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Ken  Suprenant

Ken Suprenant Senior Vice President, Data Solutions

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The Rising Cost To Auto Dealers of Regulatory Non-Compliance

When most auto dealers sit down to calculate both their financial assets, as well as their liabilities, it’s easy to anticipate the items that most frequently will come to mind, such as the number of in-stock new and used vehicles, labor costs, marketing/advertising expenses, taxes and the like.

However, all too often, one of the most potentially critical factors that may help determine a dealer’s financial success is how well he or she remains fully compliant with the litany of rules and regulations governing his or her business. Given the long list of daily operational demands confronting today’s automotive dealer—put simply, the many things that have to be done on a daily basis to ‘keep the doors open and the lights on’—it’s understandable that sometimes bureaucratic regulations might feel as though they are just an ‘afterthought’.

But in much the same way that any doctor will tell you how ‘prevention is the best medicine’, so too is it a fact of life that in the automotive industry, ‘compliance is the best prevention’—in order to help auto dealers avoid the often considerable costs involved with remaining fully compliant with applicable regulations.

Of course, keeping up with the wide array of applicable federal and state laws governing automotive dealerships is no small task. Audits, lawsuits and even fraud are all unwanted distractions that can frequently impede an auto dealer’s ability to spend their limited time focusing on their primary goal: building and maintaining a successful relationship with their customer base.

The list of federal and state regulations governing auto dealerships is lengthy and complex.

Some rules—such as the Americans With Disabilities Act (ADA)—are not specific to the auto industry, but as a national law, it is applicable to all American businesses. There are also other regulations that, while not specifically mentioning the auto sector, have far more relevance to auto dealers--and related lending--than they might for other businesses; included in this category would be laws such as the Fair Credit Reporting Act (FCRA), which is designed to protect the privacy of credit report information, while guaranteeing that the information supplied is as accurate as possible.

There are, of course, some compliance laws that are designed specifically to address issues particular to the automotive sector; a prime example of this type of law would be the ‘Red Flags Rule’, written specifically to include auto dealers. This compliance regulation compels auto dealers, and other ‘creditors’, to have a program in place designed to detect and prevent identity theft. 

‘Red Flag’ compliance has gained even greater importance with the dramatic increase of identity theft in recent years; to help clients address this issue, NCC offers dealers online staff training 24 hours a day/7 days a week to ensure Red Flag compliance, and the company’s solutions also include a Proof Of Identity (POI) report that clearly displays ‘red flags’ of potential auto customers; in addressing this issue, NCC also offers ‘ID Verification’, as well as Fraud Detection, which is conducted automatically with every NCC-generated credit report.

Another critically important compliance regulation that directly affects auto dealers and creditors is the ‘Adverse Action’ notice. In the event that a potential customer is denied credit, written notices—including a list of specific reasons why the ‘adverse action’ was taken—must be sent to the applicant, in most cases within 30 days. To be clear, ‘adverse action’ can include either a denial or revocation of credit, a refusal to grant credit in the amount/terms requested, or any negative change in account terms connected with an unfavorable review of a consumer’s account.

To address the compliance challenges presented by ‘adverse action’ regulations, NCC offers two solutions: In-House Notification, which permits dealers to handle adverse action notices and related calls in-house, via letter templates that are included within the NCC system; and a Delivery Service, in which NCC handles the printing and mailing of the Adverse Action reports, as well as fielding related incoming consumer calls.

As if domestic compliance challenges weren’t sufficient, auto dealers also have to comply with regulations from the Office of Foreign Assets Control (OFAC), requiring dealers to check customers’ names against the Specially Designated Nationals List (SDN List). While all regulatory non-compliance fines can be significant, fines associated with OFAC non-compliance can be very substantial: auto dealers found to be non-compliant with OFAC regulations can face up to 30 years in jail, and/or enormous fines of up to $10 million against corporations and up to $1 million per incident; so far this year, OFAC-related fines and penalties have already totaled in excess of $21 million.

To ensure clients avoid OFAC’s very harsh penalties, NCC assists clients by screening customers against the most current OFAC list of terrorists, drug traffickers and others on the SDN List, and include the results of this screening with each credit report.

Given the enormity of the task of remaining fully compliant with the litany of applicable laws, perhaps the most important operational compliance rule auto dealers need to remember is simply this: never underestimate or forget the potentially skyrocketing price that accompanies non-regulatory compliance!

stephen kalnasi on!  excellent and more importantly, valuable read.  Thank you!

Ken  Suprenant

Appreciate the feedback, thanks Stephen.

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