Compliance

New Compliance Guide on Federal Advertising Rules

SAN FRANCISCO - 

With regulators such as the Federal Trade Commission honing in on advertisements that focus on the financial elements of a vehicle transaction, the National Automobile Dealers Association responded by issuing a new publication during this year’s NADA Convention.

The association highlighted the new guide will assist franchised dealers in complying with federal advertising requirements on the sale, financing and leasing of automotive products and services.

 A Dealer Guide to Federal Advertising Requirements provides examples of “bad” ads and “good” ads and chapters on 41 different federal advertising topics, such as the use of discount claims, email advertising, green marketing claims, Internet advertising, satisfaction guarantees and trigger terms. Readers can access the content quickly by clicking the hyperlinked topics in the table of contents page in the PDF document. 

“The guide is user friendly and is a valuable resource for the entire auto industry,” outgoing NADA chairman Forrest McConnell said. “We are encouraging dealers to provide the publication to their advertising agencies, manufacturers, finance companies and others involved in advertising operations.”

 The release of the guide coincides with recent intense scrutiny by the FTC of dealer compliance with federal advertising standards and follows an NADA University Online webinar on the topic that was presented last March by attorneys with the FTC’s Division of Financial Practices. To access the webinar, NADA members can log in to NADA University Online at www.nadauniversity.com and enter the search term, “Comply with Federal Advertising Requirements.”

 Since 2012, the FTC has initiated five separate rounds of advertising enforcement actions against 18 dealers in 12 states for multiple types of advertising violations, including actions against three dealers that the FTC announced last December.   

 “The guide does not address additional advertising requirements that may be imposed at the state or local level, which vary considerably and need to be fully addressed when dealer ads are reviewed for legal compliance,” said Paul Metrey, NADA chief regulatory counsel.

“It’s essential that dealers consult with their legal counsel to determine — and to ensure that their advertisements are consistent with — the full scope of their advertising responsibilities,” Metrey continued.

Metrey also mentioned this new guide is part of NADA’s Management Series called, Driven. It is available at www.nada.org and will be included in the suite of compliance products at NADA University Online at www.nadauniversity.com.

Key Case Could Cut CFPB’s Ability to Use Disparate Impact

SAN FRANCISCO - 

The ability for federal regulators such as the Consumer Financial Protection Bureau to use disparate impact theory to hand out enforcement actions against finance companies that provide auto financing could be reduced or even eliminated, depending on how the Supreme Court rules before summertime heat reaches Washington, D.C.

During the Vehicle Finance Conference hosted by the American Financial Services Association, attorneys and company executives kept watch on smartphones and tablets on Wednesday because oral arguments took place in front of the Supreme Court that could narrow the scope of discrimination claims made under the Fair Housing Act (FHA) by leveraging disparate impact.

Legal experts from AFSA and other firms contend that if disparate impact no longer can be used in FHA matters, it would be prohibited in cases regarding the Equal Credit Opportunity Act, which is a regulatory tool often associated with the policing of auto financing.

While holding his laptop on stage and pouring over emails from colleagues and other sources, Severson & Werson chairman Mark Kenney attempted to give conference attendees an assessment of what happened during the hour-long oral argument session at the Supreme Court. The specific case pits the Texas Department of Housing and Community Affairs versus the Inclusive Communities Project to determine whether FHA encompasses claims for disparate impact. 

The Pacific Law Foundation (PLF) joined many other organizations arguing that FHA only prohibits intentional discrimination. PLF officials contend the threat of being sued under a theory of disparate impact encourages private and public decision makers to act on the basis of race.  The theory of disparate impact holds that practices in employment, housing, or other areas may be considered discriminatory and illegal if they have a disproportionate "adverse impact" on persons along the lines of a protected trait. Although the protected traits vary by statute, most federal civil rights laws include race, color, religion, national origin, and gender as protected traits, and some laws include disability status and other traits as well.

PLF went on to mention that Justice Antonin Scalia observed in his concurrence in Ricci versus Destefano, a disparate impact provision not only permits but affirmatively requires race-conscious decision making when a disparate impact violation would otherwise result.

“The Supreme Court has repeatedly held that race-conscious decision making is presumptively unconstitutional.  Therefore, any law that requires, or even encourages private or public entities to act on the basis of race is also presumptively unconstitutional,” PLF officials said.

