Best Practices for Conducting a Compliance Deal Audit

Inspect What You Expect

By: Terry Schwer,  Brady Ware Dealership Consultant

Do you have a hall monitor?

Someone who is closely working with the sales and Finance & Insurance departments within your dealership to make sure everything is being handled correctly? You may not have liked the hall monitor when you were a kid- but if you’re running a dealership, they are a necessity for these departments.

The level of regulative scrutiny on the automotive world in the last 20 years has been unprecedented. As you sell new and used cars with warranties, deal with recalls and document retention, and the pains that come with being considered a creditor- you must make sure your business is buttoned up daily. Many dealers have given the “hall monitor” responsibility to one person who is designated as a compliance officer; others have given the responsibility to an existing person inside the dealership that is trusted. This person separates themselves from the heat of the moment and makes sure that the dealership is minimizing its exposure to potential fines, imprisonment, bad publicity, and more that comes from non-compliant situations.


Once you’ve identified that person, what should they be closely monitoring?

You need to look at your customer buying process online. They can apply for credit there on most websites, and you can import the customer’s private information to your CRM tools. Many on your sales staff are eager to vet that lead and pull the consumers’ credit without regarding the compliance steps that are required. So, make sure you have a disclaimer on the application page of your website that is like the disclaimers listed on the bottom of the credit applications at the dealership. You should also have your hall monitor consider if pulling the credit is needed until the customer comes to the dealership- most of what you need for credit approval comes through that face-to-face conversation, and it’s the most professional way to handle a finance lead.

No matter if you get a credit application online or in-person, your compliance officer needs to make sure your staff is following a few necessary regulations every time. Each time you pull someone’s credit or conduct a credit transaction, you must comply with the Red Flag Guidelines. It’s merely a process of identity verification.

No matter if you obtain the credit application online or in-person, it does not change the need for your staff to follow a few necessary regulations every time. For starters, every time you pull someone credit or conduct a credit transaction, you are required to comply with the Red Flag Guidelines. Red Flag is simply a process of identity verification. Most dealerships are receiving their Red Flags detection and guidance from either DealerTrack or Routeone. The customer must have a score of 75 or higher on the report. If the score is below 75, there are a series of questions that are prompted to help verify the customers’ identity.

You also need to provide the customer with a Risked Base Pricing notification. It can be printed out of DealerTrack, and it’s recommended that you put a signed copy in the deal file to prove that you provided it. You also need to give the customer at this point with a copy of your dealership’s privacy notice. It’s known as the Safeguards Rules. This needs to outline how you will keep the customers’ personal information safe. They need to sign the notice, and it should be stapled to private information and kept in an individual file for situations where you collected data, but a deal didn’t happen.

Once the customer is on your lot- hopefully, your hall monitor has done all the prep work for their visit. You must display the warranty offered for each vehicle, both for new and used car inventory. Make sure you have the appropriate warranty section marked, and all the information is legible. A signed copy of the displayed sticker should be placed in each deal file. Problems occur when the sales department tries to change the type of warranty being offered during the negotiations.

Your hall monitor should also be looking at how your sales desk is quoting payments. Have you heard of payment packing? It’s the process of building in hidden charges like service contracts, gap, and more to drive up the payment. It’s a highly illegal process. If your sales desk is doing that, they should stop immediately. The keyword is hidden. You can quote payments with products; they need to be disclosed. You should also look at your desking tool and make sure that all worksheets have a disclaimer noting that all payments are pending credit approval. You can also update the defaulted interest rate within that tool monthly- it helps ensure your desk is using applicable rates and applies some logic to how you’re determining the rates and payments for customers.

Your hall monitor is making sure the worksheets and website are in order, the credit pull is proper, and now they need to make sure your F&I department complies. The managers in that department should be trained to press pause and make sure that all steps of your compliance program are completed. They are the last line of defense in making sure the dealership is protected. There is a range of activity involved in this. Every customer must be cross-referenced to a list of known terrorists compiled by the Office of Foreign Asset Control, even if it’s a cash deal. We suggest that you have an F&I menu which every manager in that department uses. The list is also a great way to prove that 100% of the available products were offered to the customer.

Want to learn more about setting up proper compliance inside your dealership? Watch this webinar to get more expert advice or contact us to learn about implementing structured risk management tools.

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