The Consumer Financial Protection Bureau made its first enforcement action in the buy-here, pay-here space and handed out an $8 million penalty against one of the largest operations in the business — DriveTime Automotive Group.
CFPB officials said late Wednesday that DriveTime harmed consumers by making harassing debt collection calls and providing inaccurate credit information to credit reporting agencies.
The bureau said DriveTime must pay $8 million as a civil money penalty, end its unfair debt collection tactics, fix its credit reporting practices and arrange for harmed consumers to obtain free credit reports.
“Consumers who purchase a car at a buy-here, pay-here dealer deserve to be treated fairly,” CFPB director Richard Cordray said. “DriveTime harassed and harmed countless consumers, many of whom were economically vulnerable.
“Our action forces DriveTime to pay the price for its illegal debt collection tactics and for neglecting the accuracy of consumers’ credit information,” Cordray continued.
In an exclusive statement to BHPH Report sent today, DriveTime executive vice president and general counsel Jon Ehlinger shared the company’s reaction to the actions handed out by the bureau.
“We are pleased to have a resolution to the Consumer Financial Protection Bureau (CFPB) investigation, and appreciate and acknowledge the professionalism shown throughout the process by the CFPB and its enforcement staff,” Ehlinger said.
“Currently, the CFPB supervises large banks that provide auto loans, but not nonbank finance companies. Under a recent proposal to oversee large nonbank lenders, it appears that DriveTime will be subject to supervision by the CFPB beginning as early as 2015,” he continued.
“DriveTime strives to comply with all applicable laws and provide exemplary service to our customers. Over the last several years, prior to the initiation of the CFPB investigation, DriveTime had taken and has continued to take steps to enhance its customer experience, and loan servicing activities, including the handling of do not call requests and credit reporting,” Ehlinger went on to say.
“We look forward to an ongoing relationship with the agency, and hope to establish a constructive dialogue designed to improve our customer service and compliance practices in the years ahead,” he added.
Ehlinger also mentioned that DriveTime is encouraging any customer with questions or concerns to contact the company by visiting a special website at https://www.drivetime.com/info/cfpb-settlement.
Breakdown of Actions
The bureau’s investigation showed DriveTime’s average customer has an annual income of $37,000 to $50,000 and has a FICO score between 461 and 554.
DriveTime operates 117 dealerships in 20 states and, as of Dec. 31 of last year, held more than 150,000 outstanding auto installment contracts.
Generally, the CFPB insisted that at least 45 percent of DriveTime’s auto installment contracts were delinquent at a given time. When DriveTime consumers fell behind on their installment payments, the bureau described DriveTime’s “extensive” collections operation began calling them.
The CFPB said DriveTime had at least 290 collection employees in two domestic call centers and 80 contractors in Barbados. These employees and contractors placed tens of thousands of collection calls each weekday.
At the end of 2013, the CFPB determined DriveTime had approximately 69,000 installment contracts past due that these employees would have been calling on.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) establishes that companies’ practices can be unfair if consumers cannot reasonably avoid being harmed. The bureau determined that several of DriveTime’s debt collection practices were unfair to consumers.
The CFPB found that DriveTime violated federal consumer financial laws and harmed consumers through illegal actions such as:
— Harassing borrowers at work: DriveTime collectors often called borrowers at work, and DriveTime management encouraged these calls. Several consumers requested that DriveTime not call them at work but the CFPB said DriveTime kept calling anyway. For example, officials indicated one consumer was unfairly called 30 times at work after her do-not-call request.
— Harassing borrowers’ references: DriveTime required consumers to provide the names and phone numbers of at least four references when they applied for financing. When consumers fell behind on their payments, the bureau indicated DriveTime called these references. Many borrowers and references requested that DriveTime no longer make these calls, but DriveTime did not stop, according to the CFPB. Officials added Some references complained that DriveTime collectors called them for months after they had requested that the company stop. The CFPB determined that this practice was unfair to consumers.
— Making excessive, repeated calls to wrong numbers: To reach consumers who fell behind, DriveTime frequently used third-party databases to find new phone numbers. The bureau determined these databases were often wrong. Upon receiving DriveTime’s calls, numerous third parties told DriveTime they had the wrong number and requested that DriveTime stop calling them, according to officials. Despite such requests, the CFPB indicated DriveTime continued to make these calls. In some cases, DriveTime called these wrong numbers for over a year before stopping.
— Providing inaccurate repossession information to credit reporting agencies: DriveTime furnishes consumer account information for approximately 350,000 accounts to all three major consumer reporting agencies. In a number of cases, the CFPB found that DriveTime gave the agencies information that inaccurately reflected the timing of repossessions and dates of first delinquency. The bureau explained this situation made it appear on consumers’ credit reports that consumers’ vehicles had been repossessed more recently than the actual date of repossession.
Officials believe this information can have a negative effect on consumers’ credit reports, which in turn can impact their ability to get credit, employment, or housing. The Fair Credit Reporting Act prohibits companies from furnishing inaccurate information when they know or have reasonable cause to believe the information is inaccurate.
— Failing to properly handle credit information furnishing disputes: The CFPB said DriveTime also mishandled consumers’ complaints about the inaccurate information it had provided to the credit reporting agencies. In several instances, officials recounted that consumers disputed the same account information several times without the inaccurate information being corrected. In other cases, the bureau noted DriveTime informed the consumers in writing that the information had been corrected, when it had not been. This was a violation of the Fair Credit Reporting Act, which requires that companies properly investigate disputes.
— Failing to implement reasonable procedures to ensure the accuracy of consumers’ credit information: The bureau determined DriveTime failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies. The policies and procedures it had in place were not appropriate to the nature, size, complexity, and scope of its furnishing activities, according to officials. The Fair Credit Reporting Act requires that companies have policies and procedures in place to ensure the accuracy and integrity of consumers’ credit information.
More Details About Enforcement Action
Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws.
The CFPB’s consent order requires DriveTime to:
— End unfair calling practices: DriveTime must not communicate with consumers at their workplaces if consumers have requested that DriveTime not call them there or if DriveTime otherwise knows that the consumers’ employers prohibit communications to their workplaces. DriveTime must not call a particular phone number related to an account if any person has requested, orally or in writing, that DriveTime stop calling such number.
— Disclose collection options to consumers: DriveTime must provide a clear and conspicuous written notice to existing customers explaining how they can limit the times of day that DriveTime will call them. For all new customers, DriveTime must provide this notice as part of a written welcome kit. DriveTime must also provide this notice on the welcome call and, if applicable, at the time of the first collection call on the account. DriveTime must accept customers’ oral or written requests to limit calls.
