Like most types of businesses, auto dealerships have quite a few different departments that work together to ensure things run as smoothly as possible. From sales to financing to service, the internal workings should be well-oiled and seamless. There is one department, however, that plays a critical role in the overall success of a car dealership: accounting.

At the end of the day, dealerships are businesses and businesses exist to make money. A car dealership accounting department is responsible for those funds and keeps track of all money coming in and going out. There are a lot of moving parts, and it is hard work – especially for some smaller dealerships that have accounting departments made up of one or two people.

It can be difficult managing a car dealership accounting office, but one of the most effective ways to monitor cash flow is through reconciliation.

Reconciliation is when you check two records to make sure they are in agreement. For example, you would check to see if certain transactions documented in your general ledger also appear on your monthly bank statement. It is a way of double checking deposits, bill payments, and other financial transactions to ensure every cent of your money is where it should be.

What is Reconciliation?

Reconciliation plays a vital role in maintaining accurate financial records and ensuring the smooth functioning of auto dealership accounting. In essence, reconciliation in auto dealerships involves the meticulous comparison and verification of various financial documents and records to ensure consistency and accuracy. It serves as a crucial internal control mechanism that aligns different sets of data, such as the dealership’s general ledger and bank statements, to ensure that transactions are properly recorded and accounted for.

At its core, reconciliation in auto dealerships involves cross-checking financial activities to identify discrepancies, errors, or instances of fraud. This process is particularly important due to the high volume of financial transactions that occur within a dealership, including sales, financing, service, and parts. Reconciliation acts as a safeguard against errors that may have occurred during the initial documentation process, such as data entry mistakes, reversed numbers, or calculation errors. By conducting regular reconciliations, dealerships can quickly identify and rectify these errors, ensuring that financial records accurately reflect the true financial position of the dealership.

Furthermore, reconciliation serves as a powerful tool for detecting and preventing fraudulent activities within auto dealerships. Unfortunately, instances of internal fraud can occur, where employees may attempt to manipulate financial records or misappropriate funds. Reconciliation helps mitigate this risk by providing an additional layer of scrutiny. By assigning reconciliations to different individuals or utilizing third-party services, dealerships reduce the likelihood of a single person having complete control over the accounting process, making it more difficult for fraudulent activities to go undetected.

In the context of auto dealership accounting, reconciliation involves several key components. These include comparing cash receipts and sales records to ensure all transactions are accurately recorded, verifying bank deposits and withdrawals against the dealership’s financial records, reconciling parts and inventory records to confirm their accuracy and completeness, and reviewing service department transactions to prevent any misappropriation of funds or parts. Through these meticulous comparisons and verifications, reconciliation ensures that all financial activities within the dealership are properly documented and accounted for.

Implementing a streamlined reconciliation process is essential for maintaining the financial health and integrity of an auto dealership. By dedicating the necessary time and resources to conduct regular reconciliations, dealerships can identify and resolve errors promptly, strengthen internal controls, detect and prevent fraudulent activities, and provide accurate financial information to stakeholders. Ultimately, reconciliation in auto dealerships serves as a critical component of effective financial management, allowing dealerships to operate with confidence, maximize profits, and build trust with customers, partners, and regulatory authorities.

Reconciliation in car dealership accounting helps find errors and fraud

Reconciliation is a way to catch errors when they aren’t so obvious the first time around. When reconciling accounts, you may discover:

• That numbers were accidentally reversed when they were first documented. For example, a deposit may have been written down as $93, when it was actually $39.
• A simple error in calculation that may have occurred because the employee hit the wrong button on the calculator.
• Entries are reversed—for example, an account was credited, but it is listed as debited, and vice versa.

Likewise, reconciliation can also help you catch any instances of fraud—especially fraud happening internally. Some dealerships choose to have a third party or a different employee perform the reconciliations so that the same person isn’t handling all of the dealership’s accounting all the time. When one person has total control over the books, they may be tempted to pocket a few checks or skim some money off the top.

Reconciliation can also catch fraud in the service department because it is not unheard of for employees to steal parts and sell them outside of the dealership.

Identifying better ways to do business through car dealership accounting reconciliation

Staying on top of reconciliation can be tedious, but the benefits to your business are undeniable. By creating consistent internal controls, you will be able to avoid major errors or problems that could cost your dealership a lot of money. Regular reconciliation allows you to catch issues in a timely fashion, address them, and move on before any real damage has been done.

Reconciliation will keep your books perfectly balanced so you can get a clear picture of your dealership’s finances, including how money is being spent and where you may be able to budget more appropriately. It could shine a light on processes that are working (and those that aren’t) and allow you to tweak your dealership’s spending in a positive way.

A high-functioning car dealership accounting department with a streamlined reconciliation process — one that doesn’t just go through the daily motions while juggling countless tasks — will be steps ahead of the competition and poised to make a significant profit.

Driving Financial Success: The Crucial Role of Reconciliation in Car Dealership Accounting

Reconciliation serves as the backbone of efficient car dealership accounting, providing a range of benefits that contribute to the overall success and profitability of the business. By meticulously comparing and verifying financial records, reconciliation ensures the accuracy and integrity of financial transactions, safeguarding against errors and fraudulent activities. It acts as a critical internal control mechanism, allowing dealerships to maintain a clear and accurate picture of their financial health.

