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UTAH DEALER J A N U A RY / F E B R U A RY 2 0 1 4
F E AT U R E S T O RY O N PA G E 1 1
Preparing for a New Age in Dealer Compliance
How dealers can cope, even thrive, in a brave new world of indirect lending pressure from evolving compliance regulation, lender challenges and regulatory scrutiny.
• Customers Are Your Main Business Asset • NIADA Goes to Washington • Building Compliance into Your Dealership
DALLAS, TEXAS Permit No. 2079
PRSRT Standard U.S. Postage
V I S I T
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Executive Director’s Message u
The 2014 legislative session is just getting started and, as always, the Used Car Dealers of Utah will be in full force at Capitol Hill. At the time this article was written, the issues for the car industry for this session were few. However, as many of you know, this can change in a matter of hours. Over the last few years we have faced many battles, including safety inspection, lien holder requirements and title requirements. More importantly the last two years, we have faced big battles on the dealer bond. Last year we faced a potential increase from $75,000 to $250,000 in dealer bonds, a decision that would have put most dealers out of business. With your help, we were able to successfully combat this change. Despite the year’s quiet beginnings, this session could heat up. When that happens, we will need your help once again. We need you to know your legislators. As bills come out this legislative session we will need your help contacting legislators regarding particular bills. You can learn who your legislators are by logging on to www.le.utah.gov. Simply scroll to the bottom of the page and enter your address and zip code on the left side of the page. Remember to look up both your home and business addresses. Legislators care about who lives in their district and also the businesses in their district. You may be surprised that your legislator could have already been into your dealership and purchased a car from you. If this is the case, it provides a great opportunity to approach them on two subjects, their car purchase and legislative issues. Get involved in the politics of your district and know your legislators. Your relationship with legislators can make a huge difference. This year is the first in a long time that we don’t have a car dealer (new or used) in the legislature. We need your support and help even more this year than in years past. Thank you for your support and we look forward to seeing you at one of the many dealer renewal education classes offered by IDS beginning in April.
Inside 06 Customers Are Your Main Business Asset 08 Utah’s First Health Insurance Co-Op 09 Test Drives Are Not as Simple as They Used to Be 10 Leadership Conference 11 Preparing for a New Age in Dealer Compliance 14 Building Compliance into Your Dealership
What’s New u
Wanted: Dealerships that Make a Difference
MANHEIM NIADA NATIONAL COMMUNITY SERVICE AWARD
Manheim & NIADA proudly announce the fourth annual National Community Service award. The winner, which will be recognized at the 2014 NIADA Convention and Expo, will receive $5,000 for the dealer’s local charity of choice. For more information or to nominate a dealer, contact Georgia Brown at email@example.com or (800) 682-3837.
Advertisers Index 4
KN OW YOU R LEG I S L ATO R S
ADESA, Inc. .................................Inside Front Cover Ally..................................................................................7 Black Book..................................Inside Back Cover Lobel Financial...........................................................3 Manheim.com............................................................5 United Acceptance....................................................9 VAuto ........................................................ Back Cover
UCDU Office 7414 S. State St.
Midvale, UT 84047 PHONE: (801) 566-3802 FAX: (801) 566-0708 WEBSITE: www.usedcardealersofutah.com EMAIL: firstname.lastname@example.org To learn more or become a member of UCDU, contact us at (801) 566-3802 or info@ associationsutah.com.
NIADA Headquarters National Independent Automobile Dealers Association
www.niada.com • www.niada.tv 2521 Brown Blvd. • Arlington, TX 76006-5203 phone (817) 640-3838
For advertising information contact:
Troy Graff (800) 682-3837 or email@example.com. Utah Dealer is published bi-monthly by the National Independent Automobile Dealers Association Services Corporation. 2521 Brown Blvd., Arlington, TX 76006-5203; (817) 640-3838. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of UCDU or the NIADA. Likewise, the appearance of advertisers, or their identification as members of NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2014 by NIADA Services, Inc. All rights reserved. Visit the NIADA website at www.niada.com.
State Magazine MGR./Sales Troy Graff • firstname.lastname@example.org
Andy Friedlander • email@example.com Jacinda Timmerman • firstname.lastname@example.org
Magazine Layout & Graphic Artist Chantae Arrington • email@example.com
Christy Haynes • firstname.lastname@example.org
DMV Update Notice u
R E G I S T R AT I O N F E E S I N C R E A S E
The DMV has committed to giving dealers notice of any fee changes. We are notifying you that effective Feb. 1, 2014, there will be a $1.00 increase to registration fees. Passenger vehicle registrations will increase from $44.25 to $45.25, motorcycle registrations will increase from $45.75 to $46.75, ATV registrations will increase from $19.25 to $20.25, snowmobile registrations will increase from $27.25 to $28.25 and watercraft registrations will increase from $26.25 to $27.25.
