Tag Archive | "compliance"

W. Va. Attorney General Files Suit Against Used-Car Dealer


CHARLESTON, W.Va. — Earlier this month, West Virginia Attorney General Patrick Morrisey announced that his office filed suit in Cabell County Circuit Court against Downtown Used Auto Sales, alleging numerous violations of the West Virginia Consumer Credit and Protection Act and other applicable consumer protection laws and regulations.

The Office of the Attorney General first opened an investigation into Downtown Used Auto Sales in September 2012 after receiving numerous complaints from consumers. At the time the suit was filed, the office had received 22 formal complaints alleging a wide range of violations of the state’s consumer protection laws in the sale and financing of used motor vehicles.

The allegations included that owner Thomas J. Matthews sold unsafe vehicles, refused to repair significant mechanical defects, added unlawful finance charges, repossessed vehicles without the required legal notices and illegally disposed of consumers’ personal property. The office issued an investigative subpoena to the car dealer on April 25, 2013, which asked for documents and information about his sales and financing practices.

The filing summarizes 18 consumer complaints that illustrate the serious issues that consumers encountered with Downtown Used Auto Sales, including the sale of vehicles with mechanical defects, vehicles that could not pass inspection, illegal finance charges and fees, and repossessions without the required notices.

“In one of the examples included within the allegations, a consumer had her vehicle — which was not even able to pass inspection — repossessed without notice as required by law,” Morrisey said. “When she called them to ask about retrieving her personal belongings in the car — including her college textbooks, her bible, and an infant’s car seat — she was told the vehicle had been ‘cleaned out’ already, and all of her possessions were discarded.”

The suit asks the court to enter an order prohibiting Matthews from violating the West Virginia Consumer Credit and Protection Act, and also asks the court to award civil penalties to the state and restitution to all consumers who have been aggrieved by the dealership’s practices.

“Many used car dealers provide a valuable service by offering affordable, reliable vehicles to consumers who may not be able to obtain credit from mainstream lenders,” Morrisey said. “However, being willing to extend credit under those circumstances doesn’t excuse a dealer from its basic obligations under our state’s consumer protection laws.”

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The Bigger Compliance Puzzle


When it comes to compliance, most of the talk the last several months has centered on the Consumer Financial Protection Bureau (CFPB) and the guidance it issued. The guidance does not directly impact dealers – but it does affect the lenders dealers rely on, and it has certainly changed the way many lenders look at the contracts sent to them for approval.

However the CFPB, and the changes being slowly enacted because of it, aren’t the only regulations dealers need to be aware of. An important part of any agents’ value-added services is to make sure dealers are not neglecting all the other aspects of compliance for which they will be held accountable.

First, and most importantly in many ways, is to make sure there is someone at the dealership itself who has taken ownership of compliance in all aspects of the dealership. Before even identifying any holes in the compliance strategy, there first has to be someone who is responsible for them. “Every dealer should have its own compliance officer,” said Terry O’Loughlin, director of compliance, Integrated Document Solutions, Reynolds and Reynolds. “Agents should encourage the dealer to have someone who is appointed to that position. That person should have responsibility to oversee all compliance efforts.”

He went on to note, “There should be a business plan just for compliance – something a dealer can do cheaply if they appoint someone. It could be their controller, it could be the general manager, or it could be someone else in the office, but someone has to be charged with that responsibility.”

While it is still not a mainstream concept, many dealers are starting to take that advice to heart. “I can tell you that, at least in my experience so far, a good number of dealers are beginning to stir,” said Tom Hudson, chairman, Hudson Cook LLP. “For example, I visited with a large dealership in North Carolina recently; they had commissioned a compliance expert to compile a handbook, when in the past they had never had one. They also appointed their own compliance manager, which is something we’re seeing a little more frequently as well.”

“The dealer needs to know who should have compliance knowledge, then make sure they have it,” said Dave Robertson, executive director, AFIP. He believes, however, that the knowledge shouldn’t be concentrated in one person, but that everyone who deals with contracts needs to be educated. “If people in the dealership are required to do their job relative to regulations – such as the people who write contracts – they must be knowledgeable about them. They can’t be required to follow the rules if they don’t know them.”