Through regular reconciliations, dealerships can promptly identify and rectify any discrepancies, minimizing the risk of major financial mishaps. By addressing issues in a timely manner, they can mitigate potential damage and maintain the financial stability of the dealership. Furthermore, reconciliation offers valuable insights into expenditure patterns, allowing dealership owners and managers to make informed decisions regarding budgeting and spending. It enables them to identify areas for improvement, streamline operations, and optimize financial resources, ultimately driving profitability.

Reconciliation also plays a crucial role in compliance with regulatory requirements. By ensuring accurate financial records and demonstrating transparency, dealerships can avoid penalties and legal issues. Moreover, the practice of reconciliation enhances trust and credibility with stakeholders, such as investors, lenders, and manufacturers, who rely on accurate financial information to make informed decisions.

To fully leverage the power of reconciliation, car dealerships can leverage technological advancements in accounting software and automation. By embracing technology, dealerships can streamline the reconciliation process, reduce manual errors, and enhance efficiency. This, in turn, allows accounting personnel to focus on value-adding activities such as financial analysis and strategic decision-making.

Reconciliation is an indispensable practice in car dealership accounting that enhances financial accuracy, uncovers potential issues, ensures compliance, and drives profitability. By prioritizing reconciliation and embracing technology, car dealerships can position themselves for sustained success in the competitive automotive industry.

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If someone were to ask you what you think is most important when owning an auto dealership, what would you say? Building a solid, effective sales team? An impressive, well-priced inventory? Great financing options?

Those would all be legitimate, understandable answers — but they would also be wrong.

The most important thing to think about when owning an auto dealership is compliance. There are many different rules and regulations that affect the auto industry, and if your dealership isn’t keeping up and prioritizing them, you won’t be in business much longer.

Dealership compliance has spread like wildfire since the passing of Dodd-Frank and the formation of the Consumer Finance Protection Bureau. There are numerous strict regulations, from F&I to marketing to inventory, that it’s your job to stay on top of.

How is it possible to keep up? As an owner, protecting yourself from these dealership compliance issues is a big deal. The penalties are potentially enormous and career-ending if you don’t watch your step.

At the same time, if you’re putting in the right amount of effort to stay on top of these issues, you’ll be fine. It’s all a matter of awareness, training, and prevention. Because there are so many regulations to adhere to, it’s wise to strategize so that no one in your dealership ends up breaking the rules. Blaming non-compliance as “an accident” won’t save you in a courtroom.

One type of regulation auto dealerships need to worry about is the Office of Foreign Assets Control (OFAC) compliance. The OFAC is a government agency, and it maintains a list of names and aliases of individuals, organizations, and companies that the U.S. government has classified as potentially dangerous and a potential threat to national security.

The basics of OFAC compliance for car dealerships

OFAC compliance has been a “must” for auto dealerships since the USA Patriot Act was signed into law on October 26, 2001. Since then, it has been required that auto dealers (and other businesses conducting financial transactions with consumers) screen any potential buyer before conducting a sale.

OFAC compliance checks are usually performed at the same time you conduct a credit check. You do not need to obtain authorization from the customer before running the search. You don’t even have to tell them. It should just be something you automatically do.

The customer’s name needs to be compared against the Specially Designated Nationals and Blocked Persons (SDN) list, which is a public list maintained by the U.S. Treasury Department and OFAC. The list, according to OFAC, is “of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.” They also note that “their assets are blocked and U.S. persons are generally prohibited from dealing with them.”

Strategies for dealership compliance: the best ways to identify risk and squash it

1. Assign a compliance officer to review and update your dealership’s policies

It’s a law to designate a compliance officer in every dealership.

Here’s some advice: take this position and its responsibilities seriously.

Your officer is the spearhead of your compliance strategy. Send him to seminars, trainings, certification courses—anything that will help him protect your dealership from exposure. Here are a few ideas that will benefit your dealership.

• Invest in training from the Association of Finance and Insurance Professionals (AFIP).
• Have him teach best practices to the F&I and sales staff.
• Work with him to create a standard procedure that follows all the rules.

2. Review your Identity Theft Prevention Plan (ITPP) and train your staff

Identity theft prevention is paramount for car dealerships. The Red Flags Rule (RFR) mandates that your staff must be proficiently trained in examining the actual identity of your customers. The RFR is of particular importance because there are so many ways to fall into non-compliance, even when you think you’re doing it right. Besides training your staff to make more sales, you need to make sure they know who they’re selling to.

Don’t take these regulations for granted—identity theft is widespread in the U.S.

• Review your ITPP and update it with the latest practices set down by the RFR.
• Train your staff on how to identify red flags.
• Make a protocol of what to do if the salesperson is concerned about the identity of his customer.
• Always keep a paper trail of all documentation and scheduled trainings.

3. Hire a legal consultant to pinpoint issues

If your dealership compliance needs work, consider hiring a consultant to audit your procedures and set up a compliance checklist. This would be a perfect learning opportunity if you’re newly appointing a compliance officer.

