Ensuring compliance in the automotive industry, especially regarding car finance plans, is a critical part of protecting consumers and upholding a reputable business. This industry is governed by many complex regulations that are essential to maintaining its stability.
This guide outlines the key compliance laws that every car dealership must be aware of and explains the importance of understanding and adhering to these regulations.
What is car dealership compliance?
Compliance in the car finance sector involves following legal and regulatory standards that include ways in which lenders and dealerships present financing options, advertise their products and services and interact with customers.
The regulations are designed to promote fair and ethical business practices and protect customers from deceptive or harmful activities.
The key compliance laws for car dealerships
Dealer compliance encompasses several key regulations that dealerships must be thoroughly familiar with. These include:
Sales compliance
Compliance with sales practices is crucial for dealerships to facilitate fair transactions with customers. This includes giving a truthful and comprehensive overview of the vehicle, covering its features, condition and history without omitting any details. Dealers must also avoid pressuring customers into quick decisions through misleading tactics.
Many of the issues with the recent FCA investigation was the misleading car finance interest through discretionary commission arrangements, whereby customers were paying more without knowing. Make sure you're fully transparent with your current and potential customers about the costs they'll be paying.
What are the FCA saying?
Whilst the FCA continue their ongoing investigation, the FCA has issued guidance on what firms can be doing to support:
- Continue to investigate DCA complaints so that if and when the FCA lift their pause on complaints,
- Consider the Information Commissioner's guidance on responding to DSAR requests;
- Notify the FCA if they are involved in litigation relating to motor finance commissions;
- Maintain adequate financial resources and accurate financial statements; and
- Make disclosures to group stakeholders and the market (where relevant)
Given that most firms will abide by GDPR and may no longer hold the data for older cases, David Kenmir, financial services expert, outlines that they should:
- Accelerate the collection of data from various systems and/or distributors;
- Clarify information with customers where required;
- Consider how to extract relevant information from contracts accurately and at scale (which may require the use of contract digitisation and analysis technology);
- Formulate an approach for cases where they no longer retain records and create a database of relevant contracts.
Advertising compliance
Dealers must ensure all promotional materials are clear, accurate and not misleading. Promotions must also be clearly stated along with the Annual Percentage Rate (APR) and key terms of the finance agreement. It is vital that dealers disclose all costs upfront to avoid any hidden fees that could mislead potential customers.
Financial & insurance compliance
Maintaining compliance in financial transactions is essential for dealerships to prevent money laundering activities. This requires instituting strong financial controls, performing thorough due diligence on customers and adhering to anti-money laundering laws and reporting obligations. Dealerships must ensure that all financial transactions are transparent, accurately documented and meet all regulatory standards. Customers must also be provided with a printed or digital copy of their signed contract.
FCA compliance regulations could become stricter in the automotive industry, given the high percentage of complaints following the mis-selling of car finance for car dealer commissions. They're keeping a closer eye on responsible lending and making sure Consumer Duty is in place to protect customers from a similar situation in the future.
GDPR Compliance
Implementing strict data protection measures to protect customer information is essential for building trust. Dealerships must ensure that they have strict measures in place for obtaining and processing customer data that must comply with data privacy laws.
It is important to securely store all customer data and strictly limit its use to legitimate purposes. This practice must be consistently demonstrated to prevent data breaches and avoid legal repercussions.
Given the rise in cyberattacks across car dealerships, it is essential that businesses protect their customers. Data breaches can be caused by inadequate understanding or human error. Think about the data you hold, customer consent, and how you protect customer data.
It is recommended you have a data protection officer and always make a record of any data breaches. If someone is no longer a customer, if their finance ends for example, then you must have a procedure for destroying old records.
Employee training
Dealerships must offer comprehensive training to ensure that all employees understand and comply with regulatory requirements. It is the dealership's responsibility to keep employees informed about any updates to compliance regulations and to regularly assess their adherence to ensure ongoing compliance.
Risks & consequences
The consequences of not complying with regulatory requirements can be severe.
Non-compliance can lead to significant legal repercussions, including lawsuits, fines and sanctions. These legal issues can tarnish the dealership's reputation, compromise financial stability and sometimes result in the loss of essential licences or permits required for operation.
Fines and legal expenses can deplete resources, while the resultant damage to the dealership's reputation can diminish customer satisfaction and adversely affect sales performance.
Beyond financial penalties, non-compliance may also result in missed business opportunities, strained partnerships and lost contracts, further intensifying the businesses' setbacks.
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