Few executives in the F&I product provider and administrator industry possess the same diversity of experience as Terrence J. “Terry” O’Loughlin, an attorney, accountant, business school graduate and former regulator with the Florida Attorney General’s office. P&A met with the director of compliance for Reynolds and Reynolds to trace his career path, discuss the industry’s role in dealer compliance, and learn why some clowns are no laughing matter.
I wound up working in public accounting for three years and then in the securities business for four years. I had a great position with a portfolio management company. We were bought by a big New York firm in ’89 and a position cropped up in Florida. I made the move, and then that company underwent a disruptive reorganization about six months after I started.
Luckily, at that time, the state attorney general’s office was looking for someone to do securities cases. I had the right background, but I never did one securities case. My first case was the Killer Clown case, and that was my introduction to the car business.P&A: Did you say “Killer Clown”? O’Loughlin: You may have seen the news story a couple weeks ago. They arrested a woman wanted for murder in South Florida. She was suspected of being the Killer Clown. P&A: OK, I did see that. It was a cold case. O’Loughlin: That’s the one. In 1990, a fellow named Michael Kenneth Warren ran a buy here, pay here store and a car rental agency. He was married to a wealthy woman. They lived in a mansion in Wellington, Fla. One evening, there was a knock on the door. The wife answered and was greeted by a large person dressed as a clown, holding balloons and a bouquet. The clown handed her the flowers and then pulled out a gun and shot her right there on the doorstep.
The police thought Michael Warren was responsible. He employed a repo lady, a great big woman, and they figured she was the murderer. We had witness testimony that said the woman had bought a clown outfit and a gun. But the trail went cold. Years later, Warren and the repo lady married and relocated, and sometime after that, the authorities reopened the murder investigation. They got a warrant, tracked the couple down, and arrested the woman in September.
Meanwhile, in the course of the original investigation in 1990, the police found that Warren was engaging in criminal activity at the dealership — rolling back odometers, among other felonies. The attorney general sent me in to run the buy here, pay here operation. I was the receiver. I handled titles and collections and learned an enormous amount about car dealers. And with that, I became the car guy. I spent 16 years handling complaints for the attorney general.P&A: Did you enjoy working as a regulator? O’Loughlin: I did. The cases were interesting. There was a lot of satisfaction in being able to find a remedy. In a typical scenario, a customer would send me a complaint. I would subpoena the deal jacket, analyze it, and determine whether the complaint could be verified. I would figure out the damages and send a letter to the dealer with my findings: “You can accept this as a potential settlement.” No penalty. I just asked them to pay what they overcharged. Nine times out of 10, the dealer would send me a check. I rarely had a rancorous confrontation with a car dealer.
That said, we did handle a couple of multimillion-dollar cases, and they were not that easy. In 1994, we brought a $5 million case against a large dealership group in Florida. At issue was a failure to capitalize the transaction accurately. A customer would trade in a $5,000 car and it would become pure profit. There were probably 300 cases in which cars were literally stolen from customers through the transaction.
Now, I have to give this dealer group credit, because they ultimately assisted us in creating a motor lease disclosure act. We passed it in Florida and then Indiana passed the same legislation, verbatim. A lot of other states picked up on it as well, and that led to the federal Regulation M. I was interviewed on TV a number of times — “Primetime,” “Dateline” — and I was happy to do it.
Another big case I did was a national lease case in 2004 regarding a major captive. A number of consumers had terminated their leases early in order to buy the vehicle. The captive finance company would not give the consumer their payoff amount. They had to go back to the originating dealer. And if it was $11,000, the dealer might quote $13,000 and keep the difference.
Ultimately, we got 39 states involved and our efforts led to a $7.1 million settlement. The dealers just signed on and paid the dollar amount. To track all those transactions would have been murder. The captive stepped up and wanted to resolve it.P&A: Any other big cases? O’Loughlin: There was one other big case, a $1.8 million settlement with a very large Florida dealer. They had an F&I manager who was presenting single-payment lease contracts to seniors. He would craft the buyer’s order — not the lease contract — to say the consumer would pay half upfront and a small amount at the end. It bore no resemblance to any lease contract.
When the customers came to the end of their lease term, they had to pay a lot more to buy the car. I got involved when the local newspaper called me. They asked, “Can we send these complaints over? Can you tell us what it’s about?” I said, “If this is typical, the dealer has a big problem.”
The dealer’s attorney said the transactions were perfect in every way. We got into a real confrontation, went back and forth for a while. We then subpoenaed their records. They then sued the attorney general’s office and me personally for slander and defamation.