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WHITE REMAINS MOST POPULAR
PPG Industries, the world’s leading manufacturer of transportation coatings, recently released its annual automotive color popularity and trend data. While white retained the leading spot as the most popular car color based on 2012 automotive build data, PPG forecasts that the overall use of color is on the rise. According to PPG’s survey, white ranked first (22 percent) and silver was second (20 percent), followed by black (19 percent), gray (12 percent), red (9 percent), natural (8 percent), blue (7 percent), green (2 percent) and other colors (1 percent). In North America, white ranks first (21 percent), followed by black (19 percent), silver and gray (16 percent each), red (10 percent), blue (8 percent), natural (7 percent) and green (3 percent). “Our consumer research has clearly shown that color is critically important to car buyers,” said PPG’s Jane E. Harrington. A 2011 survey of automotive consumers by PPG revealed that: • 77 percent of respondents said exterior color was a factor in their automotive purchase decision. • Owners of large luxury cars, sporty cars and large premium SUVs place the most value on getting the color of their choice. • 45 percent of respondents said they would prefer a wider range of color choices. For more information, visit www.ppg.com. PRODUCTS & SERVICES
The NIADA Brings Exclusive UPS Savings to its Membership u
N E W SAVI N G S PROG R AM O F F E R S E XC LU S IVE DI S C O U NT S
NIADA is pleased to announce that we have selected UPS as our preferred member shipping carrier. This decision was based on the needs of NIADA members, as well as the opportunity to offer an enhanced member savings program. The UPS Savings Program offers NIADA members some of the most competitive rates available on shipping services along with more service options, superior ground-delivery coverage and overnight delivery by 10:30 a.m. to more zip codes than any other carrier. Plus, with the convenience of more drop-off locations and innovative UPS technology to help streamline shipment processing, members can receive value that goes beyond cost and on-time delivery. Through the program, NIADA members can now save up to 36 percent on a broad portfolio of UPS shipping services, such as up to 36 percent on UPS Air letters; up to 32 percent on UPS Air packages over one pound; up to 34 percent on UPS International imports and exports and up to 24 percent on UPS Ground shipments. Savings begin at 70 percent on UPS Freight® shipments over 150 lbs. (Discounts exclude UPS Express Critical and UPS Next Day Air Early A.M.) Members interested in enrolling in our new UPS Savings Program can visit savewithups.com/niada to start saving. UTAH Utah_0114.indd 6
Anything a customer wants, a customer can have. If you cannot provide it, someone else can. So it is important to provide a positively memorable experience that makes them come back for more. You can always make a difference to your business through your customer care, regardless of the industry you are in. Contented customers will recommend you to others. They add value to the volume of your sales and the value of your business. Your reputation begins and ends with the quality of your customer commitment. Customer commitment is an essential discipline. It involves anticipating what your customers will need or desire before they realize it themselves and providing what they want before they have to ask. Here are my top tips for improving your customers’ business journey: Know Your Own Business Customers are your main business asset. Without customers you have no business and you will not survive. Every business owner should be able to answer the following questions: • Who are our customers and what do they want and need? • What leads customers to choose us – and what may cause them to turn away? • Which customers currently contribute most to our annual revenue? • How many customers did we get via referral? • What can we do to attract more of the right kind of customers? First impressions are lasting impressions. If you want to leave a positive impression you need to ensure that your values are being transmitted throughout your company, at every level, including entry level and throughout your marketing material and your online placements. Make Your Customers Feel Special Always ask your customer plenty of questions. Find out their expectations. Get their feedback. Build a profile and keep in touch with them. On one level what customers want is what they ask for, but they also want to feel special, appreciated, understood, welcomed back. They want to buy the qualities that you and your brand represent. The personal touch is the key to further business. Help Your Customers to Help You It is more expensive to attract
new customers than is it to retain existing ones, so look after the ones you have. Customer care and marketing are natural partners. Market feedback, contact data and personal testimonials are often willingly given in exchange for a free offer or other incentive. Deliver What You Promise The only way to make a customer truly happy is to deliver on your promises. Remember that you and your values are part of what your customer is buying. No one wants to change suppliers unless he has to; it is time consuming and inconvenient. Build Positive Relationships This tip applies to your team and suppliers as well as your clients. You are much more likely to get fast-track service when occasion demands it if you always treat people with courtesy and respect. Income makes your business profitable but the quality of your business relationships determines lasting success. Honesty is the Best Policy You can’t be all things to all people. You will not please everyone. If something goes wrong, evaluate it honestly, make adjustments, put things right and learn for the future. • Don’t work with people whose styles and values are likely to clash with yours. • Don’t agree to anything that you do not understand or cannot deliver. Honesty is always the best policy. • Nip problems in the bud. If you feel something is wrong, you are probably right. Find out your customers’ concerns so you can put things right. Keep Reviewing Your Customer Care What additional things could you introduce to improve your customers’ experience and create a lasting impression? Review your current customer strategy. Plan your next steps. Do what you need to do to improve your customer commitment. You want customers to feel as if they have received more than value for their money – at no extra cost to you.