It may be an added expense, but long-term it will cost much less than being slapped with a fine for being non-compliant. Think about it as insurance for your dealership’s future.

You may choose to hire a legal consultant to review your entire dealership once and leave the responsibility on your compliance officer moving forward. Another option is to create room in your budget to have a legal consultant do a large first-time audit, and then return annually to review the compliance officer’s overall work.

4. Create a standard process for all your salespeople to streamline compliance

Most of your salespeople know about the various dealership compliance regulations, but they may not know them enough to understand all the angles and consequences. Some people will cut corners on these rules. They’ll get comfortable, go about every deal in a casual way, and then it’s on your head when they screw up.

Don’t let that happen. Create a standard process for your sales team. Hit every point necessary, and make it clear that these steps are mandatory.

• Adverse action notices
• Credit score disclosure notices
• OFAC checks on customers
• Gaining permissible purpose for credit reports
• Following all steps under the Red Flags Rule

Those are only a few of the regulations your dealership must follow. The best way to stay fully compliant is to have your compliance officer provide quarterly trainings and audit sales files regularly.

How to ensure OFAC compliance if a buyer is on the SDN list

Most credit bureaus have adopted new measures to ensure OFAC compliance and use screening software to determine if an applicant is on the SDN list (which means you likely do not have to manually comb through the list of 6,000+ names). But what happens if the report comes back and the person is flagged as possibly being on the SDN list?

Compare the name of the person to what is found on the list. If that matches, look at all of the other information you have in front of you like address and date of birth — do those things match as well? If you’re not sure if you have an exact match, call the OFAC hotline at 1-800-540-6322. You don’t want to make a mistake, because if you fail to identify a person on the SDN list and you do business with them, you could end up in big trouble.

Depending on the program, criminal penalties for willful violations can include fines ranging up to $20 million and imprisonment of up to 30 years. Civil penalties for violations of the Trading With the Enemy Act can be up to $65,000 for each violation.

Total OFAC compliance for your car dealership is completely possible

OFAC compliance can feel overwhelming, but if you keep the basic principles in mind, your dealership should have no problems. Remember, no sale is worth breaking the law — make sure your dealership is fully compliant and your team will be in an ideal position to make sales and thrive.

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Business text messaging regulations are changing. Find out what to expect and how to stay compliant with updated carrier regulations.

If you own a cell phone, you have undoubtedly had your share of spam texts. Whether it’s an offer to win an expenses-paid vacation or a hefty reward to help an international billionaire recover his lost bank account, these messages are annoying at best. Unfortunately, business text messaging oversight has been a little slow to keep up, but that’s changing.

New processes and regulations can sometimes feel like a headache, but ultimately, these new text messaging oversights should help legitimate businesses reach more customers. This change aims to keep spam texts to a minimum by verifying the companies sending business text messages.

What does all this mean?

Let’s break down some of the jargon before we get into what changes are coming to business text messaging because A2P 10DLC doesn’t exactly roll off the tongue.

A2P means any application-to-person text. That’s in contrast to P2P, which is person-to-person. When you text your coworker to see if they want to grab lunch, that’s P2P. Generally speaking, appointment reminders or text blasts to notify your customers of a service center discount are A2P. What about that text to a customer who was looking for a specific car that you just brought onto your lot? That’s most likely an A2P text.

10DLC is short for 10-Digit Long Code. That’s in contrast to short code, which is usually a five- or six-digit number that goes out with mass texting. An example of an inbound shortcode would be something like Text CARS to 13579 for a chance to win a free oil change! Only in this case, it would be outbound texting that would be impacted.

It’s also worth noting that although a 10DLC looks like a regular phone number, according to The Campaign Registry, this code is “a reliable messaging channel with throughput levels suitable for SMS campaigns and is sanctioned by the mobile operators.”

Will these business text messaging regulations affect every business?

The short answer is yes. How businesses will be impacted is another issue. The A2P 10DLC text messaging regulations are still being put in place by wireless carriers. And how much the regulations apply to you will depend, partially, on how many messages you regularly send.

1. You will need to register for each campaign. First, don’t think of a campaign the way you might as an auto dealership marketer. In this case, a campaign means how you intend to use text messaging. If you’re using text primarily for promotion, you may need to only register for one campaign or type of use. You would need an additional registration for service appointment reminders and so on. Registration fees for each campaign may be as low as $2 per month, but again, that may vary depending on who you’re working with.

2. There are additional fees. There is also a charge for each message you send. The exact price depends on the carrier (AT&T, T-Mobile, etc.) and the type of message (SMS vs. MMS), but they are generally under a penny. For example, AT&T currently charges $0.002 per SMS.

3. No, you can’t work around it. It may take time to implement, but at some point, mobile carriers will charge more for unregistered businesses, and they may be filtered or unsupported altogether.

4. You can still send a LOT of texts. Though mobile carriers do have limits, these new text messaging regulations don’t appear to define the number of texts you can send. Depending on your registration, T-Mobile allows you to send between 2,000 and 200,000 messages per day. AT&T, on the other hand, is based on texts-per-minute, with a limit of 4,500 TPM.