— Cease furnishing inaccurate repossession information: DriveTime must stop furnishing information related to the repossession of a consumer’s vehicle, unless the company has confirmed that the information is correct.
— Correct credit reporting information: If DriveTime furnished information to a credit reporting agency that was inaccurate for multiple accounts for similar reasons, the company must provide corrected information to the agency or request that the agency delete the wrong information from the consumer’s file.
— Provide credit reports to harmed consumers: For those consumers about whom DriveTime furnished inaccurate credit information, DriveTime must provide a notice that explains how to obtain a free credit report from each of the nationwide consumer reporting agencies. If the customer has already received a free report during the preceding 12 months, DriveTime must arrange for the customer to obtain a credit report free of charge.
— Implement an audit program: DriveTime must implement a process for auditing information it furnishes to the credit reporting agencies on a monthly basis and monitoring the disputes it receives. The audit is designed to ensure the integrity and accuracy of the information.
— Pay an $8 million penalty: DriveTime will pay an $8 million penalty to the CFPB’s Civil Penalty Fund.
In the song, “The Gambler,” Kenny Rogers sang these words:
“So if you don’t mind me sayin’ I can see you’re out of aces. For a taste of your whiskey, I’ll give you some advice.”
Now I don’t know much about gambling, and I don’t think my firm would accept payment in whiskey, so my thoughts on this ACE matter are on the house.
The key to remember is that in a compliance “card game” with the Consumer Financial Protection Bureau, don’t assume Ace High is a winning hand.
On July 8, the CFPB entered a consent order against ACE Cash Express. ACE is a publicly traded financial services company offering small dollar credit, check cashing and other financial services. The CFPB examined ACE in early 2012.
The CFPB ultimately ordered ACE to pay $5 million in restitution to consumers and $5 million in civil penalties to the CFPB. So, the question is: Was this payday lender “dealing from the bottom of the deck,” or does the house (CFPB) always win?
It appears to be more often the latter than the former. Regardless, there are lessons you can learn from this consent order.
Lesson No. 1: Collections and Urgency — A Worse Pair than A Couple of Twos
The CFPB press release on ACE refers to the problem of creating a “false sense of urgency.” But, CFPB director Richard Cordray’s prepared remarks and the consent order simply address creating a “sense of urgency,” as if that alone constitutes a deceptive and abusive act.
Federal collection laws have always prohibited deceiving debtors and communicating false information. But, the CFPB seems to be moving beyond prohibiting a “false sense of urgency” to prohibiting any sense of urgency in collections.
Obviously, collectors should never provide false information. But, the collection of money owed is an urgent matter — at least for the creditor.
The lesson here is to review collections policies and procedures and remove any language or procedures that the CFPB may deem “create a sense of urgency” in the collection process.
Lesson No. 2: The Secret to Survivin’ is Knowin What to Throw Away and Knowin’ What to Keep
ACE claims to make millions of collection calls each year, which it voluntarily records for customer service and compliance monitoring purposes. According to an independent audit report, more than 96 percent of ACE’s calls during the review period met relevant collection standards.
While voluntarily recording all collection calls and saving them for independent auditing seems to be a great compliance practice, it seems to have backfired on the company. ACE received no credit from the CFPB for saving these recordings and largely complying with federal law.
Instead, the CFPB used the existence of old recordings, which many organizations may have otherwise properly disposed of long ago, simply to find alleged compliance violations.
The lesson: Companies should evaluate their call recording and record retention policies and discuss the pros and cons of such policies with counsel.
Lesson No. 3: When It Comes to Reasonable Measures, Every Hand’s a Winner, and Every Hand’s a Loser
The consent order states that ACE must “take reasonable measures to ensure that its service providers, affiliates, and other agents cease and desist from any violations of the law.” By all accounts, ACE did monitor internal and external collection activity.
The CFPB even noted that ACE’s vendor contracts addressed collection activities. ACE recorded and monitored calls, and more than 96 percent of ACE’s calls met relevant collection standards.
In most contexts, 96 percent is a mark of success. It certainly seems to indicate that ACE may have been taking “reasonable measures.”
The consent order, the press release, and director Cordray’s prepared remarks, fail to quantify the number of collection calls the CFPB reviewed and the number of alleged violations. So, whatever you’re doing to reasonably assure collection compliance, you should “double down.”
The CFPB seems to be taking the position that if it finds any compliance violations, your “reasonable measures” were not reasonable enough. You may see your “reasonable measure” as a winner, but the CFPB may see a loser.
Lesson No. 4: Restitution — There’ll Be Time Enough for Countin’ When the Dealin’s Done
ACE was ordered to pay $5 million to give “restitution to eligible consumers,” a term broadly defined as all individuals subject to collections, who made a payment during the relevant period. Each restitution eligible consumer is entitled to the amount paid to ACE plus 1.3 percent, a seemingly random calculation with no explanation provided in the consent order.
The problem is that anyone who paid in the collections process could get a payment, even if that person was never subjected to the alleged misbehavior. Simply submitting a claim form is enough, and recorded calls demonstrating compliance with that particular consumer won’t matter.
Individuals who were never subjected to alleged bad acts will receive funds, depleting the funds available to those with legitimate claims.
While the consent order is technically a settlement, my understanding is that the CFPB offers the settlement as a “take it or leave it” deal, with pressure to agree right away. So, the lesson here is that the restitution and penalties aren’t quantifiable and aren’t tied to actual consumer harm.
If compliance issues affect even a small percentage of consumers, the CFPB may hit you with an incongruent penalty that doesn’t consider the number of consumers harmed.
Lesson No. 5: And the Best that You Can Hope For Is in your sleep
A bit over the top, perhaps. But, it reflects the histrionic tone of CFPB press releases about consent actions and enforcement activities. They read a little like the embellished tales in Old West dime novels.
And, the CFPB went “all in” with the ACE press release and director Cordray’s prepared remarks.
Both were replete with name-calling that would have ignited a gunfight across any saloon card table. The CFPB accused ACE of being a “bully” and maintaining a “culture of coercion.” The CFPB alleged “predatory behavior” and taking actions to “lure” borrowers into “traps.”
The CFPB made these statements as if they were facts, without noting the limited percentage of consumers affected, ACE’s significant compliance efforts, and the corrective actions already taken by ACE.
“The Gambler” in Kenny Rogers’s song made a living “out of reading people’s faces” and knowing what the cards were. That’s a good practice to emulate when a CFPB field examiner comes calling.
Does a poker face imply no significant compliance issues? Our experience says be wary. The tone at the end of an examination may belie the eventual press release.
Companies should anticipate similar treatment from the CFPB and consider the narrative during negotiations.
All financial services companies should heed these lessons. You may think your company is holding a solid compliance hand, but the CFPB expects a Royal Flush.
