Every day dealers wake up and bet on their staff behaving. Sometimes, those bets don’t pay off. A recent news story is sure to keep dealers up at night: a car dealership in Olathe, Kansas is accused of being a “fraud factory.”
This massive lawsuit was filed against Olathe Dodge after an anonymous whistleblower alleged that employees were, among other misconduct, falsifying consumers’ monthly incomes. Now, the dealership is facing charges that resulted in an almost $15 million fine in a similar case.
But this isn’t just an issue in Olathe. Would you be exposed if a whistleblower raised their hand about your dealership? If your answer is “no” because you have your house in order, and know your staff does everything right every time—read no further!
But, if you can’t absolutely, fully, and certainly guarantee this…here’s how you can protect your dealership against fraud.
The Whistleblower Program Is Real & Lawyers Are Taking Advantage
The case in Olathe started when a whistleblower stepped forward and informed under the protection of the Vehicle Safety Act’s “Whistleblower Program.” This act protects the confidentiality of whistleblowers—which can be an employee, vendors, customers, contractors, part suppliers, or even an entire dealership.
And, most importantly, this program allows for whistleblowers to be paid a percentage of the winnings if their tip leads to a successful settlement. These winnings can be considerable: the attorney suing Olathe Dodge has already made more than $14 million from a Kia store in Lawrence, KS for similar charges.
In short:
- Whistleblowers can be practically anyone who interacts with a dealership.
- There are hefty financial incentives to report bad behavior.
- Regulators and attorneys are itching to punish dealerships.
As a result, big trouble can start with one disgruntled person and grow into a class-action lawsuit.
Doug Fusco, Informativ’s compliance expert and the founder of Dealer Safeguard Solutions, says most dealers are at risk: “How many dealers across the country do you think don’t have an enemy in one of those categories of whistleblowers? This program is real, and it could cost dealers a ton of money.”
Being Proactive, Not Reactive
Avoiding compliance violations is all about being proactive, not reactive. You do this by locking down the people, process, and paperwork involved in a vehicle sale. It’s a big task, but technology helps. Here’s how:
1. Enforce Compliance from Lead to Sale
THE PROBLEM
During one of our recent webinars, only 50% of the dealers in attendance said they felt confident their sales staff follows proper showroom processes. This is a big problem; the Olathe dealership’s biggest issue started in the showroom, when salespeople were falsifying customers’ incomes.
THE SOLUTION
One of the most effective and efficient ways to ensure compliance is to enforce it from the start.
Informativ’s technology forces salespeople to follow every step of a compliant sales process:
- We built in hard stops into the sales process that require fraud and OFAC checks when applying for credit.
- For remote deals, our platform’s STIP feature is customer-facing—so there’s no opportunity for salespeople to change the income statement.
- For in-person deals, our software requires uploading pay stubs directly to the app; so there are no compliance violations by salespeople taking photos of pay stubs or driver’s licenses and storing them on their personal phones.
- Our credit reporting tool provides the ability to verify income from several 3rd party payroll providers. This verification is accepted as proof of income by lenders so that the credit-checking process is faster, more efficient, and, most importantly, it’s compliant.
Informativ puts guardrails in place, enforces policies & procedures so salespeople can’t step out of bounds—even if they’re moving fast through the sales process.
THE PROOF
Jesse Cordaway, Corporate Variable Operations Director for Parks Auto Group, says Informativ’s dealer compliance tech has “streamlined our sales process with multiple rooftops, because the salesperson knows that regardless of what store you’re at, what location you’re at, that you’ve got to follow the process and make sure that we’re checking compliance and we’re checking for fraud.”
This is exactly how you ensure your dealership is compliant. Invest in technology that enforces a compliant showroom including the people, paperwork, and processes—and it won’t even be possible to be a “fraud factory.”
2. Give Yourself Visibility Into The Process
THE PROBLEM
There have been plenty of times when dealerships have turned into “fraud factories” without the owners knowing what was happening. Showroom staff, and even general managers, often have a lot of leeway and freedom in how they execute day-to-day operations at stores.
This freedom can be good in some ways; but it can cause owners and higher-level executives to “fly blind” when it comes to insight into their dealerships’ processes—especially with multiple rooftops.
This lack of visibility can snowball into a massive problem if, five years down the line, you suddenly realize one of your dealerships has been violating compliance rules right under your nose.
THE SOLUTION
Informativ’s technology gives management and executives the maximum amount of visibility into their showroom processes:
- We offer an alert system that notifies designated managers of any changes made to the credit application.
