Buy/sells are exciting, intense, and hopefully rewarding for all parties when completed. They come with ups and downs, surprises, and different opinions. Both sides churn through their checklists, working to validate their opinion of valuation.
One of the wild cards that might impact your valuation is compliance. Compliance at dealerships today ranges from Boy Scouts who follow all the rules to cowboys that operate on their own terms—even in the face of the newly expanded Federal Trade Commission’s Safeguards rule which goes into effect June 9th. That means the business practices of the past could turn into big problems that will impact the buy/sell come June 10th.
The biggest compliance risk for most dealerships comes from the inside. The bad habits of employees can turn into devastating fines for the owners. In fact, recent FTC actions against dealers for the misdeeds of employees have resulted in judgements of up to $10 Million.
Additionally, attorneys are aggressively hunting for UDAP (Unfair, Deceptive, and Abusive Practices) violations that could lead to class action claims. The list of things that could go wrong to support these actions increases dramatically on June 9th.
Dealers have three obligations when it comes to protecting consumer information: technical, physical, and administrative. Dealers have focused a great deal on the technical side of their business – ensuring their systems have firewalls, multi-factor authentications, and more. They’ve focused less on the physical and administrative compliance obligations, which is like locking the front door but leaving the windows wide open.
In a recent webinar hosted by Informativ, only 18% of dealers have prepared for all three obligations and 42% of dealers haven’t even explained the consequences of violating the Safeguards Rule to their entire team, which only contributes to the fact that the biggest threat to a dealership can come from inside.
Here are five of the top compliance violations that put dealerships and a buy/sell at risk:
- Not having a way to enforce a consistent, compliant process on every single deal. The saying is “hope is not a strategy,” but that’s what many dealers rely on when it comes to compliance. Whether you have a busy dealership, staff turnover or haven’t consistently trained your staff, your dealership needs an enforceable physical and administrative compliance process that leverages technology to ensure your dealership is compliant. Bonus points if the solution is one that your team will love and will help them sell cars faster.
- Sales staff storing consumer information on their cell phone or personal email. Really, it’s not just sales staff. At a recent NADA, a GM confessed to having hundreds of driver’s license photos on his phone. This seemingly “easy” way to capture the information is extremely costly. By using a solution with an app, you can quickly capture the driver’s license info AND check for fraud. ID fraud is becoming an even bigger problem that most often requires technology to detect, but there are signs dealers can look for that should make them suspicious. Automotive News recently featured Informativ’s tips for detecting fraud.
- Not securely sending and receiving consumer information for remote deals. Instead of having buyers email or text information to your staff - - which is not compliant - - send the buyer a secure link that allows them to upload the documents you need to process the sale.
- Private consumer information left exposed in unsecure locations. Think – salesperson’s desk, the copy machine. All this exposed personal information leaves you at risk of violations and hefty fines. Leveraging a platform that almost completely eliminates paper protects your dealership and your customers.
- Not storing dead deals for the required durations. That’s a lot of deals with lots of personal information that you’re responsible for storing, protecting, and PROVING that you’re retaining.
These actions could delay your deal, reduce your valuation, or worse yet, kill the deal. It’s well worth the time to get your house in order now, and create the platform for a consistent, compliant dealership. One misstep by an employee, one unhappy consumer complaint could potentially lead to much bigger issues. Eliminate the problems before they happen!
There are platforms that can help your dealership avoid these costly mishaps. It is well worth a dealer’s time to investigate them.
Doug Fusco founded Dealer Safeguard Solutions, which was acquired by Informativ. He has 25 years of experience in the automotive industry, data privacy, source code security, DMS solutions, and was a pioneer in "Software as a Service". Doug is an expert in dealership compliance and has presented at many compliance events.
This article was written for Getting to Go, a buy/sell newsletter from Scali Rassmusen.