The easiest way to predict the future accurately is to wait until it happens and be the first to announce it. This is aided, in part, by the fact that homo sapiens, as a species, don’t have an impressive track record when it comes to learning from the past. This means that history tends to repeat itself. So to predict the future of compliance, I will first discuss the history of lawn mowers and product liability.
Mind the Blades
Lawn mowers are pretty simple devices. All you need is a sharp blade and a way to make it move at a rate high enough to cut grass. In the beginning, lawn mowers got their power from the people operating them. Push mowers connected curved blades to the drive wheels and presto! — neatly mown lawns.
Then came power mowers. Whether walk-behind or riders, they incorporated gasoline engines and rotary blades. The combination was much more powerful, much more effective, and much more dangerous.
The increased danger led to injuries, lots of them, and most of them horrific. Until the 1960s, the law did not favor plaintiffs in this area. The law of negligence was not much help, as the duty of due care was usually breached by the victim or a close family member. And product liability law didn’t help, as the product generally worked just fine as designed and built — it was that very fact that made the injury possible. What was a plaintiff’s lawyer to do?
Then came the Restatement (2nd) of Torts in 1965. The Restatements of the Law are published by the American Law Institute as a general summary of the common law to guide judges. For those of you who didn’t go to law school, there are two broad areas of law: statutory law, meaning written laws passed by the appropriate legislature, and common law, meaning the interpretations of law by judges. In case of a tie, statutory law is supposed to win. But it’s the common law-creating judges who determine what constitutes a tie. So while the restatements aren’t themselves binding precedent, they are considered very, very persuasive.
Restatement (2nd) of Torts brought about a revolution that transformed products liability law. In section 402A, the Restatement offered up a new principle: Manufacturers could be held liable for unsafe aspects of their products if a means of preventing that unsafe aspect was available and not unreasonably expensive. This meant that Toro, say, could be held liable for a perfectly well-made lawn mower if an inexpensive kill switch was not incorporated into the design.
This notion became known as the “risk-benefit test.” The crucial question was whether the risks of a particular design were outweighed by its benefits. Courts considered “the likelihood that the product will cause injury, the gravity of the danger posed, and the mechanical and economic feasibility of an improved design.”
So every time your lawn mower turns off when you let go of the kill switch beneath the push bar or get off the seat or a rider, or if the blade disengages when you put the rider in reverse (No Mow In Reverse — “NMIR” — is a thing), think of the Restatement (2nd) Torts. Lawn care is safer because of it.
All of which brings us back to the future of F&I compliance. Consider the state of products liability jurisprudence and substitute “service” for “product.” Let us assume that a consumer can be injured in the process of financing a vehicle, and that the monetary injury can be severe. Is it possible for players in the finance process to prevent such injuries?
At first blush, the answer would seem to be “No.” Deceptive practices can be perpetrated when there is no method of recording:
- What was said to a customer and when?
- What was the basis for quoted payments?
- There was no leg in the payment quoted.
- No variance in APR was attributable to race or other impermissible reasons.
- The final pencil information flowed seamlessly into the menu presentation.
- The initial and final payments through the menu process were accurate.
- The deal terms reflected at the end of the menu presentation flows into the buyer’s order.
- The information on the buyer’s order is reflected in the retail installment sale contract.
- The product prices on the RISC match those on the product contracts.
And at second blush, the answer would still seem to be “No.” After all, dealers may have a desking tool provided by one vendor, a menu system from a different vendor, and a third-party DMS. None of those functions talk to the others.
But what if there was a system that tracked and recorded every step of the vehicle finance process? What if every representation made to a customer was recorded and time-stamped? What if all the math had to add up? The injury from deceptive practices could be drastically reduced, or eliminated altogether.
In fact, such a system does exist and is already on the market (and no, I am not an employee, agent, or investor). And if one company can do it, others can as well. The state of the art proves that transparency can be dramatically enhanced and fraud drastically reduced. A court’s analysis could move on to consideration of the risks of noncompliant systems versus the benefits of maintaining such a system. Any bets on how a court would come down on that question?
So what is the future? It’s the present: using existing technologies to make fraud nearly impossible. All that remains is for a court (I’m guessing in California) to decide that what can be done to protect consumers must be done.
The providers and administrators that make that technology available first will not just profit in the future, they’ll help create it.