- We specifically alert users of any compliance violations & questionable credit applications immediately.
- We record every single step in the sales process with time-stamped activity that is tied to the user making edits.
This is where Informativ’s solutions shine. We offer the only solution that lets you see and control day-to-day transactions in the showroom and allows management to know exactly who, how, and when somebody adjusts a profile or application.
THE PROOF
Chris Suchy, General Manager for Nielsen Auto, says this is how Informativ’s fraud detection tech has changed the way his dealership group does business: “I can be at one store, in the back, and know my salesman up front scanned a bad driver’s license and stop it right there.”
This ability enables managers to be proactive, so you don’t wake up three years down the road after the fact…and realize your dealership has become a poster child for compliance violations.
3. Build a Track Record of Good Behavior
Finally, once you’ve built an enforceable & compliant showroom process that you have visibility inside—you need to build a track record of good behavior.
THE PROBLEM
Dealerships are hectic and chaotic places that aren’t always the best at reliable storage of old data and road mapping out proof of processes. Your priority is selling cars and making money—not storing dead deals and having a laundry list of process documents.
But, having these systems in place is critical. Being able to show a proven track record of consistent compliance makes a world of difference when it comes to avoiding FTC fines and class action lawsuits. In a courtroom, federal judges have an 80% variable in sentencing guidelines and punitive damages if your house is in order. Basically, if you can show your good behavior as a dealer, it’s a lot easier to stand up to whistleblowers and class-action lawsuits.
THE SOLUTION
Informativ’s technology allows you to build a track record of demonstrable compliance:
- We store all of your dead deals for 5 years, which automatically fulfills the FTC compliance mandate for storage.
- We offer air-tight compliance forensics through a catalogue of salesperson behavior, including all edits made to income statements and credit applications.
- Our software doesn’t allow the deletion of prior deal jacket history, so the track record and digital paper trail is always
Informativ not only guarantees in-the-moment compliance; we can help prove a dealership’s continuity of enforced guardrails and processes in place.
THE PROOF
Jimmy Robinson, CFO for Pohanka Auto Group, agrees. He says Informativ’s software is valuable because of this continuity and consistency: “I’m over insurance, I’m over risk management, and the internal and external audits. Being able to prove you’re consistently compliant saves you a lot of time and money.”
If a whistleblower comes for your dealership, wanting to take advantage of the hefty pay-out they can get under the Vehicle Safety Act, you can avoid a lot of the headache by showing that your dealership has a history of compliance—with technology like Informativ’s.
The whistleblower program is scary. We know. Becoming a fraud factory and $15 million in fines (or more) is enough to keep any dealer up at night. But, you have options.
Be proactive, not reactive. Invest in a solution that enforces a compliant process from lead to sale, gives you reliable visibility into that process, and builds a track record of good behavior that you can easily access.
Want to learn more about how we can keep your dealership FTC compliant? Schedule a demo with us here.
FAQs
The Whistleblower Program is a part of the Vehicle Safety Act, which protects the confidentiality of whistleblowers. It also incentivizes whistleblowing by empowering the NHTSA to monetarily award whistleblowers a portion of a successful settlement.
Practically anyone who does some amount of business with a dealership is eligible to be a whistleblower. An employee, contractor, vendor, or even another dealership can be a whistleblower.
Whistleblower award decisions can vary in size based on the severity of the accusations and settlements. In 2021, a whistleblower decision against Kia & Hyundai resulted in an award of $24.3 million to the whistleblowing parties.
You can avoid being penalized by enforcing sales and F&I processes which are FTC compliant and building a track record of good behavior at your dealerships. Judges have up to an 80% variable in sentencing guidelines & punitive damages and will take into account your past performance and policies as a dealer.
The FTC’s Standards for Safeguarding Customer Information rule (Safeguards Rule) under the Gramm-Leach-Bliley Act (GLBA) went into effect on June 9, 2023 and is a regulation designed to protect consumer information held by financial institutions, including auto dealerships. It mandates the establishment of information security programs to safeguard customer data.
While the rule is not specifically targeted at car dealerships, dealerships have three specific obligations when they collect and maintain sensitive customer information:
- Administrative: they must ensure the security and confidentiality of consumer information
- Physical: they must prevent the unauthorized access to consumer information that could result in harm or inconvenience to any customer.
- Technical: they must protect anticipated threats or hazards to the security or integrity of that information