5. More of your texts will get through. Because these new text messaging regulations will decrease the number of spam texts, more of your legitimate business texts will be able to make it through to your audience.

You can find out more and register through The Campaign Registry, but before you do, talk to your texting service provider. As an individual business, you may not need to do everything on your own. As a platform that allows business text messaging, AutoRaptor will be facilitating the registration of all of their customers.

One thing you will need to do, however, is to follow text messaging best practices, as set forth by CTIA. You won’t find anything especially shocking: Don’t spam people, don’t text before 8 a.m. or after 9 p.m local time, make it easy for customers to opt-out, and other similar practices.

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Protect your customers and your business by adhering to the Red Flags Rule. Here’s how to stay compliant.

Identity theft. It’s one of the most stressful situations you can find yourself in, mainly because there are so many unknowns. It’s also an unfortunate part of the world we live in, and businesses bear a significant burden in ensuring their customers’ personal information remains protected. That’s why the Federal Trade Commission (FTC) developed and implemented the Red Flags Rule to reduce identity theft.

You may know this rule as one of the Fair Credit Reporting Act’s Identity Theft Rules, and the FTC states that the rule is in the Code of Federal Regulations as “Detection, Prevention, and Mitigation of Identity Theft.”

Red Flags Rule now falls under the jurisdiction of the Securities and Exchange Commission (SEC), and specifically addresses issues related to identity theft. In short, the rule requires businesses that collect sensitive information from customers, such as social security numbers, to have a written identity theft protection program in place to help detect warning signs, or “red flags,” that may indicate an instance of attempted identity theft before things get out of control.

Complying with the Red Flags Rule isn’t difficult. Still, it is critical to ensure the security of your customers and the security of your business since failure to comply can result in fines and other penalties. Our goal is to help you understand the essential elements of the rule and how you can best ensure that your business follows the most current regulations.

The four elements of the Red Flags Rule that you need to know

Red Flags Rule policies vary from business to business, depending on their size and risk level, but they all must address four primary areas.

The first is to identify relevant red flags for your business. A simple example for a car dealership is a piece of identification (i.e., driver’s license) that appears to be fake. Other red flags might be alerts from credit checks, other false documents, suspicious account activity, or receiving a notice of potential identity theft from a customer, business, or law enforcement agency.

Once you’ve identified all possible red flags, the rule then requires you to implement a program or process to detect them. For example, you might implement technology to verify the authenticity of someone’s personal documents, or you might put a procedure in place to regularly review account activity.

Next, a Red Flags Rule program must spell out how your business will respond to detected threats, whether or not confirmed. This can include anything from shutting down suspicious accounts to notifying customers to contacting law enforcement agencies. Your business’s response practices are primarily dependent on how much risk is associated with the detected red flag and are often commensurate with the seriousness of the warning sign.

Finally, a compliant program must outline how you plan to keep it current to ensure the greatest likelihood that you’ll detect new threats, especially as identity thieves continue to evolve and scheme new ways to get at personal information.

How to administer the program

Once you’ve written your Red Flags Rule program, you’ll need to have it approved by a senior member of the business (if that’s not you). If your company has a Board of Directors, they must approve the initial plan. Then, either the senior employee or the Board, whichever is relevant to your business, is responsible for overseeing the program. Whoever is responsible can delegate tasks to get the program started, but they are ultimately accountable for its success or failure. The person responsible for the program will also need to regularly review business activities to ensure compliance and must also stay on top of changes to the Red Flags Rule and related regulations, updating your business’s written policy as necessary.

It’s also a good idea for the person who oversees the program to report to senior management or the Board at least once a year with insights into the effectiveness of the program and suggestions for any changes.

Employee training for your dealership

The Red Flags Rule requires that you train your staff “as necessary,” so you may not need to invest time in educating your entire team. (If you have someone in marketing, for example, they likely won’t need to be trained as they generally don’t handle or process sensitive information.) However, when it comes to identity theft, the more eyes you have looking out, the better. If all of your employees are trained to spot fraudulent activity, it’s more likely that you’ll detect issues before they become significant problems.

Penalties for non-compliance

While no regulatory agency conducts regular audits on Red Flags Rule programs, the SEC could launch an investigation into your business should a problem arise. If you’re found to be non-compliant, you could be fined $3,500 for each violation—a penalty that can add up since multiple infractions may be found with a single program. To avoid unintentional penalties, you may wish to consult legal counsel before finalizing your business’s plan and conduct regular internal audits on your program to ensure continued compliance.

Of course, one easy way to track compliance is through an automotive management software designed specifically for the automotive industry.

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Car dealers aren’t legally required to provide a car return policy, but that doesn’t mean it’s not a good idea to create one.

A well-written car return policy can help prevent client confusion, and it can help dealers avoid difficulty any time a customer tries to return a vehicle. When someone tries to return a vehicle for a refund, it’s not unusual to deal with frustration or even anger. It’s a lot easier to work with unhappy clients when there are policies in place to help extinguish the flame.

Follow these tips to create a sound car return policy.