During AFSA’s conference, Kenney focused much of his assessment of the oral arguments on how Scalia approached the proceedings.

“By piecing together bits and pieces of this oral argument, we are reading tea leaves,” Kenney said. “In the first part of the oral argument, Scalia came out very aggressive against the Texas counsel arguing against disparate impact.

“In the second half of the argument, he went after the other side as he often does, asking counsel that if we allow legislation that supposedly prohibits disparate impact, doesn’t that leave businesses and government enterprises to create quotas, which themselves run afoul of the equal protection clause of the Constitution,” Kenney continued.

“The FHA allows prosecution based on disparate impact claims but that in and of itself is a violation under the equal protection clause of the Constitution,” he went on to tell the scores of attendees gathered in San Francisco ahead of a host of other industry events such as the National Automobile Dealers Association Convention.

“They could not get to that second bigger question unless they found that the FHA allows disparate impact. It may be where they’re going. The clever argument is that there is disparate impact analysis out there but you can’t use it because it’s unconstitutional to achieve a bigger result. We don’t know,” Kenney added.

Before discussing Wednesday’s Supreme Court proceeding, Kenney recapped why this case could alter how agencies such as the CFPB operate in the auto finance space. The bureau used disparate impact theory in late 2013 against Ally Financial to level an enforcement action, which included total penalties approaching $100 million.

“As in the FHA context, the CFPB has been saying that even if you have no intention of wanting to discriminate, if you’re engaged in supposedly neutral activities like buying paper that’s as the result of an automobile financing negotiation which includes a dealer mark-up and regulators can conduct statistical analysis to show that racially protected group pay higher markups than non-protected groups, that has a disparate impact,” Kenney said.

“The hope was the Supreme Court would say, in the FHA, there is no disparate impact analysis. It’s not in the statute. And then by extension, the language is very similar in ECOA so you can’t have it there, either,” he continued.

The Supreme Court is expected to make its ruling on this disparate impact case sometime before its current decision-making session ends in June. Typically, the court takes anywhere from two to five months to make a final decision. But AFSA executive vice president Bill Himpler, who joined Kenney for a regulatory update, thinks a decision might come sooner because “the justices have been weighing in on this issue for a long time.”

Himpler also pointed out that CFPB director Richard Cordray has argued on multiple occasions that the FHA and ECOA are “two separate statutes and not related so regardless of what the Supreme Court says.”

But Kenney left AFSA attendees with a clear message, saying, “The CFPB is hanging on this one just as much as this association is.”

Dealertrack’s Henrick to Host FTC Compliance Workshops at NADA Convention

SAN FRANCISCO - 

Dealertrack Technologies associate general counsel for regulatory and compliance Randy Henrick will be a featured workshop speaker at this week’s National Automotive Dealers Association Convention and Expo in San Francisco.

Henrick will conduct two workshop sessions to educate dealers on what regulators consider “deceptive” dealer advertising and share insights regarding advertising “must-nots” in accordance with recent directives from the Federal Trade Commission.

The workshops, titled “Dealer Advertising: New Federal Compliance Mandates,” will take place in the Moscone Center on:

— Thursday from 12:15 to 1:30 p.m. PT in Room 3020W

— Friday from 10:30 to 11:45 a.m. PT in Room 3000W

“With the rise of digital and social media, the FTC has ratcheted up its enforcement of deceptive dealer advertising and this has become a growing risk for and threat to the integrity of the automotive industry," Henrick said.

“As the industry continues to trend toward more emerging advertising technologies and the FTC has increased its regulatory scrutiny and standards for what makes advertising unfair or deceptive, it’s crucial that dealers remain up-to-date and compliant with FTC mandates to protect their businesses,” continued Henrick who has more than 25 years of experience in banking and consumer financial services..

Prior to coming to Dealertrack, Henrick served on the legal staffs of GE Capital, Citigroup, MasterCard International and FleetBoston Financial.

Dealertrack will be showcasing its connected and integrated solutions designed to help dealers and finance companies at Booth 2219S in San Francisco’s Moscone Convention Center.

In addition to his workshops, Henrick will be in the Dealertrack booth to answer F&I compliance questions.