If you lose the hand with the CFPB, you may face random penalties and an ugly press release.
Should you find yourself in that unenviable seat across the table from the CFPB, I hope you “found an ace” or two here to help you. If not, you might need that shot of whiskey.
H. Blake Sims is a partner in the Tennessee office of Hudson Cook. Sims can be reached at (423) 490- 7563 or by email at bsims@hudco.com.
Compliance technology provider SecureClose wrapped up AutoStar Solutions’ seventh annual Innovate conference on Wednesday with a list of 10 recommendations for how to significantly decrease risk from lawsuits and government actions pertaining to the F&I closing process.
Brent Chavez and Joe Perkins of SecureClose first cited the latest move by the Consumer Financial Protection Bureau to expand its supervision to large non-bank auto finance companies. Chavez said dealers and finance companies have experienced more expansion of government regulation in the last several years than at any other time in his career.
As a result, Chavez urged dealers to:
1. Record your sale closings.
2. Script your disclosures.
3. Document your training.
4. Establish clear processes and procedures.
5. Get an outside compliance review.
6. Appoint a compliance manager.
7. Develop a customer complaint procedure and log.
8. Manage your vendor compliance.
9. Automate processes for improved accuracy and consistency.
10. Implement a proactive review process to catch violations before it’s too late.
“As a car dealer myself for more than 20 years, I understand the pressures dealers face on a daily basis,” SecureClose founder Ace Christian said. “To be quite honest, the last five years have been the toughest for me due to changes in the market, increased competition, hard-to-find inventory and the biggest one — government regulation.”
Christian said the F&I office is one of the most heavily regulated areas of a dealership. With so many constantly changing checklists and disclosures — combined with the element of human error and fatigue at the end of a long day — Christian acknowledged violations are bound to happen.
Christian said dealers need a way to automate the closing process to ensure consistency, along with a reliable method to record closings and store them for easy access.
“Video recordings by themselves are not a complete solution,” he said. “I can’t tell you how many times I’ve seen dealers videotape closings that — when watched back later — clearly show violations. Not to mention the technical difficulties inherent with quality video coverage and storage.
“Training also doesn’t fix the fact that your F&I guy is a human being,” Christian said. “After a 12-hour day, he’s tired. He wants to go home. The customer wants to go home. So maybe he forgets a point or two. What’s the big deal? Well, when that forgetfulness comes back to bite you in a year after the customer has sued and that F&I guy no longer works for you, it is a huge deal.”
Christian demonstrated for attendees how SecureClose can help dealers ensure every closing is fully compliant by utilizing computer screens that verbally walk customers through each closing document. He explained all information used adheres to the latest national and state-specific regulations. Buyers can pause or rewind as many times as they wish to make sure they understand the contract terms — but no fast-forwarding or skipping any steps.
An electronic signature tablet captures signatures and places them in the appropriate spots in the document. A front-facing camera records audio and video of the entire process, including everything shown and done on the system screen.
Once the presentation is complete and all documents signed, audio and video of the customer plus the recording of the on-screen activity can be combined in a comprehensive ClosingRecord, which is stored on a secure online server for future retrieval. The dealer or customer can view this complete record at any time.
“SecureClose protects the customer and the dealer from being taken advantage of,” Christian said. “It’s the answer to most of the regulations coming out of Washington, D.C., right now. And it’s certainly a vital component of any dealership that wants to stop lawsuits before they start.”
Christian has used various versions of SecureClose at his dealership in Arizona for the past year.
“I received several attorney demand letters during that time. I just sent them the ClosingRecord for those deals, and I never heard from them again,” Christian said.
Steve Levine is chief legal officer for AutoStar Solutions, which acquired a 50-percent stake in SecureClose earlier this year. Levine is expecting finance companies will champion SecureClose to their dealers.
“It’s not just a buy-here, pay-here solution,” Levine said. “When retail dealers use this product, finance companies can have confidence their dealers conducted a fully compliant closing. That means no complaints from the consumer six months down the road, after the lender has already acquired the contract.”
SecureClose is available nationwide. Levine said the company is following an aggressive installation schedule to make SecureClose available to dealers of all sizes.
Collecting More During Payment Proccess
Elsewhere at the Innovate conference, Susan Perlmutter, chief revenue officer for Sigma Payment Solutions, shared with BHPH dealers several strategies for lowering the costs of payment acceptance.
“Once you combine a collector’s hourly pay, overhead and the cost of the credit card payment, you’re looking at more than $6 per payment,” Perlmutter said. “You can offset that amount by allowing a provider such as Sigma to pass a convenience fee to the consumer.
“The other option is self-service consumer payment channels,” she continued. “This empowers your customer to pay with no staff interaction. No human error, no vacation or sick days. You can accept payments 24 hours a day, seven days a week, 365 days a year. Your collectors can then focus their attention on delinquent customers.”
Sigma Payment Solutions’ automated options include pay-by-text, kiosks and Interactive Voice Response (IVR). Perlmutter pointed out each of these choices can help dealers bring costs down to 55 cents per payment — a savings of about $5.75.
Strategy for Small Dealers
David Brotherton, consultant and 20 Group leader at Leedom & Associates, led a class teaching smaller BHPH dealers and focused on ways they can “level the playing field” against larger competitors. Brotherton offered three tips:
1. Learn as much as you can about the customer. The more you know about your potential buyer, the greater your chance to get them sold. Once they visit your dealership and hear your program details, you have a tremendous advantage over the dealer down the street — so don’t waste the opportunity.
2. Measure activity levels before results, at least initially. Activity will ultimately yield results, so pay more attention to follow-ups, phone calls, emails and in-person visits. Get those numbers as high as you can, execute well, and results will follow.
3. Invest in a comprehensive Customer Relationship Management (CRM) system. Whether you sell 10 vehicles or 200 vehicles per month, you must use a CRM to legally and effectively communicate with your customer base. For example, using a fully compliant CRM with a texting feature will protect you from a devastating lawsuit settlement because you didn’t strictly adhere to the CAN-SPAM Act.
Full-length video of all the Innovate general sessions will be available soon on AutoStar Solutions’ YouTube channel.
Rick Hackett, former assistant director at the Consumer Financial Protection Bureau and current partner at Hudson Cook, told the crowd of more than 600 attendees at AutoStar Solutions’ seventh annual Innovate conference the four areas of auto lending he believes the CFPB will focus on next year.
As an established expert in auto compliance, Hackett first addressed the fact that the CFPB is indeed interested in buy-here, pay-here dealers in the same way bureau officials are interested in large finance companies.
