Automotive Dealership Compliance: Disaster Scenario

The commotion in your service department sends a shockwave throughout your dealership, and you, the dealer, arrive just in time to witness one of your service techs being handcuffed across the hood of a vehicle in for service.

Your tech has been accused of stealing the checking account number from an old checkbook register in a service customer’s glove compartment, and then draining the customer’s account.

So what are the boundaries of an automotive dealer’s liability because of your rogue employee? Compliance certainly can’t be an issue because your DMS representative and even your garage liability carrier have assured you that with their particular compliance solutions, you are totally compliant.

However, the victim’s attorney, the law firm of Dewey, Cheatum & Howe, later requests a copy of your dealership’s Gramm-Leach-Bliley Safeguards Rule Policy and documentation of total staff training (have your service people been trained?) as required by federal regulations. You contact your trusted DMS and garage liability representatives for their help to furnish the documents, only to discover there are none! When they assured you that you were compliant, it turns out they meant you were only compliant with scans for the Red Flags Rule, OFAC and Do Not Call, or in other words, only a small portion of required automotive dealership compliance.

Although the Safeguards Rule does not provide for identity theft victims to directly recover losses and damages, rest assured the victim’s attorney with use your “willful non-compliance” to force a huge settlement, or use it as the highlight of their opening statement to the jury in litigation against you… and you know how juries just love car dealers. And need we mention the potential for class actions with some regulations?

But it only gets worse. Now the feds are investigating and are looking for what they term, “an atmosphere of compliance”, and they also demand to see the same documentation of compliance performance as requested by the victim’s counsel. So what is your liability with the federal government? The fine is $11,000 per day, retroactive from May 23, 2003!!! In other words, tens of millions if they so choose.

Oh, and in case you didn’t know, there is no such thing as “fine insurance” provided by your garage liability carrier; they’ll represent you, but you’re on your own when it comes to paying the fines and penalties.

Automotive Dealerships – Creating And Maintaining An “Atmosphere Of Compliance”.

So what about the other federal regulations such as the Red Flags Rule, The Do Not Call Act, and the Patriot Act’s OFAC, and FINCEN regulations? They, too, require that dealers have in place a formal written Policy and documentation of formal staff training for each.

And then there are other dealership compliance regulations where the lack of staff training has cost dealers hundreds of millions over just the past few years; Truth In Lending fraud issues, Sexual Harassment, Diversity issues and the Magnuson-Moss Warranty Act. Here are some examples:

– An automotive dealer loses $92 million in a jury verdict because a salesperson said just one thing wrong regarding the Magnuson-Moss’s “warranty of fitness for a particular purpose”.

– A dealer is forced to settle a diversity harassment claim for $400,000.00.

– Several dealers, managers and salespersons across the country served prison terms for fraud and Truth In Lending violations.

– A car dealer settles a sex-and-age discrimination case for over $1.5 million.

In each instance, there was no evidence the automotive dealer was promoting an atmosphere of compliance… specifically, no formal dealership compliance training.

So how can automotive dealers create and maintain an atmosphere of compliance?

1. Appoint a Dealership Program Coordinator to oversee your dealership’s compliance performance.

2. Have in place all required Dealership Compliance Policies signed by employees.

3. Provide all designated staff training at least once a year with documentation available for government inspection or litigation actions. (Note: Simply allowing staff members to read and sign your required dealership Policies IS NOT considered training under these regulations.)

4. Provide all compliance training and required signed Policies as a part of your hiring process complete with documentation.

5. Perform annual compliance inspections and audits annually, once again, with documentation on file.

The Question: “Did the dealer do everything within reason to prevent this violation from occurring, and if so, where is the proof?”

Virtually all automotive dealership compliance fines, penalties, litigation or arbitration decisions revolve around this single question.

In fact, any attorney worth their pinstripes will tell you that the only true dealership compliance litigation defense is to be able to provide documentation of compliance performance – again, specifically, staff training.

Lawmakers understand that you, the dealer, can’t possibly watch every move each of your employees make while conducting business, but they do give you the opportunity to perform dealership compliance elements in order to mitigate liability, or even in some instances, to benefit from safe harbor status.

Therefore, in the eyes of the law, any dealer that chooses to ignore required compliance performance has no respect for the consequences, and generally, the juries and the feds use that opportunity to pile it on.

There is only one way to get the “compliance monkey” off your back? Take care of it right now!