4 Ways to Prevent Fraud Inside Finance Companies

RALEIGH, N.C. - 

Since half of the specialty finance companies that participated in a recent survey conducted by McGladrey experienced some form of fraud during the past 12 months, senior manager Ronnie Lee devised four strategies institutions can implement to overcome possible unscrupulous activity.

Lee discovered several common characteristics among the finance companies that sustained fraud activities within its operations; many of which had a significant auto finance presence.

The survey data showed branch managers and customer service personnel were the most common positions identified as involved in the fraud. They usually were not long-term employees as most employees had between one and five years’ experience with the employer.

Most firms found the fraud being committed within six months of the initial incident with thefts of cash and fraudulent loans being the most common types of fraud. The majority of frauds involved losses of less than $10,000, but in most cases, little or none of the losses were recovered, according to the McGladrey survey.

“These findings reveal some interesting patterns that specialty lenders can use to strengthen their internal controls,” Lee said. “Most fraud studies find that frauds are committed by long-time employees, more often male, with college educations.

“Yet, among the specialty lenders surveyed, the perpetrators are most likely to be females with the company for less than five years and with only a high school education,” he continued.

“In addition, the frauds reported in the survey were almost exclusively committed at branch locations, not at the home office,” Lee went on to say. “These frauds were almost always detected through internal controls or by management at home office locations.”

With those thoughts in mind, Lee began his fraud-prevent recommendations by mentioned that finance companies that sustain losses demonstrate a lack of controls and insufficient segregation of duties at branch locations.

For example, Lee explained fraudulent loan schemes often involve someone at the branch office recording a loan on the books and then writing it off.

“By ensuring those duties are performed by separate parties, this type of fraud could be largely avoided,” Lee said.

Next, Lee suggested that specialty lenders should ensure that branch locations have strong internal controls on-site and not rely exclusively on controls at the home office.

“While fraud losses among the surveyed lenders were relatively small and generally caught quickly, stronger controls at the branch locations, where fraud is most likely to occur, could prevent many of these instances from occurring in the first place,” Lee said.

The McGladrey senior manager noted that improved systems that would allow real-time reporting between branches and the home office could play a key role in improving controls and providing real-time oversight of operations.

Moving on to a third point, Lee noted that weak or poorly documented operating policies and procedures, including formal fraud policies, also play a role in increasing the likelihood of fraud.

“By making it clear to all employees exactly what your operating procedures are, deviations from those procedures are more immediately obvious to everyone,” he said.

Lee closed by recommending that specialty lenders should also consider educating new employees on common types of fraud. He contends this strategy would help honest employees spot malfeasance by co-workers.

“In addition, it would also underscore to employees who might be considering fraudulent behavior how small the gains from those frauds generally are, how quickly they are usually discovered and the consequences they could face,” Lee said.

Advice to Create a Compliance Management System

CRYSTAL LAKE, Ill. - 

Given the drumbeat of the Consumer Financial Protection Bureau and its increasing influence on dealership F&I practices and consumer finance, Automotive Compliance Consultants emphasized that dealership professionals must be fully equipped to understand and comply with regulations.

Automotive Compliance Consultants president Terry Dortch pointed out that one such regulation specified by the CFPB is the use of a compliance management system (CMS).

“There is an unfortunate misconception that a CMS is software or some other ‘easy’ compliance technology,” Dortch said. “It is not, so lenders and the auto and powersports dealers they do business with should not be mystified.

“Instead, a CMS, according to CFPB, is a process to ensure a dealer’s compliance with consumer protection regulations. Usually, a proper CMS is a defined process for auditing, inspecting, and documenting lending and F&I practices so they conform to federal consumer finance laws,” Dortch continued.

Dortch and the Automotive Compliance Consultants expert staff will discuss CMS and other consumer lending topics at the American Financial Services Association’s 19th annual Vehicle Finance Conference this week in San Francisco.

“The regulations change rapidly — and the CFPB is always causing ripples that often cause lenders and dealers to shudder over their potential impact to their businesses and how they service consumers’ finance needs. Continuing education is so recommended for any party engaged in automotive retailing and finance,” Dortch said.

“We invite AFSA attendees to discuss the ins-and-outs of a compliance management system that will cover all facets of dealership consumer finance requirements,” he added.

For information, contact Dortch at terry_dortch@compliantnow.com or visit www.compliantnow.com.

