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BHPH Sales vs. Collection
Is it really a battle, or are they one and the same?
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• CHECK YOUR INVENTORY THIS WINTER • DRIVING TRAFFIC • COMPLIANCE OVERDRIVE
DALLAS, TEXAS Permit No. 2079
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APPLICATION DEADLINE IS JAN. 15, 2013.
Sponsored by the Auxiliary of the Nebraska Independent Automobile Dealers Association
Annual Scholarship Program A S S O C I AT I O N N E W S
Miracles Both Large and Small
Tom and Amy Borgmann are going through a very rough time in their lives right now. Tom, the brother of Doug and Chuck Borgmann, works at Creighton Used Cars in Creighton. Amy works as a PA at a local hospital. After several attempts to get pregnant, Amy and Tom were delighted when they heard they were going to become parents. However, from the very first, trouble set in. Amy was confined to bed rest almost the entire pregnancy. Then their baby, William, was born at barely 24 weeks, weighing 1 pound, 5 ounces. Have you held anything on your desk that weighs 1 pound, 5 ounces? You can imagine a tiny, tiny baby. For many weeks the outlook was not good, and I could not bring myself to write this article. But day by day, the miracles keep coming – some days big miracles, some days small miracles. Lori Borgmann, Chuck’s wife and Tom’s sister-in-law, broke the news to me. The outlook was extremely bleak. William was in the Methodist Hospital in Omaha with round-the-clock treatment. I had no idea what I could say to the parents, or any of the Borgmann family, from Bob and Helen on down. So I said nothing. Nyla, Doug’s wife, told me William was on the Caring Bridge. The Caring Bridge is an online organization that follows the daily health of sick and/or injured people and their families. The executive director of Montana’s IADA is also on this list, having gone through two surgeries for cancer and getting ready for a third probably before you receive this magazine. The Caring Bridge keeps its sites updated every day or two. Sometimes, in the beginning, it was hourly. I followed Baby William every day. Sometimes I would call Nyla, because over the months he seemed to be getting better. As I write this, he is 106 days old and weighs in at 7 pounds, 3 ounces. Amy says he loves to be snuggled. She and Tom spend their days at the hospital. On Sept. 13, the Channel 7 News at 6 p.m. featured Amy and William on TV. At press time, they still did not know when he can go home. You can only guess how extremely expensive this is going to be. Just the time driving back and forth to Omaha and the loss of Amy’s job would be expensive to the young couple. And who knows how long William will be in the hospital. Even with the best of insurance, it won’t cover everything. We are in the process of opening a fundraising account to help out Tom and Amy. Please contact our office for more information to help them out as the travel alone from Creighton to Omaha can be a big expense. Contact Jan or Gary at (800) 659-5453 or you can send checks made out to Baby William and send them to our office. NEIADA, P.O. Box 29107, Lincoln, NE 68529. To keep track of Baby William, visit caringbridge.org. At press time there had been 23,508 visits to Baby William’s site
BY JAN MERRITT
Applications are open to all high school seniors who are sons, daughters or grandchildren of Nebraska IADA members in good standing. Contact Jan at the Nebraska IADA office – (800) 659-5453 – for more information and an application. Also check out the association’s website for more information. National IADA has a scholarship available for this region and a national scholarship available. You do not have to be a member to apply for those scholarships. Call the National IADA directly (817) 640-3838 or visit www.niada. com for more information.
GIVING BACK
Dealer’s Charity Event Ready to Roll
Santa’s Toy Run, a three-day racing event benefiting children’s charities, is coming up Nov. 30-Dec. 2 at Road Atlanta in Braselton, Ga. The event is run by Circle Heart Racing, a racing team dedicated to raising money to help children in North Georgia and nationwide. Circle Heart was founded by Ron and Debbie Rigdon, owners of Ron’s Auto Sales in Lawrenceville, Ga., who were honored for their charitable work as the winners of the 2012 NIADA Manheim National Community Service Award. Santa’s Toy Run will benefit five children’s charities. Admission to the event is free with the donation of a toy or gift card, and fans can also purchase full-speed race car ride-alongs and pledge donations for completed laps. Circle Heart Racing has provided assistance to some 2,000 area children in the past six years. Last year’s Toy Run collected more than 1,500 toys and a raised record $9,000 in donations. For more information on how you can help, visit www.santastoyrun.org. 3
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Note from Arlan Kuehn
Hope everyone has had a great year. I have been watching late models coming down in price. That’s always good news. I’ve been very busy with NIADA, mainly on legislative issues, especially those that could affect us in the future. Something that has come up lately is the Buyers Guides in vehicles. Please make sure they are in place. The back side of the guide must be signed, and it must include a contact name, such as the service manager or owner, and contact information. The customer must also sign the guide when he purchases the vehicle. Fines have gone up to $16,000 per occurrence for failure to comply. I will be attending South Dakota IADA convention in Deadwood on Oct. 12-13 and will give a report on that in the next issue.
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Wish everyone good selling,
MAGAZINE CONTENTS 06 08 10 15 18
Check Your Inventory This Winter Government Report BHPH Success: Sales vs. Collection Driving Traffic Compliance Overdrive
Arlan Kuehn Senior Vice President National IADA arlankuehn@gmail.com
WHAT’S NEW
NEIADA will be closed Monday, December 24th & Monday, December 31, 2012
www.niada20groups.com
NIADA 20 Groups are designed for NIADA’s independent dealers as they do business today – retail, BHPH or a little bit of both. R
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ADVERTISERS INDEX Ally ....................................................... Inside Back Cover AutoTrader.com................................................Back Cover Chase............................................................................ 11 Dealer Center...................................................................7 Dodah.com......................................................................9 Nebraska Auto Auction.........................Inside Front Cover NIADA Certified..............................................................10 Protective.........................................................................5 Voisys ........................................................................... 18
OFFICE FOR INFORMATION ON HOW TO BECOME A MEMBER PLEASE CONTACT JAN MERRITT: niada2289@windstream.net 800-659-5453 NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV NIADA HEADQUARTERS: 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 FOR ADVERTISING INFORMATION CONTACT: TROY GRAFF (800) 682-3837 OR TROY@NIADA.COM.