1. Assemble a team.

Creating a comprehensive car return policy can be a big responsibility. Assemble a team of essential sales team members to work together to ensure the end product will help prevent dealership return problems, not add to them.

2. Research mandatory state rules and regulations.

Don’t even think about writing until researching, and verifying any regulations that might affect your dealership car return policy. It’s important to make sure any of the rules incorporated comply with state and federal guidelines to ensure compliance.

3. Never settle for the first draft.

A car return policy will only work if it’s written accurately and with enough detail to cover any possible vehicle return situation. If you feel like something is missing, it helps to refer back to former vehicle returns to ensure you’ve included all potential circumstances. Write multiple drafts and have each team member review them for mistakes or changes.

4. Get a lawyer to look at the final product.

Anytime you create a document such as a car return policy or an employee handbook, it’s smart to have a lawyer review it for errors. While a lawyer’s time can be costly, it can help prevent the chance of expensive legal battles.

5. Keep car buyers informed.

Be upfront with each client by including a copy of the return policy with their vehicle closing paperwork. Transparency helps build trust with customers and can further benefit dealership retention efforts.

6. Share the final car return policy with essential staff.

This step may seem silly but why create a car return policy to let it collect dust somewhere? Any time you put a new or revised policy into effect, it’s essential to review it at your next sales meeting. All sales staff should be on the same page when it comes to dealership policies and procedures for them to work effectively and without difficulty.

Remember to review other regulations that impact vehicle returns.

*FTC Buyer’s Guide

This form is posted all over vehicles in the sales lot, but when was the last time your team took a closer look at it? The FTC Buyer’s Guide was created to help consumers make educated decisions by giving them essential vehicle purchasing and warranty information. It’s critical to maintain compliance to avoid massive fines of up to $41,484 per violation. Anytime there’s confusion regarding this form it’s best to visit the FTC website for accurate information.

*Lemon Law

The Lemon Law can confuse customers and dealers alike, but it’s a law that is too important to ignore. The idea of the Federal Lemon Law isn’t about whether or not a vehicle works, it’s about the warranty a customer buys to protect that purchase. If you have a customer that returns to complain about a lemon, but they did not get a warranty, the Federal Lemon Law doesn’t apply in that case; only consumers with written warranties are covered. Be sure your team is trained on the ins and outs of the Lemon Law so they can adequately respond to customers who claim to have been sold a vehicle that should be covered under these regulations.

If you think a car return policy would be beneficial to your dealership, then it’s imperative to take the time to be sure it’s detailed, compliant, and follows the guidelines of all state and federal dealership regulations. It may seem like a lot of work, but the 2017 Gallop Honesty/Ethics in Professions Poll states that only 10% of car buyers trust dealerships, and this is a great way to show clients you have nothing to hide.

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Don’t let an expired auto dealer license get in the way of dealership success.

Existing dealership owners already know the process to get an initial auto dealer license can be daunting, but without one, you can’t sell cars. Period. Each state has their own set of licensing obligations to guarantee legal and ethical practices toward consumers, as well as financial stability by businesses that sell motor vehicles.

Most states have a considerable list of requirements to be recognized for approval. Here are some examples:

• Financial statement prepared by a Certified Public Accountant (CPA).
• Surety Bond from the dealer’s insurance company. State coverage requirements vary and are typically listed on the application. Rhode Island, for example, has a $50,000 coverage obligation.
• An approved line of credit from a financial institution (Amount varies by state) in the dealership’s name.
• Lease agreement (or proof of ownership) and zoning approval for the intended location. Some states even require a detailed floorplan and photos of the location and signage.
• Franchise approval documentation if part of an automotive franchise.
• Incorporation documents for corporations.
• Federal Tax ID#
• Certificate of Good Standing from the state DOR.

Once you obtain an auto dealer license, don’t neglect maintenance.

Many dealer vendors, financial institutions, and state agencies require current dealer license copies annually to be sure they’re working with legitimate businesses. Without a valid license, dealers can’t buy from auto auctions or offer vehicle financing, and state agencies such as the Department of Motor Vehicles also require copies when issuing dealer plates or authorizing digital vehicle registration software use. Expiration dates vary by state, so it’s essential to ensure prompt renewals by verifying the date and setting reminders to give yourself enough time for submission. An expired license can open up a massive can of worms that will put a quick halt to all fundamental dealership processes. Let it go on too long, and you’re out of business, paying huge fines, and possibly facing jail time.

Use this checklist to be sure your dealership’s auto dealer license remains in good standing.

• Which employee will maintain dealer license compliance? While it’s smart to have one person in charge of managing licensing compliance, it’s important to have someone else follow up to make sure everything is current.
• What state agency oversees dealer license compliance?
• Know your state’s dealer license expiration policy. Does it expire yearly or bi-yearly? Do they send reminders? Even if they do, be sure to put other safeguards in place to make sure you don’t miss the deadline.
• Know the last day to send a dealer license renewal application to be sure it’s submitted in time.
• What is the renewal fee? Can it be paid for with a dealership check?
• Do you need a Certificate of Good standing from the state DOR?
• Do you need to renew your dealer surety bond for dealer license renewal approval?
• Are all applicable forms signed and notarized?
• Do you know the best place to mail the application package?

