By Tom Kline,Lead Consultant & Founder,Better Vantage Point
Am I the only one who thinks of these things? Seriously. Well, I did.
According to www.ornithology.com “birds have a third eyelid, a translucent membrane, which allows them to face the rain with protected eyes.”
Having a trackable risk and compliance program is like having a third eyelid because it protects you and gives you visibility into your operation when your view may otherwise skewed by what’s hidden. Visibility’s root is the Latin word “visio,” which means the “act of seeing.”
(Now, isn’t that the best analogy ever?)
Compliance Preparedness
Trackability is key here. If you can’t prove your compliance and auditing work, then it never happened. Consider having one source of truth where you can demonstrate your compliance work. Essentially there are two solutions: software or a filing cabinet. Both work just fine, but you have to utilize them as central repositories.
When your practices come under scrutiny by a regulatory agency, they have many tools at their disposal depending on the nature of the violations. I want you to be prepared for and consider what happens in worst-case scenarios. I think it’s important for you to have insight and vision (there are those words again) into that possible outcome. You may feel it’s a low risk, but if it happens, there is high impact.
Importantly, regulators can close down your business. Here are two examples.
Government Actions
In 2018, the Federal Trade Commission (FTC) closed Tate Automotive in Arizona “as part of a court-approved settlement resolving Federal Trade Commission charges that the dealerships deceived consumers and falsified information on vehicle financing applications.”
More recently, the California Attorney General’s Office closed Paul Blanco’s Good Car Company in 2022 for 670,000 violations of California’s Unfair Competition and False Advertising Laws. To resolve it, Putu and Paul Blanko agreed to a $20 million judgment against their companies (which were insolvent), and a $7.5 million judgment against them individually, which they could satisfy for $1.7 million. Additionally, they are banned from the auto industry in California for ten years.
Regulators have other tools and I’d like to focus on Consent Orders (CO) which are more likely to occur than the shuttering of a business.
Consent Orders
The CO is a record of an agreement which has been reached by the parties which has to be blessed by the presiding judge in the case. Let’s use a recent FTC action against Passport Automotive in Maryland as our example to illustrate its potential damage to the dealership.
Passport Automotive agreed to a CO in September, 2022. In this CO, they agreed to conduct their business, with very specific stipulations, for 20 years after entry of the order, in addition to a $3,380,000 penalty. The laundry list of tasks and specifics are long and arduous. You wouldn’t want to have to comply with these provisions.
Passport is required to hire a compliance monitor to report back to the FTC about the dealership’s activities. This compliance monitor provision in a CO is not unusual.
Another example: in late 2022, the Attorney General in New Hampshire fined Dan O’Brien Kia $1.25 million to resolve its allegations of unfair and deceptive acts, in addition to “strict injunctive terms over the next five years” that includes a compliance monitor.
Tools for the FTC
I believe you will hear more and more about compliance monitoring in the years to come. I believe the FTC enforcement of dealers will focus on four items:
If your customers complain to the FTC, they will come visit and enforce the other three bullets listed above. I believe the FTC will utilize the penalty structure of $51,744 per violation as their first action. If they feel it’s warranted, the FTC will require you use a compliance monitor.
A compliance monitor’s job is:
Dealerships Requirements
In Dan O’Brien’s case, they are required to “hire an independent compliance monitor to review and report on its business practices for the next five years. The monitor will work closely with the Attorney General's Office to ensure (they) remain in full compliance with state consumer protection laws.”
As a result of the various allegations of wrongdoing, this Kia store will have someone analyzing their transactions and reporting back to the Attorney General. Five years is a long time to have someone crawling around your books and records and recordings. Audio and video recording “all substantive financing discussions that occur between (dealership) employees and customers” are a requirement of the CO.
Every case is different. As another example, here is how Passport has to comply with their CO:
In summary:
Passport must show the court and the FTC compliance reports, any documents requested, and must appear for depositions at any time.
Once a business is on the FTC’s radar, they are going to ensure, to the maximum extent possible, that your dealership is being complaint.
How to Avoid Regulators
The FTC’s COs and enforcement actions include many businesses and are not solely for automotive dealerships. A search on the FTC Legal Library lists 5,444 cases, which includes Google, Wilson Sporting Goods, Amazon, and Rite Aid to name a few.
What can you do to prevent the regulators and lawyers from interfering with your business? Here’s a simple and easy, 1,2,3:
Technology can be your friend here. Compliance automation can enhance your efforts by generating “to dos” and specific responsibilities and accountability within your organization. This helps drive participation and monitoring at all levels.
Following these steps will reduce your overall risk and protect your team from being declared a birdbrain by the FTC.
Verification and monitoring help ensure you see what is actually happening at your store, versus what you might think is happening. I want you to be a free bird, and feel like a rockin’ robin each day knowing your nest egg is safe if/when regulatory storm clouds bring rain showers your direction.
Owning and running a dealership can feel like trying to tuck an octopus in bed and the tentacles keep flopping out. Tom Kline appreciates and understands this as, for 30 years, he was a dealership franchise owner. Kline specializes in solving dealership problems through risk mitigation remedies, compliance, and dispute resolution (i.e. tucking in the tentacles). He is the Lead Consultant & Founder of Better Vantage Point, Tuck The Octopus (a new, early efforts governance, risk, and compliance (GRC) program), and AlwaysDoBetter.com, and has worked with both publicly-held and private dealerships. He routinely speaks at national conferences, workshops, 20 groups, presents webinars about risk transferences and risk mitigation topics & techniques, and routinely provides expert witness testimony to defend dealerships.
