Home » Features » Apr. 6, 2009 – A growing list of complex F&I regulations

Apr. 6, 2009 – A growing list of complex F&I regulations

Mike Boolos, director of F&I training for Assurant Solutions, has a rather scary admonition for dealers to consider.
“I could go into almost any powersports store in the country, and pick up hundreds of thousands of dollars worth of violations,” Boolos says.
In this case, he was referring to violations of the Red Flags Rule, scheduled to go into effect on May 1. The new federal regulation is designed to detect, prevent and mitigate instances of identity theft.
The new regulations, however, are far from the only F&I?compliance issues that dealerships currently face. Boolos outlined possible compliance misconceptions about Form 8300, which deals with cash payments of more than $10,000, and how often dealerships are required to check consumer names against a national tracking register.
“They are getting more complex in the simple fact that it has become overwhelming, the amount that’s out there,” Boolos said of F&I?compliance issues. “It just keeps building and building.
“There’s nothing really hard. It’s just so much, so many little things to remember. But they’re going to be more and more at the forefront.”

The Red Flags Rule

If the Red Flags Rule isn’t on your radar screen yet, consider: Identity theft can be devastating to individuals, causing economic, psychological and emotional harm to its victims. Plus, who do you think typically bares the brunt of the monetary damage? That’s right — businesses.
That damage can come in many forms. One powersports dealer in a class taught by Boolos recently was taken for 10 motorcycles as a result of identity theft. Police couldn’t find the original person who bought them, and only two of the 12 bikes that had been purchased were recovered.
“He took a tremendous loss,” said Boolos. “Police often don’t have time to chase things like that.”
Another concern is lawsuits. If one of your customers gets their identity stolen because of a lack of compliance on the part of your business, you’re going to get sued, says Boolos.
Finally, there are the fines: $11,000 per violation. And they can add up quick. If your dealership has 10 customer files spread out on employee desks throughout your facility, that is $110,000 in fines.
So, what do you need to do to avoid this? Start by locking away all documents that have consumers’ personal information on them and requiring employees to shut down computers that contain customer information when they leave at the end of each day, Boolos says.
In addition, you should keep watch of anything that contradicts with what a customer is saying. If a customer’s driver’s license has been altered or offers information, such as age, that doesn’t match with the person providing the identification, you should put a stop to the deal and investigate.
“If I think you’re not who you say you are, especially if you’re financing with me, I would ask you things like, ‘Do you have a car? Is it financed? How much is the loan?’” said Boolos. “If they can’t answer the questions, it’s a red flag and I would stop the deal immediately.”
Other examples of warning signs include customers trying to rush a transaction, those with a P.O. Box for an address, people who don’t negotiate and those who buy multiple vehicles at the same time, he adds.
But it isn’t enough for a dealership to spot and heed the red flags that are often the tell-tale signs of identity theft. To comply with this new rule, businesses will have to develop a written “red flags program” that explains how they will prevent, detect and minimize the damage from identity theft.

Form 8300

This requirement states businesses that receive cash payments of more than $10,000 from one buyer as a result of a single transaction or two or more transactions must file a form within
15 days of the transaction. That means, if an individual customer does more than $10,000 in cash with your business over the course of a
12-month period, you must fill out a form on them, whether that money was spent on a motorcycle, snowmobile, ATV, parts and accessories, service or a combination of all of the above.
Then, you must notify the customer that you filed the form by January of the following year.
Congress initially passed this requirement as part of the Tax Reform Act of 1984, which was tagged onto the anti-drug abuse act, explains Boolos. It was designed to catch drug dealers laundering money. Then, when 9/11 hit, it was incorporated into the Patriot Act because it was discovered terrorists also were laundering money.
Dealers also can use the form any time they take any amount of money from a customer they deem to be suspicious. In fact, there is a box on the form that must be checked in that instance. If that box is checked, the dealer must not notify the customer on whom they filed the form.
While Boolos believes most dealers try to comply with this requirement, “some don’t watch it as closely as they should because they don’t realize the full implications of it.”
Those implications can include hundreds of thousands of dollars and years of jail time, if you’re caught. The IRS primarily enforces this requirement through audits, says Boolos. However, it also employs sting agencies that do spot checks. If dealers are found to be intentionally disregarding the requirement, the fine starts at $25,000 and can go as high as $100,000. If a dealer willfully and knowingly fails to file the form, the fines go up to as much as $250,000 for an individual and $500,000 for a corporation and include up to five years in prison or both, he says.
“If somebody came into your dealership and they fell through the cracks, they’ll probably just write you up,” Boolos said. “But if I came into your store and said, ‘I’m going to buy this boat for $10,000,’ and you say, ‘Give me $9,000 and we’ll finance the rest,’ you’re looking at jail time. You can in no way advise people regarding their cash. You don’t want to be caught structuring in any way.”


Another requirement that can be costly for dealerships caught in a state of noncompliance is in regards to the Office of Foreign Assets Control’s (OFAC) list of Specially Designated Nationals.
As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries, as well as individuals, groups and entities (such as terrorists and narcotics traffickers) designated under programs that are not country-specific.
Under the requirement, dealerships are required to run each customer’s name against this list before they can complete a transaction, whether they’re buying a vehicle, paying for service or purchasing a $5 part. If the dealership gets a match, they must stop the transaction immediately and verify if the person is or is not on the list. Records of hits must be kept for five years.
“Most of the people that get a hit, it’s usually a false hit because the name is similar,” Boolos said. “I don’t know anyone who has caught a terrorist.”
With that said, sting agents can very easily tell whether you’re in compliance with the requirement, and the penalties are “tremendous,” Boolos said. They include up to 30 years in jail, up to $5 million in fines for individuals and up to $10 million for corporations.
Boolos said software is readily available to help businesses comply.

A Solution

The best way to ensure your business remains compliant with these regulations and with new ones as they develop is to create a compliance officer within your dealership, Boolos says. This is a trustworthy individual who is capable of taking responsibility for enforcing your compliance with state and federal rules and regulations and responding to related issues as they arise.
Oftentimes, this person is a dealership’s F&I professional as they likely come into contact with the majority of customers. However, you also might consider your sales manager or general manager, Boolos suggests.
Once someone has been selected for this role, it is essential they receive the proper training, have access to related materials and institute a process for staying on top of new developments.
One group that offers those products and services is the nonprofit Association of Finance & Insurance Professionals (AFIP) of Colleyville, Texas. They provide a school on federal and state laws and regulations — including truth in lending, OFAC, red flags and more — as well as ethics. It’s what Boolos describes as “self-study” – students are provided with materials, and “if you study in earnest for 6-8 weeks, then you’ll be ready to take the test.”
The test itself is “a pretty big undertaking,” Boolos says. It consists of 200 questions, 150 of which are on federal laws and regulations, 25 of which are on a state’s laws and regulations, and the other 25 of which are on ethics. The material is customized for the industry in which the student works. Test-takers must receive 80 percent or above on each of the three sections to pass the test and become certified.
If you pass, you receive an encyclopedia of compliance rules and regulations, as well as updates as laws are changed and added, which happens constantly, Boolos said.
“I’m a big proponent of AFIP because you’ve got to have a baseline,” said Boolos, who serves as a mentor of the association. “Even my people in the field, there are always coming to me with some legal issue they weren’t aware of.” psb

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