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Modernists vs. Traditionalists: Morphing Into an Edealership

Compliance expert explains how to balance the benefits of a digitized F&I process with the same regulatory demands required of the paper process.
By: Gil Van Over

Modernists vs. Traditionalists: Morphing Into an Edealership

As the sales and F&I processes are morphing from a traditionalist (paper) documentation of the processes to a modernist (digital) documentation, it is helpful to step back to see where the change is taking place.

The battle between a modernist and a traditionalist is evident in the world outside of automotive retailing. For example, the modernist is more likely to be a fan of UFC where a traditionalist still watches the boxing matches on HBO.

Benefits and Risks

Each process has its own benefits over the other, and a different set of risks in accepting the approach to use. For the traditionalist, employees are already trained in the paper process, controls are in place and it is easier for an absentee owner to oversee the operations.

The modernists believe they are catching the wave now and are meeting consumer demands while building efficient processes. The modernists also believe a digital process will help flip the consumers’ perception of car dealerships and the dealer will have easier access to data while having the ability to expand its footprint.

On the flip side, staying with the traditionalist approach means the industry can pass you by, that the consumers’ negative perception continues to perpetuate, ignoring that millennials prefer digital to pulp and a larger data storage and safeguards risk. Pursuing the modernist processes can border on the bleeding edge of technology. It requires staff retraining and trying to convert old timers on the new approach. The modernist has to review its controls, backup retention of data and a risk of a large data breach.

The Hybrid Edition

Daryl Hall of Hall and Oates may have said it best when he wrote this classic line in one of their songs: “If two can be one, who is the one two becomes?” My belief is that, ultimately, the dealership sales and F&I model may be a hybrid of the modernist view and the traditionalist preference.

Some dealerships may have customers who prefer a paper process while other dealers have customers who may insist on a digital approach. This may drive the dealer’s ultimate decision.

Further, some processes are better executed using pulp and other processes lend themselves to electrons. Here is a look at some of the processes under review by dealerships in their decision between traditionalist or modernist:

  • Credit applications: Two critical compliance concerns related to credit applications help drive the decision between paper and digital: First, a dealer must show consent to pull a credit report. While a signature is not required, it is the best evidence to prove permission if the customer signed a credit application. Therefore, in a compliance review, you should review the timing of a signed credit application versus the timing of the credit pull.

The second compliance concern is the ability to prove to a finance source that the credit information you provided is consistent with the credit information provided to you by the consumer. A signed source credit application to compare to the submitted credit application serves as this evidence.

Some dealers are obtaining and retaining a paper credit app signed by the customer while other dealers are accepting an online credit app digitally signed. Other dealers are entering the customer information directly into a kiosk or the CRM and printing a copy for the customer to sign before pulling credit.

All of these approaches are compliant.

  • Desking: Many dealers still using a Sharpie and a four-square will likely have compliance issues with their desking process. These issues can include payment packing or discriminatory pricing. While some edesking solutions can still allow payment packing or discriminatory pricing, it is easier for you to catch in a compliance audit and know whom to hold accountable.
  • Menu: Like desking, many dealers who use a manual menu and a Sharpie may be committing deceptive practices like payment packing or trading rate for product. Using an emenu with industry standards  will help with a compliant menu process. It also documents many of the customer’s purchase decisions and is the most important piece of paper from a compliance perspective in the deal file.
  • Contracting: Truth in Lending Act (TILA) issues flare up when an impact printer is used to print the contract. Leveraging econtracting not only minimizes potential TILA claims, it also helps with contracts in transit funding.
  • Deputy Dawg duties: The Federales require auto dealerships to conduct some vetting on each transaction to help in the fight against terrorism and identity theft. These two problems are certainly on many consumers’ lists of things to worry about in America, and we are required to do our part.

To comply with terrorism vetting (OFAC) and identity theft deterrence (Red Flags Rule), a dealer must check some lists or other data to decide on whether to move forward with the transaction. Trying to manually conduct these reviews is time-consuming and likely fraught with errors or omissions. If there are processes within the sales and F&I processes that truly lend themselves to a digital solution, it is OFAC and Red Flags.

  • Adverse action notices: Under this requirement, a dealer sends an adverse action notice as necessary. Many dealers take the conservative approach and send an adverse action notice to anyone who provides a credit application and the dealer does not sell a vehicle to.

Manually completing and mailing a mass number of letters is inefficient. A digital approach is really the only way to ensure compliance with this process.

  • Out-of-area deliveries: This process ties directly into identity theft. Some dealerships are experiencing identity thefts from rings of nefarious, smart criminals. Many of the identity theft cases I’ve been involved in have some common characteristics and should be considered in your Red Flags process: Customers who are from outside the area, have never done business with the dealership before, may have passed over numerous dealerships for the vehicle, and don’t bother to negotiate the price or products should be regarded with suspicion.

Some dealerships have adapted a rather robust process to help mitigate the likelihood of an identity theft from an out of area customer. Among the additional steps:

  • The dealer will ask the out-of-wallet questions before proceeding with the deal.
  • Use Skype or Facetime to present the F&I products.
  • Run a Google Earth search on the given address.
  • Leverage a notary service or require a notary involvement in the document signing.
  • Send the customer to an affiliated dealership in the customer’s town.
  • Conduct a social media search to see if the pictures match the picture on the driver’s license.
  • Instruct the delivery company to deliver to the address only with no diversions allowed.

Continued good luck and good selling.

This article was written by:

- has written 8 posts on Agent Entrepreneur.

Gil is the principal of gvo3 & Associates, a nationally recognized compliance consulting, audit, training and review firm. He and his team work with dealerships around the country in implementing F&I and Sales Compliance Management Solutions to help dealers manage and mitigate compliance issues. He is a frequent speaker to industry groups and also provides litigation support on behalf of automotive retailers and insurers. Prior to forming gvo3 & Associates in 2001, Gil was the Chief Operating Officer for Premier Auto Finance, a management company that managed auto finance portfolios for dealer groups.

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