Shilson: What Compliance Moves BHPH Dealers Should Make
By Ken Shilson, NABD
January 07, 2013
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HOUSTON — With the close of another year, most buy-here, pay-here
operators will evaluate last year's performance by comparing their financial
results with the past. They will base their goals and strategy for the next
year by looking at financial and operating metrics like unit sales, gross sales
revenue (in dollars), the growth in their installment portfolio and their net
Although these represent the standard benchmarks for planning, they omit a very critical element — compliance.
The BHPH industry faces some important new legal and regulatory challenges from the newly formed Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), and the attorney generals' offices in each state. All of these regulatory authorities will be monitoring consumer complaints to identify regulatory violations and those operators who are violating the rules.
These regulators will investigate consumer complaints and have the authority to levy substantial fines for non-compliance.
During 2012, regulatory activity and monitoring of subprime auto compliance violations increased significantly and more scrutiny in the future should be anticipated. Overall BHPH industry compliance will be judged on how each individual operator complies with the rules and regulations.
To date, I have noticed that operators are taking different approaches in complying with these challenges. Some are waiting to see what 2013 will bring. Others are more proactive in their approach to compliance and a few are ignoring these compliance threats altogether.
In these circumstances, I recommend that all BHPH operators do the following:
—Carefully scrutinize their advertising and websites for statements which could be construed as false or misleading.
—Determine that their documentation matches their internal policies and practices.
—Make written disclosures of all important contractual terms to every consumer.
—Update and document their internal collection, underwriting and compliance policies and procedures in writing and ask employees to sign a written acknowledgment that they have read and understand them.
—Establish written consumer-complaint resolution procedures and protocols.
In 2012, many operators addressed the first four points and appointed a chief compliance officer as required. Written consumer complaint resolution procedures and protocols have not been priorities in the past but need to be in the future.
You should have a competent attorney review your disclosures and contract documentation and help you develop a "compliance management system." This will be money well spent.
I also recommend establishing a welcome calling program shortly after each sale to ascertain whether the consumer had a positive buying experience. During that call, all consumer complaints should be taken seriously and addressed by the operator at that time. Consumer complaints are best resolved before they become a compliance issue with regulators.
In cases where the consumer is being unreasonable, an operator's written policies and procedures can be used to evidence how that operator deals with consumer complaints. Upon investigation by a regulatory authority, the documented policies and practices will be considered in those circumstances.
Complaint resolution is important in building a positive bond between operators and their customers. The old saying "treat others like you would like to be treated" applies here. Both the consumer and the operator must work together over the life of the deal to be successful.
This year, the regulatory authorities will carefully scrutinize collection procedures. Collectors must be particularly careful to avoid violations of the Fair Debt Collection Practices Act. This will require more individual knowledge and training.
Although the year ahead is full of legal and regulatory uncertainty, prudent operators should start the year with a proactive approach to compliance. You can't control what others do but each operator must be responsible and accountable for their own actions. Best wishes for a prosperous New Year.
Ken Shilson is president of the National Alliance of Buy-Here, Pay-Here Dealers (NABD), which will host its 15th Annual National Conference and Dealer Academy at the Wynn in Las Vegas on May 19—23. For registration or for more information, visit www.bhphinfo.com or call (832) 767-4759. Shilson is also president of Subprime Analytics (www.subanalytics.com) which performs electronic portfolio analysis and due diligence services for financial institutions, which provide capital to the subprime automotive industry. NABD will be in Booth No. 1229 at the National Automotive Dealers Association Convention & Expo in Orlando, Fla. on Feb. 8—11.
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