Noncompliance and Fraud Prevention for Car Dealers


Prevent jumping through hoops to remain compliant.

Noncompliance and fraud could cost a dealership more than its current overhead. Audits and lawsuits are unwanted distractions that pull attention and profits away from business goals. A few of the most common regulations that come up in dealerships are the Fair Credit Reporting Act (FCRA), the Red Flag Rule and Adverse Action. The Fair Credit Reporting Act protects the privacy of credit report information and guarantees that the information provided is accurate. The Red Flag Rule, written specifically to include auto dealers, detects and prevents identity theft as well as noncompliance. Adverse Action is an important compliance regulation in the event that a consumer is denied credit. Written notices detailing the reasons for the action must be sent to the applicant.

In addition to these federal and state regulations, credit application fraud is on the rise in dealerships across the nation. According to William Hoffman from Auto Finance News, “Risk management company published a white paper that foresees auto fraud losses reaching as high $4 to $6 billion in 2017, compared with $2 to $3 billion in 2015.” Dealers manipulating credit applications to improve the chances of obtaining a credit approval is not a victim-less crime. Federally backed lending institutions are required by law to file a report that names the dealership as potentially committing fraud.

Fraud and falsifying information is a No No.

Any discrepancies on the credit application between the source information provided by the consumer and the information submitted to the lending source can be considered a violation. Common types of fraud include borrowers and dealers lying about the consumer’s income, job status, or falsifying pay stubs. Dealers can also give false information about the type of vehicle being financed and/or its value. Dealers have an incentive to get the consumer bought by the lending institution. Most finance and sales managers know how to adjust credit applications to get bad loans funded.  In a survey conducted by UBS Group AG, one in five auto-loan borrowers acknowledge that their applications contained inaccuracies.

Here’s how to avoid compliance and fraud issues.

Prevention is the best way to avoid the considerable costs involved with noncompliance and fraud. Credit applications should be filled out by the customer and a trained F&I manager. All documents should bee initialed by the customer.  All personal information such as the credit application and the customer’s driver’s license should be handled with the highest confidentiality and be disposed of accordingly if the deal falls through. Book-out sheets are another way to hold your dealership accountable for the vehicle the customer is applying to get credit for. VIN decoder applications will automatically determine the standard manufacturer equipment specific to the model and trim level of the vehicle. Taking extra time with the customer and following processes correctly will save your dealership the high cost of noncompliance.