PPG Announces Annual Automotive Color Popularity & Trend Data
Customers Are Your Main Business Asset
M ARKET WATCH
BY ELLEN REDDICK
ELLEN REDDICK IS A CONSULTANT, WRITER AND FORMER SENIOR EXECUTIVE WITH MORE THAN 25 YEARS OF EXPERIENCE IN THE TECHNOLOGY INDUSTRY. SHE IS A MANAGING PARTNER OF IMPACT FACTORY UTAH, A FIRM THAT PROVIDES STRATEGIC CONSULTING, EXECUTIVE COACHING AND SPEAKING SERVICES TO CEOS AND MANAGEMENT TEAMS OF SMALL-TO-MIDSIZED COMPANIES. REDDICK HAS A BROAD BASE OF EXPERIENCE IN PEOPLE MANAGEMENT, SALES, PROCESS IMPROVEMENT, CUSTOMER SERVICE TRAINING, PROJECT MANAGEMENT, MEDIATION AND FACILITATION. SHE CAN BE REACHED AT 801.581.0369 OR ELLEN@ IMPACTFACTORYUTAH.COM.
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Utah’s First Health Insurance Co-Op Partners with Used Car Dealers of Utah u
UVA Launches Sales in Los Angeles and Salt Lake City u
N EW OPPORTUNIT Y TO BUY INVENTORY IN UTAH
Auto dealers in Los Angeles and Salt Lake City have a new opportunity to buy and sell inventory with the opening of two new locations for United Vehicle Auctions. Both new locations will hold sales weekly at 12:30 pm local time, on Wednesdays. “We are tremendously pleased to add these two new locations,” said John Brasher, president of Brasher’s Auctions, the parent company of UVA. “Now that we are hosting weekly sales in San Jose, Sacramento, Fresno, Portland, Los Angeles and Salt Lake City, dealers throughout the West have weekly opportunities to take advantage of the opportunities and benefits provided by United Vehicle Auctions. “Our UVA Sales include inventory from new car dealers who are finding great success in selling their aged inventory in a trusted environment at a fair market price without having to remove it from their front line,” Brasher said. “Buyers benefit by knowing that every vehicle offered in the sale has a clean CARFAX report, has a booksheet that is guaranteed to be accurate, and is front-line ready.” Brasher noted that dealers meet for a catered lunch prior to each weekly UVA event, or participate
Arches Health Plan, a nonprofit health insurance company and co-op owned solely by its members, recently announced that it is partnering with the Used Car Dealers of Utah to support plan review and preenrollment in accordance with the Affordable Care Act. “Our insurance model is the way healthcare in Utah will get better,” said Tricia McGarry, chief marketing officer at Arches. “We will promote and encourage a collaborative relationship between physicians and patients, which will enable Utahans to receive the type of medical care and benefits they deserve and need. This approach will give physicians more flexibility and families more affordable health insurance options.” Arches Health Plan provides four types of plans on the new marketplace exchange: patient centered, qualified high deductible (HSA qualified), healthy lifestyle and traditional large employer plans. All plans offer the 10 essential health benefits mandated through the Affordable Care Act, including maternity coverage. For individuals and families who qualify, tax credit subsidies may dramatically lower the premium cost of these plans. For more information about Arches Health Plan plans, member benefits and provider network visit www.UtahDealers.org or www.archeshealth.org.
Congressman Addresses NIADA at Leadership Conference u
Buyers gather every Wednesday for Brasher’s UVA Sale at Club Auto Sport in San Jose to bid on front-line ready inventory from new car dealers all over Northern California. In addition to the San Jose location, UVA hosts weekly sales in Sacramento, Fresno, Portland, Los Angeles and Salt Lake City.
online via AuctionPipeline. For more information on UVA sales, visit www. unitedvehicleauctions.com.