Nebraska Dealer Updates is published 6 times per year by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006-5203; phone 817-640-3838. Periodicals postage paid at Dallas, TX and at additional offices. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 6006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Nebraska Dealer Updates or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2012 by NIADA Services, Inc. STATE MAGAZINE MGR./SALES Troy Graff • troy@niada.com EDITOR Andy Friedlander • andy@niada.com ART DIRECTOR Christy Haynes • christy@niada.com PRINTING Nieman Printing
Back (left to right): Arlan Kuehn, Brad Quackenbush, Don Deepe, Larry Schnell, Andy Chase, Doug Borgmann, Dean Cerny. Front (left to right): vice president Les Bockman, secretary/treasurer Roger Bohrer, president-elect Dale Cotner, president Dennis DeNovellis.
President Denny DeNovellis Sidney Auto Sales Sidney
Secretary-Treasurer Roger Bohrer Catherland Auto Sales Red Cloud
President-Elect Dale Cotner Dale’s Trucks York
Directors Doug Borgmann Creighton Used Cars Creighton 68970
Vice President Les Bockman Bockman Auto Sales St. Paul
Dean Cerny Columbus Auto Mart Columbus 68601
Andy Chase ABC Auto Sales Lincoln 68507
Brad Quackenbush Q Family Auto Broken Bow 68822
Don Deepe 81 Automotive Hebron 68370
Chuck Rogers Chuck Rogers Auto Sales Tekamah 68061
Joel Kershner Kershners Auto Korner Hastings 68901 Arlan Kuehn Kuehn Auto Sales S. Sioux City 68776
Larry Schnell N.P. Wheels North Platte 69101
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Make Sure Your Inventory Is Ready for Winter Winter is almost here and we are starting to get ready for the harsh weather, just like all businesses do with their vehicle fleets and families do with the family car. But the used car dealer doesn’t just have the wife’s car to look at. He has 20, 30 50, even 100 cars on the lot that need to be ready. I realize I am preaching to the choir to most dealers. Yet from the number of complaints we receive in the NEIADA office, you would think no dealer ever checks out a car before it leaves the lot. Remember that car you just sold could be carrying someone’s wife or daughter. Would you want your wife, daughter or son to be out on the road in winter in a car that wasn’t road-ready? After all these years I know so many Buy Here-Pay Here dealers take that little extra step of making sure the oil is changed and the batteries and tires are good, because they know a buyer cannot always afford to replace those items just
after purchasing the car. But every week, it seems, we get a new dealer who just got a license coming through our door with the attitude of: “I sell them ‘As-Is.’ I do not care if it doesn’t make out of the driveway.” So you longtime dealers need to go that little extra distance to do the job right. Even before I started working for the association I got to know many dealers, and they always took the time to see what their cars needed. They told the salesmen if the car was hard to start, forget about selling it and take it to the shop and check it out. If the tires were worn, replace them. I have personally seen it take three salesmen 20 minutes to figure out how to open the hood of a car. Can you imagine how embarrassing it is to know your sales personnel don’t even know the car they are trying to sell? Checking the batteries and tires are the two big things, but what about changing the oil and checking the antifreeze? The courts have been going against dealers
more and more. Selling a car As-Is with no antifreeze in the middle of winter… Well, I do not want to guess how that would come out in a court of law. Several years ago, the Nebraska Supreme Court ruled a car dealer still has a legal obligation to check out the car for safety defects, even when selling the car As-Is. Many other court decisions are going against car dealers for not checking the national recall list before selling a car. That is something that you need to do before selling a vehicle. Checking your cars for recalls before selling them can save you time and headaches. Remember, selling the car As-Is still means you have a legal obligation to make sure that car is roadworthy and safe. Here are the websites to check for recalls on cars: www.safercar.gov and www.nhtsa.gov.
BY GARY MERRITT
INDUSTRY NEWS
Trade-Ins Getting Older
Car dealers are receiving trade-ins that are three to four years older than tradeins received a few years ago, according to estimates from Black Book’s analysts. And with 900,000 more trade-ins than last year expected in 2012, the majority of vehicles entering the used car market are model year 2000-2005, which makes higher mileage trade-ins the new normal. Black Book estimated the majority of trade-ins now average between 125,000 and 150,000 miles, and F&I experts have reported a rise in vehicles with 200,000 miles. The analysts said Buy Here-Pay Here dealers will benefit the most from the older inventory, and there is plenty of demand as consumer credit has forced more shoppers to seek those deals. Vehicles older than 2005 are more difficult to finance. According to Black Book, the aged inventory will impact dealers through 2014 before trade-ins begin falling again in age and mileage. “Americans are holding onto their cars longer today, and this aged vehicle is what’s being traded in as we’ve seen a rise in new-car sales activity,” Black Book managing editor Ricky Beggs said.
Prepaid Plans Drive Service Loyalty
Prepaid or complimentary maintenance plans combined with excellent service delivery are among the best ways to win and retain consumer loyalty – especially “next-gen” customers, according to a survey conducted by DMEautomotive. The national consumer survey showed 56 percent of consumers with a prepaid or complimentary service plan are likely to continue servicing at the dealership after the plan expires – only 20 percent said they were unlikely to do so – and 62 percent of those who use a plan for “all” maintenance are likely to stick with their dealer. Roughly one in four U.S. vehicle owners (22 percent) have a dealer/OEM prepaid or free service plan. Nextgeneration consumers – those under age 35 – are more likely to have a plan (31 percent) than those over 35 (18 percent) – and are more likely to have all maintenance done under the plan or at the dealer (72 percent) than those over 35 (61 percent).
