- Do they have (or take) the time?
It seems that each profit center of a dealership is coming under more and more regulatory scrutiny. In 2017 NADA identified one hundred and one federal regulatory issues up from fifty-six in the year 2000 that impact retail automobile dealerships.
Is it possible for cautious dealers to get both good F&I gross and sleep? Yes, (B)ad (E)mployee (D)isease can be controlled if you have a thorough and effective professional evaluation and continuous monitoring process. Now you know why your mother warned you not to let the BED bugs bite. Good night!
Don E. Ray works at Portfolio…THE Reinsurance Company for Auto Dealers. He can be reached at 917-359-5128 or dray.portfolioco@gmail.com