Buyers benefit by knowing that every vehicle offered in the sale has a clean CARFAX report, has a booksheet that is guaranteed to be accurate, and is front-line ready. UTAH
A RCHES HEALTH PL AN PARTNERS WITH UCDU
JOHN CAR TE R SPE AKS TO NIADA LE ADE RS
Texas Congressman John Carter addressed attendees of the NIADA National Leadership Conference in Washington, D.C. He discussed the CFPB, Affordable Care Act, free enterprise and the entrepreneurial spirit of small business owners, whom he called stalwarts of our economy and country. A video of his presentation is available online at NIADA.tv on the New and Industry Events channels. It can also be viewed via NIADA’s website and YouTube channel.
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Test Drives Are Not as Simple as They Used to Be u
T HE IMPORTANCE OF A TEST DRIVE AGREEMENT
It has long been debated whether or not the dealer should use the test drive agreement form. Many dealers tell us that they always go on the test drive with the customer. Although this is a great practice, more protection should be given to your business and you personally. The use of the test drive agreement eliminates the dealer from giving away free car rental. The form specifies who can drive the vehicle, when it should be returned and how many miles it can be driven on the test drive. But more importantly, it specifies to the customer that their insurance is primary: “I further understand and agree that as the permissive user of the motor vehicle owned by this motor vehicle business, that if I wreck, crash, destroy or incur any expenses or damage to the vehicle as a result of this test drive, that my insurance shall be considered as primary coverage as determined by state statute and the insurance coverage of the dealer shall be considered as secondary coverage.” It is also good practice to obtain a
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U.S. Delays Health Care Exchanges for Small Dealers The Obama administration is delaying until November 2014 the launch of the federal government’s online health exchange where smaller businesses can shop for coverage. Small businesses with fewer than 50 employees will still have the option to purchase health insurance coverage for workers through the new marketplace but will not be able to do so online. The exchanges are of great interest among auto dealers because the average U.S. car dealership had 55 employees in 2012. Until next fall, employers with fewer than 50 workers will need to use a broker or agent to buy health care plans for employees. According to the Centers for Medicare & Medicaid Services, “We’ve concluded that we can best serve small employers by continuing this offline process while we concentrate on both creating a smoothly functioning online experience in the SHOP Marketplace, and adding key new features, including an employee choice option and premium aggregation services, by November 2014.” The Small Business Health Options Program -- or SHOP Exchange -- has already experienced delays as the Obama administration focused largely on implementing an insurance marketplace for individual Americans to obtain subsidized health care insurance and coverage. While the health care law is meant to reduce the cost of health insurance, many small business groups have been skeptical, arguing that the law will backfire and lead to increases in insurance costs. For more information on ACA compatible insurance plans customized for small groups, visit www. NIADAHealthPlans.com or call 1-888-308-9340.
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NATIONAL LEADERSHIP CONFERENCE
Goes to Washington
You can’t actually see the Capitol from the historic Capitol Room of the Fairfax at Embassy Row hotel in Washington D.C. But to the used car dealers, association executives and industry leaders who packed the place on a frigid November evening, it sure seemed like that famous dome was looming right there in the middle of the room. On the opening night of the NIADA National Leadership Conference and Legislative Summit, the Capitol – and the opportunity it represented – was on everyone’s mind. “I’m really looking forward to going to the Capitol,” NIADA president Keith Hagler said. “That’s where we need to be.” Two days later, that’s exactly where NIADA was, capping the most anticipated association event in recent memory with A Day on the Hill. Nine teams of NIADA members stormed the Capitol – figuratively, of course – meeting with the staff of 34 U.S. representatives and senators, including a number of the legislators themselves, to get acquainted, discuss the ins and outs of the used vehicle industry and share their concerns about government’s effect on their businesses. It was an all-out effort to reemphasize NIADA’s first and most vital purpose – to be the voice of the used vehicle dealer in D.C. “They need to hear our voice and they need to hear our story,” explained Hagler, who has made that the top priority of his term. “Especially the Buy Here-Pay Here industry, just to use that segment as an example. They really don’t understand who Buy Here-Pay Here dealers are and what we do in the community, how we help our customers each and every day with all the different things we do, UTAH