“Up until now, the CFPB’s only way to investigate a non-bank auto finance source — including buy-here, pay-here dealers and independent lenders — has been civil investigative demands, which are narrow in scope,” Hackett said. “Last week, the CFPB announced plans to extend their oversight by supervising non-bank auto finance sources that make, acquire or refinance 10,000 or more loans or leases per year. That equates to around 38 additional companies. And some of those companies are likely represented here today.”
Hackett then shared where the bureau might turn its attention during the next 12 months, including:
1. Discrimination
2. Credit reporting
3. Ancillary products
4. Compliance management system examinations
Expounding on this list, Hackett said credit reporting accuracy is the responsibility of the furnisher (that is, auto dealers or finance companies), no matter who provides the technology interface.
“You must exercise extreme caution when selecting vendors for credit reporting. Insist they fix known errors,” Hackett said. “If you know of bad service from a vendor, complaining is not enough. It’s all about results.”
Hackett recommended the following steps for selling ancillary products with 100 percent compliance:
1. Make sure your technical disclosures house is in order. This includes truth-in-lending compliance and your state’s disclosure rules.
2. Ensure that voluntary products are truly voluntary and that the consumer understands their cost. Menu selling can help with this.
3. Train and monitor your sales personnel around what “voluntary” really means. If you have one F&I manager with 90 percent penetration on GAP insurance, but your average among other employees is 40 percent, take a closer look at the sales tactics your high performer is using.
4. Use common sense regarding the suitability of each product for each customer. For example, you should not sell GAP insurance to a customer with a 50 percent down payment.
5. Stay consistent with pricing. If you normally charge 100 percent markup, but it can vary up to 500 percent, those variable pricing outcomes look a lot like disguised finance charges to the CFPB.
When asked about complaint management systems, Hackett said it can be hard to distinguish a complaint from a mere inquiry.
“When my clients are developing a complaint management system, I advise that it’s better to be over-inclusive both in establishing categories and in training personnel to identify ‘complaints,’” Hackett said. “The data will later show that many ‘complaints’ are actually questions that are resolved with an explanation and no need for an adjustment.”
Hackett also shared that CFPB enforcement strategy attorneys talk frequently with the industry-specific committees of the National Association of Attorneys General. He said one of their goals is to find cases where the CFPB and attorneys general can tag-team or allocate resources, depending on who possesses the most effective regulatory tools.
In addition to Hackett’s keynote, attendees chose from 87 different classes, including 11 hours of legal and compliance content over the three-day event.
Eric Johnson and Nikki Munro, two of Hackett’s fellow partners at Hudson Cook, led a session outlining how to create a compliance management system. Johnson and Munro cited four interdependent components of a compliance management system:
1. Board and management oversight
2. A compliance program
3. A consumer complaint response program
4. A compliance audit
Johnson and Munro emphasized that dealers and finance companies should pay special attention to fair lending and UDAAP (Unfair, Deceptive or Abusive Acts or Practices in the collection of consumer debts).
Aimee Szygenda of law firm McGlinchey Stafford hosted a class on credit reporting, where she shared what to report and what to do if it’s questioned. Szygenda reminded attendees that the CFPB expects furnishers of credit reporting to review “all relevant information” in connection with disputes. This means documents sent to them by the credit reporting agencies as well as the furnisher’s own information, including the original application in some cases.
In a class led by Dennis LeVine of law firm Dennis LeVine & Associates, attendees got answers to 20 common questions about how to operate when a customer files bankruptcy, as well as strategies for protecting the creditor’s interest in the vehicle.
LeVine explained that, in most states, if a creditor repossesses the debtor’s car before he files bankruptcy, the creditor must return the vehicle promptly after learning of the bankruptcy filing. However, if a debtor sends a payment after filing bankruptcy, the creditor can keep it.
Steve Levine, chief legal officer of AutoStar Solutions, and Bill Denius of law firm Killgore Pearlman presented a class on why dealers get sued and how to avoid legal troubles.
During the session, they cited their self-proclaimed “first law of litigation,” which states that if you sue enough customers, one is bound to sue back. “One counterclaim can wipe all victories,” Levine said. “So make sure your file is in order, and conduct a thorough cost-benefit analysis before suing a delinquent borrower.”
Levine also listed several ways to avoid lawsuits, including embracing transparency, tracking and learning from complaints, and investing in customer service.
“It all boils down to the culture of a dealership or finance company,” Levine said. “Culture is the rudder that steers the ship, and you want your business headed in the right direction.”
Thanks to the power of the Internet and regulatory zeal for them, consumer complaints boast a shelf life that’s more on par with red wine than red roses. Disagree? Consider this story Terry O’Loughlin shared earlier this year.
O’Loughlin, now the director of compliance at Reynolds and Reynolds, spent 16 years with the Florida attorney general’s office. His first trial was against a dealer, who eventually ended up with a prison term of eight years. O’Loughlin specialized in automotive cases before leaving the Sunshine State’s top prosecutorial department in 2006.
Then two years ago, O’Loughlin received a notice from his former employer to return to the attorney general’s office because a large FedEx package arrived for him. Turns out, it was a consumer complaint stemming from an incident nearly a decade old. O’Loughlin handed the material back to the Florida attorney general since the complaint still fell in its jurisdiction, and officials pursued the matter.
“Consumers, they’ll finally figure out where to file a complaint,” O’Loughlin told dealers gathered in Las Vegas earlier this year at the Compliance Academy hosted by the National Alliance of Buy-Here, Pay-Here Dealers.
“They might not send it to the right place initially, but they will, and it may affect you,” he added.
During his presentation, O’Loughlin mentioned research that indicated consumer complaints associated with the automotive industry — including vehicle performance and service by dealerships and finance companies — have been ranked No. 1 in volume for 19 of the past 20 years. As a result, he insisted that government agencies — especially the Federal Trade Commission, the Consumer Financial Protection Bureau and attorneys general — are watching for complaints and making them the basis for regulatory enforcement actions.
“Right now, you are under the gun,” O’Loughlin said to a ballroom full of buy-here, pay-here dealers.
With that situation in mind, O’Loughlin joined a host of other legal experts and consultants who all have reiterated to BHPH operators of all sizes — handle complaints quickly and with the most prudent strategy possible before they snowball into more significant problems.
“If a consumer files a complaint in writing, consider it a ransom note,” O’Loughlin said. “It could be to you because if you don’t correct that problem, somehow it might become very expensive.”
How Complaints Fuel Activity
During his presentation, O’Loughlin highlighted the most popular path consumers are using to lodge complaints again dealers — regulatory agency websites. He pointed out the prominent position complaint gateways have on the sites hosted by the CFPB and the FTC.
