Needed: Dealership compliance officers

For years, compliance consultants and lawyers have given this advice to dealerships: Appoint a compliance officer. Yet despite the numerous regulations auto retailers must consider, the compliance officer post is largely understaffed and unsolicited, experts say.

Only 14 compliance officers were accounted for in the National Automobile Dealers Association's 2018 Dealership Workforce Study, according to ESI Trends, a Largo, Fla., consulting firm that conducts the study, and so far none have come up in this year's iteration.

Meanwhile, as of April, none of the 16,571 open positions across the dealerships that use Hireology, a hiring and retention technology provider in Chicago, have compliance in the job title, according to the company.

Linda Robertson, executive director of the Association of Dealership Compliance Officers, estimates that fewer than half of U.S. dealerships have designated a compliance officer. Compliance experts posit that dealerships outsource the role or leave the responsibilities to finance-and-insurance managers, both of which they caution against.

While no law requires a dealership to hire a compliance officer, several regulations that govern dealerships mandate a designated point of contact, said Randy Henrick, compliance counsel at Mosaic Compliance Services.

The abundance of compliance requirements that must be met to legally operate a dealership "necessitate an individual responsible for doing so and being the face of any regulatory audit or investigation," Henrick told Automotive News.

Dealers must appoint a program coordinator for the Federal Trade Commission's Safeguards Rule and the Red Flags Rule, Henrick said. The FTC Used Car Rule also requires a person from the dealership be named on the Used Car Buyers Guide for customers to call with questions.

Depending on how much emphasis a dealership puts on the position, a compliance officer can have a range of responsibilities, said Lori Church, director of corporate compliance and training for John Elway Dealerships in Denver. Rarely, though, do stores employ officers of Church's caliber. Church, who has a law degree from the Sturm College of Law at the University of Denver, audits car deals, tracks compliance trends that could impact operations at dealerships and disseminates educational materials to dealership employees.

"Sometimes a compliance officer is just maintaining that [title] to make sure that there is a point of contact," Church said. "There's not much more to it than loosely walking through the dealership in the morning."

Properly outfitted compliance officers are empowered to do what's right and necessary for the dealership, Henrick said, which requires they have the ear of the owner and a degree of authority at the store.

"I know one dealership that has a chief compliance officer and he doesn't even have an office. He sits at a table near a copy machine," Henrick said. "That's not unusual."

Many dealerships don't even have a staff attorney, Henrick said. At most, dealers may retain outside counsel if they get into trouble, and conduct annual training on sexual harassment.

Dealerships can outsource compliance efforts, but still require a designated employee to monitor the efforts of the third party, Henrick said. Many dealerships assign the compliance officer title to the head of the F&I department, which experts generally warn against.

Standalone compliance officer positions are most common in large dealership groups, said Hireology CEO Adam Robinson. In smaller stores, the title is generally director or manager of compliance, and those duties often fall to the F&I manager, he said.

But the concept of compliance extends beyond the F&I office, Robinson said. For instance, he said, many dealers don't understand that rules such as the Fair Credit Reporting Act also require employee background checks, or that in certain states, human resource compliance laws prohibit employers from asking prospective hires about their current compensation.

"This notion of compliance is not necessarily relegated to the deal jacket," Robinson said. "It is becoming both consumer-centric and dealership employee- centric."

Meanwhile, a dual F&I and compliance officer is a tough balancing act, Church said. There's a perceived conflict of interest in employees monitoring their own deals, she said.

"Sometimes you can't really audit yourself very well," Church said. "Who's checking the checker?"

Though the community of dealership compliance officers is small, it's enthusiastic, said Robertson of the Association of Dealership Compliance Officers. The association, established in 2017, offers certification.

Its inaugural training and certification conference in March attracted 20 attendees, most of whom were dealership compliance officers, Robertson said.

"The majority of the people had some experience in the dealership in compliance, anywhere from one to three years," she said. "They were looking for structure."

Structure is something the organization seeks to provide, with a comprehensive training and certification program that covers compliance throughout the dealership.

An adequate compliance curriculum needs to cover infractions that could occur outside the F&I office, Robertson said. In the association's model, compliance officers work within committees whose membership would depend on the size of their organization. For instance, one-point dealership operations should include at least representation from the legal department, a third-party vendor responsible for maintaining information technology, human resources, parts and service and the finance office, Robertson said.

Larger stores could also include members of the marketing team, accounting office and the information technology office.

"If you have a compliance program that runs in one particular area, you can certainly focus on that area and do well," Robertson said. "But for the dealer to be able to sleep at night ... they need to know that they have a program in place that could not only identify [all the store's] risks but know how to take steps to mitigate or resolve them."

Experts agree that a dealership group compliance program must be enforced from the top down to be effective. A dealership that efficiently manages compliance issues requires buy-in from employees in all departments.

The best way to keep a store out of trouble is to create a culture in which compliance issues can be reported without fear of recourse, so that mistakes can be rectified before lawsuits are filed, Robertson said.

"In a perfect compliance world, the compliance officer would report directly to the board of directors," she said. "I don't see that happening a whole lot in my experience in the car industry, but what they do is report to its upper management. And I think that works."