Got 20 Minutes? Ally Has a Training Class for You

DETROIT - 

If store managers and personnel can find 20 minutes in their schedule, they can take advantage of some of the added new training courses Ally Financial integrated into its Performance Development Center this week.

In hopes of further expanding the scope of their educational offerings for dealers, company officials highlighted that the new courses address important topics such as selling skills, customer loyalty and retention, social media marketing, F&I management and compliance education. Course content leverages nearly 100 years of Ally's auto industry experience, and includes real-world examples and practical techniques that can be applied to daily operations.

By offering one of the most comprehensive dealer training programs in the business, the Performance Development Center is designed to help Ally strengthen relationships with dealers and support them in a changing marketplace.

Ally pointed out that most modules can be completed in 20 minutes since they’re specifically tailored for busy dealership personnel.

Ally's Performance Development Center is an education platform that can provide innovative and easily accessible training sessions for dealership employees at all levels. Since its launch in 2013, more than 10,000 learners have registered for more than 70 different courses. 

The Performance Development Center offers the flexibility to learn online 24-hours a day with on-demand modules, or in a classroom setting with instructor-led training that takes place in-dealership or offsite.

The new courses will be introduced to dealers beginning on Thursday at the National Automobile Dealers Association Convention and Expo. The new offerings include:

— Comprehensive F&I management training that teaches effective customer needs assessment and menu presentation skills

— Vehicle selling skills course designed to help sales consultants develop a consistent and professional approach

— Courses designed to help dealerships learn customer loyalty strategies and social media management.

Ally mentioned the curriculum is infused with practical examples, tips and techniques that the company has assembled through its extensive experience with dealers of all sizes across the country, which dealers can use to build the knowledge base and skill set of employees at all levels.

A new series of compliance-focused courses will also be added to the Performance Development Center later this month that aims to educate dealership employees about current rules and regulations.

The compliance training courses are being provided in connection with the enterprise governance, risk and compliance solutions division of FIS, which specializes in risk management, regulatory training and consulting services for the automotive and financial services industries.

FIS, a provider of banking and payments technology as well as consulting and outsourcing solutions, provides risk management, including compliance training, to more than 5,000 financial services companies across the country as well as all major regulatory agencies. The compliance training courses will cover topics such as Truth in Lending Act, Fair Lending, Regulation M and Federal Advertising Laws, and provide role-specific eLearning training for sales and finance professionals.

“As a leader in the auto industry, Ally believes that the combination of best-in-class products and services paired with a knowledgeable sales force is a winning combination for dealerships," said Jim Whiteford, executive director of performance development at Ally.

“By continuously adding courses to our Performance Development Center, we are creating an important resource for all dealers, offering valuable, real-world knowledge and tools to help them sharpen skills and increase efficiency and effectiveness throughout their organizations,” Whiteford said. “We are proud that our platform has reached 10,000 learners and we will continue to add new courses based on feedback and demand.”

Ally's Performance Development Center was launched in 2013 to provide dealers with convenient access to comprehensive education and training. The platform offers more than 29 on-demand and instructor led training courses with more than 44 on-demand modules covering a wide range of topics.

For more information and a demonstration of the new courses, visit www.allydealertraining.com or booth No. 2401S at the NADA Convention in San Francisco.

Ally Financial Declares Dividends on Preferred Stock

In other company news, Ally declared quarterly dividend payments for certain outstanding preferred stock. Each of these dividends were declared by the board of directors on Tuesday and are payable on Feb. 17.

A quarterly dividend payment was declared on Ally's Fixed Rate Cumulative Perpetual Preferred Stock, Series G, of $45.1 million, or $17.50 per share, and is payable to shareholders of record as of Feb. 1.

Additionally, a dividend payment was declared on Ally's Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A, of $21.7 million, or $0.53 per share, and is payable to shareholders of record as of Feb. 1.

Survey: 92% of Dealers Recommend EFG Companies

DALLAS - 

EFG Companies claims the results of its most recent dealer services client satisfaction study released this week show the company scored higher than outfits such as Apple iPhone, Southwest Airlines, USAA Banking and Insurance, and Nordstrom.

