As compliance “gurus” in the field, we assist dealers around the country with their compliance needs. We conduct over a 1000 compliance reviews each year; our clients range from small automotive groups to large public groups with 80 plus rooftops. We also attend industry trade shows, summits, and conferences. Often, we have the opportunity to share our knowledge on compliance, but also take in knowledge from others in the industry. The one common question we receive, whether it be at a speaking engagement or during a dealership recap, what are the top compliance concerns you see and/or hear about as you work with dealerships across the country. To be even more specific, could we provide an answer based on severity of the concern and the frequency of the concern. 

From a severity perspective, what are the top three compliance concerns that should keep a dealership owner up at night? The concerns on this list are non-negotiable and severe repercussions if not termination should be the only considered outcome.

Forgeries

Forgery needs no explanation. Plain and simple, never sign or ask another person to sign any documents on behalf of the customer. Even with the customer’s permission, documents should never be signed on their behalf.

Powerbooking

The practice of powerbooking is showing non-existent options on a used car to increase the vehicle value on the bookout worksheet that is sent to the lender. This value is used by the lender to determine the deals loan to value ratio. Falsifying the vehicle options to increase the value should be strictly forbidden. We recommend as a best practice, have the responsible employee sign off attesting to the accuracy of the options listed on the bookout worksheet.

Straw Purchase

A deal is considered a straw purchase when a person who is primarily driving and purchasing the vehicle, is not a party on the RISC or Lease Agreement. A dealer should never deliver a deal he/she knows to be a straw purchase. 

Forgeries, powerbooking and straw purchases are not only considered bank fraud, but can result in buybacks, suspicious activity reports being filed by the lending institution, investigations, fines, and jail time. 

Now on to the compliance concerns we see based on frequency. Like the concerns listed above, these are high on our radar and are considered what we call elevated concerns. They hold a high point deduction on our scoring model and if they arise in your dealership, corrective action should be taken immediately.

Credit Application Fraud

Credit application fraud is when the dealer modifies, coaches, or misrepresents the information provided by the customer in the five key determinant areas on a credit application. These key credit determinants are what the lenders take into consideration when making a credit decision. When the determinants are altered, it is usually done to circumvent underwriting guidelines or make the deal appear more favorable. To learn more about the five key credit determinants, check out my article, “The 5 Key Credit Determinants.”

Identity Theft

The second highest risk dealers face is identity theft. With ID thieves running rampant, getting smarter and more cunning, dealers need to vet, vet and vet some more before delivering a vehicle. Ensure you have the correct person in front of you by closely examining the identification, appropriately managing the Red Flags process, and taking a step back if there is a credit bureau alert. Do not ignore the warning signs or the dealership can take a huge hit.

Payment Packing

Payment packing is a practice that occurs when a payment quoted to a customer is more than the actual payment required to purchase the vehicle for the price agreed upon at that point in the negotiation. There are several forms of payment packing:

• Using an APR not consistent with the bureau score

• Using more than a $10 payment range

• Using more than 45 days to first payment

• Including undisclosed F&I product(s) in the payment quote

• Adding an arbitrary amount to a true payment

All dealers at one time or another have been exposed to one or more of compliance concerns discussed above. They need to stay vigilant, make it known these practices will not be tolerated and discipline the employees who continue to put them at risk!