Imagine you’re sitting in your office at the dealership, going through the mail. You notice an envelope with an attorney’s return address. You open it immediately and start reading the letter. According to the letter, your dealership ran a credit bureau on Granny Smith and attempted to obtain financing in order for her to purchase a vehicle. Problem is, according to the letter, Granny Smith never gave your staff permission to do so. After wading through the legal threats, your hands begin to shake and your mind races. You vaguely remember Granny Smith coming to the dealership months ago to purchase a vehicle, but she didn’t agree to the terms of the loan your F&I manager obtained for her. You run to your sales manager and ask him where’s the file for Granny Smith. He shrugs. The next call you make is to your attorney.
Many dealerships accumulate vast amounts of nonpublic personal information during the course of operating each day. Paperwork for deals that result in a sale are often kept in the dealership’s accounting office. However, the gaping hole many dealers face in their compliance efforts comes from how they maintain “dead deal” paperwork. For our purposes here, a dead deal is any deal that does not result in a sale. A deal can die for a variety of reasons. One could be that particular consumer purchased a vehicle from another dealership while other deals die when your dealership cannot obtain favorable financing for the consumer. Either way, dead deals often contain nonpublic personal information that the dealership collected during the sale process. This triggers obligations under the Safeguards Rule of the Gramm-Leach-Bliley Act. The Safeguards Rule applies whether you complete the transaction or not. Furthermore, because of the dealership collected this information to obtain financing for the consumer, dealerships often have obligations to provide adverse action notices.
So, what should you do to minimize the risks described above? Here are some best practices for maintaining dead deal paperwork:
- You should maintain your dead deal paperwork for at least five years, unless state law mandates longer retention.
- Your filing system should be in a secure location, like a locked office, desk of file cabinet depending on the volume of files. Take similar precautions to safeguard electronic formats of these records.
- You should limit access to dead deals to authorized personnel, and log removal and return of dead deal paperwork.
- Your filing system should be easy enough for authorized employees to find relevant dead deal paperwork quickly, in order to respond to demands by consumers or attorneys.
- Provide adverse action notices where appropriate. This topic is vast enough for its own blog post, so I recommend discussing this matter with local counsel to make sure your practices are compliant.
- Submit 100% of customers who fill out credit applications for approval/denial. This is a big deal. Suppose your sales associate fills out a credit application with a consumer only to hear the F&I manager say there’s no possible way the consumer will obtain financing. The F&I manager just made an adverse credit decision, triggering notice obligations. Instead, submit all credit applications, no matter how bad the consumer’s finances may be, to your dealership’s lending partners. That way you can better track whether the consumer received the adverse action notice.
- Reconcile reports provided by credit reporting agencies with your physical files. You should periodically audit reports provided by credit reporting agencies/vendors to make sure you have a signed credit application for each inquiry. Doing so will alert you to possible problems early and also help you detect illicit credit inquiries submitted by employees.
The views of the author and the commentary provided in this post do not constitute legal advice or the establishment of an attorney/client relationship. The author is not an attorney licensed to practice law in any state, and he recommends that the reader seek legal advice prior to taking any action related to the topic of this article.