While going through some industry related social media, I came across a posting from a service provider that alarmed me. It stated Nothing Happens in the Auto Business Until a Vehicle is Sold. I've been around long enough to know that this sentiment is shared by a lot of Dealers and other industry participants. After all, they are in the business of selling and sometimes financing vehicles, so if a sale doesn't take place, the needle hasn't moved in their eyes.
From our well trained compliance eyes, though, this type of thinking is dangerous and ignores reality. Here are some examples:
"Nothing", You Say?
When an applicant submits a credit application, things start moving from a legal and compliance perspective. First, there is the duty to protect that customer information (think FTC Safeguards Rule), and under the Equal Credit Opportunity Act (ECOA) there is a duty to retain that application for 25 months. If a consumer credit report was obtained, a whole host of additional Fair Credit Reporting Act (FCRA) obligations kick in.
Then there are Fair Lending laws, discrimination concerns, and whether the creditor followed its underwriting policy when making a credit decision, as well as whether the policy and underlying process is compliant. Also consider whether there was any sort of prequalification or pre-approval. The law books are filled with (and plaintiffs' lawyers pockets filled by) cases based on these examples we've touched on. The moral of the story is that lots of liability can be created, even without a vehicle sale. Anyone still think nothing is happening?
How about the dealer's website, advertising and social media content? Those are often fruitful fields for regulators and lawyers alike. Here again, there are lots of scenarios where liability can be created, even without a sale. From truth-in-lending advertising violations to deceptive representations to state law concerns, how the dealer presents itself online and in advertising can create lots of unwanted attention.
Finally (not really, we could go on and on, but you get the idea) there's the credit decision itself. If adverse action is taken on the credit application, there's the duty to provide an adverse action notice. When and how it is provided as well as what it says are active topics of litigation in and of itself. If the deal was approved, that generates a whole other array of potential compliance issues surrounding offers of credit, counter-offers, and how information is communicated. All of this before a pen is ever put to paper for a formal transaction.
Conclusions
The above examples are only a summary of some of the issues all dealers face, they are meant to illustrate our point and not meant to be exhaustive. The intent of this week's tip is to confront the notion that "nothing" happens prior to a sale. Dealers face all sorts of potential liability before they ever even turn on the lights in the morning. Now ask yourselves, are you doing enough to make sure that you are mitigating your risk in these areas?. There's nothing worse than incurring the expense of defending yourself and even having to make a payout when there wasn't even a sale.
Please reach out to Ignite at Info@IgniteCP.com if you'd like to discuss this article, your sales process, or any other aspect of your business.
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