Follow through to make sure the renewal is accepted, approved, and received.

Once you send the renewal application, monitor it’s status until you get a current dealer license in hand. It’s always a good idea to send time-sensitive documents with tracking via USPS certified mail, FedEx or UPS to limit the risk that it gets lost in transit. Monitor shipping until you know it’s been received. If you feel like the approval is taking longer than it should, don’t hesitate to call the agency to keep the process moving smoothly. Even one missing document can halt approval.

Once the current license is received, make photocopies or scan it immediately. Post the original where directed by your state’s dealer licensing agency. Several employees may need access to the current license throughout the year:

• Office Manager
• Dealer Principal
• General Manager
• F&I Manager
• Vehicle Purchaser
• BDC Manager
• RMV Clerk

It’s a lot easier for essential employees to get a copy of the auto dealer license sent to them annually than have to hunt one down at the last minute. More than one person should have access in the event an employee has a day off, or there is a change in staff. Of all the licensing car dealerships have to maintain, the dealer license is definitely the most vital. Thankfully, maintaining a renewal is actually pretty simple as long as processes are put in place to keep them in good standing.

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Don’t let missing vehicle disclosure forms stand in the way of a perfect dealership audit.

Vehicle disclosure forms are used so frequently that dealers sometimes forget how important they are to the car sales process, and like any compliance matters, they’re worth analyzing before you’re the victim of an unexpected audit.

Anytime you sell a used car, there’s paperwork that needs to accompany the deal to ensure compliance with state agencies and financial institutions. Not every state enforces the same regulations, but each state has their own set of vehicle disclosure laws that dealerships must obey to provide consumer protection and to ensure ethical business practices are upheld.

Be sure to file these three forms in every used car deal folder to maintain vehicle disclosure compliance.

1. Odometer Statement

Car buyers often use a vehicle’s mileage when trying to determine that they’re getting the best deal possible. To ensure accuracy and prevent milage tampering, dealerships in almost every state must provide an odometer disclosure statement at the time of purchase. A compliant odometer statement will have the numeric milage, vehicle information (year, make, model, and VIN), date of purchase, customer information, and signatures. It’s also important to check off one of the three declarations:

• The odometer reading is the actual mileage.
• The odometer reading reflects the amount of mileage in excess of its mechanical limits.
• The odometer reading is not actual mileage. WARNING – ODOMETER DISCREPANCY.

Dealers should always keep an original on file in the car’s deal folder, but copies should also be distributed to the car buyer, the RMV, and any financial institutions when a vehicle is financed. Some states require that odometer statements are notarized, so it’s essential to stay up to date on your local RMV requirements to maintain compliance.

2. FTC Buyer’s Guide

Any dealer that sells more than five units in a year must display the FTC Buyer’s Guide form and provide a copy to the consumer at the time of purchase. A buyer’s guide informs consumers about a vehicle’s warranty status (dealer, manufacturer, or third party), and also where to go to get vehicle recall and history information. A buyer’s guide must be displayed on each vehicle for sale, and the car buyer must receive a copy at the time of purchase. Audit-proof your deals by keeping a signed copy in the customer’s vehicle file. Dealerships that fail to comply with the Used Car Rule could face substantial penalties of $41,484 per violation.

3. Vehicle History Report

Car dealers should always provide a vehicle history report. While it’s not necessarily a legal requirement, it’s recommended that dealerships run a vehicle history report, such as a CARFAX, for every car they buy and sell. Some financial institutions history reports included in funding packages, but they’re also helpful in determining if a vehicle has a questionable past. Previous loaner, demo, or government vehicles may have more wear and tear than a traditionally owned car. Maybe there is an outstanding lien or previous accident on record. A vehicle history report can help dealerships stock their lot with confidence instead of uncovering stressful issues down the road.

While a vehicle history report isn’t legally required, certain vehicle disclosures are. Vehicles that are marked salvage or damaged may have a title branding stamp, but not all states handle titles the same way. Check with your state titling or registration agencies to make sure a Salvage or Damage Disclosure form isn’t required to maintain compliance.

Unexpected dealership audits can be stressful if you’re not prepared.

Car sales is an industry that is highly regulated to ensure consumer protection. Laws frequently change, and as we know with the FTC Buyer’s Guide rules, some fines are brutally expensive. Dealership managers need to make sure all sales related employees follow vehicle disclosure training to prevent costly mistakes as well as damage to their reputation.

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Don’t let dealer surety bond trouble bring business to a screeching halt.

Most car dealership insurance policies are put in place to protect the seller, but a dealer surety bond works differently. While it’s possible to obtain surety bonds through insurance agents, they’re not recognized as insurance policies, and they’re not used for a car dealer’s security. They’re legal contracts that outline an agreement between the dealer and its consumers and are monitored by the bond issuer. Its primary functions are to protect consumers, financial institutions, and dealer related government agencies from incurring a financial loss due to fraudulent business practices.

Here are some of the most common examples of fraudulent dealer business practices that a dealer surety bond will protect consumers from:

• Failure to report a sale to the proper agencies.
• Selling vehicles with tampered odometers.
• Failure to provide vehicle titles to consumers.
• Selling stolen cars.
• Finance and warranty fraud.

