Santa isn’t the only one making a list and checking it twice this time of year. The Consumer Financial Protection Bureau and the Federal Trade Commission are making lists that will be used to determine who is naughty and who is nice.

With all of these lists being made, dealers should consider making their own lists – compliance checklists. By creating a compliance checklist and checking it twice – that means implementation, folks – dealers will have a better chance of ending up on the CFPB’s and FTC’s “nice” list.

What should be on a dealer’s compliance checklist, you ask? Here’s a start.

Your list can be broken down into parts of a transaction (application, origination, servicing, collection, etc.) or by the laws that govern consumer credit (the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Telephone Consumer Protection Act, etc.).

The latter option can be scary when you think about the extensive list of federal and state laws that are applicable to the sale and financing of vehicles and restrict dealership activities. The former option, however, will help dealers establish best practices by creating a step-by-step process, from the time a buyer walks onto the lot through the entire customer relationship, which complies with each of the laws that apply to the transaction.

By isolating the steps in a transaction, dealers can create that compliance checklist and implement it at each level. There will be bumps in the road, when the law conflicts with business practices, or when implementation means unintended expenses. However, compliance will be less expensive from a financial and reputational standpoint than a class action lawsuit, attorney general inquiry, or CFPB or FTC enforcement action.

Is your dealership fully compliant? If so, congratulations; you’ve made it to the “nice” list. If not, start by making your list and setting an appointment with your attorney. Here are some of the questions dealers should ask themselves or their attorneys.

Marketing
Print and Audio Advertisements – Who is responsible for your print and TV ads? Does your ad get a legal review for compliance with state and federal form and content requirements? Are the ads reviewed for accuracy? Don’t forget to include your dealership website in this review.

Telemarketing – Does your dealership call current customers to market new products? Does your dealership make cold calls to referrals from current customers? Does your dealership consider whether a number appears on a “do not call” list prior to making the call? Is your dealership properly licensed to engage in telemarketing?

Application
Forms and Underwriting – Does your dealership’s credit application form contain the disclosures required by the Fair Credit Reporting Act and the Equal Credit Opportunity Act? Does it request information prohibited by the Equal Credit Opportunity Act? Are state-mandated disclosures part of your credit application? Does your dealership require a spouse to be a co-buyer? Are credit decisions made on objective credit criteria?

Privacy and Safeguarding – Does your dealership have a written privacy and safeguarding policy? Does your dealership have a compliance officer responsible for compliance with those policies? Does your dealership share information consistent with your privacy notice and policy? Does your dealership or related sales finance company send out annual privacy notices to customers?

Consumer Reports and Risk-Based Pricing – Does your dealership pull consumer reports and engage in risk-based pricing? If so, does your dealership provide a risk-based pricing notice or credit score exception disclosure in compliance with federal law?

Identity Theft Prevention – Does your dealership have a written identity theft prevention program, also known as a “red flags” program? Are dealer employees trained to spot red flags and mitigate identity theft? Has your dealership appointed a red flags program coordinator?

OFAC – Does your dealership “scrub” the names of individuals who apply for credit, obtain services through your repair facility, make payments and/or work for the dealership, against the Office of Foreign Asset Control’s Specially Designated Nationals List? How about vendors? Does your dealership rescrub these names each time the SDN list changes?

Adverse Action – Does your dealership provide FCRA and ECOA required “adverse action” notices to applicants who are denied credit on the terms applied for by the applicant? Does that notice contain the new credit score disclosures, mandated by the Dodd-Frank Act?

Contract Origination
Retail Installment Contracts – Does your dealership’s retail installment sale contract contain all federal and state mandated disclosures? Does your dealership train your finance and insurance professionals how to properly review the contract with retail buyers? Have you tested your DMS software to ensure that calculations are accurate and within federal law tolerances?

Does your dealership have a policy to conduct spot checks post-origination to ensure contracts are fully completed and signed by all parties? Does your contract contain an arbitration provision reviewed by an attorney, with a critical eye for issues of procedural and substantive unconscionability?

Ancillary Disclosures – Does your dealership have all ancillary documents required by federal and state law to be provided to a consumer at the time of sale, such as warranties, additional product disclosure menus, contract cancellation agreements and conditional delivery agreements?

Ancillary Products – Does your dealership sell ancillary products such as service contracts, paintless dent repair, auto club services, GAP or other types of insurance (or insurance-like products), or debt cancellation? Has your dealership considered how these products are regulated in your state and whether they can be financed in a retail installment sale in your state? Has your dealership had the contracts associated with these products reviewed for compliance? Are the fees charged for these products permitted under applicable law and disclosure properly on the retail installment sale contract?

Security Interest – Has your dealership perfected its security interest within the time required by law and by your agreement with your financing sources? Has your dealership paid the prior credit or lease balance on a trade in vehicle in a timely manner?

Servicing and Collection
Payment Methods and Receipts – What payment methods are available to dealership customers? Are receipts provided for cash payments? Are single debit and recurring debit payments set up to be consistent with Regulation E and the requirements of the National Automated Clearing House Association? Are payments applied properly to the outstanding balance according to the law and the retail installment sale contract?

NSF and Bad Check Charges – Does your dealership or finance company charge late charges and returned check charges consistent with applicable law and the retail installment contract? Does your dealership or finance company observe state mandated or contractual grace periods before assessing those charges? Does your dealership impose interest on those charges?

Credit Reporting – Does your dealership or finance company report to credit bureaus? Is your reporting consistent with the requirements of the consumer reporting agency and the federal Fair Credit Reporting Act? Does your dealership or finance company have a process to handle address discrepancies and inaccuracies when notified by the consumer or the consumer reporting agency?

Collection Letters – Does your dealership or finance company have standard collection practices and procedures? Have those standard letters for collection been reviewed by counsel and do those letters contain any federal and state mandated notices? Does your dealership or finance company have a policy to avoid collecting against persons in bankruptcy?

Pre- and Post-Repossession Notices – Does your dealership or finance company provide any state mandated pre-repossession “right to cure” notices in the time and form required by law? If your dealership or finance company has permitted a customer to make late payments, does the dealership or finance company send a notice of strict compliance before accelerating the contract?

Does your dealership or finance company engage in “strict foreclosure” properly and only when permitted by law? Does your dealership or sales finance company send out state mandated “notices of intent to sell” prior to the sale of a repossessed vehicle? Are sales conducted in a commercially reasonable manner? Does your dealership or sales finance company send out post-sale explanations of surplus or deficiency? Is the collection of a deficiency permitted in your state? Has all of this been reviewed by your lawyer?

Recordkeeping – Does your dealership or sales finance company maintain paper or electronic records according to applicable law?

Because I am a lawyer, I note that the list above is not exhaustive and dealers should consult their own attorneys for the laws that apply to transactions in their states.

Finally, if you can’t fathom all of this compliance or can’t implement 100-percent compliance right now, do as much as you can, as soon as you can, and then work on the rest. Meanwhile, honesty and good customer service will keep you on Santa’s “nice” list, and more often than not, out of court.