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We know you've heard this from us before, but creditors have to make sure they audit their credit reporting files, have a strong process for handling both direct and indirect credit disputes, train their personnel responsible for these functions, and have documented policies. Why do we keep harping on this?  Because creditors are under attack.  Every day, creditors are being sued by attorneys all over the country, and these cases are difficult and expensive to resolve. In my personal inbox recently, I received a solicitation from one of these law firms.  I'm not making this up, here's what it said: "We're not just legal experts, we're myth-busters and truth-tellers committed to guiding you to financial greatness" "Our game plan - tackling your credit report lies head on and building a solid foundation for your credit future" "Real credit improvement is a battle, demanding strategy, grit and a no-nonsense approach". The Sharks are Circling. They ARE out to get you, so you'd better take these issues seriously.  Among the ways we can help: Conduct reporting audits to identify inconsistencies Train your team on reporting and dispute handling matters Audit compliance with dispute deadlines Create policies and procedures to document your compliance Reach out to us at info@ignitecp.com today and take a big step to defending your business

A very scary lawsuit was recently filed by the Minnesota Attorney General against an independent dealer and its owner, individually, seeking millions of dollars of consumer refunds as well as injunctive relief and penalties. This is a "real world" example of the type of "bet the business" lawsuits that we warn dealers about.  The allegations against the owner claim that he "directed, controlled, participated in, acquiesced to, and knew or should have known about, the unlawful conduct described in this complaint, and is therefore personally liable under Minnesota’s consumer protection statutes for his participation in various unlawful schemes". Remember, these are allegations and the defendants will have an opportunity to defend themselves. Lawsuit Allegations The lawsuit alleges that this dealer (1) misrepresents that its used cars are certified when they are not; (2) illegally adds expensive vehicle service contracts to consumers' purchases without their consent; (3) refuses to provide warranties that it is required to provide by law; and (4) fails to make accurate "Buyer's Guide" disclosures and provide such disclosures in Spanish, as required by law; and (5) conducts business under an unregistered trade name that heavily targets and exploits Spanish speakers. We Sure Wish They'd been Paying Attention Just in the past year, we've written or spoken about all of these claims extensively. Too bad this dealer didn't undertake the type of proactive compliance review that we encourage. If they'd been paying attention, they'd know: Vehicle certification claims are dangerous, regulators frown upon the use of the word, and many state deceptive acts and practices statutes address such claims; it's vital to have proper paperwork that reflects the voluntary nature of the service contract or any "add-on"; car dealers had better be familiar with their laws addressing car sales and warranties and honor any required warranties; If any part of the transaction is negotiated in Spanish, then the dealer is required to provide a Spanish Buyer's Guide; The details matter, if a dealership is using a different name or "DBA" for marketing purposes, it had better take the necessary steps to register that name in accordance with state law. Don't Let This Happen to You Are you "whistling through the graveyard", just hoping to get by? Do you think "this will never happen to me"? Do you lie to yourself by thinking "I'm too small to be noticed"? Are you hoping that ignorance of the law will be a viable defense? Bet on Ignite Instead of Betting Your Business Our team of experts can help protect your business and avoid the dangers of lawsuits and regulatory scrutiny. Whether it's improving your deal paperwork, adjusting your business practices, reviewing advertising and websites, creating and implementing controls, or serving as your trusted compliance advisor, we will make an impact. Don't delay, call today. Please reach out to Ignite at info@ignitecp.com

It's the time of year where we hear a lot of excuses.  Why? Because we are rather persistent in encouraging people to come to our annual Compliance Unleashed conference in May.  We host this event because understanding legal and compliance risk and how to protect your business is a skill that needs to be honed. So let's confront these excuses head on: "I'm too busy to get away" Really?  If you aren't going to take the time to learn how to protect your business, when are you going to find the time to address all of the headaches that come from having compliance issues with auditors, attorneys and state regulators etc? "It's been a tough year, it's not in the budget" If you think you don't have room in the budget for this, where are you going to find the money to remediate even one compliance issue or address one attorney demand letter?  We will teach you how to avoid the mistakes that lead to trouble. You'll receive literally thousands of dollars of knowledge that can save you tens of thousands of dollars pretty easily.  Plus, we and our event sponsors make this event extremely affordable. We provide your meals, drinks and a lot of other expenses that come up at a typical conference. "We don't have a Compliance Officer" UH OH, you should!  Figure out who the person is that you rely upon most to protect your business, and then send them to us and let us teach them the skills needed to really help you.  If you are the owner  or in a senior position and don't think you have enough time, that's all the more reason to join us.  The daily tasks you face are overwhelming, so take two days, immerse yourself in our knowledge and methodology, and return to your business with a "new set of eyes" to identify issues. "I'll just go next year" Sure you will!  Remember to bring the Easter Bunny and Tooth Fairy with you.  Stop pretending to be invested in your business and really do something to make an impact.  Our Agenda confronts the most dangerous issues faced by our clients.  Next year will be too late.  The CARS Rule and Safeguards Rule already presents risk.  The FTC, CFPB and state regulators have already fined dealers this year and you need to find out why so you can avoid those making those same mistakes. We promise that in two days we will transform your thinking and give you the valuable tools needed to succeed. Details Our Conference is May 20-22nd in DFW, right by the airport.  You can literally fly on Monday afternoon and fly out Wednesday afternoon.  In between, you'll learn new things from the Ignite Team and some of the most knowledgeable folks in the industry and meet like minded people that share your issues.  You owe it to your own professional development and to your business to attend.  Click those links below and get registered.  The hotel block is expiring at the end of the week, so don't delay. We'll see you in May The Ignite Team