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A R U N D O W N O F S O M E O F T H E L AT E S T G O V E R N M E N TA L I S S U E S A N D A C T I V I T Y A F F E C T I N G T H E U S E D C A R I N D U S T R Y
Government Report Here’s a rundown of some of the latest governmental issues and activity affecting the used car industry from Sante Esposito of Federal Advocates and NIADA legislative/regulatory/compliance counsel Shaun Petersen. Consumer Financial Protection Bureau Procedural rules to establish supervisory authority over certain nonbank covered persons based on risk determination: The CFPB says it can assert jurisdiction over any financial entity that otherwise is not covered under the definition of a “larger market participant” if the CFPB has reasonable cause to believe such an entity is posing a risk to the market. That proposed procedural rule has the potential to impact our members that are not otherwise defined as larger market participants. The procedural rules outline the process under which the CFPB would find an entity to be a risk and the process by which that entity is entitled to challenge the proposed determination before being subject to the CFPB’s supervision. If the CFPB staff has “reasonable cause” to believe the entity is a risk, the deputy director will send a written notice to the entity explaining the why the bureau believes that risk exists. It will then provide an opportunity for the entity to respond in writing and to participate in an informal telephone hearing between the CFPB staff and the assistant director. The response from the entity would include any written information the CFPB could and should consider. After the informational hearing, the assistant director would submit a written proposed order to the director of the CFPB to bring the entity under the supervisory oversight of the CFPB. If the determination is made to supervise the entity, the CFPB will do so for a minimum of two years and can make a petition to be relieved of that obligation after that time, but only once annually. We reviewed these proposed rules and found several concerns we asked the CFPB to consider through comments submitted to it. Our first significant concern was the lack of clarity from the
bureau as to the type of conduct the bureau believes is “reasonable cause” to find an entity to be a risk. The proposed rule does not define “reasonable cause” or provide any framework of conduct the bureau believes would create the risk. We asked the CFPB to revise the rule to provide this definition. We also asked the CFPB to limit the risk to inappropriate or undisclosed financial risk to the consumer so the scope of misconduct the bureau would attempt to regulate is not overly broad. Second, we raised concerns about the information used to make that determination. Presumably, much of the information will be made on consumer complaints, but the rules do not specify the information the bureau will use in making its risk determination. We asked the bureau to address that. We also pointed out what we considered an unfair process, notwithstanding the CFPB’s attempt to keep it informal. The procedures proposed in the draft rule would not allow entity potentially subject to conduct to exercise discovery and examine the same material the CFPB reviewed in making its determination. The rule would not allow an entity to depose witnesses, review documents, ask interrogatories of either consumer complainants or CFPB staff as to what forms the basis of the “reasonable cause.” We believe it is patently unfair to be placed at such a disadvantage when compared to the CFPB staff, which has access to consumers or other information in making its determination. An entity should be provided the same level of access in order to properly defend itself. We also asked the CFPB to consider allowing an entity the opportunity to rebut the assistant director’s recommendation to the director before the Director makes his final recommendation. Regulation Z: The CFPB has proposed a number of changes to Reg Z in the mortgage arena. While it does not directly affect the automotive industry, it could be an indicator for proposed regulations in the near future. The proposed mortgage regulation would require prompt crediting of payments on mortgage loans and prompt response time for payoff amount inquiry.
Reg Z already requires higher-price mortgage lenders to look at the consumer’s ability to repay the loan before lending. The CFPB amended the regulation to expand its scope to any credit transaction secured by a dwelling. That rule becomes effective Jan. 21. The CFPB is proposing changes to the definition of “finance charge” in a mortgage transaction by eliminating certain exclusions that were not otherwise considered when calculating an APR. The CFPB has invited comments on the proposed changes to be submitted by Nov. 6. We will analyze the proposed change for any potential impact if something similar was adopted in the auto finance sector. Rental Cars A month after Rep. Lois Capps (D-Calif.) introduced H.R. 6094, which prohibits the rental of motor vehicles under a safety recall until the defect or noncompliance is remedied, Sen. Barbara Boxer (D-Calif.) introduced S. 3502, the Raechel and Jacqueline Houck Safe Rental Car Act of 2012, with Sen. Feinstein (D-Calif.) as cosponsor. The bill, a modification of a similar bill introduced by Sen. Boxer in 2011, requires notification by car rental companies to renters about any defect or noncompliance regarding the rented vehicle at issue, as well as imposing limitations on sales, leases or rentals by rental companies, holding rental companies to the same standard of responsibility as dealers with respect to various vehicle inspection, investigation and records requirements, and authorizing the Department of Transportation to study “the effectiveness of the amendments made by [the bill] and other related activities of rental companies.” Federal Trade Commission The FTC recently held a roundtable discussion about the issues facing consumers and businesses relating to online marketing and privacy, specifically regarding mobile devices and social media websites. The roundtable was used as a fact-finding tool for potential future legislation.
BY SHAUN K. PETERSEN AND SANTE ESPOSITO
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I S I T R E A L LY A B AT T L E , O R A R E T H E Y O N E A N D T H E S A M E ?
BHPH Success: Sales vs. Collection The very last thing I wish to do is start an article by upsetting the salesperson who is out on the front line of a Buy Here-Pay Here dealership every day. But let’s be honest. Selling a vehicle to customers with terrible credit scores, not much (if any) money down and/or an abnormal quality of life is not a terribly complicated or difficult task. The objective here is to get you, the dealer principal or general manager of a BHPH operation (no matter what the size), to reposition your thought process and put your priority and focus on the collection process – not the sales procedures – at your store. You need to invest your time as well as your dollars on training your salespeople, and all personnel, in the “art of the collection.” Let’s look at the entire process from the point of the typical BHPH customer. I have always contended you must always treat them as impulse or emotional buyers, even though they are credit-challenged.
They all still have the following major concerns: vehicle year, make and model; overall pricing structure; weekly, biweekly, or monthly payment; and mileage and overall condition of the vehicle. Obviously there are many more issues associated with the average BHPH transaction at your dealership. But in general, when it comes right down to it, there is no price negotiating and no negotiating of the interest rate, and most of the time the dealership tells the customer which vehicle he or she can purchase that day. The salesperson does not have to overcome all the major objections listed above, and many more, as he or she would when facing a conventional finance customer. In most instances, the dealer is not overly concerned with back-end profits, or even if any aftermarket products are sold, because he will be financing all the extras anyway. The only big objective left is the ever-important down payment.
In reality, Mr. Dealer, you are the bank or lending institution and you solely determine what amount you will accept to proceed with the sale. Do not misunderstand – first, you must always make a sale, and all the factors prior to that are definitely important, such as first impressions, cleanliness of your facility, attitude of salespeople, dealership reputation and vehicle selection, etc. What I am trying to get across is that having a first-rate quality collection system in place will have a much greater effect on your profits in a BHPH operation than a good selling process. The real fact of the matter is you will not even start to make a profit in most cases until you are somewhere well into the age and depth of the note. So you have an obligation to convince each and every one of your customers that it is vitally important (and in their best interest) to make all payments on time as agreed. C O N T I N U E D O N N E X T PA G E
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Thus, this all-important and high-priority task now becomes the responsibility of your collectors. So think with me here. Now your collectors become your salespeople. Allow me to ask you honestly: Have you ever considered your collectors as salespeople? The collectors must “sell” on each and every contact why your customers must maintain their payment schedules as agreed and why they must maintain constant open communication at all times with their personal collector – whoops, I mean their “salesperson.” With a lot of small BHPH stores, the collection process is left up to office personnel and basically passed off under the category of a clerical job within the office operations of the dealership. Do you as the dealer principal or decision-maker contribute hands-on involvement on a daily basis to your own established collection process? Do you have a complete and through understanding of all your collection policies and procedures? Do your collectors (salespeople) exercise the proper attitude and demeanor when it comes to collecting on each and every
personal contact? Because I do business on a daily basis with BHPH dealers all over the United States, from single-point operations that sell 10-15 units a month to BHPH dealers with 65 million dollars worth of notes on the street, it jumps out at me that collections is the single most important process with the most direct effect and instant impact on whether or not you are successful as a BHPH dealer. Many experts and consultants have thousands of ideas on how you can be successful in a conventional retail used car dealership. But with a BHPH operation, Mr. Dealer, you ain’t in the car business – you are in the finance business. You must know and understand the separation of the two entirely different operations and concepts. If you are a current BHPH dealer or are considering getting into that part of our industry, the key to being successful is not rocket science. There are no magic pills you can take to establish and maintain a great BHPH operation with a professional and productive collection process. Good collecting skills go hand and hand with good sales skills. Or are they both the same?
