Why You Should Be Concerned About Regulatory Oversight: How Regulators Do What They Do
For this month, something new. I’ve written this article so you can copy it and have each employee at the dealership sign it. Having written employee acknowledgments of your policies is an important part of a robust GRC program at the dealership (Governance, Risk, and Compliance). If a regulator comes to visit, having this signed acknowledgment in every employee file would help you quell any claims of “willful non-compliance.”
Here is it: Regulators are those governmental agencies that have oversight of our dealer operations.
When a regulator calls us or comes to visit, it is usually the result of an unhappy customer(s) – which we have not satisfied – who complains to them. Subsequently, the regulators will ask many questions about our business practices and how we operate. They have the authority to fine us and try to impose penalties to ensure our compliance with the myriad of laws we must follow.
Here is a partial list of regulators:
The Attorney General
The Consumer Financial Protection Bureau (CFPB)
The Federal Trade Commission (FTC)
A Member of the House of Representatives (Federal and State)
A Member of the Senate (Federal and State)
The State Police
The Internal Revenue Service (IRS)
The Treasury Department
The United States Secret Service
To understand the depth and breadth of what they look at, please see the attached page entitled “CFPB Supervision and Examination Process.” (Page 12 of 1814.)
While this is a specific page from the CFPB operating procedures, it is analogous to any regulatory agency’s daily operating procedures.
We discuss this as our training this month to highlight the continuous cycle of supervision each of these agencies performs when it comes to businesses within their purview.
The CFPB is looking for “risks, areas of inquiry, and focus.” From their perspective, this means they are trying to examine those areas where businesses may take advantage of customers.
Suppose the CFPB has reason to believe your dealership is not acting within the scope of accepted business practices. In that case, they will “Request and review documents and information needed to begin examination.” That means they will ask for your “internal policies, audit reports, training materials, recent data.”
It’s likely that if they come looking, they will find something. At a dealership and any business, for that matter, when a regulator examines a company, they find problems. Ultimately this will cost the dealership both time and money. One former dealer used to advise frequently, “When you shine a light on any one item at a dealership, you will find issues and uncover problems.” He is right.
2. Examination (offsite and onsite)
This section talks about who the regulator(s) will interview and which operations they are going to examine. It further states they will “compare policies and procedures to actual practices by reviewing a sample of transactions.” Further, they will “compare the conduct to legal requirements.”
No company wants a regulator to interview employees. With further examinations and this type of unwanted scrutiny, additional issues will be brought to the surface.
3. Communicate conclusions and required corrective action
This is when the regulator tells you or mandates to you how you must run your company going forward. If you are not cooperative, they will “pursue supervisory agreement or formal enforcement action as needed.”
This means that the company would have to agree to a written understanding of how the company must operate on a go-forward basis. If a company declines to comply, the regulator will pursue “formal enforcement action,” which means costly court or administrative proceedings in which the company will have to spend a lot of money on attorneys to defend itself. Fines can be “nuclear” as recent dealers were tagged for more than $10 million, $3.380 million, and even a dealer in California who were fined $27 million.
The regulator will periodically come back to the dealership and examine reports, transactions, and corrective actions which the company has performed in order to meet whatever agreement was reached.
So, the regulators return to ensure compliance with all rules, laws, and regulations. If the dealership has not complied, they will bring the company back to court. This may subject the business to additional fines and penalties, and suspensions. This cycle may continue until the company is out of business or is compliant.
Compliance with any regulatory process is cumbersome, time-consuming, and costly, even if the inquiry is for one customer.
An example of a written employee acknowledgement:
Our company is educating you as to these issues as we do our very best to run things in a professional manner while satisfying each and every customer.
This also serves as a reminder that it is the company’s policy to follow the laws, rules, and regulations which have been communicated to you during your employment. If you find anything out of the ordinary, please report this to your supervisor or one of the owners.
My signature below indicates that I:
1. Will comply with company policies and procedures
2. Will ensure that the company’s customers are satisfied with our dealership
3. Will communicate with my manager of one of the owners if I see items that are out of compliance with the company’s rules and regulations
4. I will immediately communicate with one of the owners if I receive a regulatory or media inquiry.
These things, I promise.
Employee Print Name Employee Signature
January _____, 2023
A dealership franchise owner for thirty years, Tom is now the Lead Consultant & Founder of Better Vantage Point, providing Dealer Dispute, Compliance and Risk Mitigation Solutions.
Tom also spearheads Tuck The Octopus which helps dealerships proactively manage governance, risk and compliance which has a direct impact on the customer experience.View full profile