and how we fill a big need that’s out there. These people can’t get credit anywhere else and we supply transportation for them. “That’s what I mean by telling our story.” And that was the big story of the NLC. For all its other functions – the annual event brings together NIADA’s officers, committee members and state executives for association business and leadership training – this NLC was special because it marked the first time since 1999 that NIADA brought its leaders to Washington for a chance to interact with legislators and federal regulators. It was that interaction, culminated by A Day on the Hill, that generated the enormous buzz among the 113 attendees. “I think it helps us immensely,” said Ken McFarland, owner of City Auto Sales in Hueytown, Ala., and president of the Alabama IADA. “We were able to get in front of several legislators and we brought the NIADA to them, let them know who we are, what we’re all about, how many people we represent and what impact their legislation has on our industry. “The information we shared with them really opened their eyes to the fact that we really are a big industry and we have a lot of impact on what goes on in America.” Not that all the action was on Capitol Hill. Back at the Fairfax, representatives of the federal agencies that oversee the used vehicle industry – including the Consumer Financial Protection Bureau and Federal Trade Commission – addressed the conference, letting dealers know what is on the regulators’ radar and how to stay in compliance with the ever-growing list of rules governing them. Even more crucial was the
chance for dealers to ask questions of the regulators, particularly those from the CFPB, which had previously been unavailable for Q&As. NIADA actually wound up getting a bonus in that regard. The day after leading their teams of dealers at the Capitol, NIADA regulatory counsel Shaun Petersen and executive vice president Steve Jordan were among a select group of 150 of the industry’s most influential leaders invited to participate in the CFPB’s Auto Finance Forum, featuring CFPB director Richard Cordray. NIADA’s legislative committee made a splash, too, announcing its plan to form a task force to provide the association’s Buy Here-Pay Here dealers a perpetual forum in which to discuss and act on issues specific to their segment of the industry. And not only did NIADA go to Congress, Congress came to NIADA – Rep. John Carter spoke to the conference at a Tuesday night dinner, and fellow Texas Republican Rep. Joe Barton spoke at Wednesday’s luncheon at the Capitol Hill Club. At the luncheon, Barton, whose district includes the NIADA national office in Arlington, Texas, received a donation from the NIADA PAC Fund, which Jordan called a crucial piece of the association’s ongoing efforts in Washington. In his remarks, Barton noted the importance of having NIADA members come to Washington to meet with legislators rather than the usual lobbyists. “If you get to see your congressman or senator, you’re unfiltered,” Barton said. “You’re not a focus group. Most of you represent small businesses. Some
of them are second- and thirdgeneration family businesses. … That’s the real world.” Barton’s reaction was not rare. In fact, legislators and staffers were unanimously receptive to the visits from constituents, according to the dealers who met with them, especially since the NIADA contingent came offering assistance as a resource rather than seeking favors. “We weren’t going in asking for anything,” said Carolinas IADA president Michael Darrow, president of The Auto Finders in Durham, N.C. “It was just opening channels of communication, letting them know who we are at the national and state level. Now in the future if we do have a need we’ll have the opportunity to come back and talk to the same people and get the assistance we need. “A lot of them were shocked that we weren’t there asking for something, that we just showed up to say, ‘Hi, we’re NIADA and we’re car dealers,’ and to kind of explain our industry to them, which was beneficial to everyone.” Those who attended the NLC had no doubt it was beneficial to NIADA and the used vehicle industry. They left Washington excited by their success and ready to use the experience to maintain the relationships they built – and to work on building new ones with officials in their state governments. The goal now is to increase that impact. And, Hagler said, the way to do that is obvious. “This is what we need to be doing,” he said. “We need to come back again next year and hit it strong and hit it again. We need to come back every year and get in front of them, let them know who NIADA is, what we stand for and all the people we represent.”
Texas Congressmen John Carter (left) and Joe Barton were featured speakers at NIADA’s National Leadership Conference.
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Preparing for a New Age in Dealer Compliance u
H OW D E A L E R S C A N C O P E , E V E N T H R I V E , I N A B R AV E N E W WO R L D O F I N D I R E C T L E N D I N G P R E S S U R E F R O M E VO LV I N G C O M PLI A N C E R E G U L AT I O N , LE N D E R C H A LLE N G E S A N D R E G U L AT O RY S C R U T I N Y.