The CFPB just issued its Spring 2024 Supervisory Highlights.  It issues these a few times a year to call attention to issues it deems significant.  Once again, credit reporting and the duties and obligations of creditors made its list. Credit Reporting Strikes Again The Bureau's highlights state: Inaccuracy in the credit reporting system is a long-standing issue that remains a problem today. Accordingly, the CFPB continues to prioritize examinations of consumer reporting companies (CRCs) and furnishers. Specific to furnishers, the CFPB said: Examiners are continuing to find that furnishers are violating the FCRA duty to promptly correct and update furnished information after determining that such information is incomplete or inaccurate. Specifically, in recent reviews of auto loan furnishers, examiners found that furnishers continued to furnish incomplete or inaccurate information for several months, and in some cases years, after the furnishers determined, through either dispute handling or identification of systemic issues, the information was furnished incompletely or inaccurately. For example, examiners found that furnishers continued to report dates of first delinquency inaccurately for several months after determining that they were reporting inaccurately due to various system coding issues. Examiners also found that after determining accounts were in a bankruptcy status and therefore should have been reported as current with dates of first delinquency that reflect the bankruptcy filing dates, furnishers failed to update the dates of first delinquency for the accounts to the bankruptcy filing dates. There's nothing new here folks.  The CFPB has been highlighting these issues for the past few years and we've brought up these issues in recent tips of the week as well as in our March Webinar.  The same risks that are being highlighted with servicers are also found with all furnishers, be they big or small.  Reporting and dispute handling is also the most frequent lawsuit being brought against creditors, so it's imperative that all creditors, regardless of size, conduct audits to make sure their files are accurate and have strong controls in place (policies, procedure, training) to manage these risks. Enforcement Action Next, the CFPB focused on an enforcement action it took in late 2023 against one of the largest auto finance companies in the country.  The Bureau found the company: (1) unfairly and abusively making it unreasonably difficult for consumers to cancel unwanted add-ons, including when consumers complained that dealers had forced add-ons on consumers without their consent; (2) unfairly failing to ensure consumers received refunds of unearned Guaranteed Asset Protection and Credit Life and Accidental Health premiums when they paid off their loans early or ended lease agreements early, making the products no longer of any value to consumers; and (3) unfairly failing to provide accurate refunds to consumers who canceled their vehicle service agreements as a result of flawed system logic. It also found violations for: (1) failing to promptly correct negative information it had sent to Credit reporting companies, where the negative information was falsely reporting customer accounts as delinquent even though customers had already returned their vehicles; and (2) failing to maintain reasonable policies and procedures to ensure related payment information it sent to credit reporting companies was accurate. This action resulted in the Company paying $48 million in consumer redress and a $12 million civil money penalty. and the Company was also required to stop its unlawful practices and come into compliance with the law and prohibits incentive-based employee compensation or performance measurements in relation to add-on products. Conclusions I'm dating myself, but these Supervisory Highlights remind me of the old investment firm E.F. Hutton's advertising slogan: "When E.F. Hutton Talks, People Listen".  The Bureau is laying it out there for everyone so it would be a great idea to listen.   In the immortal words of my favorite basketball coach, John Wooden, "Failing to Prepare is Preparing to Fail". Please reach out to Ignite at info@ignitecp.com if you need help on these or any other consumer sale and finance matters.

We were recently contacted by a company looking to move their credit facility.  Unfortunately, they hit a snag because the prospective new capital provider took a look at their deal paperwork and found issues that concerned them.  It then asked about their compliance management system and to interview the compliance officer and was told neither exists.  The capital provider sent them to Ignite, and we're in the process of implementing an overall compliance strategy. Hopefully the story will have a happy ending. We bring this up, though, because it emphasizes something we continually preach:  COMPLIANCE ISN'T A SOMETIME THING.  You may attend our webinars, that's great, we love having you, and you may read these Tips of the Week, but truly, that's just the Tip of the Iceberg.  There's a lot more that needs to be done. Auto sales and finance is one of the most regulated industries.  You might as well be an environmental or pharmaceutical company with all of the regulations to follow, and they are constantly changing.  Then there's the army of lawyers that are constantly on the attack. Suffice it to say that the bar is always being raised.  The same protections that worked only ten short years ago are not sufficient today. You need to take action to protect your business. If you are reading this, you need to attend Compliance Unleashed 2024: Risk Never Rests, being held in DFW May 20-22nd.  It's really that simple.  Don't put it off until next year, don't use the excuse that you can't get away, or that it's not in your budget.  Are the thousands of dollars that you'd have to spend to resolve just one complaint, lawsuit or regulator issue in your budget? We promise that two days with us will transform your business and change your thinking.  You'll see risk in a whole new light, and you'll learn battle tested solutions to make your business stronger.  Don't put it off, don't rely on the strategy of "it will never happen to me". Hit that Registration button below and find out why our audience keeps coming back year after year.  We'll see you in May.  If you have any questions please reach out to Ignite at info@ignitecp.com please follow the link below to register for Compliance Unleashed 2024 https://www.complianceunleashed.com/

