With so many rules to follow, the first step to ensuring compliance is to make sure that you’re aware of them. It is also suggested to create a compliance checklist for each of your transactions to guide the process while following the laws and best business practices.
Providing credit to finance the purchase of vehicles is one of the primary services offered by dealerships. The Truth in Lending Act, implemented by Regulation Z: Loan Originator Compensation and Steering, is intended to help make sure that credit terms and rates are disclosed to customers in such a way that they can readily make comparisons between lenders. In addition, it requires that certain disclosures be presented to customers clearly in writing and in a form they can keep, such as the amount financed, the finance charge, the annual percentage rate, and the payment total.
Regulation M implements the consumer leasing provisions of the Truth in Lending Act. It’s intended to ensure that lessees receive meaningful disclosures enabling them to compare lease terms between lessors and with credit transactions. Reg. M also is intended to limit the amount of balloon payments in consumer leases.
Protection of Customer Data
With the recent increase of identity theft, it is imperative that dealerships safeguard all “personally identifiable information” they possess about their customers. The Gramm-Leach-Bliley (“GLB”) Act is intended to protect your customers’ personal financial data.
Specifically, the Financial Privacy Rule (part of the GLB Act) sets standards for privacy notices, opt-out notices, and the use and disclosure of nonpublic personal information. Also, the Act’s Safeguards rule requires dealerships (and many other types of businesses) to draft a written security plan for protecting the confidentiality and integrity of both customer and employee data. This data includes social security numbers and bank and credit card information.
The Disposal Rule and the Red Flags Rule are also implemented to guard customer data at your dealership. These require you to properly dispose of information contained in consumer reports and records to guard against unauthorized use of or access to the data and require you to draft a written identity theft protection program designed to detect, prevent, and mitigate identity theft.
Most dealerships rely heavily on advertising to help drive customer traffic and boost sales. Dealership advertising is governed by the federal truth in advertising laws, a collection of advertising rules administered and enforced by the Federal Trade Commission. There are three primary rules in this law:
- Advertisements must be truthful and non-deceptive. They must tell the whole truth, not a half-truth or slighted version of the truth intended to make a vehicle look more appealing.
- You must possess evidence to back up any claims (whether expressed or implied) made in your advertisements.
- Advertising can’t be unfair, which is defined as an advertisement that substantially injures customers, violates established public policy, or is unethical or unscrupulous.
Dealerships also are subject to fuel economy advertising rules that apply to the new vehicles you sell. According to these rules, if your ad lists fuel economies for both city and highway driving, they must be labeled “estimated city mpg” and “estimated highway mpg.” In addition, fuel economy estimates must match the exact make and model of the vehicle being advertised.
Employee Compliance Training
In order for your dealership to remain in compliance with these and other rules, it is suggested to hire a firm to perform employee compliance training. In fact, compliance training is required for some federal regulations, including the Safeguards Rule and the Red Flags Rule. Contact your dealer’s association or Dealer 20 Group to learn more about compliance training, including firms that can provide this type of training to your employees.
Also keep track of actions by the federal government, as the Trump administration has promised to revise and potentially eliminate the rules that affect auto dealerships.
Sidebar: Make sure your warranties meet federal regulations
A federal law called the Magnuson-Moss Warranty Act requires any manufacturer or seller of a product covered by a warranty to provide customers with detailed information about the warranty coverage, which includes dealerships selling automobiles.
The act contains three main requirements that likely apply to your dealership:
- You must designate your written warranty as either “full” or “limited.”
- You must state certain specified information about your warranty coverage in a single document that’s easy to understand.
- You must ensure that warranties are available at the location where your vehicles are sold (that is, at your dealership) so customers can read them before buying the vehicle.
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