3 steps to regulatory compliance

Dealers: To stay out of trouble with regulators, clean up compliance.

It sounds like an obvious solution, but what do dealers need to do to be sure compliance is up to par?

Invest in a strong compliance management system, says Nick Smyth, a financial services regulatory attorney at Reed Smith law firm.

Dealers should:

1. Hire enough compliance staffers.

2. Separate those staffers from sales and marketing personnel.

3. Carefully analyze advertising language.

“Companies get in trouble when they leave compliance to one or two low-level people, and they don’t give them what they need to do the job right,” Smyth said.

Compliance issues often stem from consumer complaints. Dealers need to know what those complaints are so they can resolve them before regulators have to get involved. Dealers should have enough compliance staff members to take care of those complaints before they become larger problems.

“Deal with the underlying cause so you’re preventing [complaints] in the first place,” Smyth said.

Hiring an extra compliance employee may cost more initially, but it will help avoid fines and government investigation costs. And it will generate more business through returning customers, he said.

“The dealers that get it right are ultimately the more profitable dealers because they generate happy customers, and so much of dealers’ business is from repeat customers and word-of-mouth referrals,” Smyth said.

Another compliance best practice is keeping those staffers independent from sales and marketing personnel and having them report to high-level management, such as the dealer principal, Smyth said.

“You want the compliance people to be focused on getting it right with respect to the law, not pulled in a different direction,” he said.

Even when employees are trying to obey the rules, compliance is complex, especially in the advertising world.

The FTC can charge dealers with misleading advertisements, so dealers should look at their ads from a different perspective, Smyth advises.

Dealers should “take a hard look at their marketing materials and really just try to imagine that they’re a government regulator looking at that from an unfair or deceptive point of view,” he said.

There are also add-on products that are of questionable value, such as rust proofing or certain paint treatments, he said. If the product is of no value, the FTC or state attorneys general can come after the dealer.

To determine whether the product is valuable, Smyth said, dealers should pull family members into the mix. "The dealer just needs to look in the mirror and say, ‘Is this a product I would want my mother to buy from my competitor across town?’”

The key to long-term success is transparency, Smyth believes.

“You can make a lot more money,” he says, “keeping customers happy and having good word of mouth.”

You can reach Hannah Lutz at hlutz@crain.com



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