Over the years, I have met many people with issues surrounding their software and its compliance. The unique thing about software and compliance is that they touch virtually every aspect of a business, and dealers and finance companies only become aware of compliance issues when it’s too late. Unfortunately, in today’s legal climate, businesses can’t afford to take a lackadaisical attitude when it comes to managing software compliance. All it takes is a single person who decides to complain to the wrong lawyer and your business could be subject to a lawsuit. Even if you believe you’re right, one mistake can create a suit that could be financially devastating for your business. If that mistake was repeated enough, that same suit could be escalated to a class action.

Maintaining a fully compliant technology solution is more than simply buying great software. As the user of that software, you should take an active role in the testing and validation of the results it produces. Most dealers and finance companies assume that the software provider they chose has taken every measure to ensure the products they sell meet every compliance requirement. For a software company to maintain a compliant software solution, it takes both external and internal resources, commitment from management, and money. Frankly, many technology companies can’t afford the required investment of time and money to make this happen. As a result, dealers and finance companies could ultimately pay a hefty price. For a dealer, it’s akin to buying insurance after the accident. By then, it’s too late.

In a dealership, your documents should be your top priority because state and federal compliance violations usually originate in this area. Verify that your documents are accurate under all possible business scenarios. For instance, verify negative equity disclosures, verify itemizations and validate rate disclosures. The use, calculations, accuracy and alignment of your documents are ultimately your responsibility, and that responsibility should be taken very seriously.

Miscalculations that overcharge the consumer can cause major compliance issues and can ultimately lead to large cash refunds, which are usually multiplied many times over. You should also work to minimize the number of documents you use within your organization. In the world of documents, less is always more. Lastly, appoint someone within your organization as your internal compliance officer and have your documents routinely audited by outside council and/or reviewed for accuracy.

Our company recently worked with a customer who converted from another dealer management system due to compliance issues. The customer had just undergone an audit by the state banking department and he was looking at a significant set of problems that could have meant the end of his business. He had a number of problems including, but not limited to, incorrect disclosures on his contracts, miscalculations of interest and loan itemization issues. In addition to these problems, he had improper credit reporting files, and he was looking at significant refunds to his customers.

Fortunately, we were able to help him by electronically correcting each account and providing him with the correct disclosures for his customers. He then had to make a full disclosure to his customers regarding the issue and notify them of the corrections. He was able to credit the open accounts by placing adjustments on them, but he had to make restitution to the customers whose accounts were previously paid off.

Ultimately, the total cost was approximately $300,000, but the result could have been worse. Had he continued with incorrect calculations, the number would have been much larger. In the end, he recognized that this situation was completely avoidable. In hindsight, he regrets that he didn’t react sooner, and he now recognizes that the possibility for loss is always greater than the cost of doing it right the first time. In this case, his assumptions that the software he chose was compliant almost cost him his business.

There are some important steps you can take to safeguard your business when it comes to compliance issues. Validate the results from your software right away. You can do this internally or you can hire outside assistance from firms like Larson Allen and Hudson Cook. You can subscribe to an online resource like Counselor Library. Routinely train your staff on compliance because your business depends on it. The opportunity for loss is too great.

Vol. 7, Issue 9

Allen Dobbins

Allen Dobbins

President and CEO