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Avoid Compliance Hangovers

What exactly is a compliance hangover? It's like a regular hangover. Both can trigger massive headaches.

What exactly is a compliance hangover? It's like a regular hangover. Both can trigger massive headaches.

Whereas a traditional hangover is caused by too much drink, a compliance hangover is caused by overloading employees with compliance information and then expecting them to go back to work and be productive.

Nothing is less motivating than getting your sales and finance teams together and unloading on them hundreds of practices that can get them fired or jailed. They need to stay motivated to get the profits flowing into the dealership. However they must adhere to compliance procedures for the dealer to be able to keep those profits.

For those sales personalities that are impervious to de-motivating forces, a compliance hangover may cause them to slip into compliance denial. This condition results in a complete disregard of everything that was explained to them in the compliance meeting. They have yet to experience the financial pain associated with the demands of an aggressive plaintiff attorney or a relentless government agency.

What is the cure? For all of us who have experienced a traditional hangover, we know the answer is quite simple: moderation. Dealership personnel cannot become compliance experts overnight.

Dealers must prioritize compliance issues. For the sales and finance departments, Auto Advisory Services recommends these topics as priorities this year:

  • Privacy-related customer information safeguards and red-flag rules. These are extensive and the Federal Trade Commission has investigations against dealerships across the nation.
  • Handling trades and negative equity. Auto Advisory Services continues to recommend trade allowances reflect real values and negative equity be disclosed on sale and lease contracts.
  • Finance products. Do your finance people know the difference between a warranty and a service contract? Or what constitutes insurance and whether your dealership is licensed to sell it? Are insurance premiums being properly disclosed on retail installment sale contracts? Do your F&I products legitimately add value to the vehicle?
  • Telemarketing. Follow the federal Do-Not-Call rules, have a telemarketing policy and make sure personnel follow it.
  • Cash reporting. The Internal Revenue Service is always active in this area and dealerships have paid millions in non-compliance fines. Recent rulings emphasize the need for strong policies to avoid steep penalties.
  • Foreign-language negotiations. Do you allow sales personnel to conduct negotiations in one or more foreign languages? Do you know what those personnel are telling customers? Do you have a foreign-language policy? Foreign-language deals can lead to liability for dealers if gone unchecked. For example, federal law requires Spanish versions of buyer's guides be posted on used vehicles when a dealer is conducting sales in Spanish. California law requires various documents be translated and provided to customers whenever transactions are primarily negotiated in another language.

Compliance, like most medications, should be delivered in measured doses and continuously. Administer information to your staff slowly but repeatedly. Provide material for employees to read and give them study time while on the clock. Establish a time line, perhaps introducing a new compliance topic each month.

Keep track of who has learned what. If you can't prove that an employee has been trained on a topic, it is difficult to impose discipline for a policy violation. More importantly, if in litigation you don't have proof that employees “knew better,” the dealer's exposure is far greater.

A sure-fire way to avoid a traditional hangover is complete abstinence from alcohol. This is where my metaphor ends because, complete abstinence from compliance can lead to a far more serious condition called “defendantitis.”

Rob Cohen, a former car salesman turned lawyer, is managing partner of Auto Advisory Services, a compliance consulting firm. He is at 1-800-785-2880.

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