While he believes it is important for everyone to be aware of the rules, he does, however, advocate a system of audits to ensure they are following through – rules aren’t any use if they are not being followed. “The dealer must have an audit program where there is a systematic, organized audit,” Robertson said. “They have to make sure the rules are actually being put into practice. There needs to be a regular audit of F&I and deal jackets to make sure everything the staff have learned is, in fact, being followed.”

Once a dealer has appointed their compliance manager, and given them the authority, they need to do audits and, most importantly, follow up with the appropriate consequences when violations are found. So, what should the audit focus on?

O’Loughlin said that the place to start and his first very strong recommendation would be to have every dealer review their Safe-Guards Rule and Red Flags Rule programs, as well as review and update privacy policies. Dealers also need to ensure they are in compliance with the updated Consumer Protection Act which, last October, changed how and when consumers can be contacted by businesses. “If dealers are contacting their customer base, they need to make sure they have an updated authorization agreement so they can send e-mails, call them on the phone, text them, send them faxes or initiate any kind of communication – electronic or otherwise,” he said. “My suspicion is that many dealers haven’t taken this step. There have been cases where dealers called a customer on their cell phones and incurred costs to that customer – and anyone who does that is liable for those costs. This is something dealers want to reevaluate if they have any ongoing reminder campaigns.”

“I had one dealer come to me looking for a deal jacket review,” said Hudson. “I said happy to do it, but what about your underwriting manual, collections manual, red flags manual, etc.? He said ‘we don’t have that’. It is a federal requirement – dealers have to do that, but a lot of dealers are struggling putting together the internal compliance arrangements they need. Big dealerships have been at it for a while, but as you scale down in size, compliance efforts are more wanting. The smallest dealerships still have a long way to go.”

Robertson advised that one of the first places dealers should start when revamping their compliance policy is to seek training. The government, he said, has several comprehensive training programs on specific topics, and then there are a variety of third party programs, like his own AFIP certification for F&I managers. “That is a big component of a dealer’s program,” he stressed again. “People who need the knowledge, must have the knowledge.”

Hudson agreed, noting that if he were a small dealer, there are a few resources he would be pursuing right now. “Go to your state association and lean hard on the director,” he said. “Tell them, look you need to be developing this stuff for all of us, to spread the cost over all the smaller dealerships. They need to develop materials all the small dealers can adapt, and I haven’t seen any sign of that yet.”

Another form O’Loughlin believes dealers should re-evaluate is their arbitration agreements. He noted that the government recently convened a hearing on arbitration clauses, and part of the mandate for the panel is to look at how those clauses apply to consumers. “The expectation is that they’re going to deny the application of arbitration in the future,” he noted. “They haven’t done it yet, but in the meantime, there have been a series of cases that have changed arbitration agreements to be more balanced between the dealer and consumer. If your dealers haven’t looked at them in a while, they should do so now. And they should follow the federal Arbitration Act, rather than state law, is my recommendation.”

O’Loughlin’s final advice? “Start the new year by taking a look at all dealer documentation. Make sure everything is all marked with a current effective date, and that the most current groups of forms are in the library, so F&I managers aren’t using something out of date. It’s not a happy task, but starting on a new year, some forms do expire.”

Hudson wrapped up by quoting O’Loughlin. “Terry has an interesting concept that I agree with – we have been on panels together – and he is fond of saying that anything worth doing is worth doing poorly. That always makes everyone sit up. Dealers all have the obligation to put together privacy manuals, and things like that. The dealer who attempts to do something like that themselves, who sits down, studies the rules, and creates a policy that is homemade, and not bought from a professional – the dealer who makes a stab at doing something – is better off than the dealer who didn’t do anything at all. If the compliance police come in, and ask for a manual on privacy, the dealer who has one that’s not great because they did it themselves is way ahead of the dealer who didn’t do anything. Even a poorly done compliance system is better than none at all – effort counts, it really does.”

For Robertson, it all comes down to treating customers fairly and honestly, and then compliance just becomes a natural fit. “The dealer has to say, can I make a living treating people fairly and doing it right?” he noted. “And if they can’t, there’s a fatal flaw in the business plan. I’ve been in the business for 40 years, and I’ve had them tell me you can’t sell cars without screening, but they have done it wrong for so long, they don’t know how to do it right. For the dealer, though, it’s crucial that if there is ever an opportunity, always do the right thing. I’ve seen that in 50% of lawsuits, if dealer had handled it properly the first time, it wouldn’t have gotten to that point. I don’t want anyone to have something of mine they don’t want to have – if I sold you something you don’t want you’ll do whatever it takes to make sure you don’t keep it. But if the dealer did the right thing at the first opportunity, it wouldn’t have been a problem.”