O’Loughlin didn’t have the time to go state by state, but he showed how the attorneys general in New York and Florida have followed the same strategy established by their federal brethren in terms of how to set up their online portals to funnel consumer complaints their way.
“An attorney general can enforce almost any law he wants. The CFPB and FTC have much stricter mandates. It all depends on consumer complaints,” O’Loughlin said.
“What does the CFPB promise to do? They promise to mediate, but what they’re really doing is collecting data against car dealers,” he continued. “The FTC does it a little differently because they say the FTC cannot resolve individual complaints but have tips to your money back.
“So why is the Federal Trade Commission asking for complaints if they’re not going to help that consumer? Once again, they’re trying to establish a pattern and practice to file charges,” O’Loughlin went on to say.
At this point, O’Loughlin implored BHPH dealers to rectify complaints as best as possible before their customers turn to federal or state online outlets to share their unhappy details.
“How do they get to these agencies? You let them get there. If you stop them, the government won’t ever hear about them,” he said.
O’Loughlin pointed out that dealers have the right to see any complaints that are submitted to federal or state regulators. If one is in the database, he suggested dealers remedy the situation, if possible.
Through various record search methods, O’Loughlin also mentioned that other individuals are scouring complaint databases looking for juicy details. One he referenced was consumer-supporting media outlets.
Back in the fall of 2011, the Los Angeles Times generated plenty of buzz with a series of reports titled, “Wheels of Fortune,” sharing stories of buyers allegedly mistreated by BHPH dealers throughout California. The stories sparked a significant legislative rise by Golden State lawmakers who put together a series of new regulations that dealer associations fought hard to keep off the books. Gov. Jerry Brown eventually signed two of the three most significant bills into law.
In light of all of those developments, O’Loughlin believes the Los Angeles Times and California lawmakers “wouldn’t have been able to do it without those consumer complaints.”
And newspaper researchers and reporters along with legislative assistants aren’t the only one combing through these complain databases. O’Loughlin highlighted another interested party — one that might make BHPH operators cringe.
“There are thousands of attorneys all across the country that do nothing but sue car dealers, and they’re looking for opportunities here,” O’Loughlin said. “Where do they get them? They get them from complaints.”
Another Observer with Same Perspective
Automotive Compliance Consultants general counsel David Missimer gave a strong warning to dealers stemming from what might be considered a small problem or incident blossoming into a significant issue that attracts the attention of federal regulators.
Missimer described many dealers’ attitude toward government laws regulating their business as unfortunate and likely to cost them dearly.
Why could such a stance hurt dealers badly? Missimer pointed to how easily it has become for consumers to register complaints against dealerships.
“The compliance approach of some in our industry is that the Consumer Financial Protection Bureau, the Federal Trade Commission nor the Occupational Safety and Health Administration will take much interest in a single dealership, so why make compliance a priority?” Missimer said.
“This approach works well until someone is injured in a shop accident, a disgruntled employee decides to take on the title of whistleblower or a consumer takes their complaint to the government,” he continued.
Missimer reminded dealers that the government has made it very easy for consumers to register complaints against them.
“Have you logged onto the CFPB or FTC website lately? These agencies are begging people to contact them and complain about your business,” he said.
Presently, Missimer noted that CFPB posted complaints do not provide a consumer narrative, but the bureau is strongly considering changing that policy.
Given the CFPB’s eye on dealerships, Missimer believes that it likely won’t be long before consumer report narratives will also focus on dealerships as well.
Missimer said haphazard compliance is not an option in today’s business environment.
“Not a single reward is associated with noncompliance unless you consider the discount in attorney fees you get from your lawyer for frequent use,” he said.
“For those dealers,” Missimer continued, “their business risk-reward analysis should consider how much can it afford to pay for fines, lawyers, settlements and judgments — and still make a profit.”
Missimer reminded dealers the CFPB is not going away, and the FTC has taken more dealer compliance action in the past six months than it has in the last 10 years.
He also noted federal and state agencies now share consumer complaint information.
“To test your risk, type into Google ‘car dealer suit’,” Missimer said. “When I did this, I got more than 1.2 million results in 0.34 seconds, with the very first result being, ‘How to sue a used-vehicle dealer in small claims court.’”
Plans of Action
While adding a disclaimer that BHPH operators should also seek recommendations from their own attorneys, O’Loughlin harkened back to his prosecutorial days when giving suggestions on how dealers should handle complaints and maintain compliance in connection with vehicle sales.
“Just making an attempt at complying with the law or an attempt on how to follow what the government wants you to do helps you defend yourself. Just because you can’t get it exactly right doesn’t mean you shouldn’t start,” O’Loughlin said.
At one junction of his Florida attorney general’s office time, O’Loughlin prosecuted a pair of dealers simultaneously. One operator made a concerted effort to follow state and federal regulations. The other one ignored rules.
O’Loughlin paused and asked dealers, “Guess which one felt the full brunt of the attorney general’s office?”
Before an operator ends up in a legal entanglement, O’Loughlin recommended that operators establish a dedicated phone line and protocol handled by an upper-level experienced manager to handle complaints and monitor regulatory and other consumer-based websites for activity.
“Don’t get noticed, but if you do, make sure you’re ready with some kind of protocol because you have to have a response strategy,” O’Loughlin said. “You used to be under the radar, but not anymore.”
We’ve all seen the ads that say, “We’ll help you get better credit by reporting your on-time payments to the credit bureaus.” These ads may accurately tout your customers’ advantage when you furnish their payment histories to the credit bureaus. This furnishing may help you, too, by lowering your cost of credit reports and credit scores. Your customers’ knowledge that you report their payments to the credit bureaus may also encourage them to pay on time or to catch up late payments.
Unless you tell consumers that you do report to credit bureaus, the law doesn’t require you to report.
But — and here’s the catch — once you begin reporting to credit bureaus, the law imposes certain requirements on you and limits what you should do going forward. You’ll need to have procedures designed to assure the accuracy of the information you report, and you’ll need to correct inaccuracies. The Fair Credit Reporting Act and its rules spell out these requirements. Here are some of the basics.
Under the FCRA’s rules, furnishers must adopt written reasonable policies and procedures regarding the “accuracy and integrity” of the information they furnish to consumer reporting agencies. These written policies and procedures must match the scope, size and complexity of the business. They should cover topics such as data-reporting format; recordkeeping; internal controls concerning accuracy and integrity of the information; training appropriate staff; deleting, updating, and correcting records; and designing technological means of communicating with CRAs.
If a consumer disputes the accuracy of information furnished to a CRA, the furnisher must include a notice of the dispute to any CRA to which the information has been furnished. If a furnisher reports an account as delinquent, the furnisher must also give the CRA the date of first delinquency by month and year. This is because the law prohibits CRAs from reporting most adverse information in a consumer’s credit report history for more than seven years.