A negative and confrontational sales call or a bad retail experience out in front of the store really translates into “no sale today.” A negative and confrontational collection call can result in “no money” for you today, which can ultimately turn into an expensive repossession and/or a possible charge-off. Both situations cost you money right now. I hope you I’ve helped you get the point loud and clear and find the answer to the question: Is sales versus collection really a battle, or are they one in the same? Prioritizing collections over sales sounds like it is out of proper sequence in the entire process, but really, it is not. So, Mr. BHPH Dealer, why not take the necessary time and money to educate and train your collectors as salespeople as well as collectors? Your answer should be that it just sounds like good old simple common sense.
BY ROD A. HEASLEY
ROD HEASLEY IS EXECUTIVE VICE PRESIDENT OF PERITUS PORTFOLIO SERVICES , A SOUTHLAKE, TEXAS-BASED SPECIALTY FINANCE COMPANY THAT SPECIALIZES IN THE PURCHASING OF OPEN BANKRUPTCY ACCOUNTS. HE HAS MORE THAN 30 YEARS’ EXPERIENCE IN THE RETAIL AUTOMOTIVE SALES INDUSTRY AND IS A NOTED WRITER AND SPEAKER ON THE SUBJECT. HE CAN BE REACHED AT RODH@ PERITUSSERVICES.NET OR 866-8315954, EXT. 5.
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Alleged Privacy Notice Violations
Overview of the Safeguards Rule
A Georgia dealership named in a recent Federal Trade Commission (FTC) complaint engages in the sale and financing of vehicles as well as the leasing of vehicles. Consequently, that dealership is subject to various provisions of both the FTC Act and the Privacy Rule. The dealership had a privacy notice, but the FTC referenced the failure to send, the format and the language when listing the charges. For background, the FTC Act, among other things, grants the FTC authority to regulate and enforce unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. The Privacy Rule is a regulation concerned with the collection and safekeeping of consumers’ personal private information. It derives from the Gramm-Leach-Bliley Act, often referred to as the Privacy Act. The FTC’s Privacy Rule requires financial institutions to provide the customer written notice of the kinds of information they collect, what they use it for, who they share it with and how they protect it. The rule further requires the institution to provide the customer an option to restrict sharing that information in some cases. The Georgia dealership allegedly failed to send annual privacy notices to its customers. The Privacy Rule includes provisions for both initial notices and annual notices. An initial notice must be provided to: Customer: An individual who becomes your customer, not later than when you establish a customer relationship. Consumer: A consumer, before you disclose any nonpublic personal information about the consumer to any nonaffiliated third party other than as prescribed by law. An annual notice must be provided not less than annually during the continuation of the customer relationship. The FTC complaint also says the company failed to provide a mechanism by which consumers could opt out of information-sharing with nonaffiliated third parties, as required by the Privacy Rule. A common mechanism for providing an information-sharing opt out is the company’s privacy notice. The FTC has published model forms and detailed guidelines for the preparation of privacy notices. A company whose privacy notice is prepared in strict accordance with the model forms and guidelines is guaranteed a safe harbor defense as to the format of the notice. The Georgia dealership’s privacy notice, as exhibited in the complaint, does not adhere to the format of the model privacy notice forms published by the FTC. Irrespective of format, the content of the privacy notice must accurately reflect a company’s privacy and data security policies and practices. The dealership’s privacy notice included the following statements: “We restrict access to nonpublic personal information about you to only those employees who need to know that information to provide products and services to you. We maintain physical, electronic and procedural safeguards that comply with federal regulations to guard nonpublic personal information.” In the complaint, however, the FTC noted: “In truth and in fact, respondent did not implement reasonable and appropriate measures to protect consumers’ personal information from unauthorized access. Therefore, the representation set forth … was, and is, false or misleading”, thereby violating the FTC Act’s prohibitions of unfair or deceptive acts or practices. It bears repeating – the content of the privacy notice must accurately reflect a company’s privacy and data security policies and practices. In FTC commentary related to a separate privacy case, all financial institutions are encouraged to “review your privacy policy and double-check that what you promise – expressly or by implication – comports with your day-today practices. Like any other claim, what you say about how you handle information has to be truthful and backed up with solid proof… Simply put, promise only what you know for a fact you deliver.” If your dealership extends credit, arranges for or brokers credit, or leases vehicles on a non-operating basis, you are likely subject to the Privacy Rule and should be providing privacy notices in accordance with the rule. Privacy notices conforming to the FTC model forms are available through OIADA, your state association. The notices will be customized specifically for your dealership to reflect your stated policies and practices. If you have questions or would like more information, please contact the OIADA office at 405-232-2947 or 800-346-4232. Note: We are not attorneys. This article was prepared for informational purposes only. It has been made available with the understanding that neither ADR of Oklahoma nor OIADA is engaged in rendering legal advice. You are urged to contact legal counsel for its application to your operation.