We ask clients this question all of the time.  In our view, there is a big difference between understanding the risks involved and intentionally making a business decision to accept the risk as compared to having no idea that risk is being taken. Unfortunately, a client recently wound up on the wrong side of that contrast and didn't understand a simple business function was creating risk until it ended up in a nasty lawsuit.  The issue surrounded contacting references after an account has become delinquent.  We've preached in the past that this practice can carry risk.  There are strict rules about what can be said and asked on such calls, and the law books are filled with many examples of references that have successfully brought claims against creditors under the Telephone Consumer Protection Act and theories. The issue with this client is that someone in its organization decided that the company would begin texting references if they didn't answer a phone call.  Needless to say, their luck was bad and they sent a text to a reference that was familiar with this type of litigation.  In my opinion, the reference manipulated the company representative into a series of texts, knowing full well how to create a legal claim.  Now this company is being targeted by a law firm that has a successful track record in these matters. This is only one example of danger often lurking just below the surface of your business.  We've provided plenty of other examples in our weekly tips and webinars: payment waterfalls, credit reporting, Article 9 letters, advertising, the list is long. How do you defend yourself?  Engage us to examine your various functions and processes. Allow us to help you "build a better mouse-trap", or at least help you understand where risk truly resides.  Don't wait, reach out today If you have any questions please reach out to Ignite at info@ignitecp.com

I don't mean to alarm anyone with the title to this week's Tip; then again, maybe I do.  The truth is, I'm discouraged, and today I hate my job.  Why?  Because it happened again.  A dealer reached out because they've been hit with a class action lawsuit.  Once again, the claim surrounds post repossession Article 9 letters, specifically the Notice of Intent to Sell and the Deficiency Balance letters. We've done webinars and podcasts on the subject, we've done numerous weekly tips, we've written articles, we present on it at our Conference every May, and it's one of the key points I emphasize in every presentation, but still the message doesn't spread as far as it should.  Now this dealer is faced with what could be a "bet the business" lawsuit to defend, and selling cars and collecting accounts will necessarily take a back seat to answering discovery, gathering documents, meeting with lawyers and preparing for depositions.  The legal fees alone can be crippling. "I got audited by the state and they never said anything".  "My collection attorney never mentioned this", "But they owe me money, how can they sue me?", "We've been using this letter for years".  I've heard all of these and more over the years.  Sorry to burst your bubble with tough love, but these deflections are all meaningless.  As a creditor, compliance with the Article 9 post repossession requirements is mandatory, the rules are picky, and there are slight variances from state to state.  As I'm prone to say, "there's nothing worse than losing twice, once when the account goes into default, and again when you have to spend money defending yourself from an Article 9 claim". Get your letters examined at least annually by someone that's qualified.  Don't rely on another dealer's letters, don't pass them around your 20 groups, don't practice internet law and use one that someone has posted, and don't think that it's your regulator, bank or anyone else's job.  GET YOUR LETTERS REVIEWED.  In the immortal words of Jim Malone in the Untouchables, "Thus endeth the lesson". If you have any questions please reach out to Ignite at info@ignitecp.com

The hits just keep on coming from the FTC.  It recently published guidance warning companies that "it may be a deceptive or unfair practice for a company to adopt more permissive data practices, for instance, to start sharing consumers' information with third parties, and only inform consumers of this change through a retroactive amendment to its terms of service or privacy policy". In plain English, what this means is that the frequent practice of many car dealers and finance companies of simply updating a privacy policy online when there is a change in information sharing practices may not provide enough notice to consumers. Say, for example, a dealer or related finance company brings on a new extended service contract provider and in that relationship it's agreed that the finance company will share customer information of those customers that didn't purchase the contract at the time of sale with the extended service contract provider, so that the provider can market to them.  This is a departure from the company's existing practice of not sharing any information with third parties.  Not updating the privacy policy to reflect this change would be problematic in its own right, but now the FTC is saying that updating it without further explanation may also be unfair or deceptive. The FTC was nice enough to use the word "may", but I'm pretty sure they mean "is". The FTC focused on Artificial Intelligence relationships in its announcement, but its warning went noticeably broader by specifically referencing sharing personal data with third parties. Also, be aware that many states have adopted their own privacy laws that require notification to consumers of any material change in their privacy policies.  The message is pretty clear: updating a privacy notice on a website isn't enough to provide meaningful notice of a more permissive change in information sharing practices, and companies need to consider their existing privacy practices when entering into new relationships and ask themselves how they will deliver actual notice of the change to its customers and consumers. Please reach out to Ignite if assistance is needed on any privacy notice related issues or if you'd like to review your practices.

