The Federal Trade Commission (FTC) and other government entities have taken an increased interest in dealership practices and have intensified enforcement and arrests over the past 16 months. They have specifically focused on deceptive and illegal practices by auto dealers. Fraudulent activity comes in a variety of forms and can be mistakenly or intentionally committed. For many years I worked in a dealership myself, and what I learned over that time is that fraudulent activities can be occurring under the nose of management, whether it’s unintentional or deliberate. Unfortunately, whether you know that these activities are happening or not, your dealership is still at risk for prosecution if illegal activity is occurring.
Recently, action has been taken against many dealerships including an Alabama dealer for fraudulent activities. What was unusual about this particular case is that for the first time, the FTC investigated “add-on” products, i.e.; services or products a dealer adds to the lease or financial contract. At the end of the investigation, eight employees of the dealership pled guilty to and were charged with conspiracy to defraud financial institutions.
Their actions violated the Unfair Deceptive Acts & Practices regulation. The employees of the dealership specifically used the following tactics to obtain auto loans that otherwise would not have been approved:
- Submitting altered documents to lenders demonstrating inflated buyer income.
- Misrepresenting prospective buyer residency to lenders.
- Listing non-existent accessories on lender documentation in an effort to increase loan amounts.
- Directing other dealership employees to submit fraudulent documentation to lenders.
In this circumstance, the perpetrators were able to direct other dealership employees to submit fraudulent documentation to lenders. This might have been avoided if the entire staff had received sales and finance compliance training and were aware that these activities were illegal and could result in substantial legal and criminal repercussions.
To avoid similar situations at your dealership, it is important to implement a sales and finance compliance program. If a dealership can prove that it took appropriate steps to educate, inform, and supervise its entire staff they will have a much stronger defense in the event of an enforcement or lawsuit.
Ongoing finance and insurance training provides the following additional benefits:
- Increased profitability through consistent processes
- Protection of valuable lender relationships
- Reduction of costly chargebacks and contract repurchases
- Reduced insurance claims and lower insurance premiums
- Increased employee morale & retention
- Increased customer satisfaction & retention
In the event of a lawsuit it is hard to recover customer trust; one often overlooked and very important reason to train employees and operate a compliant dealership is to increase customer satisfaction, which will in turn inflate positive reputation.
The most successful dealers use compliance as a way to ensure consistency and transparency in their sales process, thus increasing both sales and profitability. Well-trained employees produce better results for their organization. From a culture based upon integrity and ethical behavior, the dealership’s customers benefit from a better overall buying experience, resulting in increased sales, more repeat and referral business, higher customer satisfaction, increased employee morale & retention, and higher profits. The dealer wins, the staff wins, and the customer wins.
To learn more about the case against the Alabama dealership, read the entire article here.
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