The Safeguards Rule is one of several federal regulations concerned with the protection and safekeeping of consumers’ personal private information. Like the Privacy Rule, the Safeguards Rule derives from the Gramm-Leach-Bliley Act (GLB), often referred to as the Privacy Act. As implemented by the Federal Trade Commission (FTC), the Safeguards Rule is concerned with the physical security of privacy information. It requires financial institutions to develop, implement and maintain a comprehensive information security program. The program must be in written format and must contain administrative, technical and physical safeguards appropriate to the business. For purposes of the GLB, a “financial institution” includes businesses – such as car dealers – involved in the extension of credit or in activities related to the extension of credit, or that are involved in leasing vehicles. A Georgia dealership recently charged with violating the FTC’s Safeguards Rule allegedly “failed to implement reasonable security policies and procedures” by: • Failing to identify reasonably foreseeable internal and external risks to the security, confidentiality and integrity of customer information. • Failing to design and implement information safeguards to control the risks to customer information and failing to regularly test and monitor them. • Failing to investigate, evaluate and adjust the information security program in light of known or identified risks. • Failing to develop, implement and maintain a comprehensive written information security program. • Failing to designate an employee to coordinate the company’s information security program. The stated objective of the Safeguards Rule is to protect consumers’ private information by requiring certain businesses to develop safeguards plans. If your dealership meets the definition of a “financial institution” – for example, if you lease cars or if you are involved in the financing of vehicles you sell – you are subject to the Safeguards Rule and are required to implement a safeguards plan. The objective of your safeguards plan is to define and document your dealership’s procedures for safeguarding, or physically securing and protecting, consumers’ personal private information. At a minimum, your safeguards plan will document: • The personal identifying information you collect. • How it is collected. • Where it is stored and how it is safeguarded while it is “active” – while the sale is in process. • Where it is stored and how it is safeguarded on a permanent basis. • How long the data is retained. • How the data is handled for disposal. • Employee security training and certifications. • Security threat and incident response plan. Your goal when preparing your safeguards plan is to develop a viable, workable set of written procedures that, when implemented, adequately secure the personal information you are privileged to access and ultimately afford your customers the privacy they are guaranteed under federal law. If you have questions about developing a safeguards plan for your dealership, please contact the OIADA staff at 405-232-2947 or 800346-4232. Note: We are not attorneys. This article was prepared for informational purposes only. It has been made available with the understanding that neither ADR of Oklahoma nor OIADA is engaged in rendering legal advice. You are urged to contact legal counsel for its application to your operation.
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NHTSA Recalls
Chevrolet Cruze, My 2011-2012 NHTSA ID number: 12V289000 Fuel system, gasoline: Storage: Tank assembly: Mounting Units affected: 52,239 General Motors (GM) is recalling certain model year 2011 and 2012 Chevrolet Cruze vehicles manufactured from Oct. 2, 2009 through May 14, 2012. Attachment welds for the fuel tank strap secondary brackets might have been omitted. The fuel tank could come loose in a crash, possibly allowing fuel to leak from the tank. A fuel leak in the presence of an ignition source could result in a fire. GM will notify owners, and dealers will inspect the vehicle for missing welds. If the vehicle is missing welds, dealers will secure the bracket attachments with fasteners. Repairs will be performed free of charge. The safety recall is expected to begin on or about July 11, 2012. Owners can contact the Chevrolet Owner Center at 1-866-694-6546. GM’s campaign number is 12133. Chevrolet Cruze, My 2011-2012 NHTSA ID number: 12V288000 Engine and engine cooling Units affected: 413,148 GM is recalling certain model year 2011 and 2012 Chevrolet Cruze vehicles manufactured from Oct. 2, 2009 through May 31, 2012. Spilled or dripping oil (such as after an oil change) can collect in the engine shield (bellypan) near hot engine or exhaust system surfaces. As a result, the oil and the engine shield could ignite and burn. Either condition could result in an engine compartment fire, possibly causing injury or death. GM will notify owners, and dealers will modify the engine shield to prevent fluid from contacting the shield. Also, on vehicles with a manual transmission, dealers will apply a protective tape to the electronic power steering wire harness. Repairs will be performed free of charge to the owner. The safety recall is expected to begin on or about July 11, 2012. Owners can contact the Chevrolet Owner Center at 1-866-694-6546. GM’s campaign number is 12081. Mercedes-Benz E350, MY 2007-2009 NHTSA ID number: 12V264000 Suspension: Rear Units affected: 3,613 Mercedes-Benz is recalling certain model year 2007-2009 E350 4Matic Wagon vehicles manufactured from July 1, 2006 through April 30, 2009. A connecting rod for the load leveling rear suspension system could fail. If that occurs, the driver can have reduced vehicle control, increasing the risk of a crash. Mercedes-Benz will notify owners, and dealers will replace all the connecting rods, free of charge. The safety recall is expected to begin during August 2012. Owners can contact Mercedes-Benz at 1-201-573-0350. BMW X5, MY 2012-2013 BMW X6, MY, 2013 NHTSA ID number: 12V267000 Steering Units affected: 2,642 BMW is recalling certain model year 2012 X5 vehicles equipped with a diesel engine and 2013 X5 and X6 vehicles. Due to a machining error of the steering gear surface, power steering fluid can leak. Leaking power steering fluid can spray onto hot exhaust parts, increasing the risk of an engine compartment fire. BMW will notify owners, and dealers will
inspect, and if necessary, replace the steering gear free of charge. The safety recall is expected to begin during July 2012. Owners can contact BMW customer relations and services at 1-800-525-7417. Honda Civic, MY 2012 NHTSA ID number: 12V256000 Power train: Driveline: Drive shaft Units affected: 50,190 Honda is recalling certain model year 2012 Honda Civic vehicles. During assembly, the process required to seat the driver’s side drive shaft and set the retaining clip was not completed. As a result, the drive shaft can separate. If that occurs, the vehicle will have a loss of drive power and could roll away if the parking brake has not been set when the gear selector has been placed in the “Park” position, increasing the risk of crash or pedestrian injury. Honda will notify owners, and dealers will inspect the driver’s side drive shaft and install a new drive shaft, as needed, free of charge. The safety recall is expected to begin on or about, June 21, 2012. Owners can contact Honda Customer Service at 1-800999-1009. Honda’s recall campaign number is S40. KIA Borrego, MY 2009 NHTSA ID number: 12V245000 Service brakes, Hydraulic: Pedals and linkages Units affected: 21,912 KIA is recalling certain model year 2009 Borrego vehicles, manufactured from May 2, 2008 through Jan. 20, 2009, equipped with non-adjustable brake pedals. Certain pedal mounts can have a fiberglass composition that allows them to break off in a collision where the impact has not immobilized the vehicle, which would then allow the vehicle to roll. If that occurs, the driver would need to stop the vehicle with the parking brake or experience a possible second impact, increasing the risk of personal injury. KIA will notify owners, and dealers will replace the brake pedal mount, free of charge. The recall will begin during June 2012. Owners can contact KIA Consumer Assistance Center at 1-800-3334542. KIA’s safety recall campaign number is SC096. KIA Rio, MY 2006-2008 NHTSA ID number: 12V244000 Air bags: Frontal: Sensor/control module Units affected: 72,568 KIA is recalling certain model year 20062008 Rio vehicles, manufactured from Feb. 20, 2005 through Dec. 9, 2007. The front passenger seat occupant sensor mat can experience fatigue cracking. If sufficient cracking occurs, the occupant classification system (OCS) will cease to function such that the system will not be able to detect whether a child passenger is in the seat and the airbag will deploy during a crash necessitating deployment. Air bag deployment with a child in the front passenger side seat increases the risk of injury to that child. KIA will notify owners, and dealers will replace the OCS seat sensor mat, free of charge. The recall is expected to begin during July 2012. Owners may contact KIA Consumer Assistance Center at 1-800-333-4542. KIA’s safety recall campaign number is SC097. For more information, go online to www. NHTSA.gov or www.SaferCar.gov.