If you are furnishing credit data on your customers you know that one of the most resource intensive activities is investigating and responding to disputes. I have seen businesses ignore disputes or fail to do thorough investigations because they didn’t have the resources required to dedicate to them. The requirements for data furnishers are quite clear and you ignore them at your peril. Although the Fair Credit Reporting Act (“FCRA”) precludes private action against data furnishers for providing incorrect information, it does allow private action if the furnisher fails to conduct a reasonable investigation. The 2003 FACT Act bolstered protections against identity theft and its effects. It also ordered agencies to create rules governing the proper disposition of consumer report information, granted consumers the right to request free annual reports, and required businesses to provide copies of relevant records to identity-theft victims. As a data furnisher, you can be held liable for both willful noncompliance and negligent noncompliance. In the case of negligent noncompliance, the consumer can recover actual damages, costs, and attorney’s fees. In the case of a willful violation, the consumer can also recover statutory damages between $100 and $1,000, plus punitive damages. Furnishers who do not conduct a reasonable investigation of a consumer’s dispute may be liable for actual damages, including credit denials, and attorneys’ fees for a negligent violation, or statutory and punitive damages, plus attorneys’ fees in the case of a willful violation. What exactly is a reasonable investigation? The short answer is that it depends. When a furnisher reports back that the disputed information regarding the account has been verified, the question of reasonableness depends on whether the furnisher looked at enough evidence to prove that the information was true. What this means is that you must investigate every item that was disputed and look at all of the available evidence to substantiate your reporting. A data furnisher can conduct an investigation and conclude, based on that investigation, that the disputed information cannot be verified. If you are unable to conclude 100% that what you reported is correct, you must stop reporting that information and remove the account. Secondly, the furnisher might conduct an investigation and conclude that the disputed information is inaccurate or incomplete. When a furnisher determines that disputed information is wrong they must notify the CRAs through eOscar (AUD or ACDV) and must modify, delete, or block the incorrect information from being furnished in the future. This usually means also making a correction in the account servicing software. In the case of direct disputes, you are not required to conduct an investigation if: The disputed information is related to consumers’ identity (DOB, Address, etc.). The information was provided by another furnisher. The dispute is related to previous employers. You have evidence that the dispute was prepared by a credit repair organization on behalf of the customer. You determine that the dispute is frivolous or irrelevant. One question I often get asked is, “How do I tell a letter is from a Credit Repair Company? In some instances, I have seen disputes come from companies that clearly states on their website that they are a credit repair company that only gets paid after they are able to get credit lines deleted. When these type companies are involved, it is often difficult to tell if this is a valid dispute situation and many companies respond regardless of whether they believe it is. I recommend that clients exercise caution and treat it as a dispute and investigate. Another common question I get is, “When is a dispute frivolous or irrelevant?” Some of the most common examples include: The consumer didn’t provide enough information to investigate. The dispute is substantially the same as a previous dispute. The dispute is a duplicate. It’s similar to a previously submitted dispute. If a dispute is found to be frivolous or irrelevant, you must notify the consumer within five business days of making your determination. An example of this would be when the letter is missing an account number when the consumer has or had multiple accounts with you. There is another strategy that we have seen used more frequently by credit repair agencies lately, often sent on the letterhead of a law firm. The tactic involves sending dispute letters in three stages. The first letter is usually a standard dispute letter that disputes that the debt belongs to their client. After the furnisher responds that they conducted an investigation and confirmed the information is correct, the firm will send a debt validation demand that includes a list of questions to answer regarding the debt. By sending this letter, they are hoping that the furnisher will just delete the tradeline to avoid further letters from a law firm. If the furnisher completes the questionnaire and send it to the firm, they are expecting to find differences or missing information between the first letter and the second. They then respond with another letter, noting the discrepancy, citing an FCRA violation, and using that to ask for an immediate deletion. These letters can be scary to receive, especially for a small business that doesn’t have in-house counsel to give guidance on the response. The best things you can do in these instances is to make sure you are conducting a thorough investigation, have records and documentation substantiating your decision, and be consistent in your responses. Last but most important, track your responses and keep copies of them. In the case of a second dispute, it’s critical that you be able to reference the previous dispute, details of your investigation, and your response. Richard Hudson is Managing Partner of Ignite Consulting Partners, which is a compliance, training, and advisory company that works with independent dealers and finance companies across the country. He is a frequent writer and speaker on credit furnishing and dispute handling issues. For more information visit their website at IgniteCP.com

