What Dealerships Need to Know About Their F&I Departments
This blog post is the second installment in our ongoing interview series with Hudson Cook, adapted from Compli’s Definitive Guide to Workforce Compliance. For Part 1, click here.
A lot can change in 15 years. Just ask Michael Benoit.
“It [used to be] difficult to get a meeting with dealers to talk about compliance because it had never been a big issue. The analogy I like to use is ‘If I’m speeding but I don’t get caught, am I really speeding?’ Except for the very large dealer groups, the tendency for dealers was to wait until somebody got dinged for something before they’d begin to prioritize compliance.”
Michael is Chairman of Hudson Cook, LLP and a partner in the law firm’s Washington, DC office. As a leading legal advisor for vehicle dealerships, Michael advises the organizations he serves on a wide range of consumer financial services law topics, and represents clients in investigation and enforcement matters involving the Federal Trade Commission and the Consumer Financial Protection Bureau.
These days, says Michael, dealers are embracing the philosophy that “an ounce of prevention is worth a pound of cure”:
“Upfront compliance isn’t cheap, but it’s a whole lot cheaper than one class action lawsuit. You’re buying yourself a lot of protection. We’ve seen an evolution in the dealer base over the last several years. They’re much more willing to address compliance within their sales, F&I, and HR areas, as well as in advertising.”
We spoke to Michael for Compli’s Definitive Guide to Workforce Compliance and, later this month, we’ll be hosting him for an exclusive webinar, Fair Lending in the Trump Era. In advance of that event, I’d like to share some highlights from our Definitive Guide discussion—which also featured fellow Hudson Cook partner Eric Johnson. We started with the ROI for a compliance management system, and today, we’re talking about the FTC and the CFPB.
Check back soon for the next part!
What areas do you see the Federal Trade Common or Consumer Financial Protection Bureau investigating when it comes to dealers?
MICHAEL BENOIT: One issue where I expect dealers to face challenges is in the Military Lending Act, not so much in terms of the deals they cut, but whether the finance companies will actually buy the paper from them going forward. It’s an open question, and the Department of Defense has not weighed in yet. I’m hoping that saner minds prevail and say, “Let’s hold out on enforcement on this until we can figure out how we want to enforce it and communicate clearly what the rules are.” I think you’re going to see advertising plans.
I also think the FTC is going to step up their enforcement in the dealer world, particularly if the CFPB’s wings get clipped. Most likely, they’re going to focus on clear violations as opposed to “wow, this is a novel theory—let’s try this out.” I think they’ll focus on clear violations. It’s the difference for us. As defense counsel, when you get a complaint or an investigation demand and you start talking to the client, and the agency’s alleging a violation of Truth in Lending advertising rules, well, you either violated it or you didn’t—it’s easy to figure out. If you did, then the approach is: “Did we fix it? If we haven’t fixed it, let’s fix it going forward, and then get the best possible result that we can knowing that we can’t really argue that we didn’t violate it.” Those are almost easier to defend because they’re more black and white.
It’s when the agency is alleging you engaged in unfair, deceptive, or abusive acts and practices, that it becomes more difficult. Those claims are by their very nature subjective. And while there are standards written into the statutes, one thing we’ve learned is that you have to push the agency on identifying where we met each element of the violation. It’s not unfair, deceptive, or abusive just because you think so. I expect those kinds of will eventually stop and the focus will shift toward clear violations of law.
In general, the message is the same message I give to my finance company clients: Be organized. Have your policies and procedures, have your monitoring, have your methods of maintaining them and be methodical about it. It’s harder to make a mistake when you have a script and you can hold people accountable. We see this in finance companies. The single biggest reason collectors at finance companies get fired is because they go off-script.
Let’s talk some more about finance. Where is the biggest area where, as a common practice in the industry, dealers may be lacking?
Dealers keep records on every deal, but what many don’t have clear policies and procedures for F&I staff or sales staff. Some dealers combine the sales and F&I function. They don’t necessarily have clear policies and procedures about doing things in a way that’s ensuring that they’ll comply with the law. It doesn’t mean to say that they’re not complying with the law, but sometimes things are left to chance.
Say a new employee shadows a veteran staffer—Joe. Joe’s been here for 20 years and Joe knows how to do this. And then, another person comes in and is going to shadow Sue because Sue’s been here for 20 years and knows how to do this. But nobody knows that, although Joe and Sue are getting to the same result, they’re getting there very differently, and maybe one’s not necessarily as compliant as the other.
In the event of an enforcement action, if there’s not necessarily a training record for shadowing Joe and Sue, but the assessment is in place, would that mitigate penalties assessed against the dealership?
The benefit of having policies, procedures, training, and monitoring is that then you can go back and say, “Look, Joe’s following the procedures. Sue’s following the procedures. So-and-so is following the procedures.” Or, “Jack generally follows the procedures, but he screwed this one up.” Then, you can say, “Okay, this is a one-off. This is not a systemic issue.” You have much better outcomes for the dealer when the issues are one-off issues, rather than systemic issues. Systemic issues will get you into a lot more trouble.
Do you run into any particular policies or procedures that are consistently ignored at dealerships?
I think one of the challenges that you see with dealers, to go back to Joe and Sue, is not to beat up on them. They’ve been doing their work for 20 years, and they’ve been doing it the same way for 20 years. But you know what? Fifteen years ago, the rules changed and, again, 10 years ago. And then, again, 5 years ago, and nobody told them. That’s where danger lies. From a regulatory perspective, we’re in a very fluid environment right now.
Just a Reminder: We’re not your lawyer (of course, right?) Since we’re not, remember that this article’s for informational purposes and not intended to provide legal advice.