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Protecting Your Small Business: How to Keep from Getting Sued


When you own a business, especially a successful one, lawsuits are sometimes inevitable. Small businesses are a popular target because people assume most will settle rather than go through the hassle and costs of defending a suit.

“If you haven’t been sued at some point then you probably haven’t made that much money,” says Charley Moore, founder and chairman of RocketLawyer, an Internet-based legal service. “It’s pretty unavoidable in a successful business’ life span.”

Although there’s no guarantee your business won’t ever be sued, there are steps you can take to mitigate the risk, according to Fox Business.com.

According to Josh King, general counsel at Avvo, www.avvo.com, a legal and health website, an obvious mistake small businesses make is not having the right corporate structure. While many small businesses will structure their company as a sole proprietorship, King says being an LLC or S-Corp will minimize the chances of any lawsuits impacting the individual.

“You don’t want the liability to pass through to you personally,” says King. “You always want to find the best structure.”

A surefire way to prevent a lawsuit from happening is to be compliant with the law. That means knowing what to file, when to file and keeping accurate records, says Moore. For instance, if you have employees working on site, make sure you are following labor laws and posting notices throughout the workplace where required. If you’re business provides products and services to the government, ensure all their rules and regulations are followed.

Hand-in-hand with being compliant is using best practices, says Barbara Weltman, Publisher of Big Ideas for Small Business. Employing best practices — whether it’s dealing with partners, employees or customers — will shield you from any misunderstandings that could result in a lawsuit down the road.

“If you are dealing with other parties make sure everything is in writing,” says Weltman. “You have to have best practices in everything you do.”

For many small businesses, one area that can be trouble is dealing with employees. Not having a culture of fairness and not setting clear rules can cause problems if employees feel they aren’t being treated well or compensated properly for their work.

“A huge way to avoid lawsuits it get employment agreements in writing,” says Moore. What’s more, he says to clearly lay out the rights of employees and make sure to get an arbitration clause into the employment contract. Having that will keep you out of court if there is a conflict with an employee.

Instituting an employee handbook and training managers in sexual harassment and discrimination are all things that can prevent a lawsuit.

Small businesses will often strike deals with other businesses or work with consultants on specific projects. Whatever deal you strike or whatever contract you ink, make sure it’s in writing.

“Recording everything in writing is one of the best ways to avoid litigation,” says Moore. Having the rights and responsibilities of each party in writing will also put you in a stronger position if you are sued.

Customer lawsuits are also a common threat facing small business owners. The chance of that can also be reduced by being clear about return policies and service guarantees, says Weltman. The worst thing a small business owner can do is ignore a customer complaint or problem. “Follow up as soon as anything happens to address the issue before it rises to the level of a lawsuit,” she says.

If you do nothing else, taking out the proper type and level of insurance will protect your business if it does end up getting sued. “Having the right kind of insurance is wonderful because when you are sued the insurance company will defend you,” says Weltman. “It makes it easier and you won’t have to give into these lawsuits.”

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FTC Targets Two Auto Loan Modification Companies


WASHINGTON, D.C. – The Federal Trade Commission filed charges and requested a U.S. district court to stop the specific practices of two auto loan modification companies operating in California. The two companies charged include Hope for Car Owners LLC, NAFSO VLM Inc. and Kore Services LLC (doing business as Auto Debt Consulting).

The agency alleges that the defendants did not make any attempts to modify auto loans after collecting up-front fees and didn’t pay promised refunds for failing to do so. These companies also told consumers to pay them and, in turn, stop paying their auto lenders, reported F&I and Showroom magazine.

Auto Debt Consulting, for example, promised to reduce consumers’ monthly auto loan payments by 25 to 40 percent, but required up-front fees of between $350 and $799. On its Website, the company stated: “If you have engaged the services of Auto Debt Consulting for negotiating with your lender or bank on your behalf, and if for any reason you are dissatisfied with our services or we are unsuccessful in the negotiation process, we will provide a 100 percent money-back guarantee.”