Among the key findings, officials indicated dealers rated the account representative, compliance oversight and F&I training as the highest priority capabilities of F&I providers. On a scale of one to 10, where 10 is the highest for attributes in a given area, dealers ranked EFG as:

• 9.4 for account representative

• 9.3 for compliance

• 9.2 for F&I training

• 92 percent likelihood to recommend

“At EFG, we are obsessive about performance measurement and accountability,” said John Pappanastos, president and chief executive officer of EFG Companies.

“Soliciting direct, objective input through a national client satisfaction survey augments the ongoing measurement of our effectiveness against the commitments we make to our partners,” Pappanastos continued. “Our partners' feedback is an invaluable driver in the evolution of our business, and they seized the opportunity to also identify areas of their business where we have not traditionally engaged, but where they believe our engagement could meaningfully impact their business performance.”

Research study participants noted the high quality and depth of EFG’s account service team as one of the company’s greatest strengths, describing the service as an extension of the dealership’s management team.

EFG’s clients found the company’s knowledge regarding government regulations and industry trends highly beneficial to their business, as well as EFG’s proactivity in offering new ideas and recommendations:

• 97 percent of EFG’s clients stated that EFG representatives are F&I education and compliance leaders.

• 98 percent of clients regarded EFG overall as an expert of the F&I landscape.

• 95 percent believed that EFG has expert knowledge about government regulations and economic trends that affect their business.

• 95 percent of dealers stated that EFG understands the performance drivers of their F&I organization.

Troubadour Research and Consulting, who conducts national research with brands such as Kaiser Permanente, Toyota, and Samsung Mobile, administered EFG’s client satisfaction study, analyzing qualitative metrics from dealer principals and quantitative metrics from general managers and F&I directors.

“The results of the study weren’t just excellent, they were aspirational,” said Dale Gilliam, CEO of Troubadour Research and Consulting. “It’s our goal to be the EFG of the research industry.”

In the qualitative analysis, recurring comments from dealer principals said the following about EFG:

“The onsite training is invaluable. Our account rep is training the entire time he’s here, every time.”

“EFG is proactive and ahead of the curve on compliance compared to most F&I providers.”

“Ultimately, we have great F&I numbers and I attribute that largely to EFG.”

The Bob Moore Auto Group — the national leader in F&I revenue per retail unit among the top 125 U.S. dealer groups — also cheered EFG’s capabilities.

“EFG’s objective, professional counsel has enabled us to evolve and strengthen our business processes with innovative solutions and products,” said Curtis Hayes, chief financial officer of the Bob Moore Auto Group. “Their engagement model is not replicable by any other product provider.”

RoadVantage Rolls Out CFPB Compliance Solution

AUSTIN, Texas - 

Along with revamping its tire-and-wheel coverage plan, F&I program provider RoadVantage recently unveiled a Web-based compliance management system (CMS) that can help dealers ensure their practices are compliant with standards set by the Consumer Financial Protection Bureau.

RoadVantage explained that according to the CFPB, elements of an effective compliance program include written policies and procedures, verifiable training on policy and compliance, monitoring and corrective action measures to ensure accordance with policies, a track-able complaint resolution system, and periodic review, revision and written reports via independent and third-party audits.

“The CFPB has stated that it expects to see a Compliance Management System in place in every supervised entity,” RoadVantage chief executive officer Garret Lacour said. “The RoadVantage CMS offers a straightforward, effective way for dealers to address this need.”

Created by attorneys specializing in dealership defense, the Web-based RoadVantage CMS is a comprehensive solution that can addresses these elements through four major components:

— Policy management

— Online compliance training

— Complaint resolution system

— Third-party compliance audits

“The recent industry events involving the CFPB mean it’s more important than ever for dealerships to ensure they have a compliance system in place,” said compliance expert Gil Van Over, president and founder of gvo3 and Associates, a nationally recognized compliance consulting firm. “The RoadVantage CMS offers the framework to help dealerships ensure they are meeting CFPB requirements.”

RoadVantage senior vice president of sales Randy Ross added, “Dealerships are looking for a turnkey compliance solution that integrates with existing practices and enables dealers to easily evaluate and demonstrate compliance.

“Because the RoadVantage CMS is an online tool, it offers a convenient way to foster compliance,” Ross went on to say.

For more details, visit RoadVantage online at www.roadvantage.com.