An expired dealer surety bond can make it impossible to fight consumer claims, even if they’re false.

When a consumer complaint is filed and approved, the surety bond company is the one who reimburses the consumer or agency. They will also provide legal representation if a dealer feels the allegations are false. Failure to renew is not only more expensive in the long run, but it also reflects poorly on the dealership, and gives the consumer a much better chance at winning a lawsuit. Strong legal representation is crucial because once a complaint has been filed a dealer is considered unbondable until the claim is settled. Without a valid surety bond, your dealer license is in jeopardy of getting revoked.

Make the time to stay educated to maintain bond compliance.

Dealer surety bonds are required to secure a dealer license in almost all 50 states. Not only are dealer licenses necessary to sell cars legally, but many agencies will request a current copy throughout the year for several reasons. Financial institutions and auto auctions require them, and the DMV also needs copies when auto dealers register vehicles on site or need to renew their dealer license plates.

Each state has their own set of rules when it comes to dealer surety bonds, so be sure to talk to your insurance agent and state dealer licensing agency. They can clarify any questions you may have regarding the type of bond you need and what your state’s coverage guidelines are. It’s better to know all the facts so when it comes time to renew, you’re confident and compliant.

Set expiration date reminders to avoid a lapse in coverage.

Like most insurance policies, a dealer surety bond has an annual expiration date. Car dealerships in some states follow a fixed expiration date, while others expire a year from the date of issue. Agencies will usually send reminders before a policy lapses, but it’s still smart to put safeguards in place to prevent lack of coverage. It’s a good idea to start the renewal process at least 90 days before the expiration date to give you time to address any issues you may have. Also, set reminders for 30 and 60 days to ensure your renewal process is on schedule.

A better credit score means lower premiums.

The cost of a dealer surety bond isn’t just affected by the amount of coverage required, a dealer’s credit score can also have a substantial impact. Dealerships with excellent credit scores may only need to make an annual payment of 1% of the total bond amount whereas a poor credit rating can increase that percentage to 5% or more. The only thing worse than higher premiums is the chance of getting denied altogether which is possible when most agents use a dealer’s credit score to help gauge risk.

Before renewing a surety bond, talk to your insurance representative or state licensing agency about the following components:

• What is the minimum bond amount required by your state?
• How will your credit score influence your annual premium?
• What processes does your agent have in place for settling consumer complaints?

Keep in mind that any reputable agent should be happy to answer any questions you have to make sure you have the exact coverage that’s required. Any time a surety bond agent is hesitant to help, take that as a hint to find someone more trustworthy.

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Auto dealers that aren’t CFPB compliant could face legal action and millions of dollars in penalties.

The Consumer Federal Protection Bureau (CFPB) is a U.S. government agency that ensures the fair treatment of consumers by lenders and financial institutions. Because most car lots provide lending services, they must be CFPB compliant. Dealer-assisted financing and in-house lending regulations can be overwhelming to some dealer managers, but the consequences are too severe to ignore.

There’s a price to pay for violating CFPB rules.

In 2014, DriveTime became the first Buy Here Pay Here dealer to face action against the CFPB. They were caught violating the Dodd-Frank Act by reporting inaccurate information to credit bureaus and also for making harassing debt collection phone calls to borrowers. In the end, they were ordered to pay a civil penalty of $8 million and end all unsavory business practices.

Two years later in 2016, the CFPB busted Herbie’s Auto Sales for engaging in unlawful lending practices. Herbie’s violated Truth in Lending regulations as well as the Dodd-Frank Act by luring customers in with false APR rates and hidden finance charges. The dealership was ordered to pay $700,000 in restitution and to end all deceptive sales practices.

The first step to becoming CFPB compliant is understanding the most important guidelines.

Consumer Protection Act (Dodd-Frank Act)

To prohibit misleading claims from auto dealers, the Dodd-Frank Act gives the Federal Trade Commission the authority to enforce the Truth in Lending Act Regulation Z (TILA or Reg Z). Regulation Z requires lenders to present consumers with full disclosure regarding loan terms and rates. Dealers are required to provide risk-based disclosure notices to consumers who accept loans terms that are viewed as less than favorable. Adverse action notices are to be given to consumers who are denied credit or offered terms different from what they initially applied for.

Equal Credit Opportunity Act

In 1974, the ECOA was created to prohibit lenders from denying credit to a consumer because of their race, color, religion, national origin, sex, marital status, or age.

Fair Credit Reporting Act (Regulation V)

In 1970, the FRCA was created to govern the proper collection and use of consumer credit information. It also regulates the practices of agencies that report payments (or lack thereof) to a consumer’s credit report for use by other lenders or agencies requiring a credit check.