Furnishers also need policies and procedures for handling consumer disputes about the accuracy or completeness of information furnished to a CRA. There are certain procedures for handling disputes that come to the furnisher directly, and there are similar requirements when disputes come to the furnisher through the automated “e-OSCAR” system by which the nationwide CRAs send information about consumers’ accuracy disputes to their furnishers.
When a furnisher receives a dispute from a CRA, the furnisher must conduct a reasonable investigation of the disputed information. There are several steps to this investigation:
The furnisher must review “all relevant information” forwarded by the CRA and the furnisher’s own information with respect to the dispute. The CRAs have upgraded the e-OSCAR system to enable them to transmit “all relevant information” received from the consumer, including supporting documents. The Consumer Financial Protection Bureau has warned furnishers that they must maintain systems reasonably capable of receiving information from CRAs regarding disputes, including supporting documentation.
The CFPB said, “Any furnisher not currently maintaining a process that meets these requirements should take immediate steps to comply with the requirements of the law.”
The furnisher must verify the information (e.g., the consumer’s payment was, in fact, late), correct the inaccuracy (e.g., the consumer’s payment was not late), or delete the inaccuracy (e.g., delete that the consumer’s payment was late). The CFPB has indicated that when deleting an inaccuracy, the furnisher must only delete the inaccurate information; it cannot simply delete the entire tradeline (account) at the CRA.
The furnisher must also report the results of the investigation to the CRA that sent the dispute and, if the information is inaccurate or incomplete, must provide corrected information to every nationwide CRA that received the information.
There are similar requirements when a consumer tells a furnisher directly that he or she disputes account information that the furnisher has reported to a CRA. The furnisher must conduct a reasonable investigation of a direct dispute that pertains to the furnisher’s account relationship with the consumer (such as the consumer’s liability for the account, the account terms or the consumer’s performance on the account). As in the case of disputes received from CRAs through e-OCSAR, the furnisher must (1) review all relevant information from the consumer about the dispute, (2) complete the investigation in the same time as a CRA would be required to complete the investigation, (3) notify the consumer of the results, and (4) if the furnisher finds that the information was inaccurate, notify each CRA to which the furnisher reported the information and provide the correct information.
To summarize, furnishers must institute and maintain reasonable policies and procedures for furnishing to CRAs. They must have adequate technology and systems for furnishing accurate information to CRAs and for receiving all relevant information from CRAs about consumer disputes. They must have systems and procedures in place for conducting reasonable investigations of accuracy disputes and for resolving and notifying CRAs of the results of the investigations. Furnishers with these systems and procedures can avail themselves of the benefits of reporting credit account information to CRAs.
Anne Fortney is a partner in the Washington, D.C., office of Hudson Cook. She can be reached at (202) 327-9709 or by email at afortney@hudco.com. Allen Denson is an associate in the Washington, D.C., office of Hudson Cook. He can be reached at (202) 327.9718 or by email at adenson@hudco.com.
Compliance is no longer something you can ignore. I know you have heard this over and over for a couple of years now. You may believe you are a small operation and they won’t pay attention to you.
Keep telling yourself that, and you could have a rude awakening one day.
The website hosted by the Consumer Financial Protection Bureau is open for anyone to file a complaint against your operation. The site can be found at http://www.consumerfinance.gov/complaint/.
The site contains pages specific for auto loans and debt collection. They are very simple to fill out and submit. Two or three complaints, and you’re on the CFPB’s radar. The CFPB will give you the opportunity to respond to the complaint, similar to the Better Business Bureau. But if multiple complaints come through, you do not respond in a timely manner, or if the issue seems worthy of additional investigation, then here they come.
First-Hand Observations
I have been around a CPFB investigation in action. There were 10 to 12 agents in the offices for about two weeks, looking at everything. The agents would move about as if in their own office, call everybody from the operation into meetings when they had questions, and then request more files or access to additional data until every possible scenario was scrutinized.
If the CFPB doesn’t “get you,” there are your state’s attorney general offices, police and other officials tasked with looking out for consumers to protect them from unscrupulous businesses.
In the grind of achieving that task, these agencies will leave no stone unaudited. In the case of the CFPB, they can even write a new regulation while they are investigating, and then enforce those upon a business for past misdeeds if the CFPB deems a practice unfair, deceptive or abusive (UDAAP).
Over the last two years, many of the experts in the automotive industry have attempted to find guidance from these agencies to help dealers learn where the boundaries are. As of publishing time, the CFPB’s promised white paper on these guidelines had not been released (due out this summer). Consequently, industry experts continue giving best practice advice, based on enforcement activities, with no real solid rules that must be followed.
First Steps
So what should you do as a buy-here, pay-here dealer?
Let’s say you sell 20 to 50 cars a month from one location. You have eight to 10 employees, and everyone already works plenty of hours taking care of your customers and business. There is little time and plenty of confusion to weed through and figure out exactly what to do.
You can hire consultants that will help you create a plan, and follow up with training and monitoring to help you stay compliant as possible. Send me an email, and I will provide you a list of available consultants who can help.
There are webinars, conferences and dealer associations that can help you.
You can protect yourself fairly easily by creating policies and a routine that has each of your associates practicing compliant measures every day. An important thing for you to do is create procedures for each task in your operation.
Each of these tasks should include currently known compliance measures that would apply, written in and practiced by your employees.
Putting Plans Into Motion
Here a few examples of practices BHPH dealers of any size can immediately utilize.
- When a vehicle is put into inventory, you must immediately have a buyer’s guide displayed.
- All documents containing any customer information are to be kept in a lockable drawer if not being used.
- Never leave computers on where information can be seen even from a distance. And all of your computers should not be accessible by anyone but those authorized to use them.
These are a few examples of practices that can be built into a procedure manual. Your procedures do not have to be professionally written, but they do need to be detailed and follow the actual daily activities utilized by your people.
You should have a Red Flags and Privacy Policy that are also written and kept in a binder in your facility. I hope you know that Red Flags pertains to Identity Theft, regulated by the SEC and your Privacy Policy falls under the Safeguards Rule from Graham Leach Bliley (GLB).
Chores for a Compliance Officer
Both your Red Flags and Privacy Policies need to be spelled out in writing and kept in a binder in your office (examples are available online). These two provisions need to be managed by a compliance officer on your staff (can be you or someone you designate).
You should send your compliance officer to available certification training, which helps keep them up to speed and helps you if you are audited by a regulatory agency. Your compliance officer should hold regular (at least once a year) training meetings with all of your employees concerning these rules. Each of your employees should sign off once they have read these policies and completed a training program for them.
