As the powersports industry approaches what is considered by most a busy season, lenders will need to devote time and resources to compliance due diligence practices, with particular emphasis on dealer management and monitoring consumer complaints.
Specifically, lenders must make sure their dealer partners are properly licensed and have solid policies and procedures. These dealer compliance practices can help the lender understand how their dealers are conducting business and what potential impact that dealer’s actions could have on the finance company, John Redding, partner at Buckley Sandler LLP, told Powersports Finance.
Redding shared some best practices with Powersports Finance for monitoring dealer compliance. Here are the top three best practices:
1) Monitor the dealer partner’s sales practices for ancillary products.
“I think some of the activities that everyone should continue to pay attention to are the types of sales practices that are taking place at the dealership, and in particular, understanding how any sort of add-on or ancillary products that are financed into the transaction, are being marketed and sold.”
Lenders can — if they consider it appropriate — request from dealers the types of marketing materials that they are using, he added. “This is a way to help mitigate the risk, because the way in which they [add-ons] are sold can drive consumer complaints.”
A post-lease or post-purchase follow up with the consumer can also be a sufficient practice, he said. Lenders can follow up with the consumer to confirm if that consumer intended to purchase the add-on product. This practice is “certainly not done by a majority, but there are people in the market that do follow up with consumers — perhaps a sampling or perhaps all consumers.”
2) Keep an eye out for consumer complaints (even on social media).
Consumer complaints can often be an early warning of problems, Redding said, so frequently monitoring any complaints is an essential practice for lenders to uphold.
“I think that the level of resources that can be devoted to that depends on the size of the organization, and so it’s important for each organization to figure out the channels through which it is most likely be to be able to discover [the complaints]. For instance, it may be worth monitoring BBB [Better Business Bureau] complaints — that’s a fairly straight-forward and easy thing to do.”
However, lenders can also monitor social media, as those complaints can often escalate. “Of course dedicating people to [monitor social media] takes significant resources,” he said. If a lender has limited resources, it is best to be “smart and targeted” about monitoring consumer complaints by keeping their focus on the sources that are most likely to inform them of complaints.
“And of course you always want to respond in a timely fashion to complaints that you receive from consumers, because that is probably the single best thing you can do to help lower the risk of regulatory [scrutiny].”
3) Check state laws for consumer fee allowance.
It is important to make sure that any fees that are charged to the consumer are appropriate and permitted under the state law, Redding said.
“That’s a combination of understanding of understanding what fees are permitted under the state law and making sure that they don’t exceed them. For instance, documentation fees, late charges, or non-sufficient funds returned to payments.”