N AT I O N A L H I G H WAY T R A F F I C S A F E T Y A D M I N I S T R AT I O N P R E S S R E L E A S E
Volvo to Pay $1.5 Million for Delayed Reporting of Recalls The U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) announced that Volvo Cars North America, LLC has agreed to pay $1.5 million in civil penalties in response to the agency’s assertion that the automaker failed to report safety defects and noncompliances to the federal government in a timely manner. The National Traffic and Motor Vehicle Safety Act requires all auto manufacturers to notify NHTSA within five business days of determining a safety defect exists or that the manufacturer is not in compliance with federal motor vehicle safety standards – and to promptly conduct a recall. “With millions of vehicles traveling our highways every single day, we take our responsibility to safeguard the driving public very seriously and we expect automakers to do the same,” Secretary of Transportation Ray LaHood said. “Manufacturers are required to handle safety issues both quickly and appropriately.” In January 2011, NHTSA launched an investigation to determine whether Volvo met its obligation under the law to notify the agency of a safety defect and conduct a recall in a timely manner. NHTSA’s evaluation of six recalls issued in 2010 and one recall announced in 2012 found evidence that Volvo failed to report known safety defects and non-compliances to the agency in accordance with federal law. As part of the settlement, Volvo Cars North America, LLC and its parent company, Volvo Car Corporation, agreed to make internal changes to its recall decision-making process to ensure timely reporting to consumers and the federal government in the future. “It’s critical to the safety of everyone on our roadways that automakers promptly report safety defects – and take immediate action to resolve the issue,” NHTSA administrator David Strickland said. “NHTSA expects all manufacturers to obey the law and address automotive safety concerns without delay.” The fines received from the automaker will be paid into the general fund of the U.S. Treasury. 13
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FTC Charges Auto Dealer According to a recently released Federal Trade Commission (FTC) complaint, software installed on a computer at a Georgia dealership afforded unauthorized Internet access to the dealership’s network and allowed the personal private information of 95,000 consumers to be compromised. The ensuing investigation resulted in the FTC’s first actions charging an auto dealer with violations of the Gramm-Leach-Bliley (GLB) Act. The complaint also alleges violations of Section 5(a) of the FTC Act. The settlement agreement proposed by the FTC does not offer the dealership an opportunity to pay a monetary fine and move on. Instead, as has been the FTC’s practice in other settlements, the proposed settlement levies the company with a multitude of security program implementations and reporting requirements, most of which continue for 20 years. Section 5(a) of the FTC Act empowers the FTC to enforce unfair and deceptive acts or practices (UDAP) involving commerce. The GLB Act is commonly referred to as the Privacy Act because it includes provisions for protection of consumers’ personal private financial information. This particular GLB Act protection for consumers is implemented through the FTC’s Privacy Rule and Safeguards Rule and applies to financial institutions. The Privacy Rule focuses on privacy notices, opt-out rights and limits on use and disclosure. The Safeguards Rule focuses on data security. The FTC alleges the dealership – which sells and leases cars and provides financing – violated certain provisions of those rules as well as the UDAP Section of the FTC Act. Specifically, the FTC charged that auto dealer Franklin’s Budget Car Sales, Inc., also known as Franklin Toyota/Scion, of Statesboro, Ga., compromised consumers’ personal information by allowing peer-topeer (P2P) software to be installed on its network, which allowed sensitive financial information for 95,000 consumers to be uploaded to the P2P network. The information included names, addresses, Social Security numbers, birthdates and driver’s license numbers. The UDAP charges were based on statements included in the dealership’s privacy notice. According to the FTC, Franklin’s privacy policy said, “We restrict
access to nonpublic personal information about you to only those employees who need to know that information to provide products and services to you. We maintain physical, electronic and procedural safeguards that comply with federal regulation to guard nonpublic personal information.” The FTC alleges Franklin “in truth and in fact … did not implement reasonable and appropriate measures to protect consumers’ personal information from unauthorized access. Therefore, the representation set forth … was, and is, false or misleading.” With respect to the alleged violations of the Safeguards Rule, the agency charged that Franklin failed to assess the risks to the consumer information it collected and stored online and failed to adopt policies to prevent or limit unauthorized disclosure of the information. It also allegedly failed to prevent, detect and investigate unauthorized access to personal information on its networks, failed to adequately train employees and failed to employ reasonable measures to respond to unauthorized access to personal information. With respect to the alleged Privacy Rule violations, the agency charged that Franklin failed to provide annual privacy notices. The FTC further alleged the dealership failed to provide a mechanism by which consumers could opt out of informationsharing with third parties. The FTC’s proposed settlement order levies an extensive, detailed and long-lasting set of requirements on the dealership, which would: • Be prohibited from misrepresenting its practices regarding consumer data. • Be prohibited from violating any provision of the Safeguards and Privacy Rules. • Establish, implement and maintain a written, comprehensive information security program. The program would include the designation of employees responsible for oversight of the program, identification of material risks, regular testing of the effectiveness of key procedures, requiring service providers to maintain appropriate safeguards, periodic evaluations and adjustments of the security program. • Obtain initial and biennial assessments and reports prepared by independent third-party certified professionals.
Biennial reports would continue for a period of 20 years. Assessments would document specific safeguards for the period, explain how such safeguards are appropriate for the dealership, explain how the safeguards meet or exceed the required protections and certify the security program is operating effectively. • Maintain – and make available to the FTC – for a period of five years, a print or electronic copy of each document relating to compliance, including any documents that contradict the dealership’s compliance with the order. • Maintain – and make available to the FTC – for a period of three years, all material used in preparation of each biennial assessment. • For a period of five years from the date of the order, deliver a copy of the order to certain principals, officers, directors, managers, employees and related business entities. • Notify the FTC prior to any dissolution, assignment, sale, merger or other action that would result in the emergence of a successor company, as well as prior to the proposed filing of a bankruptcy petition. • Within 60 days after the date of service of the order, provide the FTC a written report detailing the manner and form of its compliance with the order. Thereafter, the company would submit additional written reports within 10 days after the receipt of a written request from the FTC. As proposed, the settlement order would remain in effect for 20 years. If an order is issued on a final basis, each violation could result in a civil penalty of up to $16,000. At press time, the settlement order was open for public comment through July 9. FTC note: The commission issues an administrative complaint when it has “reason to believe” the law has been or is being violated, and it appears to the commission a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.