by Richard Hudson For years, we at Ignite have been speakging and writing about the exact types of violations laid out in the complaint against USASF. From failure to ensure refunds to double billing and wrongful repossessions, these are not new issues. They are well-documented, well-understood, and easy to correct. Yet they go unheeded. This action should be a warning shot across the bow for all of us. For a lot of reasons, the recent complaint against USASF by the Consumer Financial Protection Bureau (CFPB) should be a huge wake-up call for dealers across the nation. The issues they brought up in the complaint are not complex. They're not unknowable. They're not unfixable. In the face of clear and explicit warnings, it's a sounding alarm that time is up for complacency and negligence. The Violations The CFPB's complaint against USASF highlights several critical violations that should serve as warnings for auto dealers. These violations are not complex or unknowable, but they do require diligence to prevent. Below is a summary of the key violations: Failure to Ensure Refunds of Premiums: They failed to refund unearned GAP premiums denying them at least $7 million. They had a policy that said they were issuing refunds but no one was monitoring the execution. Double Billing of Collateral-Protection Insurance (CPI): They charged at least 34,000 consumers twice for CPI, amounting to $1.9 million. This double billing led to delinquencies, repossessions, and errantr collection efforts. Misapplication of Consumer Payments: How many of you apply your payments to CPI first? Well, the CFPB alleges this was an improper application that happened at least 8,738 times, resulting in consumers paying around $1.2 million in additional interest and fees. Consumers had no control over these errors. Wrongful Repossession of Consumer Vehicles: At least 82 consumers had their vehicles wrongfully repossessed when the repo order wasn't rescinded after a payment or arrangement was made. These errors were beyond the consumers' control, and the vehicles were either sold or unavailable for 17 days. Violation of the Consumer Financial Protection Act (Unfairness): All of the above acts were in violation of the CFPA, constituting unfair practices that caused substantial injury to consumers. These injuries were neither reasonably avoidable by the consumers nor outweighed by any benefits, making them clear violations of the law. Call to Action As with previous actions by the CFPB, this is just the start. They tend to trickle down to state regulators and find their way into their examination manuals. Dealers who continue to ignore compliance are treading dangerous waters. 1. Understanding the Laws: Understanding consumer financial protection laws is not just a legal obligation; it's a business requirement. Compliance must begin with education, understanding the full spectrum of responsibilities, and the potential legal and financial repercussions. 2. Implementing Comprehensive Change Starts with a Robust CMS: The era of the "check the box" has got to be put behind us. This is not a time for patchwork solutions or window dressing. I bet that USASF thought they had all the boxes checked, do you? How sure are you? Compliance isn't a class you take once a year in January, it's ongoing. You have to instill a culture of compliance, backed by robust policies, vigilant oversight, and ongoing training. 3. Regular Auditing and Monitoring: In the fast-paced world of auto sales, it's easy to be distracted with what can seem like more important operational concerns. Compliance needs to be baked into your organization in the same way sales and collections are. Regular audits and monitoring are vital to catch errors early and rectify them promptly. That's not enough, though. Audit findings have to be followed up with change and that only comes when compliance efforts have the support of senior management and ownership. Conclusion Take Action Now: Don't wait for a regulatory knock at the door. Engaging with legal and compliance experts, conducting internal reviews, and addressing any identified shortcomings should be immediate priorities. In the end, the message is clear: The time for warnings is over. The era of enforcement has begun. Dealers must act with urgency, responsibility, and a steadfast commitment to the law. As professionals within the industry, we owe it to ourselves, our businesses, and our customers to rise to the occasion and ensure that the trust placed in us is well-deserved. Let this case be a lesson learned, not a harbinger of what's to come. Let's not let this go to waste.

BY STEVE LEVINE, IGNITE CONSULTING PARTNERS As I’ve mentioned in previous articles, I came to be a compliance lawyer after spending the first several years of my career defending car dealers and finance companies in a myriad of colorful lawsuits. After seeing the damage that litigation can do to a small business, I had an epiphany that I wanted to help prevent dealers from getting sued rather than defend them after the fact. What I haven’t shared with many of you previously, though, is that during this time I also handled a few lawsuits for consumers and sued a few dealers. Since I’m not Catholic, that’s as close to “forgive me Father for I have sinned” as I’ll get. I’m not apologizing, I was young, hungry and had a chip on my shoulder. My philosophy was that if a dealer wasn’t smart enough to use my services they were fair game, plus I reasoned that if I didn’t take the cases someone else would. To this day, I’m grateful that I handled these cases because seeing the world from the other side of the aisle greatly improved my analytical abilities to defend similar cases. I was thinking about a few of those cases recently when I was preparing a presentation on avoiding lawsuits for a group of dealers at a state convention. They provide some valuable insight into how cases develop and evolve, I’ll share a few stories. In the first case, a gentleman had recently purchased a conversion van to provide transportation for his disabled daughter. Almost immediately, the van had significant mechanical problems that left him (and his daughter) without transportation. My client tried to work with the dealership but it refused his requests, relying on the “As-Is” language. Then he picketed the dealership, driving around the lot with a large yellow lemon affixed to the roof of the van. You’ve got to admire his creativity. When he first called me, I almost didn’t take the case because I thought the mounting of a “giant lemon” on the roof was surely an indication of a difficult client. I knew all too well that the quality of the person in the plaintiff’s chair matters a great deal. I changed my mind, though, when he told me he had taken video footage of the dealership’s employees “flipping him off” and throwing things at him as he drove by. Next he told me about the “spot the lemon van and get $ 500 off your purchase” campaign that the dealership flashed on its display sign on the roadway. What sealed the deal, though, was when he sent me a recording of numerous threatening messages that the dealership left on his answering machine. The end result was that I sued the dealership and finance company (just like a good plaintiff’s lawyer, I was looking for another pocket for recovery) for every claim I could think of for this conduct, plus I brought a class action for a disclosure error that I found when studying the contract because I was pretty sure if the dealer did it to this client it was a systematic error made repeatedly. Without going into details, the end result was a favorable financial settlement that enabled my client to acquire another, dependable means of transportation. Even though this is an extreme case with several explosive facts, there are lessons that I think every dealer should remember when it comes to how plaintiff’s lawyers evaluate