Is Your Dealership Complying with the OFAC Mandate?
by: Chuck Lopez
Eliot Ness, the FBI agent responsible for bringing down the notorious Al Capone, had a simple plan. Ness convinced his superiors to, “Follow the Money and you will find the bad guys.” He was right, and this approach has been used by various law enforcement agencies ever since to ensure compliance with federal laws and mandates. With this in mind, let’s explore a federal mandate that is designed using this concept. This is the Office of Foreign Assets Control (OFAC) mandate. Many dealerships are unaware of the requirements that the OFAC mandate place on their RV dealership.
What Is OFAC and What Does it Do?
According to the US Government’s website, “The Office of Foreign Assets Control (OFAC) administers and enforces economic sanctions programs. These are primarily against countries and groups of individuals, such as terrorists and narcotics traffickers.” OFAC is administered and operated by the United States Department of the Treasury.
How Does OFAC Apply to the
Everyday Business of a Dealership?
OFAC regulations mandate that dealerships check to ensure that they are not conducting “Prohibited Transactions” with a business, group, or individual that OFAC has determined to be on their Specially Designated Nationals (SDN) list.
What Are “Prohibited Transactions?”
OFAC’s website defines “Prohibited Transactions” as: “...trade or financial transactions and other dealings in which U.S. persons may not engage unless authorized by OFAC or expressly exempted by statute. Because each program is based on different foreign policy and national security goals, prohibitions may vary between programs.”
What Is the SDN List?
The SDN list is published by OFAC and includes those businesses, groups, or individuals that
are determined to be a possible threat to the security of the United States.
How Does a Dealership Ensure It Is
Complying with OFAC’s Requirements?
This is actually simple. Any person in the dealership may pull an OFAC check. You can check this list by
visiting OFAC’s website, http://www.treas.gov/offices/ enforcement/ofac/sdn/, or you may access a host of private websites that are constantly updated, that provide a printer friendly format for your files. Do a web search for SDN List or OFAC, and search for a private website offering these services. Also, several lending institutions and service contract providers offer an OFAC check via their online resources for free.
What Needs to Be Done if a “Hit” Is Made
on a Potential Customer?
If it appears that information provided matches up on an OFAC check, (a “Hit”) then check the information carefully against the information provided by the potential customer. If there appears to be a solid match, then the authorities need to be contacted immediately.
Who Should You Contact if a “Hit” Is Made?
If a “Hit” is made, you can contact the local FBI office, or the Financial Crimes Enforcement Network (FinCEN) at (800) 949-2732, or OFAC’s hotline at (800) 540-6322.
What Should a Dealership Do if They Are
Not Sure About a Possible Match?
OFAC’s website states that if “you have reason to know or believe that processing this transfer or operating this account would violate any of the Regulations, you must call the hotline and explain this knowledge or belief.”
Exactly Who Needs to Have an OFAC Check?
Determining exactly who should have an OFAC check done is a question without a definite set of answers. However, it has been universally determined, by several professionals in this area, that the following should certainly have an OFAC check and a file maintained to ensure compliance.
Potential Consumers/Customers: This OFAC check should be conducted prior to the completion of a sale.
Someone simply browsing the sales floor, or the sales lot, does not appear to fall under the need for an OFAC check, this is because they are not actually conducting business or transactions.
Employees: Simply pull an OFAC check and place it in their employee file.
Vendors/Distributors: Since dealerships deal with a wide variety of vendors, it is certainly advisable that an OFAC check be pulled on major vendors such as RV manufacturers (since they are required to check on their respective suppliers and vendors), this should shortcut the need to pull the vendors of such items as the microwave, awning, etc. However, if you have a business dealing with other vendors, such as suppliers or distributors, it is advised that you pull an OFAC check and place it in that vendor’s file.
Product/Service Providers: OFAC checks must be done on such service providers as service contract companies, environmental protection plan providers, GAP insurance providers, etc.
The key to determining when an OFAC check should be conducted is to be consistent. The dealership should already have a safeguard and compliance plan. There should be a section added to this plan that ensures that each employee acknowledges their understanding of the dealership’s policy on OFAC.
The penalties and fines for violations can be substantial! Depending on the program, criminal penalties can include fines ranging from $50,000 to $10 million, and imprisonment ranging from 10 to 30 years for willful violations. Depending on the program, civil penalties range from $250,000, or twice the amount of each underlying transaction, up to $1,075,000 for each violation.