BY OIADA STAFF
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DRIVING TRAFFIC
Radically Increase the Results of Your Advertising Smart dealers understand they are in control of their own destiny, growth, success and profitability this year and every year. The answer to the burning question about increasing sales and profits is better marketing, better response. What you really need to do is to dramatically increase your car advertising results. How? Good question. You must create marketing that grabs people’s attention, delivers value and causes them to be attracted to you, so you can start a relationship with them. We have found the best way to do that is to deliver information. You see, we live in the information age and to get people’s attention and get them to respond, marketers have to create marketing messages that look, feel, and sound like objective, unbiased, useful information that helps consumers solve a problem, fulfill a want or desire, make their lives easier or streamline their decision-making process. So why does information-focused marketing work radically better than traditional marketing? Because traditional automotive marketing is all about the dealership, the vehicles and the features, and nobody really cares about those things. Gravitational Marketing, the kind of marketing that uses information to attract customers, is built around education and solutions. The true goal of effective marketing and advertising should be to educate, to clarify and simplify, to help aid the decision-making process. Gravitational Marketing is about captivating, invigorating and motivating. All of those are accomplished through deliberately constructed content, not flashy images, misleading promotions, pink gorillas, window paint or clever slogans. Good marketing provides solutions. Solutions to problems your customers
face right now and want to alleviate. A well planned and executed Gravitational Marketing strategy delivers a muchneeded cure to the pain your prospect is suffering. If you can give your prospects the information they need to eliminate their problem and ultimately provide them with a clearly defined set of steps to take, you will win their business and create a customer you can keep for life. You will become the expert in their eyes and they will flock to you. Price concerns will be secondary to the solution they seek, making your profits soar to new heights. Why does this Gravitational Marketing approach skyrocket response rates and beat the pants off traditional marketing? By offering information, solutions and education in your advertising instead of trying to make the sale from a single ad, you give the prospect a low-risk way to respond and indicate to you they are interested in becoming a vehicle intender. Armed with their contact information, their permission to market to them further and the knowledge that they need and want your help, you can tell your whole sales story because you have their trust and attention. That makes your marketing job easier, your response rates higher and your marketing more cost-effective. If you have ever been single and tried to get a date, you’ve used this two-step approach. Think back to when you met someone you wanted to get to know better. What did you do? Did you offer to buy them a drink, go to dinner, a movie or coffee? A small next step? Surely, you didn’t go right up to them and ask for engagement, a one-night stand or marriage? Most dealers do just that in their marketing all the time. They go right for the big one without the romance or relationship-building.
Sales and profits are all about relationships. You don’t sell a car to sell a car. You sell a car to create a client. Or at least you should. A client is someone who buys from you multiple times in his lifetime, doesn’t nickel and dime you and refers repeatedly. That’s the kind of relationship you want to create with all your customers. And it all starts with the first point of contact. In today’s extremely cluttered marketplace, successful automotive dealers have to think like consumers and become marketers. In order to dramatically increase the effectiveness of their advertising, dealers must not look at every single prospect the same way. There isn’t just one group of people they are selling cars to, there are many. With the proper Gravitational Marketing message, you can attract non-intenders and pull them into the buyers’ circle today, dramatically increasing your pool of potential buyers. It gets better. Those new buyers you pulled into the market are 100 percent yours for the taking. You don’t have to split the spoils with anyone else because, if done right, they believe you are the only dealer who can help them now. So you don’t have to worry about losing them to the dealer down the street. Yes, there are many pitfalls and trip wires that can derail your success and keep you from reaching the goal – more ups, better quality ups, dramatically higher response to your advertising and increased sales and profits. It’s not all fun and games. But it’s not rocket science, either.
BY JIMMY VEE AND TRAVIS MILLER
JIMMY VEE AND TRAVIS MILLER ARE EXPERTS ON ATTRACTING CUSTOMERS AND THE AUTHORS OF GRAVITATIONAL MARKETING: THE SCIENCE OF ATTRACTING CUSTOMERS AND INVASION OF THE PROFIT SNATCHERS. FOR A FREE COPY OF THEIR CONTROVERSIAL NEW BOOK, VISIT WWW. PROFITSNATCHERSBOOK.COM AND USE COUPON CODE UCDM1211.
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36th ANNUAL CONVENTION NEBRASKA IADA
FEBRUARY 8-9-10, 2013
Holiday Inn
110 Second Avenue, Kearney, NE 68847
SEMINARS: REPORT FROM DMV NATIO NAL IADA U PDATE Arlan Kuehn, Secretary National IADA
REPO RT FROM TH E LIC E NSEIN G BOARD O PEN FO RUM DISCUSSIO N All Exhibitors, Sponsors and Speakers invited to participate.
LEGISL ATIVE U PDATE
DINNER AND CASINO FRIDAY EVENING AUXILIARY AUCTION TO BENEFIT SCHOLARSHIP PROGRAM • EXHIBIT HALL • HOSPITALITY ROOM
Dennis DeNovellis, Arlan Kuehn, Gary Merritt. 16
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NEBRASKA INDEPENDENT AUTO DEALERS 36th ANNUAL CONVENTION
ROOM RATES AT THE HOLIDAY INN
$79.95 PER NIGHT, 1 TO 4 PEOPLE IN A ROOM HOLIDAY INN, 110 Second Ave., Kearney, NE 68847 (308) 237-5971, Fax (308) 326-7549 (Please reserve your room early as they release our block of rooms 4 weeks prior to convention) WHEN MAKING HOTEL RESERVATIONS BE SURE TO TELL THE HOLIDAY INN THAT YOU ARE WITH THE NEBRASKA IADA CONVENTION. MAKE CHECKS FOR REGISTRATION & EXHIBITORS FEE PAYABLE TO: NEBRASKA IADA P.O. BOX 29107 LINCOLN, NE 68529 ANY QUESTIONS CALL Jan or Gary at (800) 659-5453 • (402) 464-2089 Fax (402) 464-8878
ENCLOSED PLEASE FIND CHECK IN THE AMOUNT OF: $___________________ Please check here if you have a disability and may require an accommodation. You will be contacted to discuss your special needs. NAME____________________________________________ NAME____________________________________________ NAME_____________________________________________ NAME_____________________________________________ NAME_____________________________________________ NAME_____________________________________________ DEALERSHIP NAME ________________________________ ___________________________________________________
WE ARE IN THE PROCESS OF LINING UP SPEAKERS AND VENDORS FOR THE CONVENTION. WE WILL HAVE A COMPLETE LIST CLOSER TO THE CONVENTION. ALSO, ANYONE WHO KNOWS OF A COMPANY THAT WOULD LIKE TO DONATE, NOT ONLY FOR THE AUXILIARY AUCTION BUT PRIZES FOR CASINO NIGHT, PLEASE CONTACT US.