a case. First, I found the gentleman’s story to be very sympathetic. As someone with a disabled sister, I was empathetic to his experience and I thought that a judge and jury would be, too. Also, I thought that the combination of the dealership’s employees mocking this person (which he was smart enough to video, thank you VHS) and making threatening calls made punitive damages likely. Finally, I thought the danger of a credible class action would bring the case to a head rather quickly, which it did. It is important to remember is that class action lawsuits rarely start out that way, they usually start out involving a mechanical problem, as was the case here, that turns into a much more dangerous class action once a lawyer got involved. The next case I’d like to mention also involved some pretty egregious facts, this time surrounding collections. A lady came in and told me that she had recently fallen behind on some payments on her car and that the BHPH dealer was calling her non-stop. When she shared the name of the company, my ears immediately perked up, because I’d tried to make this dealer a client and was dismissively and sternly told that they had everything in order and there was nothing I could possibly do for them. Being young, hungry, with the aforementioned chip on my shoulder, I sure did remember that statement as she started telling me about the dozens of collection phone calls she’d receive every day from this dealer. When I asked what proof she had to back up her allegations, she told me she’d mail me proof. Imagine my surprise when I received a videotape (Betamax!) of her finger scrolling through her answering machine, minute by minute, hour by hour, with literally 40, 50 and even 60 calls to her house in a single day. That case started out as a simple “wrongful debt collection” case based on the fact that so many calls a day was certainly harassment. By the time I looked through all of the paperwork, though, I threw in several more claims because there were incomplete forms, ones that had mathematical mistakes, and I thought that the dealer had sold her vastly over-inflated aftermarket products that provided illusory benefits in violation of state law. Foolishly, the dealer, stubborn as it was, refused a quick settlement and burned several thousands of dollars defending my discovery requests before agreeing to a settlement on the eve of depositions. Anyone see a pattern here? In both cases, little problems turned into larger problems for the dealer once a lawyer started digging his nose into the details. In this case, I also think the dealer made a big mistake in not admitting it had a problem quickly and resolving the case. Between my legal fees and their own lawyers, they probably spent close to $ 10,000 or perhaps even $ 20,000 that didn’t need to be spent if they had just honestly evaluated the case early on. This is a mistake that I’ve seen lots of dealers make over the years, and a point that I always stress in training dealers on defensive litigation tactics. I’d like to think that egregious examples like these would no longer happen because of the emphasis the industry puts on education, complaint management, and other defensive tools, but I’m not enough of an optimist to put money on it. That’s why when I first start working with a new dealer client, I emphasize the importance of putting key compliance blocks in place so that if it is attacked, I’ll be able to discourage the Plaintiff’s lawyer by demonstrating how this client is different than the stereotypical dealer. The key to doing this is to have demonstrable evidence to back up that claim, and that’s why complaint management, policies and procedures, training, risk assessments, and spot audits are so valuable! An ounce of prevention is truly worth a pound of cure, so take steps before trouble strikes. Steve Levine is Chief Legal and Compliance Officer of Ignite Consulting Partners, which provides compliance guidance, training, and other services to independent dealers and finance companies across the country. He is a frequent writer and speaker on industry issues and can be followed on Twitter @LawyerLevine. For more information about Ignite visit its website at IgniteCP.com

By Richard Hudson, Chief Optimization Officer, Ignite Consulting Partners Steve Levine, Chief Legal and Compliance Officer, Ignite Consulting Partners Introduction We fear there is a storm brewing which will involve a potentially massive collision between class action lawsuits and credit reporting. If the CFPB arbitration rule gets enacted and arbitration clauses can no longer contain provisions that prohibit the consumer from bringing or joining in a class action lawsuit, it will create a scary climate for the industry as Plaintiffs’ lawyers will flock to put together cases. One of the critical factors they search for are business practices that are likely to have repetitive errors. Such characteristics create a similarly situated class of consumers to make up the “class”. Credit Reporting is one such business process that leaps out as likely to attract their attention. It is systematic and often automatic, meaning a small misinterpretation or deviation can result in repetitive errors that are duplicated with each reporting cycle. This will be attractive to the Plaintiffs’ lawyers that will no longer be shackled by class action waivers. The Problem A great many creditors that report credit experience with consumers have no idea whether or not they are in compliance with the myriad of regulatory requirements that data furnishers must obey. Data furnishers must report accurate information. This sounds simple enough, but the numerous permutations that exist throughout life of an account create massive potential for errors. Coupled with the fact that creditors often rely upon third party service providers to carry out the reporting function, the climate is quite scary. If you can’t say with confidence, “Yes, I am in Compliance”, and have the data to back it up, it’s prudent to take a closer look at what you are doing. Depending on your business, simply figuring out current practices can be a daunting task. Take a deep breath. By following a few general guidelines, you can be more confident in your role as a data furnisher. Understanding Where You Are Understand what is happening today. Honestly evaluate your practices and staffing. Investigate and document every area of your business that could impact the data you furnish. Which people in which area could potentially impact you as a data furnisher? What is their level of training and expertise? Very often, we find that the people that are depended upon the most have little if no training, and are simply asked to carry on practices that have developed over time. “We’ve always done it that way” is not a good defense. Make an investment in your staff and give them the training and tools they need to do their job. Consider the adequacy of your staffing. In the Drive Time Consent Decree, the Bureau took great lengths to