In addition, the agency said one group of defendants told consumers to “hide [their] car[s] to avoid repossession.” The agency added that the promotional slogans used by the loan modification companies included “Join the thousands who have already saved,” “Consumer stimulus and bailout assistance,” and “Stop overpaying for a depreciating liability.” The defendants also gave toll-free numbers to consumers so telemarketers could sign them up for auto loan modifications, the FTC alleged.

The FTC asked the court to order the defendants to stop the alleged illegal conduct while the agency moves forward with the cases against the defendants.

The investigation comes on the heels of the FTC holding roundtable workshops to gather information about potential consumer protection issues that could arise during the sale, financing, or lease of vehicles. F&I contacted the FTC to find out what the agency is focusing on with regard to compliance in general, but Mark Eichorn, assistant director for the FTC’s Bureau of Consumer Protection’s Division of Privacy and Identity Protection, declined to provide specific details about any enforcement actions.

“Speaking generally, when we do compliance sweeps, investigations, etc., we use authorities granted the Commission,” Eichorn wrote in an e-mail. “Under Commission rules of practice, these actions are nonpublic until, for example, the commission votes to approve the issuance of a complaint or a complaint and consent agreement. As a matter of policy we neither confirm nor deny the existence of non-public law enforcement actions.”

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5 Dealers Targeted by FTC for Deceptive Ads


Five car dealers have agreed to Federal Trade Commission settlement orders that require them to stop running ads in which they promise to pay off a consumer’s trade-in no matter what the consumer owes on the vehicle.

The FTC charged that the ads, which ran on the dealers’ websites and on sites such as YouTube.com, deceived consumers into thinking they would no longer be responsible for paying off the loan balance on their trade-in, even if it exceeded the trade-in’s value. Instead, the dealers rolled the negative equity into the consumer’s new-vehicle loan or, in the case of one dealer, required consumers to pay it out of pocket, reported F&I and Showroom magazine.

The proposed settlements, reached as part of the FTC’s ongoing efforts to protect consumers in financial distress, bar all of the dealers from making similar deceptive representations in the future. The cases are the first of their kind brought by the FTC. The commission also issued a new consumer education publication titled “Negative Equity Ads and Auto-Trade-ins” to help consumers understand these types of ads.

“Buying a new car or truck is a major financial commitment, and the last thing consumers need is to be tricked into thinking that a dealer will pay off’ what they owe on their current vehicle when they really won’t,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection. “The Federal Trade Commission is constantly on the lookout for potentially deceptive ads, and brings actions to stop them when appropriate.”

The dealers named in the FTC’s complaints are Billion Auto Inc. of Sioux Falls, S.D., Frank Myers AutoMaxx LLC of Winston-Salem, N.C., Connecticut-based dealers Key Hyundai of Manchester and Hyundai of Milford, which advertise jointly, and Ramey Motors Inc. of Princeton, West Virginia.

The complaints charge that the dealers’ representations that they will “pay off” what the consumers owe are false and misleading, and violate the FTC Act. In the case of Billion Auto Inc., the operation’s video promotion showed an inverted video of a car moving to depict a customer being upside down on their vehicle. The video then flips right-side up and displays the following tagline: “Credit upside down? Need a new car? Go to Billionpayoff.com. We want to pay off your car.”

Frank Myers AutoMaxx’s tagline for its advertisements read: “Uncle Frank wants to pay [your trade] off in full, no matter how much you owe.”

Key Hyundai and Hyundai of Milford used the following line to promote its dealerships: “I want your trade no matter how much you owe or what you’re driving. In fact I’ll pay off your trade when you upgrade to a nicer, newer vehicle.” Ramey Motors used a similar line in its ads.

In addition, the complaints in three of the cases allege violations of the Truth in Lending Act (TILA)’s Regulation Z for failing to disclose certain credit-related terms. Complaints in two of the cases allege violations of the Consumer Leasing Act (CLA)’s Regulation M for failing to disclose certain lease-related terms.

The proposed orders settling the FTC’s charges against the dealers are designed to prevent them from engaging in similar deceptive advertising practices in the future. First, each order prohibits the dealer from misrepresenting that it will pay the remaining loan balance on a consumer’s trade-in, so the consumer will have no further obligation for any amount of that loan. It also prohibits the dealer from misrepresenting any other facts related to leasing or financing a vehicle.