CITY_______________________________________________ ___________________________________________________ ZIP________________________________________________ PHONE____________________________________________ (Please include wife and children’ names for badges) Have you attended a convention before?_______________ REGISTRATION: $150 PER COUPLE - $85 PER PERSON EXHIBITORS: $85 PER TABLE PLUS - $85 PER PERSON KIDS: 15 AND YOUNGER $25
q Attending Friday night banquet ________________ q Attending Saturday night banquet______________
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COMPLIANCE OVERDRIVE
Out with the Old and In with the New? The year’s end is a time of reflection. When it comes to auto finance and compliance challenges, the story can sound similar from year to year. There are usually a handful of new regulations facing dealers and lenders that have made a big impact on the industry over the previous 12 months. But this year doesn’t really fit the mold. That’s because 2012 arguably hasn’t been as much about new regulation as about the additional scrutiny of regulators enforcing laws that have been in place for some time. That has been particularly evident in the areas of state-specific forms, model language and loan documentation. Some recent examples suggest a trend that state regulators are taking a closer look at existing motor vehicle retail sales financing authority and transaction documentation: New Mexico: Since 2009, a New Mexico attorney general’s regulation has required creditors to provide a summary or a translation of English-language transaction documents in consumer sales negotiated in a language other than English. Its coverage is very broad and
somewhat difficult to understand. This year, the New Mexico attorney general proposed additional changes to the regulation. After receiving comments, the AG acknowledged issues with the proposed changes and with the existing regulation itself. As a result, it pulled back the changes and repealed the existing regulation to allow for further study. Michigan: Years ago, the Michigan Department of Licensing and Regulatory Affairs, Office of Financial and Insurance Regulation (OFIR) said bad check charges are not allowed in motor vehicle retail contracts in spite of statutory authority that seems to allow it. This year, the OFIR published a letter saying bad check charges cannot be collected on retail motor vehicle sales contracts unless the contract contains a bad check charge provision, indirectly reversing its prior position. The OFIR now holds that bad check charges are allowed as long as they are specifically authorized in the retail contract. Montana: The Montana late charge authority is a bit ambiguous and has been that way for many years. Because of the ambiguity, there were vastly different interpretations in the marketplace. In response to a request, the Montana Division of Banking and Financial Institutions recently published a letter clarifying its interpretation of the state statute. The apparently heightened state scrutiny might be just a coincidence. It could also be that states are demonstrating their diligence and control to the public and to the new federal Consumer Financial Protection Bureau (CFPB). The CFPB regulates dealers who don’t routinely assign their financing contracts to unaffiliated third parties. For the most part, that means the CFPB regulates Buy Here-Pay Here dealers. The Federal Trade Commission (FTC) continues to regulate the rest of the auto sales and finance industry. The net result is there are two federal regulators in the auto finance marketplace. It’s possible states are more actively clarifying and enforcing their existing laws and regulations in an effort to maintain a level of control over the auto finance industry – hoping to minimize federal oversight. In addition to reflecting on the year that has been, it’s also time to think about what might lie ahead. What will the new regulatory environment look like in 2013? Many thought the CFPB would have done a lot of regulatory change in auto financing by now, but that hasn’t been the case. One reason is it has been focused on real estate financing practices and disclosures. The CFPB also seems to be carefully studying the consumer finance marketplace – and even consumers – to lay a solid foundation for its regulatory oversight. The CFPB’s strategic plan for 2013-18 notes one of its strategies is to “develop and maintain an efficient fact-based approach to developing, evaluating, revising and finalizing regulations.” “Fact-based” is a key term. We have seen the
CFPB asking good questions and conducting extensive research on areas it is tasked with overseeing. For example, the CFPB tested draft real estate disclosure documents with consumers in shopping malls. The Dodd Frank Act requires the CFPB to research and provide policy guidance on whether arbitration provisions should be allowed in consumer credit (non-real estate) transactions. To start that process, the CFPB published a request for suggestions, data sources and strategies to study the issue. It’s also clear the CFPB is not afraid to take a fresh approach to presenting transaction information to consumers. For example, the CFPB published a proposed rule in July regarding integrated mortgage disclosures under RESPA and the Truth in Lending Act. Leading up to the proposed rule, it published a number of drafts trying various new disclosure formats and designs. That was one of the first significant proposed rules from the CFPB, and the planning process involved extensive research and solicitation of industry and consumer feedback. As a result, the proposed rule and explanatory materials are more than 1,000 pages. The upside is the CFPB is trying practical, consumer-tested ways to present information so average consumers can understand key transaction terms. The downside is the volume of information in the proposal is overwhelming. It’s hard to know when the CFPB will complete its foundation-building and begin proposing new regulations or revising existing ones that affect the consumer auto finance industry. It’s likely big changes will come to the market. It’s just unclear when. While we’re in this waiting period, dealers might feel there are a lot of variables out of their control, but the focus needs to be on the areas you can control. Since a number of states seem to be focused on clarifying and enforcing existing requirements, dealers should review and button down compliance documentation and processes to make sure they are satisfying those requirements. Additionally, reviewing and tightening transaction standards and communication within the dealership is key. Make sure your sales and finance teams are describing financing terms and options, vehicle features, and add-on products and services in a correct and consistent manner. Educate your buyers and be direct and honest about each element of a transaction and the risks each party is assuming. Investing in those areas can go a long way toward maintaining compliance now and preparing for what lies ahead.
BY CHIP ZYVOLOSKI
CHIP ZYVOLOSKI IS A SENIOR ATTORNEY FOR INDIRECT LENDING AT WOLTERS KLUWER FINANCIAL SERVICES. FOR MORE INFORMATION, VISIT WWW.WOLTERSKLUWERFS.COM/INDIRECT.
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NOVEMBER/DECEMBER 2012
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