- Registering your business as a (corporation or LLC) may insulate you from personal liability.
- Establishing a related finance company (RFC) may provide legal and accounting benefits.
- Obtaining all necessary licenses for your dealership and RFC (*note some state may requires you to be licensed as a debt collector.
- Obtaining insurance coverage, such as Errors and Omissions and/or Directors and Officers Coverage, to avoid “bet the company” risk.
Don’t Open Your Doors Unless You…
- Appoint a Compliance Officer.
- Appoint a Privacy Officer.
- Know you obligations under: GLB, TILA, ECOA, FCRA, UDAAP etc.
- Determine how you will safeguard customer information.
- Establish a policy for accepting both cash and credit card information and know how you will report cash transactions over $ 10K (IRS form 8300).
- Learn your regulator’s “do’s and don’ts”.
- Know your record retention obligations and have a plan to comply.
- Know how legal requirements when transacting business with a military service member.
- Ensure your consumer transaction forms are compliant and consistent with one another.
- Establish a hiring process which includes a job application that offers protection, approved questions for interviews, and strategy to hire subject matter experts.
- Develop employment contracts with confidentiality and non-solicitation provisions and accurate job descriptions with acknowledgement by employee.
- Create an employee manual, which includes policies to follow all relevant laws, a policy on document and information security, and code of conduct.
- Train your employees on legal obligations
Originating the Transaction – The Preliminaries
- Make sure your advertising including social media is compliant with state and federal laws.
- If you are pulling or reporting credit, know your legal obligations the credit reporting laws.
- Make sure your credit application is up to date with FCRA and ECOA and business practices.
- Understand your legal obligations for sending adverse action and risk based pricing notices.
- Have a compliant and effective credit underwriting policy.
- Know your obligations under OFAC.
Originating the Transaction – "We’ve Got a Deal"
- Originating practices must be consistent with floor plan covenants.
- Rebate method must match RISC.
- RISC and DMS must treat interest the same way.
- Hierarchy of payment application must match RISC, if applicable.
- Late and NSF fees must match RISC and not exceed permissible limits in state law.
- When needed, use a “spot delivery” form.
- Consider use of an arbitration clause.
Servicing of Accounts
- Draft a Collections/Servicing Manual and review collections training materials.
- Learn relevant state and federal collection laws.
- Ensure all contact with customers is legally compliant.
- Be aware of limitations for contacting consumers on cell phones.
- Develop a process to resolve customer complaints and document the process.
- Objectively track the type of complaints received and be pro-active in addressing them.
- Establish policies for accepting payments and payment processing.
- Establish policies for releasing titles must be in compliance with state laws.