When new employees are hired, they should immediately be trained on these policies and sign their acknowledgement of such.
As you review all of the procedures for your operation, be sure to think of compliance as you go.
- Is there potential for any discrimination in your underwriting process?
- What are your salespeople allowed to say or not say when discussing a car deal with a customer?
- Do you have a policy for risked base pricing?
- Do you have a menu type close at delivery or are you “loading” your payments with ancillary products?
- What do you do to handle customer complaints?
Where More Resources Can Be Found
Creating procedures that include compliant policies is what has become known as a CMS or compliance management system. Your state dealer association or industry group can provide you a list of regulations to follow.
Here are a few other places to look:
- The National Independent Automobile Dealers Association has a series of videos from NIADA covering all aspects of compliance with information you need to know to help you create your own CMS. It’s available at http://www.niadatv.com/programs/compliance.htm.
- BHPH Report’s sister publication within Cherokee Media Group — SubPrime Auto Finance News — also highlights a variety of compliance-related topics.
- The National Automotive Finance Association and Hudson Cook offer a wide array of resources and training opportunities.
- ACA International gathers regular updates on compliance activities and guidelines to follow associated with collections
Whatever you build into your processes to insure compliance, make sure it is what is practiced in your business. You do not want a regulator coming in and talking with your employees about your business and when questioned about how things are done, your employee describes a different process than what you have outlined in your process manual.
Oh and the “I am too small to matter” line doesn’t work these days. There are so many regulators and lawyers out there — all with an ear open for violations or opportunity.
Any bank or other loan provider you have dealings with is now responsible for understanding who you do business with and why, thanks to Operation Choke Point.
Please do not think your customers never talk in public about what upsets them. There could be a lawyer sitting next to them that would love filing a class action suit.
Gene Daughtry is an experienced trainer and consultant specializing in BHPH/LHPH dealership operations. Daughtry now is director of BHPH operations for PLS Financial and has begun a multistate project of building new BHPH dealerships in several states. He has 17 years of BHPH experience. Follow Gene Daughtry on LinkedIn, go to his website www.dealers411.net, email him at gene@dealers411.net or call (479) 970-4049 if you have questions.
AutoStar Solutions chief legal officer Steve Levine gathered with three other bright auto industry regulatory experts to compile 10 separate strategies buy-here, pay-here dealers can implement to avoid actions from agencies such as the Consumer Financial Protection Bureau and Federal Trade Commission.
Joining Levine, a former dealer attorney, to make these recommendations were:
• Terry O’Loughlin, director of compliance at Reynolds & Reynolds, and a 16-year veteran of Florida’s Office of the Attorney General, where he investigated and prosecuted non-compliant dealers and finance companies
• Shaun Petersen, partner at MacMurray, Petersen & Schuster, compliance counsel to the National Independent Automobile Dealers Association and former attorney with Ohio’s Office of the Attorney General
• Eric Johnson, partner at Hudson Cook who also worked many years at his family’s dealership.
The group cautions dealers to stay off the radar of regulators first and foremost by solving consumer complaints quickly. However, in the event that a dealer catches the eye of the CFPB or FTC, these attorneys insisted BHPH dealers already must have a response strategy.
The expert panel recommends that dealers:
1. Get the right people in place. Establish a board with management oversight, and appoint a permanent compliance officer who reports to that board. Ensure vendors — repo agencies, advertising firms, etc. — are keeping a close eye on their own compliance. BHPH operators will be held responsible for their mistakes.
2. Develop a complaint management system. Make it easy to understand and accessible. Be sure to define what qualifies as a “complaint,” then establish a dedicated complaint phone line that can only be accessed by your general manager or compliance officer. Any written complaints should be automatically transferred to the general manager or compliance officer, as well; no other employees should be able to review them.
3. Audit yourself before the regulators do. Frequently examine how your compliance program is functioning and how it can be improved.
4. Documents are your major defense, so treat them accordingly. That means keeping detailed records and — most importantly — making sure your documents are in full compliance so they help you instead of hurt you. To avoid misunderstandings, use a Deal Summary form, which summarizes the entire transaction.
5. If you receive a complaint from a government agency, respond right away and promise to cooperate. This is not the time to act defensive. Simply request the written complaint (it is public record), along with any supporting documents. Study the deal jacket and records to determine whether the complaint is valid. If the matter is minor, offer a resolution without being asked. If it’s more serious, contact your attorney.
6. Train your staff on how to interact with auditors. Know ahead of time where you will locate them in your dealership, including what they will and will not have access to. For example, some dealers have been held accountable for conversations auditors overheard in the break room.
7. Hire a compliance “mystery shopper.” Get in touch with a compliance professional you trust, and ask them to go through every step of the vehicle buying process undercover. You may be surprised at what risks they expose.
8. Get a second opinion on consumer correspondence. Your letters and documents may look fine to you, but you must hire a compliance professional to review each piece of correspondence that consumers see. You may very well find violations you didn’t even know existed.
9. Follow the golden rule of complaints. It is far cheaper — and better for your reputation — to resolve a complaint before it escalates to a government agency or attorney. Even if you’re not at fault, the time and effort to respond to investigations or fight lawsuits would be better spent elsewhere.
10. Remember, you don’t know what you don’t know. If you’re truly committed to achieving 100 percent legal and regulatory compliance at your dealership, your final — and most crucial — step is to invest in high-quality compliance education.
Levine, O’Loughlin, Petersen and Johnson will lead the class, “The CFPB, FTC and State Regulators, Oh My — What Every Dealer Needs to Know,” during the seventh annual Innovate conference, hosted by AutoStar Solutions. Innovate, four-day event, will be on Sunday at the Gaylord Texan Resort & Convention Center in Grapevine, Texas.
“Dealers shouldn’t take chances when it comes to compliance issues. One day, your dealership can be running smoothly, and the next day, everything changes because the FTC just sent you a civil investigative demand letter,” Levine said.
“I may be biased, but AutoStar’s 2014 Innovate conference is the best place I know of for meaty, focused compliance learning,” he continued. “If I could personally gather all my dealer clients from when I was in private practice and get them to this conference, it would have saved them some huge legal bills.”
Attendees can choose from a wide variety of classes in 10 different tracks, including compliance and technology. The compliance track alone will host 10 back-to-back classes, plus an ask-the-lawyer panel and a Q&A with former CFPB assistant director Rick Hackett.
AutoStar expects more than 500 attendees at this year’s conference, in addition to major exhibitors and financial institutions that will showcase the latest dealership technology, best practices and industry solutions.
To register, visit http://innovate.autostarsolutions.com, where users can build and save their own customized event schedule. Those who would rather go mobile can tailor their schedules with the Guidebook app, available at http://guidebook.com/g/innovate2014.