Failures in the mortgage lending industry played an important role in the recent economic crisis. In response, Congress passed legislation that created the Consumer Financial Protection Bureau and required a number of consumer real estate lending changes. Naturally, the new CFPB has focused an enormous amount of its attention on the mortgage finance industry. It has created numerous new regulations and modified existing ones. As a colleague says, the mortgage industry has experienced a decade’s worth of regulatory change in just a few years. Many of the regulatory changes become effective this month (Jan. 2014). So lend a sympathetic ear to your friends in the mortgage lending industry. They might return the favor in the near future. With a bulk of its mortgage-related efforts launched, the CFPB will now have more time to focus on other industries, such as consumer auto lending. The forecast for regulatory attention in the coming year has its roots in events from 2013. Last year, the CFPB published Bulletin 2013-02 in March on indirect auto lending and compliance with the Equal Credit Opportunity Act. The bulletin didn’t create a new regulation or modify an existing one. Instead, it notified the marketplace of its conclusion that common dealer discretionary rate markup and dealer compensation practices are resulting in credit discrimination violating the ECOA. The CFPB also interpreted common lender-dealer interaction as sufficient to classify lenders as “creditors” under ECOA requirements – which makes lenders responsible with dealers for rate markup ECOA violations. A final point in the bulletin was the CFPB’s suggestion that alternative dealer compensation methods would reduce or
eliminate the ECOA compliance risk, such as flat fees. The bulletin sparked concern and debate in the industry. How did the CFPB reach the conclusion that dealer discretionary rate markups plus dealer compensation methods were resulting in credit discrimination? In June and again in October, members of Congress asked the CFPB for an explanation of the data and methods used to conclude that discretionary rate markups and dealer participation are causing ECOA violations. Part of the concern is that dealers are generally not allowed to collect and record a buyer’s gender, age, race and other information about a buyer’s status in groups protected under the ECOA. So how can a dealer, lender or even the CFPB analyze auto loan portfolios to determine if violations are occurring? The CFPB provided information on how it analyzes data for gender and race/ethnicity using U.S. census data in a few presentations, including its November forum on preventing illegal discrimination in auto lending. (Visit www. consumerfinance.gov/blog/ category/auto-loans/ for more detail.) Some of the industry concern and debate has been about the accuracy of the methods described. It is still unclear where the CFPB got the data to analyze and whether the programs analyzed are representative of other rate markup and dealer participation programs. Numerous news sources have reported that the CFPB has requested records from a number of large auto finance sources. If the CFPB is receiving and analyzing their data, there will likely be more discussion about the methods used to analyze and the accuracy of results. Does (or should) the law make lenders responsible for dealer discrimination and how
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can lenders even know that it is happening? Lenders argue that they are not sufficiently involved in dealer’s rate setting to fairly be considered “creditors” (and thus possibly responsible for discrimination) in the credit transaction between dealer and buyer. Staff commentary to Regulation B has been fairly clear on this point for a number of years, providing that a creditor “includes all persons participating in the credit decision. This may include an assignee or a potential purchaser of the obligation who influences the credit decision by indicating whether or not it will purchase the obligation if the transaction is consummated.” There are some legal arguments about the commentary, but the focus of recent discussions has been more on the practical side of how a lender can know if a dealer is intentionally discriminating in its rate markup practices. Even more difficult is the idea that a lender can be responsible for a dealer’s practices when the dealer’s discrimination was unintentional. A dealer may not intend to discriminate in its rate markup practices, but if a protected group statistically ends up paying more, the discriminatory impact on that group is an ECOA violation. The CFPB has made it clear that it intends to find and take action on ECOA violations based on intentional discrimination and disparate impact. The debate is whether, and the extent to which, the ECOA prohibits disparate impact. The U.S. Supreme Court seems interested in this issue and has agreed to hear two disparate impact cases in recent years. Most recently, the Mount Holly v. Mount Holly Garden Citizens case was scheduled to be argued before the U.S. Supreme Court in early December, but settled before arguments. It
was a housing disparate impact discrimination case, but the auto lending industry was interested to see how the Supreme Court analyzed the issues and if it might shed light on analysis for consumer credit. The legality and merits of disparate impact discrimination will continue to be debated well into this year and beyond. It is important to remember that regardless of whether discrimination is intentional or unintentional, in theory, a careful statistical analysis should identify whether gender or race/ethnicity (and possibly other categories) discrimination is occurring. Would flat fee dealer compensation reduce or eliminate the risk of discrimination? If yes, would it do so without negatively affecting the availability and cost of consumer credit? Some have criticized the suggestion of paying a flat fee compensation for dealers, saying it would have a negative impact on the cost of credit for low- and moderate-income borrowers in particular. The argument is that it would shift the dynamic between dealers and lenders and would encourage dealers to move away from seeking the lowest interest rates from lenders to seeking lenders offering the most attractive flat fee compensation structure. The result could lead to higher or less competitive consumer interest rates. Last October a bipartisan group of 22 U.S. senators jointly sent the CFPB a letter with their concerns about the CFPB’s guidance in this area and inquiring about the extent to which it had looked at the impacts of the proposed flat fee approach, such as on the cost of credit for consumers. In a response issued in November, Director Richard Cordray conceded that the CFPB has not undertaken a study of “how market-wide adoption of a single non-discretionary compensation