The proposed orders against Billion Auto, Key Hyundai, Hyundai of Milford, and Ramey Motors require these dealers to comply with TILA and Regulation Z, and to make clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit. It also requires that if any finance charge is advertised, the rate must be stated as an “annual percentage rate.”

In addition, the proposed orders against Billion Auto, Key Hyundai, and Hyundai of Milford require the dealers to clearly and conspicuously make all lease-related disclosures required by the CLA and Regulation M, including the monthly lease payment.

The proposed orders also require each of the dealers to keep copies of relevant advertisements and materials substantiating claims made in their advertisements, and to provide copies of the order to certain employees. Finally, the dealers are required to file compliance reports with the FTC to show they are meeting the terms of the orders, which will expire in 20 years.

The misrepresentation alleged in these cases was one of the topics raised at the FTC’s 2011 public roundtables regarding consumer protection issues that may arise in the sale, financing or lease of motor vehicles. And the commission’s vote to issue the administrative complaints and accept the consent agreement packages containing the proposed consent orders for public comment was 4-0.

The FTC will publish a description of the consent agreement packages in the Federal Register. The agreements will be subject to public comment for 30 days, beginning today and continuing through April 16, 2012, after which the commission will decide whether to make the proposed consent orders final.

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TrueCar Unveils Compliance Strategy


SANTA MONICA — TrueCar Inc. announced a nationwide strategy to tackle regulatory compliance issues in an effort to demonstrate its commitment to state regulators, state dealer associations and its dealer partners.

The company also implemented a new flat-fee billing model in the Commonwealth of Virginia. It has also introduced a new billing model in certain states, adjusted how it advertises on the TrueCar website, established a TrueCar National Dealer Council, and launched a new consumer membership program, reported F&I and Showroom magazine.

The initiative was announced as part of the company’s “listening tour,” which involved visits with dealer groups, dealer associations and manufacturers across the nation, according to the company.

“These meetings have been incredibly constructive. We are in the business of innovation. As such, we have to embrace change as part of what we do,” said Scott Painter, founder and CEO of TrueCar. “The feedback we have received, both good and bad, will enable us to better serve our dealer partners, and the industry overall.

“The changes announced in Virginia are a great signal that collaboration with state regulators can result in a constructive outcome for consumers and dealers,” Painter added.

The company aims to reach 100 percent national compliance, according to TrueCar. In an effort to improve service, the company also has opted to voluntarily suspend service in Louisiana, Colorado, Nebraska and Oklahoma. The company expects to have certain changes implemented in January.

“TrueCar’s dealer partners are central to our success and ensuring compliance is the foundation of TrueCar’s strategic commitment to dealers. We will not put our dealer partners in jeopardy,” said Stewart Easterby, executive vice president of TrueCar Inc.

In response to bird-dogging or brokering laws most states have, the company is shifting to a subscription-based billing model in those states where there is a potential issue. TrueCar also reiterated that it does not sell dealer DMS data and does not use dealer DMS data for any purpose other than matching vehicle sales to customer leads and monitoring performance to enhance TrueCar’s service to its dealer partners.

In addition to only collecting information with dealers’ permission, TrueCar announced it is working with dealers to enhance dealers’ control over access to and use of DMS data, including limiting the fields of data that are received from the DMS to those fields necessary to perform the sales matching function.

Changes will be made to the company’s website as well, said TrueCar officials. The company plans to develop new messages that focus on dealer attributes such as proximity, selection and service rather than simply price.

“Bottom line is we’re out listening and talking to the industry. What we heard is that dealers feel our ads focused on price and did not tell a positive enough story about our dealer partners,” said Stephen Hansen, president of TrueCar. “We’ve listened to their concerns and are making adjustments. Qualitative considerations that drive purchase other than price will have greater prominence in future ads.”

The company plans to introduce its first-ever National Dealer Council in the coming weeks, as the council will serve as a venue for TrueCar to hear dealer feedback on TrueCar’s products, processes and policies. The company also will enable statistical and other tools to identify dealers with extreme price outliers.

Based on OEM feedback, TrueCar plans to introduce a new consumer membership program that will provide dealer partners with higher quality introductions from the company, according to TrueCar.

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