The largest contingent ever attended the most recent BHPH Boot Camp hosted by the National Alliance of Buy-Here, Pay-Here Dealers at the site of iCars, Ingram Walters’ dealership in Monroe, N.C.
A total of 27 attendees from 15 different dealerships from throughout the U.S. took the opportunity to examine all parts of the BHPH operation owned by Walters, who has been associated with NABD since its inception and has been running his own dealerships for more than 20 years near Charlotte.
Walters along with NABD founder Ken Shilson used the Boot Camp on Aug. 2 and 3 to outline every step that it takes to create a successful BHPH store, from establishing a related finance company, regulatory compliance, underwriting and collections to finding inventory that will turn quickly.
“This allowed attendees to attend classroom training and to receive in-the-field training at one of the nation’s best operations,” Shilson said.
The boot camp training covered all areas of BHPH operations including building a successful business model, acquiring and reconditioning vehicles, best underwriting and collection practices, financial management and monitoring, compliance, technology solutions, and maximizing recoveries.
All attendees received projection modeling software, a complete policies and procedures and human resources manual, and other resource materials including legal and compliance materials supplied by Hudson Cook, sample pay plans, a reconditioning plan and much more.
“For a very modest investment, attendees received invaluable training and resource materials which can help make them millions,” Shilson said. “The opportunity to see iCars, receive individual instruction and learn best practices provided a unique experience.
“It takes capital, technology and knowledge to prosper in BHPH today,” he continued. “The old ways of doing things don’t work like they used to because of increased competition and different industry economics. Operators must develop new ways to prosper, and incorporate capital and technology, along with sound operating practices, to remain competitive.
“This boot camp included participation from three leading technology providers: Auto Master Systems, PassTime and Spireon. In addition, Flock Specialty Finance helped attendees understand innovative new ways to capitalize their operations. The sessions ended with one-on-one meetings with attendees to develop a strategic action plan,” Shilson went on to say.
For operators who were unable to participate in the August session, the next boot camp is planned for Nov. 8 and 9 also at iCars.
NABD’s next major event will take place just after 2015 begins. Walters and Shilson will host a new gathering — the Best Operating Practices and Compliance Conference. It’s set to start just as tax season intensifies — Jan. 18 through 20 at the Hilton DFW Lakes Executive Conference Center in Dallas.
“We have moved our next event to January 2015 rather than holding it just prior to our National Conference (in May at Las Vegas) as we have in the past,” Shilson said. “This will minimize the length of time attendees must be away from their respective operations to gain this important training.”
NABD also announced it will hold its 17th annual National Conference at the Wynn Las Vegas on May 19 through 21.
Operators can gather more information and registration details by going to bhphinfo.com or calling NABD at (832) 767-4759.
Rick Hackett shared eight specific steps buy-here, pay-here dealers can take to stay off of the radar of government regulators.
Hackett acknowledged no surefire way exists for operators to protect themselves completely from a regulator who can decide what a reasonable price is. But the former Consumer Financial Protection Bureau assistant director and current partner at Hudson Cook recommended these steps to minimize exposure.
1. If a car buyer is paying cash, never sell (or even offer to sell) a vehicle for a lower price than what you charge when the customer finances. If the financed price is higher, regulators may conclude you added an undisclosed finance charge. You may also be in violation of usury laws.
2. Get your house in order when it comes to technical disclosures. This includes the Truth in Lending Act, adverse action notices, as well as compliance with privacy laws and Article 9 of the Uniform Commercial Code.
3. Train your F&I managers, just like you train your mechanics. The world of F&I has become incredibly complicated, so Hackett said mere hope is not a viable strategy. Operators must invest in education and training — and be able to demonstrate to regulators that you've done so.
4. Underwrite for the borrower's ability to pay, rather than focusing solely on the collateral value. Hackett pointed out operators may prevent accusations of predatory lending while still protecting financial interests.
5. Treat your complaints as a resource, and remember they can come back to bite you. Do you receive multiple complaints about the same salesperson? Have your collectors been accused more than once of the same illegal practice? Hackett suggested that operators take note of the trend — and fix it — before the regulators do it for them.
6. Work with troubled borrowers, and try your best to keep them in their vehicle. Premature repossession only reinforces the appearance of predatory lending, according to Hackett.
7. Proactively manage repo agents and all other vendors. Hackett listed several questions for operators to answer. Do you know whether your repo agent has been sued, has any judgments against him, or is the subject of BBB complaints? Has he been trained by a recognized recovery compliance organization? Is your cleaning service bonded and insured? Do they conduct thorough background checks? If you outsource collections, does the agency adhere to all applicable laws, have all necessary licenses, and receive adequate training? Are your vendors' procedures similar to your own?
Hackett conceded that this litany of questions may seem overwhelming, but regulators hold dealerships responsible for whom with they do business.
8. Approach ancillary products carefully. Hackett suggested that operators don't sell the customer options they can’t afford. And make it clear that these items are truly optional. If every buyer leaves your lot with the same aftermarket products, regulators may conclude that you require them for financing.
“As the CFPB and its allies in state attorney general offices turn increasing focus to 'high-priced' credit for nonprime consumers, it's important for dealers of all types — and especially for independent dealers with buy-here, pay-here operations — to proactively plan for outreach from regulators," said Hackett, who will share more compliance-related insight in a Q&A-style keynote address at the Innovate 2014 industry conference, hosted by AutoStar Solutions.
"It's hard enough as it is to run a nonprime credit dealership, with wholesale inventory prices inflated and consumer incomes stagnant," Hackett continued.. "Now federal regulators and state attorneys general have decided they have the power to declare when a seller's price is 'inflated to hide the true cost of credit provided.' The result is an automatic truth-in-lending violation and a claim of unfair and deceptive practices."
Hackett will deliver one of six featured keynotes on the BHPH industry at the seventh annual Innovate Conference, which runs from Sept. 21 through 24 at the Gaylord Texan Resort & Convention Center in Grapevine, Texas.
Innovate will be hosted by AutoStar Solutions, a provider of enterprise-level software to subprime auto lenders, as well as independent retail and BHPH dealers.
Attendees can choose from a wide variety of classes in 10 different tracks, including compliance and technology. AutoStar expects more than 500 attendees at this year's conference, in addition to major exhibitors and financial institutions that will showcase the latest dealership technology, best practices and industry solutions.
To register, visit http://innovate.autostarsolutions.com, where users can build and save their own customized event schedule. Those who would rather go mobile can tailor their schedules with the Guidebook app, available at http://guidebook.com/g/innovate2014.
AutoStar is offering a $50 off early bird special to all attendees registered before Aug. 31.