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program would affect the availability of credit.” During its Nov. 14, 2013, forum, the CFPB also conceded that establishing a flat fee program may not be a perfect solution. The CFPB noted that it is still interested in ideas and suggestions from the marketplace on how to allow reasonable dealer compensation for credit sales transactions without creating an environment for possible discrimination and without negatively affecting consumer credit or the marketplace. Some of the other options that have been discussed include setting a percentage of the amount financed on a car loan as the dealer payment, or even developing a combined approach that would take into account contract duration and amount financed to calculate dealer payment. Clearly, the discussion on flat fees and dealer compensation in general will continue. What can you do to prepare your dealership and adapt, even thrive, in this new reality for your business? The concerns and discussions about discretionary rate markup and dealer compensation from last year will continue in 2014. There is uncertainty on how some of these issues will ultimately be resolved. But there is a lot we do know and a lot that dealers can do to prepare and adapt to the increased focus on dealer compliance. Now is the time to respond in a way that may just put your dealership in a position to not only survive but even thrive in this new reality. During the previously referenced November forum “Preventing Illegal Discrimination in Auto Lending,” CFPB Director Cordray told the audience, “Each lender bears the responsibility for policing its own lending program to avoid unlawful practices…” In spite of the attention to this issue, lenders may be hesitant to provide too much guidance or oversight to dealers on how to comply with ECOA for fear of creating liability for themselves. Part of the issue is that the more lenders get involved the more they look like “creditors” under Regulation B and the stronger the argument that they should be liable for dealers’ credit discrimination. So lenders might not tell you what to do or how to do it, but they will clearly require dealers to have up-to-date policies and procedures in place for ECOA compliance. Dealers should make sure that they have these things in place along with staff training, UTAH
clear escalation requirements for rate exception decisions and rate exception documentation. Remember that there are compliance companies and consultants in the marketplace who can help you create or update your ECOA program (Do some research to make sure you find a qualified and experienced one.). Once prepared, you will be able to confidently respond to lender questions on your ECOA compliance. Remember, too, that dealers are required to comply with the ECOA even if they hold their own credit contracts – so your preparation will also allow you to confidently respond if your state or federal regulator asks about your ECOA compliance. A second action item is to participate in the industry discussion on discretionary rate markups and dealer compensation. Consider the issues and ideas for how current practices could be improved to help avoid the risk of credit discrimination and offer your ideas to the NIADA staff. There is still time to influence changes to the industry’s best practices and the CFPB’s views on them. A third action item is to be prepared for possible changes in your lenders’ program requirements on dealer discretionary markup and dealer compensation. Lenders may set limits on the amount by which you can mark up their buy offers. They may also change whether and how dealers are compensated for any rate markups. Even though we don’t know how those issues may ultimately be resolved, now is the time to evaluate how those pricing elements fit in your dealership’s overall pricing and profit models. Consider how change to those pricing elements will impact your business and how you can respond to various change scenarios. The concern, discussions and uncertainty will continue, but it is still possible to take action on things within your control. Following these three action items will immediately benefit you as a dealer and also your lenders. It will also give you a solid foundation from which to implement any future changes made regarding discretionary rate markups and dealer compensation.
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.
Used Car Dealers of Utah
MEMBER BENEFITS • Legislative Representation ALL year • Discount on Forms & Supplies at IDS • Discounted Continued Education • Discount on Plate & Registration transactions at IDS • Discounted Bonds & Insurance • Discounted Auto Parts • Insurance Services •M onthly Professional DevelopmentSeminars • Discounted Annual Meeting & Exposition • Membership in the NIADA • Discounts on Shipping • Discounts at Hotels • Discounted Office Supplies • Discounted Rental Cars • Availability to NIADA Retirement Program • XM Radio Program
CODE of ETHICS
• Members have a general duty
of integrity, honor and fair dealing toward the general public. • Members shall comply with all city, county, state and federal laws and shall endeavor to keep themselves informed of those laws governing their business. • A member shall not intentionally injure the business reputation of another member or competitor. • We will employ truth and accuracy in advertising and selling. • Members shall stand by an guarantee given with the sale of a motor vehicle. • Members shall not perform any act that would bring disrepute to the motor vehicle industry. • Members shall expose or halt where found, any scheme designed to deceive or defraud the automobile buying public and aid prosecuting those involved in such acts. • We shall constantly strive to encourage the america system of free enterprise. • Members shall adhere to and follow the established anti-trust disclosure as established by the UCDU.
Business Name: ____________________________________________Dealer #: Owner’s Name: _____________________________________________________________ Physical Address: _______________________City: _______________St: ______ Zip: Telephone: ( _____ ) ______________________________ Fax: ( ______ ) Dealership Email: __________________________________________________________ Dealership Website: www.____________________________________________________ Dealership Facebook Page: www.Facebook.com/___________________________________ Dealership Twitter Handle: www.Twitter.com/____________________________________ Association Contact Name: ___________________________________________________ Association Contact Email: ___________________________________________________ Authorized Signature: ________________________________________Date: I certify that (I am or we are) eligible for membership in the UCDU. I agree upon signing of this application and if accepted as a member, I pledge to uphold the bylaws of the association, its code of ethics, and all Local, State, and Federal laws pertaining to the automobile industry.
