Mention class-action lawsuits or governmental compliance legislation, and many dealers want to run for the hills. This is a frightening time to be a dealer, as it seems that lawyers, consumer advocacy groups and state and federal agencies have decided that car dealers make for easy prey.
There are several compliance-related areas that dealers need to address. One of the most visible, yet often overlooked, is the paperwork related to almost every transaction occurring at your dealership.
Paperwork violations can be easily proven. Most of the paperwork errors involve violations of state unfair and deceptive acts and practices (UDAP) statutes.
These may seem harmless enough, but they can create significant legal exposure and stiff legal fees. In addition, when a paperwork violation has occurred, it is often evident in more than one transaction, creating a domino effect. These seemingly minor paperwork errors are becoming a common basis for class-action lawsuits against dealerships.
Paperwork compliance problems exist in automotive retailing due to a number of factors. These include:
- Paperwork compliance is a complex and pervasive issue.
- Auto dealerships are one of the most heavily regulated industries, right up there with financial services and health care.
- Laws and regulations affecting car and truck dealers are constantly changing and hard to keep up with.
- Single documents often affect more than one department.
- Documents are often obtained from multiple, and sometimes unintended sources.
- No single party is typically responsible for paperwork compliance across the enterprise.
With all of these factors working together, it is no surprise that the majority of dealers are out of compliance in one or more areas.
Most paperwork and documentation issues can be categorized as follows:
- Required documents are missing
- Incorrectly drafted documents
- Conflicting documents
- Missing or incorrect disclosures
- Conflicting disclosures
- Overly broad obligations
- Overly broad dealership rights or remedies
- Failure to integrate material statements
- Improper use by employees
- Inconsistencies with actual sales practices
- Incompatible with in-house information technology systems
The key to successfully addressing this complex situation is the development of a comprehensive and integrated dealership document system.
In every dealership there are about 20 critical documents in the sales and finance area alone that deserve the closest and most immediate attention.
These documents range from test-drive agreements and Federal Trade Commission used-car stickers to credit insurance disclosures and customer delivery checklists.
All of the documents in these areas usually intersect at two key documents: the purchase or lease agreements and the finance agreement. These documents should be the hubs of an integrated dealership document system. All data and obligations need to be in sync as they pass through these two important “gates.” If you're concerned about paperwork compliance — and you should be — this is an excellent place to start your review process.
Although the idea of becoming compliant across dozens of documents seems like an overwhelming task, to do nothing is an unacceptable risk. Not knowing if you are in violation or failing to take corrective steps are not acceptable defenses. Dealerships have a legal obligation to comply.
Although there are numerous groups and individuals waiting to pounce on dealers' errors, there are also many organizations that assist dealers in this area.
Among the sources that can counsel and assist you are your state or regional dealer association, your systems provider and your attorney. Some are willing to assess paperwork compliance at no charge, while others may charge a fee. Regardless, it's an extremely important service. In addition, there are many seminars and workshops available that can help identify problems and bring paperwork into compliance.
Taking action before someone else does against you is the recommended course.
Matt Parsons is vice president of sales & marketing for the Automotive Retail Group of ADP Dealer Services and a 19-year veteran of automotive retail information technology.
