We have all been there: your employer requires annual training hours, so you reluctantly attend offered or required courses to meet this obligation, all with the hopes of being able to multitask during the session. What is the last course you attended that you really took to heart, one that made an impact on how well you perform your job duties? Tough question, right?
In our last auto finance-related article, we discussed the importance of having a comprehensive compliance management system (CMS) for risk, given the enhanced focus regulators have taken regarding the auto finance industry. As a reminder, an effective compliance program includes the following four pillars:
- Policies and procedures
- Monitoring and audit
- Consumer complaint response
- Training
The last of these—training—may seem the least glamorous or exciting pillar of an effective CMS, but one that I’d argue is the most critical in ensuring that employees are equipped to execute on the policies and procedures put into place. According to the CFPB, “Management and staff should receive specific, comprehensive training that reinforces and helps implement written policies and procedures.” Effective compliance training at all levels of your organization is critical in order to minimize consumer compliance risk and service your customers in the finest (and fairest) way possible.
Training is of upmost importance for all organizations. Automotive finance is relatively unique in that the consumer typically begins the purchase journey at a dealership, not a bank. When consumers decide to finance or lease a vehicle, their first interaction with your organization typically is not directly with you, but rather with the dealership sales and finance teams. We have all heard the saying “you only get one chance to make a first impression,” and this could not ring more true for automotive lenders. The consumer’s first impression of your organization is formed during the credit approval and contracting phases of the purchase at the dealership. Purchasing a vehicle is an exciting yet stressful process where consumer emotions can be at their peak, which in turn can translate to praise of your organization or complaints.
Training dealership staff on compliance matters may not seem like the responsibility of the finance company. However, consumers typically do not differentiate between the bank (especially captives) and the dealership. To most consumers, “XYZ Dealership” and “XYZ Financial” tend to be seen as one entity, so mistakes made by one tend to reflect on the other, and vice-versa. Not only are there potential regulatory risks when compliance-related mistakes are made at the dealership level, but reputational risk as well. Compliance issues could arise from providing misinformation on financing options, credit approval, contracting process, advertising, lease-end process, etc. Automotive finance compliance really should be seen as a partnership between the bank and the dealership, as bad experiences or misinformation at the dealership will certainly reflect upon your organization as well.
For an example, consider the ever popular “disposition fee” most leasing companies have present on their contracts which in simple terms is a fee assessed if the consumer does not purchase the vehicle at the end of the lease for the stated residual value. Having worked on the front lines of customer service at the bank level, I know this tends to be one of the most popular consumer complaints at lease end. While the fee is certainly stated clearly on the contract the consumer signed, many dealerships tend to “skim over” discussing this fee when the consumer is signing the contract. If the dealership does bring up the fee at contract signing, it can sometimes be accompanied by misstatements such as “the bank will waive it” or “we’ll take care of it for you at the time.” While it is certainly the consumer’s responsibility to read the contract they are signing, having these discussions with consumers and helping them understand the terms present in the contract at that point lessens the chance that the consumer will be caught off guard when the fee is assessed, and in turn file a complaint. This is only one example of potential compliance-related headaches that an auto finance company can face due to lack of training; other conceivable areas could include (but are certainly not limited to):
- Misstatements on “extras” offered by the finance office (especially when they are branded products), including wheel and tire warranties, mechanical breakdown protection warranties, insurance, etc.
- Contracting issues where dealerships incorrectly offer promotional rates to a customer who does not qualify, leading to re-contracting issues (and in turn, leading to customer dissatisfaction)
- Lack of appropriate or complete information conveyed to consumers on potential lease-end charges (worn tires, door dings, etc.)
- Dealerships advocating for credit approval for a nonqualified customer
- Cases of fraud or straw-purchases
While it is great to roll out compliance-related trainings to dealerships, how do you really drive home the importance of these trainings? Regardless what type of training is provided, it is always important to make the training relevant to an individual’s job (i.e., the employee in training wants to know why he or she should care). Compliance, while important from a regulatory standpoint, is equally important to customer satisfaction. Happy customers return; they tend to be repeat buyers when they feel they have been treated equitably and with honesty. Avoiding misinformation, misstatements and unpleasant experiences at the procurement phase of vehicle financing has far greater benefits (and less potential repercussions) than that one moment in time, and it behooves all parties involved to team together to drive home a clear, concise and consistent message regarding the financing.
Dealer employees need not be compliance experts who can recite the alphabet of regulations on demand; however, having an understanding of the potential regulatory and reputational risks associated with compliance shortcomings benefits all parties involved in the purchase transaction from the consumer all the way to the dealer and finance company. Happy customers tend to be repeat customers, so putting your best foot forward at the dealership level could not be more imperative. Even though training may not be the most exciting pillar of your CMS, it is an important one.