However, here is the great news, the government has provided all the necessary tools and information, and has made them easily accessible for dealerships to be 100 percent compliant.
___________________________________
As Seen in several Industry journals:
The “Bourbon Street Vendor”
By Geoff Vough
It certainly is a mystery as to when and how so many in the retail Auto, RV & Marine industry allowed themselves to stroll down the path to becoming the retail equivalent of the “Bourbon Street Vendor.” You know, the guy standing on the corner of Upper Bourbon Street during the Mardi Gras pedaling everything imaginable. From stopwatches and gold chains located on the right inside of his trench coat to the windup toys and bobble heads located on the inside left, and from the knockoff productions of name brand watches to silver bracelets that adorn the length of both arms, if you want it, he’s got it. Quality and satisfaction don’t matter; if you are willing to buy it then he is more than anxious to sell it.
What is our true target market? In good times, let alone turbulent times, we must utilize carefully structured sales presentations to maximize each and every opportunity presented. However, isn’t it time to start concentrating on what our primary product is that we are offering to our customer base?
Now, before anyone starts to raise their eyebrows and gets bent out of shape, I am not suggesting that we don’t offer aftermarket products and services. And yes, I am very much aware of the fact that in today’s uncertain economic times that every dollar is needed just to keep the doors open. Perhaps this could be done in a manner that has proven successful in the past. That is, maximize the time provided in the finance/delivery office by presenting a limited core of products and/or services that truly provide a benefit to the customer as well as providing much needed revenue for the dealership. Of course, we must certainly focus attention on compliance issues as well.
How many is too many products and services? Well, that can certainly be the subject of many an argument. However, I propose a tri-star or five-star approach. Limit the offering of products and services to three or five choices. Which ones should be placed on this narrow field? Again, that is debatable. Perhaps you could allow me to once again offer some suggestions, without prejudice towards any product or service. In a tri-star program, perhaps the old, and somewhat new, reliable and useful products of a service contract, paint/fabric/vinyl/undercoat sealant package and a tire protection program. To add to the offering and become a five-star program, perhaps the addition of a GAP program and if there remains the availability of a credit life and disability program then those might round off the selections. Again, I don’t propose that other products and services simply get thrown out with the bath water, but perhaps the other products and services can be offered elsewhere, such as the service and/or parts department. This would eliminate costly mistakes in the finance/delivery office by allowing valuable products and services to be offered to the customer, while still allowing the dealership to earn additional profit and focus proper attention on attending to paperwork and compliance concerns.
It is highly conceivable that by repositioning ourselves in how some of us approach the aftermarket sales of products that, along with other tools, such as menu selling, continual education/training and attention to complying with all applicable rules, laws and regulations, we just might make it through these tough times ok and come out all the better for it.
___________________________________
As seen in RV Executive Today by Chuck Lopez
Official publication of the RVDA, The National RV Dealers Association (June 2009)
Adverse Action Notices
BY: CHUCK LOPEZ
The Adverse Action Notice is one area that can, and does, deliver nightmares to dealerships caught unaware, or unprepared. An Adverse Action Notice is a formal
notification that creditors must send to consumers who seek credit, but are denied credit on the terms requested. Dealers need to send this notice to the customer whenever:
• Dealerships are unable to finance a spot delivery customer;
• Dealerships make a subjective decision about a customer's credit worthiness;
• Dealerships decide that based on information contained in the customer’s credit report, the dealership won’t forward the application to third party companies.
Lenders generally are required to send these notices as a first-line defense. But when a dealer spot delivers, the law sees him or her as a creditor responsible for sending
the letter. Dealers often do not know this and it can get them into trouble.
The Governing Regulations
There are two major regulations that govern the Adverse Action Notice. These are the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). These regulations mandate that creditors must give consumers reasons and/or explanations for an adverse credit decision.
An “adverse credit decision” is any credit decision offered to a customer that is not exactly what was originally requested, including an outright denial or a counter offer not accepted by the customer. As a guide, here are some requirements that outline which of these regulatory acts govern a particular area with the issuing an Adverse Action Notice:
The ECOA
Circumstances that would fall under the ECOA for the issuing of an Adverse Action Notice:
1. If the information provided on a credit application, not a credit bureau report, is the reason that the dealership is unable to locate a lending source.
