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What can a Compliance Management System Do for You?

By Steve Levine, Chief Legal and Compliance Officer, Ignite Consulting Partners

Conference season is upon us and there will be no shortage of legal and compliance content.  One area where I’ve noticed a gap between conference curriculum and the routine issues that dealers confront is on the subject of dealers’ implementing a Compliance Management System (CMS).   While the show presentations highlight the CFPB regulatory mandate that it expects businesses to have a CMS, less attention is paid to the numerous practical reasons that dealers need to invest in one.   This is unfortunate, because in addition to being a regulatory requirement, there are lots of other benefits of a CMS.

The CFPB has set forth four components of a robust CMS. They are: 1) Executive Oversight; 2) Compliance Program; 3) Complaint Management; and 4) Audit.   First, I will provide a quick overview of each, and then I’ll illustrate the practical benefits to the business.

Executive Oversight of Compliance.

The role of Executive Oversight is to have an informed management team that takes an interest in compliance and sets the expectation for the entire company.  That sounds reasonable enough, but often proves to be elusive because management may not always understand how or where compliance applies and doesn’t prioritize it; therefore, neither does the rest of its personnel. 

Management has to set forth the expectation that rules will be followed.  Is there someone in charge of compliance (Chief Compliance Officer) or is nobody accountable?  Do the leaders inform the employees of important compliance issues facing the industry or do they let them operate in a vacuum?  Are violations corrected or swept under the rug if short cuts are profitable? 

If the owner or general manager tolerate a compliance lapse, then everyone else will, too.  If, on the other hand, they prioritize compliance by frequently mentioning it and correcting mistakes when they are observed, the message will flow from the top down to everyone else.  Once this is systematic, the importance of compliance will be recognized by all and the business will be less risky and more efficient.

The benefits of executive oversight are numerous, but the bottom line of business is to make money, and dealerships with executive involvement are in a better position to do so because they identify and limit risk.  Leaders that are “hands on” and informed of the compliance dangers that exist can educate their personnel, monitor performance, and take corrective action when necessary.  Owners, board members and those in similar positions of power should require that information on compliance topics flow to them so that they can measure performance. Profits can be threatened by just one or two failures in this area, so leaders need to view the business from a compliance perspective in addition to units sold and dollars collected.

A Compliance Program that “Walks the Walk”.

This section is where the rubber meets the road.  Are there policies (the rules) and procedures (how the rules are executed and followed) that govern the way you do business or not?  Are employees trained so following policy becomes a part of the dealerships language and mores, or are they viewed as a nuisance and only begrudgingly mentioned?  The biggest mistake dealers make is that they think they can buy compliance, put it on a shelf and gain the benefit of some magic cloak of invincibility!  WRONG!  You can’t just “talk the talk”, you’ve got to “walk the walk”. 

That means not merely buying generic policies.  Instead, have policies that apply to the specific way the dealership conducts business.  Be pro-active and train all employees on the policies that touch upon their jobs, document the training, and take corrective action when necessary, and document such action. 

I’m often asked to name the magic number of policies needed.  There is no set number, it all depends on the business methods and practices.  The dealer selling 20 units a month will have different needs than one selling 200 vehicles out of multiple locations.  They key is to objectively look at how business is conducted and identify the relevant laws that must be obeyed and whether there are currently policies in place that demonstrate your commitment to follow these laws.

A company that takes this component seriously will be able to withstand regulatory or legal scrutiny when things go wrong or mistakes are made.  Such a company will be able to demonstrate that it tries to operate the “right way”, and any single instance of failure is isolated and not an indication of a wide spread problem.  That’s important when having to defend oneself, because allegations of intentional indifference can prove costly.

Complaint Management and Resolution.

Customer complaints provide critical insight into the business and opportunities for improvement.  Well run companies don’t ignore complaints, they examine them and use them to get smarter.  Some customer issues are simply misunderstandings, while others provide notice of compliance issues that can harm the company.  Therefore, its’ important that all matters be tracked and evaluated so that investigation is easy, commonality of issues can be discovered, and records of resolution can be kept.

Again, not all dealerships will manage their complaints the same way.  Larger businesses may buy software and complex resolution systems, while smaller dealerships may simply keep a spreadsheet.  Whatever tool is chosen, care should be exercised to consistently and objectively enter the information and evaluate the claims being made.  If a mistake has been made, admit it and move on.  Take advantage of training and learning opportunities for your team, and notate this has occurred so that the business can demonstrate its commitment to compliance. 

A robust compliant management system acts as a scorecard for the entire company.  Trends can be spotted, opportunities for employee training will become evident, and the company will learn a lot about the customer perception of the products and services it offers and even the performance of its third party service providers.  A dealer could pay an expert thousands of dollars to conduct an operational assessment that won’t come close in value to the information that can be discovered by thorough complaint management.  If you don’t track your complaints then start doing it.  If you already do it but aren’t studying the results, then pay more attention and reap the rewards.


This may be the prong that is most scary and misunderstood.  Don’t worry, nobody is saying to call in one of the big accounting firms.  This component simply calls for an objective review of operations to ensure compliance and that policies are followed.  Objectivity can be tricky, especially in smaller dealerships, given the many hats people wear and the close quarters folks often work in, so give some consideration to having someone on the outside (lawyer, consultant, etc.) come in and conduct the assessment. 

For a smaller dealer, the basic audit that looks at a handful of current deals, past charge offs, and repossessions may be sufficient, along with evaluating any policies in place and whether the dealer can demonstrate they are obeyed.  For a larger dealer, the scope may grow to include evaluation of servicing, credit reporting, and similar sophisticated functions such as sending of adverse action letters or whether closing files contain all signatures.  Again, the size and sophistication of the business determines the scope, but any audit is better than no audit so leave fear behind and start looking with a more critical eye.

Auditing takes some work, but its’ valuable as an inexpensive way to keep score, plus it is better to find your own mistakes rather than have them uncovered by a regulator or plaintiff’s lawyer.     Dealers are more than willing to put forth the effort to develop metrics to track dollars and the performance of sales and collections.  Taking a similar approach to the operational aspects of the business will ferret out bad behavior and also identify opportunities for efficiencies and potential profits.

Final Thoughts.

The past several years have seen an unprecedented call for the development of CMS’ in dealerships.  While much focus has been given to the regulatory perspective, this article, instead, focuses on the practical impact a CMS can make on the business.   Both reasons are important, so for those of you sitting on the fence thinking you won’t ever be the unlucky one drawing the regulator’s “short straw”, give thought to the practical gains a CMS can help you achieve, jump down from that fence, and take the next step!

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