It could be said that compliance is long, life is short, and success is very far off, if one wished to recast an old adage for the automotive world. But there could be wise shortcuts for your dealer clients if they would pay heed to the key trends in the legislature and the types of compliance violations which are being prosecuted.
Everyone knows what a checklist is. They are vitally important for businesses to help focus their attention on the key issues which could become problems later. The same idea applies for agents and dealers. Checklists for the content of deal jackets, red flags, the safeguards rule and privacy issues should be created and relied upon.
Obviously, compliance, in general, should be approached in the same manner. By knowing what issues they may be facing, and which behaviors to avoid, agents can help dealers function more effectively. As part of their processes, dealers should use various checklists and may wish to consider the accompanying checklists and word clouds below.
Word clouds are far less well-known than checklists but can be helpful aids. A word cloud is a visual representation of text data which takes the shape of a cloud. Terms, and the relative importance of each term, are shown with font size and color.Anticipated Legislative Activity in 2017
The American Financial Services Association (AFSA) is a trade association and monitors federal and state legislative activity on behalf of its members, which are financial institutions.
The analysis by AFSA of state bills initiated over the past several legislative sessions provides some indicia as to the issues which state legislatures have identified as worthy of legislative attention. Dealers and their associations may wish to influence the voting of their legislators regarding these issues. This checklist of subjects incurring legislator attention includes:
- Ancillary product scrutiny: Since 2012, there has been a 121% increase in legislative activity regarding products such as debt protection and service contracts. These products have become increasingly important to dealers’ incomes and such legislation should be monitored.
- Automatic license plate recognition (ALPR) systems: As with red light photographic monitors there is some consideration for monitoring all vehicles on the road. Financing sources would be able to identify where vehicles are, as would dealers.
- Car buyers’ bill of rights: This is a pesky issue which began in California and provided substantive changes to the law in that state. There are various references to it in some legislatures but nothing substantive just yet.
- Dealer reserve: As with ancillary products, dealer participation is being scrutinized. Dealers should be aware of the “kickback” myth, which claims that, when consumers do not get the buy rate, the additional interest rate paid is a kickback to the dealer.
- Documentation fees: The trend continues to force dealers to justify their documentation fees. In other words, this fee should only cover actual costs, not profit. Other states should emulate Florida, where the mandated documentation fee disclosure includes profit as part of the amount charged to the consumer. This protection would avoid any allegations of overcharging or deception.
- Driver/owner liability shifting: If dealers loan or rent vehicles or allow test drives, this issue becomes highly important. Dealers should always have consumers sign an agreement stating, in the clearest terms, that consumers are fully liable for any consequences for taking custody of the vehicle.
- Electronic contracting: Some consumer advocates remain concerned that UETA and ESIGN will allow for dealer overreach.
- Electronic titling: The era of paper titles will one day disappear.
- Payment assurance technology: Payment assurance technology essentially means starter interrupt devices, which are quite pro-consumer, albeit some legislators think otherwise. These devices increase access to credit and avoid dangerous repossessions.
There are numerous other issues which are trending in state legislatures. The list includes fair lending issues, fraudulent lien release/non-fraud lien release requirements, ignition interlock devices, lienholder notification, mechanics liens/impound fraud, repossession, bankruptcy/default triggers, repair/towing, excessive or fraudulent liens, retail installment sale requirement and restrictions, the Servicemembers Civil Relief Act of 2016, state legislation specific to vehicle sales and leasing, trade-in calculations, transportation network companies (e.g. Uber, Lyft, Sidecar), vehicle rescission/turn contract restrictions, dealer relations/franchise legislation, and contract restrictions.
The word cloud here would appear as:Anticipated Prosecutorial Activity in 2017
Certain state attorneys general have clearly taken the lead in prosecuting dealers. New York Attorney General Eric Schneiderman leads the pack with four major settlements regarding ancillary products coupled with payment packing in the past several years. Plaintiffs’ counsel follow the lead of state attorneys general and certainly heed the four “D”s of cases to prosecute: discrimination, deception, dead ends and debt traps.
This word cloud for agents and dealers would appear as:
The basic checklist of what issues will be prosecuted against dealers in 2017, and which should be avoided, would appear to be:
- Advertising infractions
- Payment packing
- Improper crediting of the trade-in, cash, rebate or coupon
- Misrepresenting the outstanding lien on the trade-in
- Misrepresenting bank fees, delivery fees and packs
- Misrepresenting the residual factor
- Misuse of “N/A” or use it as a term for “national average”
- Intentionally confuse the money factor amount as the interest rate
Dealers also should endeavor to educate consumers on the basic myths of auto finance:
- The residual is the amount the consumer will get back at the end of the lease
- All leases provide equity build up
- Consumers can get out of a contract at any time without added cost
- All transactions have a three-day right of rescission
Dealers must also be sure their F&I teams are not engaging in any noncompliant behaviors. That list includes:
- Overstate the value and benefits of extended service agreements, car care service plans, etch, and other ancillary products
- Spot-deliver the vehicle with the intention of dehorsing the customer or never honoring the initial offer
- Overcharge on state taxes and battery, tire and lease fees
- Have the lessee pay all the taxes upfront in a state where it is unnecessary
- Relate to the lessee that multiple security deposits will lower the lease rate when that benefit is not applied
- Actively discriminate against discrete and insular minorities
- Misrepresent residual-based financing
- Obfuscate the terms and conditions of the many insurance products such as decreasing term life, credit life, or payment interruption insurance
And, unfortunately, there are many others. It should be noted that there is nothing new on this list which hasn’t been seen in years past.The Bright Future of 2017
The bright future for dealers, from a compliance perspective, is that there will be fewer new compliance initiatives. In fact, existing compliance laws may be pruned and repealed. The checklist for this bright future is:
- HR 1737 and SB 2663: The House bill has passed and the Senate companion bill is pending. This act would essentially nullify the disparate impact theory as it applies to dealers and financing sources.
- CFPB v. PHH Corp.: This federal appellate court opinion ruled that the CFPB is unconstitutionally organized. The new chief executive will be able to treat the CFPB as he would any other government agency. The CFPB will no longer be shielded from executive branch oversight.
- Financial Choice Act of 2016: This pending legislation will further erode the CFPB’s lending guidance.
- New chief of executive, Congress and state legislatures
These new engines of government will not seek to add needless regulation and may even repeal the burgeoning compliance burden placed upon the dealer community. But some new laws will pass.
Nevertheless, prudence dictates that dealer compliance efforts should remain as a significant part of a dealer’s business protocol. And dealers need to remain vigilant regarding these matters since passing consumer laws is often championed by the media.
The bright future word cloud for 2017 is:
Govern yourselves accordingly.