emphasize the size of the staff should be commensurate with the number of customer credit reporting disputes being handled. Is the business large enough to have staff dedicated to this function, or is this just one of many that they are asked to perform on a daily basis? What are the backgrounds of the staff? Do they have expertise or have they been thrown into the deep water? It is critical to adequately educate the staff. There are many different resources that can help. There is an industry organization called the CDIA that offers online certification for data furnishers in addition to two day workshops held several times a year. In addition, there are firms like ours, Ignite Consulting Partners, with industry specific expertise that can help with education, best practices and audits. Next, take a close look at existing written policies and procedures, or better yet, get a qualified compliance or legal expert to do so. Does the level of detail and coverage match the size and complexity of your business, and do the actual practices measure up to the aspirations of your policies? The policies and procedures set the expectation for everything else that occurs after, so take the time to make sure they are sufficient. Create a Roadmap Formulate a plan based on the size and complexity of your business. The practices of a business with 500 accounts won’t be the same as one with 10,000. Creditors of every size, though, should have a fully documented review for how monthly processes are performed, as well as an audit process where data is checked and compared so that there is comfort that data is both accurately reported and reflected in the report. Next, there should be procedures for both direct and indirect customer disputes. There should also be a thorough understanding of what is an appropriate versus inappropriate use of consumer information. Pay Attention to Third Party Service Providers As much as anything else, the First Investors CFPB Consent Decree stands for the proposition that a creditor can’t just pass off liability on a third party service provider. Creditors are ultimately responsible for the actions of those providers. On something as complex as credit reporting, that means its critical to understand what the provider is doing and making sure it is properly executing. Check their work, review their employee training practices, and hold them accountable for missteps. A strong vendor management program is especially important when it comes to this function. Execute There should be one person responsible for the implementation all facets of the program. This is important because you have to ensure that things are completed, not delegated and forgotten. Again, start with training on the processes and procedures. Ensure everyone on the team knows their responsibilities and how to carry them out. Follow Through Just like your home and vehicle need upkeep, so does your credit reporting infrastructure. Laws, staffing, and your business are constantly changing and you need to ensure that your processes keep up. Depending on the size and complexity of your business, I recommend a documented systematic review of your entire process at least once a year. I also recommend ongoing training for each employee involved in the process. This ensures that everyone involved adheres to the plan consistently. Conclusion While there is always going to be an inherent risk in reporting credit, there is ample opportunity to mitigate it. Reporting accurately isn’t automatic, it takes a thoughtful approach. By using the pointers provided you’ll be well on your way to creating an infrastructure that will ensure accuracy. One of the things I always ask my clients is why they started reporting credit in the first place. Without exception, they started reporting credit to provide a benefit to their customers. With that in mind, I always try to remind them to keep focused on the fact that it is about the customer. They work hard every day to pay their bills on time and it’s great to be able to reward positive behavior. Compliance means doing things right, not just for the sake of compliance but for the sake of your customers. They’re why we’re here. Steve Levine and Richard are with Ignite Consulting Partners, which offers compliance, technology, process improvement and cyber security guidance to car dealers and finance companies. The combined experience of the Ignite team across several disciplines allows them to develop strategy, overcome internal obstacles and implement meaningful change. Please contact sales@IgniteCP.com to learn more.

by Steve Levine, Chief Legal Officer, Ignite Consulting Partners For several years I was responsible for creating the compliance learning curriculum for the AutoStar Innovate Users Conference. I would include checklists in the learning materials because they are a convenient and effective “take away” for attendees. I remembered this recently when I gave a speech to a local independent auto dealers association. The facility wasn’t set up to use a power point presentation so I went “old school” and provided attendees a checklist that highlighted a dozen broad categories of compliance issues. The feedback was great, with many dealers saying the checklist forced them to focus and identify their vulnerabilities. As I started thinking about this month’s column, I decided to again use this tool. What follows is a pretty thorough (though certainly not all inclusive) list of compliance issues for an independent car dealer to consider. I encourage everyone to use this to critically evaluate their current state of compliance and seek help on the areas in which you fall short. General Considerations ____ Are you properly organized under the law (corporation or LLC) to insulate yourself from personal liability? ____ Have you set up a related finance company (“RFC”) for legal and accounting benefits? ____ Have you obtained all licenses for your dealership and RFC to enter into the transactions you intend to enter into, such as retail installment contracts, side notes, financing of repairs, or loans? ____ If you have an RFC, is it licensed to hold and service the accounts? ____ Have you given thought to obtaining Errors and Omissions Insurance Coverage to avoid “bet the company” risk? Don’t Open Your Doors Unless You… ____ Have a qualified lawyer and accountant with relevant industry experience on speed dial; ____ Appoint a qualified Compliance Officer; ____ Appoint a qualified Privacy Officer; ____ Have identified qualified technology providers such as Dealer Management Software providers and other tools to efficiently run the business; ____ Know how each of the following impacts your business: GLB, TILA, ECOA, FCRA, FTC, CFPB, OFAC, and UDAP; ____ Have Confidentiality Agreements with all Vendors with access to premises and personally identifiable customer information such as cleaning crew and IT administrators; ____ Have a qualified lawyer review any advertising, including website and social media; ____ Establish a hiring