Don’t Shoot The Messenger
To their credit, many dealers express concern about compliance issues. Unfortunately, some of these same dealers have a tendency to shoot the messenger who relays the news about compliance requirements that may conflict with their current business practices. As one who frequently finds herself in the compliance crosshairs, I would like to remind the audience that we who seek to keep the dealer body informed about compliance matters are neither authors of legislation, nor enforcers of regulations that govern compliance. Our mandate is to educate, not opinionate about documentation from federal sources.
Let’s look at the issue of negative equity on trades as a case in point. Federal law requires the dealer to disclose the amount of the negative equity both to the customer and on the loan documents. (See Regulation Z/ Truth in Lending Commentary, page 129). Some years ago, loan contracts were modified to include a separate line for the negative equity. On most contracts, you will find the negative equity notation under the sales tax line in the itemization section, Prior Credit or Lease Balance paid by Seller to _____________”.
The fact of the matter here is that while the negative equity is financed in the new installment contract, the amount of negative equity is not part of the sales price line. Increasing the sales price along with the allowance for the trade-in value to accommodate the amount of negative equity is no longer a valid practice, according to the federal commentary.
This is not new regulation; it has simply been neglected. When I share this information with dealer groups, their responses are as diverse as their clientele. Nonetheless, the current industry focus on increasing consumer confidence in dealership financial and sales processes requires senior management accountability for unpopular compliance matters. In the words of one wise general manager, “Thanks for the info; with a few minor changes in our process I feel comfortable we can defend it.”
When regulations are at issue, aim for documentation, disclosure, and defendability. The messenger is marking information that you either forgot about or never knew. In either case, compliance is a target you can’t afford to miss.
Dealer Marketing Magazine, June 2005 Issue, p. 16