That really made the front page. People saw the coverage and stopped going to that dealership. The dealer came to us, begging us to settle with him. We did. The finance manager went to jail for eight years.P&A: In the more typical cases, for which the dealer paid a penalty amounting to the damages owed to an individual customer, did you get the sense they considered that to be the cost of doing business? O’Loughlin: I sensed dealers recognized the risk of having a meddlesome AG look at their files. They cut their losses and moved on. P&A: Do you believe dealers are now more inclined to root out the source of those problems? O’Loughlin: Not to praise dealers but to state a business fact, I would say they’re doing it a lot better than they used to. I don’t think there’s nearly as much fraud and deceit going on. Many more dealers are being much more responsible as corporate citizens. P&A: Was there a point during your career in the public sector where you felt you had found your calling? O’Loughlin: Unfortunately, the public sector doesn’t pay as well as the private sector. I had two young kids. I was open to other opportunities. In November 2005, I was reading Automotive News, and I turned to the back section with all the ads. There was a great big ad from Reynolds and Reynolds seeking a compliance director.
I remember thinking, “I’ve been auditing them for years. Their forms are pretty good.” I sent them an email and my résumé. I didn’t hear anything for weeks. Two months later, I received an email: “You meet our profile. Please do X, Y and Z.” A month later, I received a phone call, they flew me in for an interview, and I had a new job.
I’ve been with Reynolds for 12 years. As I did at the attorney general’s office, I do at Reynolds: Advance compliance solutions for dealers. I didn’t go after dealers because I hated dealers. I saw problems and tried to solve the problems. My job is still in the compliance arena.P&A: And you get to speak at conferences. Dealers love to hear from “The Regulator.” O’Loughlin: It’s great fun. It gives me a chance to talk about recent cases, new developments. I’ve got to tell you, the car business is endlessly fascinating. There are so many permutations. P&A: And it’s changing. O’Loughlin: It is, and hopefully for the better. I think it will. Last month, I went to Digital Dealer. What a hoot. Some of these speakers are in their late 20s, talking about the car business like they’ve been in it for 20 years. They think technology is the answer to everything. That’s true to some extent. But the industry is slow to change. But those who embrace change properly will do well. P&A: What can the provider and administrator segment do to propel dealers forward? O’Loughlin: There is much we can do. I was at a legal conference a couple years ago. The subject was limited partnerships. There were over 20,000 limited partnerships in the Caribbean that are dealership-owned, to a great extent, for the purpose of reinsuring ancillary products. And there are over 5,000 kinds of ancillary products — that’s types of ancillary products, not number — with all their variations.
My point is that this is an enormous enterprise. There are so many organization involved. And look at those that have failed in the past — major ones, like Fidelis. Millions of dollars were lost because they were not doing the right thing. The companies that I know that are selling ancillary products, be they GAP, service contracts or anything else, they’re being quite mindful of the process.
But some of these vendors will be subject to CFPB oversight. The bureau, generally, doesn’t think these products are worth that much.P&A: You wrote about that for this issue. You made the point that our industry is too big to ignore. O’Loughlin: Correct. In 2010, shortly before the Federal Reserve Board transferred its oversight power to the CFPB, the Fed was coming up with a new notice for car buyers. It read, “Stop! You do not have to buy this product to get this line of credit.” Then it went further, in bold: “You may not receive any benefits even if you buy this product.” This was supposed to appear in retail lease contracts. It never did.
I point this out because it proves there is a great deal of concern. Every year, the Consumer Federation of America and the North American Consumer Protection Investigators puts together a consumer complaint survey. Every year, right at the top of the list, it’s automotive dealers. It should be weighted by size. If it were, dealers would be far lower, I’m sure.
Good vendors should welcome scrutiny. It’s a good opportunity to explain our value. Go ahead, call your vendor. Ask what they’re doing to protect you and the consumer. Any good vendor should welcome that. Here’s how we do it. Here’s how we pay for it. Here are our legal resources, our accounting resources. Here’s how we go about it.P&A: Sounds easy enough. O’Loughlin: If the dealer goes through these procedures, there shouldn’t be any problem. The problem arises when the F&I manager wants a disproportionate profit from the ancillary product sale and the dealer has no way to discipline that behavior. Prices vary, but in the same class, pricing should be the same or similar. Some service contracts cost more than others. But if it’s “Silver” or “Bronze,” the pricing should be similar so the finance manager will be disciplined in what he’s offering. Occasionally, you will get guys who are not as forthright as they should be. Seems to me you should get rid of them immediately.