2. The customer negotiates a deal with specific terms, and the dealership is unable to secure financing exactly as requested.
3. The dealership spot delivers a vehicle and the finance office cannot secure a lending source, due to information provided on a credit application.
The FCRA
Circumstances that would fall under the FCRA for the issuing of an Adverse Action Notice:
1. If information from a credit bureau report, not the credit application, is the reason that the dealership is unable to locate a lending source, ensure that the dealership
retains the credit bureau report in a secured file. 2. If information from third party sources, not a credit reporting agency, is the reason a dealership is unable to locate a lending source, this can include information provided by an employer, a landlord, or another lending operation.
3. If the reasons for the Adverse Action Notice falls under the mandates of the FCRA make sure you send the correct notice with the additional requirements met as mandated by the FCRA. Please note that it is OK to incorporate information required by the FCRA and ECOA into one notice.
Specific Terms and Counter Offers
If a deal is based on a request by a consumer with specific terms, and the dealership is not able to secure a lending source willing to offer the loan based on the exact terms requested, you must issue an Adverse Action Notice.
These specific terms will generally include: specific repayment terms; APR; down payment; date of first payment; etc. If a lender presents a counter offer, and the consumer does not accept it, then an Adverse Action Notice is required. However, if the consumer does accept the terms of the counter offer, then no notice is required. Regardless of who presents the counter offer, a lending institution, or an employee of the dealership, the same mandate applies.
Incomplete Credit Application
If a consumer provides an incomplete credit application, or it is missing important information, which would prevent a proper review, then the dealership has two options:
1. Send the consumer a timely Adverse Action Notice, or
2. Send the consumer a written Notice of Incompleteness. This notice must include:
A: A reasonable, and stated, time allowed to respond;
B: The items that are needed to complete the application;
and
C: A notice that the dealership cannot continue with a loan review unless it receives the items needed within the stated timeframe.
Adverse Action Notifications
A compliant adverse-action notice must:
• Be sent within 30 days of the adverse action;
• Notify the customer that his or her credit application was not approved;
• Contain the creditor's (or dealer's) name, address, contact name, and phone number;
• Disclose the name, address, and phone number for all credit bureau reports obtained.
Penalties
As with most regulatory mandates, there are various penalty sources to consider. The ECOA and FCRA both assign penalties for violations, which include punitive damages up to $10,000 in individual actions, and up to $500,000 or 1 percent of the creditor’s net worth (whichever is less) in class actions. Court costs and reasonable attorney fees may also be assigned.
___________________________________
As Seen in several Industry journals:
A PICTURE WORTH A THOUSAND WORDS
By Chuck Lopez
There is a cliché that originated from an old Chinese proverb that says “A picture is worth a thousand words.” I would propose to you that this picture most certainly falls within this category.
I remember way back in the late 1980’s having David Robertson, President of the Association of Finance and Insurance Professionals (AFIP) come to the dealership in Boise to train and test our F&I managers. I recall at that time David was promoting the need for a formal and professional association whereby F&I professionals would have a place to turn in the event they were seeking education and/or information to keep themselves and their dealership out of harm’s way.
From that point forward I have made concentrated efforts to keep myself and hundreds of other F&I, and other dealership, staff current and up to date on laws, rules and regulations that influence our retail sales industry. Just a side note here, I was the ninth person to be certified by AFIP and since then have went on to become Senior Certified in this ongoing effort to remain on top of the myriad of legal matters that effect us all.
Back to the picture. As I was recently traveling through southern California I spotted this billboard that made me stop and turn around to insure myself that I saw what I thought I had seen. To my horror I was right. That which industry professionals have been touting for years has come to fruition. Here was this billboard sign advertising, no-actually advocating and encouraging, for customers to call them for possible dealership “Lemon Law” violations and potential “Dealership Fraud.”
Now, I don’t need to tell anyone in our industry why shivers started running up the back of my spine. In this current economic environment where customers are searching under every rock to find a way to get out from under the burden of a car or RV payment, along comes a potential knight in shining armor. Is this a possible witch hunt? Maybe.