The CRA vs. the Auto Lending Bulletin

In 2013, the Consumer Federal Protection Bureau released the “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.” The announcement, also known as the Auto Lending Bulletin, presented guidelines that addressed dealer markup policies and attempted to protect consumers from discriminatory pricing and lending practices by indirect auto lenders. These guidelines only lasted about five years before President Trump signed the U.S. Congress approved Congressional Review Act Resolution of 2018. These particular changes made headlines because it was the first time the Congressional Review Act (CRA) was used to eliminate rules that have been implemented for several years. The Auto Lending Bulletin currently has no bearing over auto dealers, but the ECOA and Regulation B guidelines are still strictly enforced.

The only way to avoid lawsuits is to make compliance a priority.

• Increase awareness of CFPB guidelines by periodically visiting the official CFPB website or by reading dealer association newsletters. Dealer associations are a great resource because all posts or updates are specifically geared towards auto dealers.
• Implement a dealership-wide compliance management strategy. It takes a team to sustain dealer compliance success.
• Perform periodic self-audits to monitor compliance effectiveness and fix any issues as soon as possible.
• Never mislead a consumer. Be sure to provide full disclosure of any fees following Consumer Protection Act regulations.
• Always follow ECOA guidelines by treating customers fairly and without discrimination.
• Approach debt collection carefully and never harass customers who owe money. Seek the advice of a trusted lawyer when debt collection becomes difficult.
• Put systems in place to ensure all credit bureau reporting is accurate.

It’s no surprise that car dealers are overwhelmed by compliance because the list of rules and regulations to abide by seems infinite. Even still, the last thing you want to do is avoid the issues that put your dealership at risk. It only takes a little extra effort to avoid lawsuits that could put your dealership out of business for good.

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Are you confident in the fact that your dealership has done everything possible to pass an unexpected dealership audit?

You’re going about your day and then out of nowhere your bank’s floorplan representative pays you a visit. Or maybe it’s the IRS or state’s Department of Transportation. Either way, a dealership audit wasn’t what you planned for today. It’s nervewracking, but there’s no choice but to stop what you’re doing and make sure everything goes as smoothly as possible. After all, a lot rides on the success of these audits.

When dealerships fail to make compliance a priority, they put themselves at risk for crippling penalties and other obstacles that make it nearly impossible to stay in business. There’s the chance of losing your relationship with floorplan companies or even worse, your dealer license.

Confidence comes with preparation.

5 tips to ensure the next surprise audit goes smoothly

1. Monitor inventory stringently

It’s not uncommon for an auditor to want to make a few calls to confirm the whereabouts of missing inventory. Be prepared by keeping a detailed list of any vehicles that leave the property. Not only is this helpful for audit purposes, but it also helps dealerships enhance inventory security.

Create a spreadsheet and include the following information:

• Vehicle stock number
• Year, make, model, and complete VIN
• Vehicle location and contact information.
• The reason the vehicle has left the dealership. (Repairs, test drive, delivery in process.)
• Dealership employee who is working with the customer or repair facility.

2. Understand payoff guidelines

Each financial institution has guidelines as to when a vehicle needs to be paid off their floorplan. Some banks require payment three days after delivery for cash deals and seven days for finance, while some choose to have a flat three-day rule. Some may even want you to go by the date of complete payment, versus the date on the bill of sale. Be clear on your bank’s rules for payoffs to avoid confusion and late fees.

3. Track vehicle titles

Rules vary by state, but most financial institutions require a vehicle title to add a unit to the floorplan. Even though the auditor is primarily tracking a dealer’s physical inventory, some units may have been purchased at auction by floorplan funding. It’s up to the dealer to follow the receipt of each title to avoid any complications during an audit. Title tracking is also essential for finance and DOT compliance for many states.

The dealer title clerk can help prevent title dilemmas by:

• Storing all titles in a fire and waterproof safe.
• Limiting access to essential employees and keep a sheet to track the location of all missing titles.
• Verifying each vehicle has the correct title at the beginning or end of each month.
• Keeping a list of cars waiting for titles with details specifying:
  • if it’s a trade payoff, wholesale, or auction purchase
  • the date of purchase or payoff
  • the name of the financial institution, auction, or seller
  • Vehicle details such as stock number, year, make and model
  • Any notes regarding the arrival of the title

4. Sustain compliance education

Ignorance doesn’t protect dealers from legal repercussions. It’s up to dealership managers to keep their teams up to date on any changes in processes or laws. Following organizations such as NIADA can be very beneficial in enhancing dealer compliance.

5. Be sure to make training a priority, especially when it comes to these regulations:

Form 8300 reporting: Not only do you have to report cash transactions over ten thousand dollars, but it’s also required by the IRS to keep a copy of all checks related to a sold vehicle inside the deal. It’s also important to record the car buyer’s social security number, occupation, and the number of bills they paid with categorized by monetary denomination. This information should be filed in each deal, but also kept in a yearly folder for when all the forms have to be submitted to the IRS.

Red Flags Rule: Car dealerships are required to have written policies in place to prevent identity theft. This law applies to all departments, primarily sales and finance because of the volume of customer information they handle. Penalties run up to $3500 per violation, which is preventable by taking care to safeguard client information digitally or in locked cabinets.

Auditors aren’t bad people, and when they see dealers working hard to stay educated and organized they’re more likely to help out when a situation emerges. Take the time to be mindful of compliance, and you’ll tackle every surprise audit with total confidence.

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