Are you really aware of what’s taking place in your F&I office? Are you familiar with the consequences of F&I Managers not following critical guidelines?
As part of the responsibilities that come with the role of Dealer Principal, being personally liable for malpractice in your F&I office should be high on your priority list. There is a real risk of substantial fines and possible jail terms for F&I operators (and Dealer Principals) who break or ignore the rules.
Indeed, ignorance on your part or that of your Business Manager can have a major impact on your life and business. So what precautions can you take to safeguard yourself against infringements?
Below is a summary of key regulatory requirements that you should be aware of:
The Financial Services Industry
The rules governing the Financial Services Industry are broadly demarcated by three sectors:
- Guidelines: The general rules or principles about what is (and what isn’t) allowed, and why
- Procedures: The established or official ways of doing something, designed to help you stay within the law
- Legislation: The laws governing the practices within the Financial Services Industry
There are more than a dozen Acts, Codes, Guidelines and Regulations that affect the sale of F&I in a dealership. The Business Manager who handles customers must have adequate and up-to-date training on what these are to operate within the guidelines.
As a Dealer Principal, your obligations are covered by a wide range of legislations, including:
- NCCP – National Consumer Credit Protection Act
- Privacy Act
- AML/CTF – (Anti-Money Laundering and Counter-Terrorism Financing
- Act 2006)
- PPS – Personal Property
- Securities Register
- FSRA – The Financial Services Reform Act
Knowing these, and how they can affect your dealership, is an important part of your role as Dealer Principal. It will assist you to stay in control of your F&I operations, and help prevent illegal actions and bad practices.
The main considerations arising out of these legislations are outlined below:
National Consumer Credit Protection Act (NCCP)
The NCCP covers credit protection for personal, household/domestic and residential investment purposes. The Act serves to introduce the concept of ‘responsible lending’ to those who sell F&I to their customers, and the subsequent civil and criminal penalties when there are breaches.
Dealer Principals should leverage on technology to help monitor the activities of their F&I saleperson within the dealership. Systems such as Op2ma’s Finance Accelerator, should be capable of doing the following effectively and efficiently:
- Aggregate and monitor operational processes to identify issues
- Combine in-office audits with frequent observations of the behaviour and activities of Business Managers or your F&I operations
- Include a standard set of procedures and policies for Business Managers, and ensure that they adhere to them
- The failure to meet NCCP guidelines could lead to hefty compensation for the customer, avoidance of contracts, and enforceable undertakings such as:
- Fines of up to $220,000 for individuals and $1,000,000 for companies with up to two years imprisonment for accountable staff
- Civil penalties of up to $500,000 for each breach
- Anyone who aids or abets an offence, whether directly or indirectly, can also be fined
- Serious breaches also put the Financiers’ credit license at risk
Privacy Act
The Privacy Act essentially serves to protect the privacy of consumers, and covers all areas of information relating to people and what is done with information about them. It is put in place to ensure that businesses do not abuse or misuse the personal information of their customers gathered in the course of a transaction.
Essentially, the underlining principle is that when you collect information from your customers, you are responsible for the following:
- How the information is collected
- What information is collected
- How the information is used
- How and where the information is stored
- Who has access to the information
- How personal information is updated
Fines relating to breaches of the Privacy Act vary depending on severity. These can be up to $220,000 for individuals and $1,000,000 for companies.
Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF)
This act was put in place to prevent the proceeds of crime and other illegal activity from entering or being passed through the Australian financial system. It is designed to identify, mitigate and manage money laundering and terrorism financing risk by detailing the requirements for customer identification.
The AML/CTF Act imposes a number of obligations on reporting entities when they provide designated services:
- Customer identification and the verification of identity
- Record-keeping
- Establishing and maintaining an AML/CTF program
- Ongoing due diligence and reporting (suspicious matters, threshold transactions and international funds transfer instructions)
Due to the possible international effect of these laws, there are both civil and criminal penalties for all involved. Criminal offences include imprisonment for up to 10 years and fines of up to $1,100,000. Civil penalties can be up to $2,200,000 for individuals and $11,000,000 for Companies.
Personal Property Securities Register (PPS)
The legislation that established PPS reform is the Personal Property Securities Act 2009. The PPS Register is administered by the PPS Registrar, whose office is within the Insolvency and Trustee Service Australia (ITSA). The Register is the central part of PPS reform. A search on the PPS Register will enable a consumer to find out whether there is a security interest registered against personal property that is over $5,000 – including boats, cars, artwork, collectables, etc.
The Financial Services Reform Act (FSRA)
The Financial Services Reform Act (FSRA) is a Federal legislation introduced to bring various financial services and products under one licensing regime. It introduces a new disclosure regime for most financial products and establishes a standard of conduct for financial service providers. The key objective is to increase the level of compliance and competency in the financial service industry.
The FSRA covers issues such as pressuring customers to buy insurance, maximising commissions to Dealerships, and providing a standard dispute resolution process. The risk of a breach occurs when a Business Manager offers the customer advice.
Conclusion
The extensive knowledge necessary to be compliant with legislation relating to a dealership can be overwhelming for a Dealer Principal, but not knowing it inevitably increases the risk of breaches that can lead to hassles, fines and even jail terms.
Whilst installing F&I Managers that are trained and trustworthy reduces risk, having a good handle on what goes on daily within your F&I office begins with knowing what to look out for and how to manage it – this will minimise your exposure to lawsuits and penalties.
Marc Brien
Fusion Business Solutions