There will be some readers of this article that will shrug this off and say something like “Well, we don’t have to worry because we are always legal and do everything in total compliance!” While I certainly hope this proves true, perhaps a visit to this law firm’s website can usher in perhaps even a sliver of concern. After all, errors and mistakes can and do happen even to the best and most seasoned amongst us.
This law firm boasts about their chief litigator’s background as having been in the forefront of the retail industry, having served in various management positions within a dealership. After attaining a law degree, this person promotes that he is very aware of the dishonest and sometimes deceptive practices that goes on within dealerships. He even uses “Our language.” On one issue alone, he informs the prospective clients that the dealership might have violated the law by hiding or masking the amount they were “Buried” in their trade-in, and he goes on to inform them that this might be a violation and he, of course, would be happy to assist them in seeking a lawful remedy.
Napoleon Bonaparte was also attributed with this old cliché as he said "Un bon croquis vaut mieux qu'un long discours “or” A good sketch is better than a long speech". Take a careful look at this billboard picture for I fear it might be a growing trend as the civil litigators search out easy targets to fill their coffers. Perhaps the industry professionals that have been promoting ongoing training and education in compliance matters aren’t too far off their target when they inform you to watch out for the regulators, both foreign (Civil litigators) and domestic (Government regulators).
___________________________________
The Profit Centers of a Dealership
By Cassandra Lopez
An issue that seems to cause some confusion lately is exactly what are the “Profit Centers” of the typical dealership. Of course, this might differ slightly depending upon the size, complexity and make up of the dealership. However, there is an accepted format for this. Without a format that outlines the individual profit centers, how can the managing staff properly assign responsibility and accountability?
In visiting with many dealerships over the past year, it has become apparent that confusion exists in this area. Some dealership staff are not exactly sure what their “True” job classification is and this creates problems, as well as a potential loss of income. For example, does “Back-end” profits incorporate the profits generated in the F&I office or in the parts and service departments?
Here are the generally accepted profit centers of the typical dealership.
Front-end Profit Center: This incorporates the profits generated from primary retail sales. In the case of RV dealerships, this is from the profits earned each time an RV is sold to a consumer. This is, of course, commonly referred to as the “Sales Department.”
After-market Profit Center: This includes all the profits generated by sales of after market products. This includes the sale of service contracts, environmental protection products or sealant products, GAP insurance, credit life & disability insurance, wheel & tire coverage and even the reserve garnered from interest rate mark-ups. This is most generally done in the Finance & Insurance office. Some dealerships still accept the risk of not having this in a single centralized center, and have each individual sales person conduct this business. A word to the wise in this respect—be extra careful that each sales person is trained and aware of the many trap doors created by the ever burdening compliance mandates.
Back-end Profit Center: This is broken into two separate and distinct departments operating under one senior manager called the Fixed Operations Manager. This manager should have two assistants that head up the service and parts departments.
A: Service Department. The service department should be a profit center accountable for the profits generated in that department. The Fixed Operations Service Assistant must insure that the service department works alongside the parts department to take care of the customer’s back-end needs. When was the last time your dealership advertised specifically for services performed in the service department?
B: Parts Department. The parts department should be a profit center as well that is accountable for the profits generated in that department The Fixed Operations Parts Assistant must insure that the parts department works alongside the service department to take care of the customer’s back-end needs. A well structured, properly supplied and properly trained parts department can produce unbelievable profit for the dealership.
It is very important for dealerships to insure that these two departments work together as a combined profit center. Pitting one against the other is highly detrimental and most often creates problems, feuds and unnecessary bickering. This happens frequently when one department blames the other for either not getting the proper part ordered or properly installed, etc.
Some dealerships also have a stand alone body & paint department that account for sizeable profits for the dealership.
It is important to have each of these departments have their own manager, or senior staff leader, that is in charge of insuring that each employee is properly trained, educated and aware of the importance that each respective profit center brings to the dealership.
Naturally, the size of the dealership might mandate having one person in charge of more than one department. Regardless of the size, the dealership needs to have these departments be individual profit centers.
