Automotive Compliance — Top 5 Measures To Avoid Dire Consequences
Compliance legislation for automotive dealerships is as strict as it has ever been. Regulatory bodies are making more laws daily, affecting how car dealerships operate.
Automotive executives and professionals face complex challenges in meeting the strict auto dealer regulations imposed by the federal and state governments. There are many critical regulations you must understand and implement as a dealer to avoid crippling penalties.
Navigating the world of regulations is tough because many auto dealerships might feel they lack the expertise, time, and staffing to implement the mandatory compliance procedure. The only problem, though, is that compliance is important and inevitable. Failure to do so subjects you with hefty penalties and even jail sentences.
Automotive Compliance At Its Core
Automotive Compliance describes all laws and regulations by the federal or local government that your dealership is subject to. The laws stipulate how an auto dealership handles the following matters:
- Selling and buying of cars
- Customer communication
- Email formatting, etc.
Every dealership must take automotive compliance seriously to avoid finding themselves on the wrong side of the law.
Key Compliance Measures to Remember
While there are several compliance requirements auto dealers should adhere to, we want to focus on the most critical ones that increase compliance levels and lower penalties risks.
1. Privacy and Confidentiality Protection Rule
The first regulation you need to be aware of is the Privacy Rule, which requires your dealership to protect your customer's privacy and confidentiality at all times.
The rule dictates how you should protect your customers' personal data regarding how you collect, store, and share your client's personal and financial information. Your auto dealer is responsible for informing your customers about how you share and store their data. The safeguards you can implement to protect your customers' data include:
- Developing, implementing, and maintaining, a comprehensive written security plan
- Ensuring that all affiliates of your auto dealership maintain the right safeguards
- Executing a thorough risk analysis in each area of the dealership operation
- Evaluating the efficacy of the current security measure your dealership have
When implementing the above regulations, your company must consider all the aspects of your operations, such as:
- Information systems
- Employee training
- Managing system failure
2. Data Disposal Rules
The Disposal rule is a federal law that requires auto dealers that collect consumer reports to dispose of the data securely to avoid compromising customer privacy.
Proper data disposal involves:
- Shredding paper information
- Securely erasing digital records
- Hiring data experts to dispose of sensitive documents
Your company is responsible for ensuring customer information isn't left disorganized and unaccounted for. If your organization provides loans, offers financial services, or interacts with customer reports, you must comply with the disposal rule. Failing to adhere to this rule can attract hefty penalties.
3. The Red Flags Rule
The federal law requires all auto dealers to have a written ITPP — Identity Theft Protection Plan — to detect and protect against common signs of identity theft. The plan should stipulate how you:
- Check for suspicious identification documents
- Review unusual changes in the customer's credit report
- Check for unusual account activity
- Confirm mail or email are deliverable
When your dealership spots identity theft in action — a customer making big purchases with someone else's information — which is the primary identity theft weapon. Predators usually fool most dealerships.
When your dealership gets duped, the law can partly hold you responsible if you don't follow the proper procedures. Your car dealership must have an active Identity Theft Protection Program to comply with the Red Flags Rule.
4. Cash Payment of Over $10,000 Rule
According to the IRS regulations, any business that deals in cash payments (including auto dealers) have a duty to report payments above $10,000. In addition, auto dealers must also report the sale within two weeks of the transaction to stay in compliance with the law.
To report the sale, you'll need to feel Form 8300 whenever a customer makes a cash payment of over $10,000. The IRS and Financial Crimes Enforcement Network (FinCEN) use this form to prevent money laundering.
If your dealership breaks this law, you risk serving a jail term and huge fines.
Compliance with the Form 8300 rule is critical if your company often receives cash payments from its customers. You should note that the $10,000 limit does not only apply to single transactions. If your client pays in installments and exceeds $10,000, you'll have to file Form 8300.
5. The Rule of Lending Act
The rule is called Regulation Z and requires auto dealer lenders to disclose all the credit terms precisely. The law requires your company to use the same standard expression and terminology of rates.
Your auto dealership should present to customers written information about the terms of their loans to comply with the above rule. Failure to do so may be considered as fraud — misleading a customer to enter into an agreement they don't fully understand.
Avoid the Costly Mistake of Failing to Comply With Vital Car Dealers Laws and Regulation
Many auto dealerships don't meet the required compliance standards, which might cost them heavy penalties and other legal and regulatory problems.
While the automotive dealerships face many state and federal regulations, you must ensure your employees are aware of the compliance requirements. Failure to comply can result in penalties such as:
- Monetary fines
- Jail term
- License revocation
While full automotive compliance is a tough task, you don't have to do it alone. Reach out to an auto consulting firm that deals with compliance services to offer you a customized experience depending on your needs.
Velocity IT Can Help Your Automotive Dealership Company With Compliance Issues
The automotive industry is quickly changing, and your dealership needs to stay up-to-date with compliance issues. One compliance issue can be detrimental to your business, so it's important to cover all your bases. At Velocity IT, we can help you meet all IT-related regulations to keep your business compliant with all regulations. Contact us today for automotive compliance training and services.