Terry O’Loughlin, director of compliance, Reynolds and Reynolds, used to work for the Florida State Attorney General. His job was, in part, to find dealerships who were breaking the rules, and find the evidence to support those charges. He moved to the “other side of the fence” and at the P&A Leadership Summit at the Paris Hotel and Casino, Las Vegas, he brought his years of experience to providers and dealers with tips on what they can do to avoid running into trouble.
“Dealers are a big target” O’Loughlin noted. They are in the top 10 list of industries consumers complain the most about, so it means regulators and enforcers are always looking in that direction. “It’s important to do it right,” he said, “but to also be prepared for the people most likely to come after you – state agencies.”
The states, he noted, have more time, resources and motivation to go after dealerships and providers than federal agencies such as the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC). Not that dealers and providers are immune from scrutiny at the federal level, just that it is less likely for any single individual dealer or provider to fall into the federal radar than it is that they gain the attention of the state.
State Attorney Generals, he noted, tend to look at a few areas. The first, and easiest for them to both identify and prosecute, is advertising. It is easy to compare marketing materials to see if what is being promised is what is being delivered. While dealers and providers both have to be more careful about claims because of the CFPB guidelines – for example, saying “pennies a day” when the actual cost is, for example 40-60 cents, is considered “deceptive” in the current regulatory atmosphere – this is one area where being careful can minimize the risk of exposure. Don’t make wild or vague claims, and both dealers and providers can stay out of the crosshairs.
That’s not to say it’s always easy. It comes down to states using the rules and guidelines the federal agencies hand down, in addition to their own specific laws. The central law almost every state will use against dealers or providers are Unfair Acts and Deceptive Practices (UADP) laws. The central test, O’Loughlin noted, is whether or not the materials have a “tendency to mislead consumers.” It is a very low standard, he noted, and there is often no need for any real deception or even damages for them to prosecute. It comes down to the belief that consumers don’t have a responsibility to scan or scrutinize every advertisement for the “fine print” disclosures, and the states use that to their advantage.
A basic rule of thumb regarding marketing materials, he said, is to ask “does it have the capacity to mislead a reasonable person? If the answer is yes, then it’s a problem.” He went on to note, “there is nothing new or different, here. They’re old laws, they’re just using new tools to go after them.”
He also noted that providers can use this as a selling point – that theirs is not only a good product with good administration, but that all the materials are designed to help dealers stay in compliance with their state and federal laws.
O’Loughlin has a few “deadly sins” when it comes to the F&I office, that dealers, providers and agents – everyone who touches F&I in any way – need to be aware of, and alert for ways to improve. The first is never to use the word “best” when describing anything – in advertising or with a customer. That opens everyone up to scrutiny. Second, do no forge signatures for any reason – it sounds like an obvious one, but he had examples of documents from dealerships (with all identifying information blacked out) where F&I managers not only forged the signatures, but called attention to it with notes and comments on the contracts themselves. Third, do not overstate the income to try and get consumers approved for larger loans. That is a red flag to state agencies, and something they look for.
A big one, he noted, is don’t keep documents you don’t need. O’Loughlin recommends putting a document policy in place where nothing is retained for more than a set – and short – period of time, such as 60 days (although he noted that everyone should make sure they comply with any state laws on document retention as well.) Then stick with it, and destroy everything in accordance with that policy. It is crucial that it be done with a clear, transparent policy that applies to all deals and documents equally, but if a dealership or provider ever is required to open their records for a state or federal agency, it will limit what can be found. He stressed, however, that having an internal person who conducts regular audits to ensure compliance of both the documents and the document policy is essential; that person should also be responsible for regularly reviewing both the document and management policies on a scheduled basis, to ensure both remain compliant.
If there’s uncertainty about keeping a specific document or type of document, his advice is to staple those files together and move them out of the deal jacket and into a separate place, very clearly marked “superseded” to show they are not part of the final deal.
But there are ways dealers and providers can minimize their risk. First and foremost, O’Loughlin told attendees that everyone should have legal counsel. Have them review all advertisements before they go out to consumers – they will know the state and federal laws that could apply more fully than a dealer or provider ever could, and will be able to advise on changes to keep everyone out of trouble. The Attorney Generals themselves can be a source of information – check with them for a list of guidelines so everyone knows what they will be held accountable for up front. State associations are another resource O’Loughlin told everyone to take advantage of – they will likely have not only the guidelines, but advice on how best to follow them. And this is not all on the dealers – providers and other vendors can get the dealership into trouble without meaning to as well, and can even possibly be held responsible with fines. So it is in everyone’s interest to stay on top of the rules and regulations.What happens next?
If a dealer or provider, despite precautions, does find themselves under investigation, O’Loughlin has a few tips for what to do – and what not to do.
First, and most important, always agree to cooperate. “You will always lose against the government,” he noted, so it’s best not to try and fight. Study the problem and the know everything there is to know about the issue you’re being charged with – know more about the problem than the Attorney General.
When a subpoena is received, immediately request a meeting to try and attempt to limit the scope. Bring copious amounts of documentation, be pleasant during the meeting, and agree to and be prepared to give future cooperation as well. “Be prepared to ‘kiss the ring’,” O’Loughlin said. “If you’re in error, admit it and ask them how you can fix it. Attempt to educate them on your business, and be prepared to offer a reasonable solution to the problem. Demonstrate due diligence on your part, and give them reasons to close the file.” The name of the game, he noted, is to avoid a drawn-out fight, and prevent any future litigation. Ask up front what you can do to close the investigation, and he reiterated, don’t try to fight – you will lose.
It is also important, he said, not to overreact. Those who cooperate can even mitigate bad press that might otherwise come out of the situation – for example, he noted, if you’re on good terms with the Attorney General and have been cooperative, they might agree to allow you to participate in the wording of the official press release or settlement agreement that will go out to the public.
In the end, it’s better to stay out of trouble to begin with. Dealers should maintain a product pricing variance report and menu log, as well as a matrix of credit scores and interest rates. They should also require a signed menu from each customer at the end of every deal, which will stay with the jacket. O’Loughlin noted that investing in ongoing training – both in-house and online – is also key to ensure all employees are always up-to-date on what is expected of them. He also reiterated that hiring an attorney who understands the business is crucial, as is using a good consultant on a regular basis to go over all the document and management policies to ensure there is nothing that will get anyone in trouble, and if there is a subpoena, everyone in the chain has the information needed to minimize the damage.