Properly Functioning Profit Centers
It is also important for the dealership to stress the importance of each of these departments being a working member of the overall dealership team. I have been in dealerships where the sales department will actually encourage their potential consumer to have their back-end work performed elsewhere because they believe their service and/or parts department gouges their consumers. I have also seen sales staff inform the consumer that they should actually seek financing through their own sources because they feel their F&I department gouge the consumer. And, I have seen service and parts staff speak ill of their sales department and cause the consumer to purchase their next retail unit elsewhere. If a dealer believes that this just cannot happen, well then it might be time to take careful notice of what is happening in inter-department affairs. The service, parts and F&I departments must understand that the most profitable and largest supplier of business to their departments is the sales department. The sales department must recognize that the other departments are their best allies in reinsuring the consumer that they made a wise decision purchasing their RV from this dealership’s sales staff. A properly functioning dealership allows each department to understand the value that each profit center adds to the dealership.
The sales department can encourage the purchasing of products and services that the other departments offer, and the other departments can provide strong leads, and increase overall customer satisfaction, for the sales department.
This is when a regular dealership meeting can prove most helpful. Outline the importance of the “Team Concept” and how each department must work individually as a profit center, while remaining loyal to each other’s department. Bring in an outside consultant, educator, trainer or coach to conduct a portion of this meeting from time to time. Consult with the Association staff to secure information that can aid in this area. The Association can provide valuable material to assist in these meetings. They have everything from manuals to programs to cds from past experts in the various departments that have delivered session training at conventions.
The key here is to know that there are individual profit centers in the dealership and to outline the importance of each department’s responsibilities.
The very existence of many dealerships in today’s economic climate will depend upon the cohesive and collective efforts of each of these respective profit centers working together for the greater good of the financial survival of the dealership.
Even as the business continues to pick up into the upcoming months, it is generally the slowest time of the retail season for most dealerships, it is a perfect time to start addressing this matter and put into place a program whereby each department recognizes the various profit centers of the dealership.
___________________________________
As seen in RV Executive Today by Chuck Lopez
Official publication of the RVDA, The National RV Dealers Association“Inspect What You Expect” - F&I for Today and Tomorrow
by: Chuck Lopez
The past two years certainly provided dealerships with plenty of reasons to review, revamp, and restructure the way they conduct business. This is certainly true when it comes to the F&I office.
The phrase “Inspect what you expect” while annoying, is very applicable to the F&I environment because some became lax in this regard.
One area of great concern involves vendors paying SPIFFS to F&I personnel, without the dealership principal’s knowledge, for sales of products such as service contracts and sealants.
Instead of allowing a vendor to decide who receives SPIFFS, the dealer should make those decisions and take away the temptation from employees.
Furthermore, if you put into place certain goals and then keep track of whether your goals are met. You can then correct, adjust, alter, or remove goals so that the outcome meets the dealership’s desired results.
Here are a few things to consider as the dealership implements its goals concerning the F&I department.
Have a manager’s meeting in a positive environment. Perhaps provide a breakfast at a local eatery, away from the dealership. During this meeting, advise the management team that, as your dealership moves forward into a better economic environment, the dealership is implementing a few changes to aid in the overall recovery and financial welfare of the dealership.
Meet one-on-one with each member of the management team to discuss how they can each contribute to this overall goal.
During this one-on-one, discuss the “Team Concept” and importance of honesty, integrity, and commitment.
Explain that you are implementing a new program where every manager signs a “Code of Conduct.” This code contains certain provisions that will ensure the dealership is working together for the common good.
Explain that any money from vendors will run through the dealership, unless the dealer principal approves a specific plan or program. Over remits are available with most vendors of F&I products, and work very well provided the dealer principal is aware of such a program
Explain that any violation, such as the accepting of SPIFFS without the prior approval of the dealer principal, will result in the immediate termination of any employee.
Ask the management team what some of their ideas are for implementing a possible SPIFF program to provide additional incentives for “Above and Beyond” results.
Have meetings with your vendors and have them commit to this as well. If for no other reason then to place the vendor on notice that your dealership does not tolerate this type of action, and a vendor caught doing such transactions will face a termination of their business relationship with your dealership. This is a good time to review your current providers. Do an evaluation and ensure your vendors conduct business in an honest and ethical vendor.
Finally, some legal counsel advise that employers get their employees to stating they will be terminated for receiving “additional” funds
You can bring the issue of SPIFFs in to the open in a positive manner following the above points. So, go forth into this recovery period for RV dealers and don’t forget to “Inspect What You Expect!”
___________________________________