State & National Dues
Sign up Fee
Check Enclosed Credit Card Visa Mastercard Discover
Amount $ ________
CC# _________________________Exp Date: ______ Name on Card: _______________________________ Authorized Signature: __________________________ Mail to UCDU: 7414 S State Street, Midvale, UT 84047
It is important to me to be recognized as a professional! Enclosed are my annual dues to make sure that my business has all the advantages UCDU/ NIADA provides to put me at the forefront of my profession. By completing this application and until I give written notice to discontinue, I am consenting to and giving UCDU/NIADA, its affiliates and subsidiaries, my permission to contact me and provide information to me at the mailing and email addresses, telephone, and fax number(s)I have provided.
w w w. u t a h d e a l e r s . o r g 12/20/13 10:47 AM
12/20/13 10:41 AM
Building Compliance Into Your Dealership… It’s Good Business. u
PROVIDE UP-TO - DATE DOCUME NT S FOR CU STOME RS AND LE NDE RS
This time of year many dealerships are thinking of the busy tax return season when customers are flush with cash for down payments. It’s also a time to reflect back on 2013 for a moment and contemplate what we’ve learned over the past year that will influence the way we do business in the future. Regulatory change and government focus on our business is increasing. We now know that others are looking at the industry with deep scrutiny. The public forums and participation by lenders, customer advocates, multiple regulatory agencies and national associations have now given insight into how others view the auto industry and the concerns they have about many common business practices. Before any new regulations, rules or guidance are issued, dealers can take steps to minimize the risk to their dealerships as well as to their customers and vendors. In the past year many regulatory changes have been enacted across the country – some at the federal or state level while others by local governments or agencies. These new regulations and rules affect many parts of the business, but none more directly than in the finance office. Whether the customer is paying cash or acquiring a loan to finance the vehicle purchase, the forms used to close the sale are the same. With loan files containing an average of 25 pages, the risk of noncompliance is always great. One common misconception is that if a lender accepts a contract package and funds a loan, the dealership is now off the hook, but that’s far from true. Many lenders also fall short of adequately managing their accepted forms lists. This list
UTAH Utah_0114.indd 14
may be provided to dealers or to their internal staff, so dealers could actually be using the wrong forms or maximum fees allowed by law. This may go Wunchecked until an audit is performed and a large portfolio of loans has been originated. Since the loans were originated within the dealership, the dealership may share in the responsibility for correcting the loan documentation or financial liability for uncollectible loans. In spite of this risk, many dealers are still pulling forms from a pre-existing stack of forms and completing them in the same manner until they’re all gone. If you think this is an acceptable practice, here are some questions that you may ask yourself: • Are they the most current versions? • Do they provide the customer with the proper disclosures, rights and privileges under the current law? • Are the fees, payment calculations and interest rate calculations being used in the finance office accurate? There are a few more questions that need to be answered of your compliance management process: • Who is tasked with ensuring that the forms used in your dealership are the most current and compliant? • Do you depend on information about proposed and enacted legislation from your forms provider, DMS, legal counsel, finance manager or back office? • How often do you review the forms versions, calculations method, and allowable fees? • Do you understand your liability in providing outdated forms, incorrect fees and incorrect calculations to your customers and lenders? These are just a few questions to consider when setting up a
forms compliance management program within your dealership. The extent of your forms management program may well depend on the types of business you are engaged in. For instance, if you are engaged in primarily cash sales, you may have little exposure. But if you are engaged in in-house financing or financing through multiple indirect lending sources, your risk may be much greater. There are few immediate steps you can take to minimize your risk: • Establish a point person who is responsible for managing forms, fees and calculation methods. • Sign up for compliance notifications from a trusted source. There are many companies who will provide email notifications when regulations change that affect your business. • Audit your dealership. Many dealerships have their own legal counsel. Have your legal counsel or trusted advisor review your completed loan packages for compliance. • Stick to a schedule. A quarterly review of your compliance concerns could drastically reduce the risk to your dealership. If nothing else, the current regulatory environment provides ample motivation for creating a compliance regimen within your dealership. But the fact is it’s just good business to provide up-to-date documents that give your customers and lenders the correct disclosures, rights and privileges under the laws.
BY CHET HEUGHAN
CHET HEUGHAN IS DIRECTOR OF APP ONE RISK MITIGATION SERVICES, INDIRECT LENDING FOR WOLTERS KLUWER FINANCIAL SERVICES. FOR MORE INFORMATION, VISIT WWW.WOLTERSKLUWERFS.COM.
w w w. u t a h d e a l e r s . o r g 12/17/13 4:43 PM
12/17/13 4:43 PM
12/20/13 10:33 AM