RoadVantage Outlines New True Coverage Offering

In other company news, RoadVantage also unveiled on Monday a solution called True Coverage, what officials described as a fresh approach to F&I that can simplify contract language and reduce the exclusions that typically cause claims headaches for dealerships and their customers.

With True Coverage, RoadVantage’s Tire & Wheel programs now can streamline complex contracts and eliminate several exclusions that often create problems for dealers and agents, including construction zones, metal plates on the road, tire pressure monitoring sensors, snow tires, car washes and more.

“True Coverage is an exciting development in automotive ancillary product coverage,” said Charles Brown, an independent agent and owner of Superior Automotive Co. “This can considerably reduce dealer service headaches by covering what customers already expect to be covered. It’s another example of how RoadVantage is raising the bar.”

RoadVantage has applied True Coverage to its entire product line including the Vantage Preferred multi-option bundles, which also include coverage for hail damage, cosmetic damage to hubcaps, aftermarket wheel coverage with no surcharges, cosmetic damage on chrome wheels with no limits, replacement for wheels with cosmetic damage, and a replacement-only program for tires.

“This type of coverage is not available in the industry today,” Lacour said. “With True Coverage, we’ve taken the bold steps to streamline complex contracts and remove the exclusions that commonly cause problems.

“True Coverage is another advancement in our continuing quest to provide the best customer experience available in the industry today,” Lacour went on to say.

Prestige President Takes Additional Role at Total Auto Care

SANDY, Utah - 

The Larry H. Miller Group of Companies announced recently that Bryan Henrie, currently the president of Prestige Financial Services Inc., has now been named the president of Total Care Auto, effective immediately.

“Bryant has worked for the LHM Group for 27 years and has proven his ability to not only grow our business, but manage an award-winning workplace by providing training and advancement opportunities to his team by listening to and understanding their needs,” said Greg Miller, chief executive officer of LHM. “He exemplifies our standards and quality for customer service and employee recognition.”

Henrie, recently recognized by The Salt Lake Tribune for his leadership of a large company in their top workplace awards, believes the new role will pair the strengths of both companies.

“This opportunity allows us to expand TCA’s portfolio by offering our vehicle service contracts to a broader range of individual store locations and automotive groups beyond Larry H. Miller dealerships,” Henrie said. “The network of customers and contacts we’ve built at Prestige will help open doors to new business opportunities for Total Auto Care.”

Before Henrie, Steven Starks oversaw Total Care Auto as executive vice president, LHM.

“I’ve truly enjoyed the opportunity to work with TCA and general manager Robb Enger over the last few years,” Starks said. “With Prestige and TCA both servicing automotive customers, it is important to the growth of both companies that they work closely in providing their financial and insurance services to stores and customers across the country.”

NIADA Selects EFG Companies as National F&I Corporate Partner

ARLINGTON, Texas - 

The National Independent Automobile Dealers Association and EFG Companies recently created a new strategic partnership to drive greater F&I profit opportunities for independent dealerships nationwide.

NIADA tapped EFG as a national corporate partner so association members can leverage the company as a single-source provider for F&I products, services and administration that has almost 40 years of industry experience.

“EFG Companies represents a leading force in the F&I training, compliance, and ancillary solutions market.  We see a tremendous reservoir of very innovative, high impact, and leading edge F&I solutions that our member dealers need more than ever to effectively compete and ensure compliance within a very dynamic, hypercompetitive auto retail finance market,” said Scott Lilja, NIADA’s senior vice president of member services.

“EFG Companies exemplifies at the highest level what we look for in an endorsed NIADA National Corporate Partner,” Lilja continued.

EFG believes business success is ultimately measured by a simple premise: keeping a promise to a customer at a time when they need it most.  EFG has dealer services field team is 100-percent AFIP certified. Last year, EFG also was awarded the Automotive Service Excellence (ASE) Blue Seal of Excellence, with EFG’s claims adjusters averaging 15 years of experience.

“During this time of increased compliance oversight and economic expansion, it is imperative that independent auto dealerships be equipped with the ability to drive F&I revenue in a compliant manner while increasing customer satisfaction,” said John Pappanastos, president and chief executive officer of EFG Companies.

“EFG has proven that an engagement model which combines F&I and sales training, recruiting services and industry analytics drives healthy and sustainable business growth,” Pappanastos added.

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