process which includes a job application that offers protection, approved questions for interviews, and strategy to hire subject matter experts; ____ Develop employment contracts with confidentiality and non-solicitation provisions and accurate job descriptions with acknowledgement by employee; ____ Create an Employee Manual, which includes policies to follow, relevant laws, a policy on document and information security, and code of conduct, at a minimum; ____ Determine your “Red Flag” obligations and how you will safeguard customer information; ____ Determine how you will create a secure area for storage of both paper and computer based information and restrict access. ____ Establish a policy for accepting both cash and credit card information and know how you will report cash transactions over $ 10K (IRS form 8300). ____ If you will be reporting to credit reporting agencies, know how to safely and accurately report your account information; ____ Learn your relevant state regulator’s “do’s and don’ts”; ____ Know your record retention obligations and have a plan to comply; ____ Know how you will comply with Service Member’s Civil Relief Act requirements. Originating the Transaction – The Preliminaries ____ Make sure your credit application is up to date with FCRA and ECOA requirements and contains permission for text, cell phone and email contact throughout the life of the account; ____ Understand the legal obligations under FCRA and ECOA regarding adverse action and make sure letters are up to date, correct reasons are provided, and employees are consistent in their logic and use; ____ Understand whether your business model triggers a “risk based pricing” notice; ____ Make sure Buyer’s Guides are located on every vehicle available for sale and obligations under Used Car Rule are understood; ____ Compliant and effective Credit Underwriting and Fair Lending policy. Originating the Transaction – “We’ve Got a Deal” ____ Originating practices must be consistent with floor plan covenants; ____ Have each and every form that will be presented to a customer examined by a compliance lawyer; ____ Have a compliance lawyer bless each and every fee you wish to charge; ____ Make sure your RISC form (lease, loan, etc.) is up to date and DMS programming matches the form. Examples include but are not limited to rebate method, treatment of interest, payment hierarchy and application, and late fees and NSF fees; ____ How will initial and annual privacy policy be delivered? ____ Use a robust “spot delivery” form, if allowed by state law; ____ If using a “we owe” form, make sure it is accurate and specific; ____ Use GPS/starter interrupt disclosure forms and make sure they are consistent with rest of deal package; ____ Use an arbitration clause, either in the transaction document or separately; ____ Know whether you are in a “single document” state; ____ If offering various F&I products, consider “menu” selling; ____ Use training and policy manuals to make sure that all sales and F&I personnel understand importance of transparency, disclosure, and consistency in consumer dealings; Servicing of Accounts ____ Have a compliance attorney review every form letter or other communication; ____ Adopt and implement a Collections/Servicing Manual and consistent collections training materials; ____ Learn relevant state and federal collection laws and what dealers get sued for in your community; ____ Restrict employees’ ability to draft collection letters, texts and emails; ____ Provide customers with several different payment portals (IVR, text, ACH) to gain efficiency and cut down on conflict; ____ Adopt and implement a Complaint Management Policy and process to resolve customer complaints and document the process; ____ Have a process for accurately providing payoff quotes and consider privacy implications; ____ Be sure collectors know the rules about communicating with third parties; ____ Policies for releasing titles and possibly providing original documentation must be in compliance with state laws; ____ Be aware of consumer bankruptcy issues, such as the automatic stay, the differences between Ch. 7 and 13; “cram down” rules in your jurisdiction, reaffirmation agreements, specialized servicing issues, etc; ____ Know how your DMS identifies bankruptcy accounts and tracks trustee or reaffirmation payments; ____ Know your obligations under the Service Members Civil Relief Act (SCRA), including when it applies, who can exercise its benefits, and how the DMS handles interest rate/payment reductions; Know the Rules of Repossession ____ Have rigorous contracts with any third-party repossession agents and make sure they are sufficiently bonded and insured to insulate you from liability; ____ Verify your own errors and omissions policy will protect you from wrongful acts of agents; ____ Have an objective criteria setting forth criteria for repossession of accounts; ____ Know local customs for notifying police, definition of “breach of peace”, storing of vehicle and charging for personal belongings; ____ Know if there is a right to cure requirement prior to repossession. ____ Make sure you haven’t waived your right to repossess by accepting late payments on a regular basis; ____ If forced to utilize judicial repossession, do a cost-benefit analysis up front, beware of counter-claims and know if local law requires you to obtain judgment; ____ Beware of wide range of Article 9 of Uniform Commercial Code and consider: Post repossession notice and notice of intent to sell letters have very specific state law requirements and must be consistent with business practices; Know difference between “public” vs. “private” auction, and are your business practices reflected in your letter (i.e. dealer only auctions are not “public” in most jurisdictions); Leaving vehicle on your lot to resell is not a public auction and even such private sale can be attacked; Should you take advantage of “strict foreclosure”, when available, and what rights are lost? Make sure surplus and deficiency letters are accurately calculated and are consistent with actual business practices. How to report to credit bureaus and hidden causes of action. That checklist, dear reader, is COMPLIANCE GOLD! Don’t throw it away. Use it to critically evaluate your business and look for opportunities. Reduce your risk and protect the business you’ve worked so hard to build. Please reach out to me if you think of other items not on the list or if you encounter unfamiliar issues that you’d like to discuss. Steve Levine is Chief Legal and Compliance Officer of Ignite Consulting Partners, which offers compliance, technology, and cyber security guidance to car dealers and finance companies. He has previously served in similar capacity with other industry participants. These experiences allow him to develop strategy, overcome internal obstacles and implement meaningful change. Please contact sales@IgniteCP.com to learn more. You can follow Steve on Twitter @LawyerLevine for compliance and industry related content.