Tag Archive | "Jim Ganther"

Zones of Compliance


Unlike love, compliance at a dealership is not a many-splendored thing, but it is certainly many-faceted. Discrete facets of compliance include sexual harassment, advertising, human resources, sales, F&I, environmental, health and safety (EH&S), data security, taxation, and the list goes on.

Sometimes it is helpful to organize all of these issues into what I call “zones of compliance.” Zones of compliance chop the massive tangle of issues into manageable bites. And viewing the overall issue of dealership compliance into specific zones of compliance helps identify another important issue: Who is responsible for each zone?

Ultimate responsibility, of course, will always attach to ownership. But functional, day-to-day responsibility may be delegated to an appropriate person lower on the food chain.

Your Zone, My Zone

Some compliance zones are self-evident. Deploying policy documents and ensuring sexual harassment and other core training is accomplished falls naturally under the job description of human resources. Because of the heightened risk of industrial accidents and the presence of chemicals in the shop, EH&S responsibility usually runs to the service manager.

That’s within a dealership. Are there zones of compliance that impact a dealership’s vendors? I believe so. OEMs, for example, have at least a moral obligation to provide dealerships with accurate product information so the dealership’s sales personnel can accurately represent the vehicle’s features to potential customers.

Product providers have a similar obligation. To illustrate, indulge a lawyer’s war story. (The details have been changed to protect, well, me.) Unethical Dealer packs payments to include a vehicle service contract on almost every car financed at his store. Unethical Dealer F&I personnel go the extra mile and overstate the scope of what the “included” VSC covers, liberally using the term “bumper-to-bumper.” (There’s no such thing, by the way.)

Enough customers complain about uncovered claims that a class action lawsuit is filed. Remarkably, the plaintiffs’ attorneys are so unfamiliar with automotive finance that they ignore the obvious payment packing issues and focus on the overpromise part — claims for failures that the F&I personnel said would be covered but were not, such as gaskets, wear items, wiper blades and brake pads.

The kicker? Instead of happily settling for the cost of some brake pads and wipers, Unethical Dealer threatened to bring the F&I product provider into the lawsuit for failing to train Unethical Dealer’s F&I personnel on the limitations of coverage in the VSCs Unethical Dealer sold.

All of this was baloney, of course, and Unethical Dealer backed down when the provider’s counsel explained how easy it would be to prove Unethical Dealer packed payments if the parties were suddenly to find themselves on opposite ends of the lawsuit. But it illustrates an important point: Product providers have a dog in the hunt when it comes to how their products are represented and sold in the F&I office. It is their zone of compliance.

The Product Provider’s Role

So how does a product provider fulfill its duties in the zone of compliance it touches? In at least three ways:

  1. Provide accurate product information. This is obvious, and is something all providers should be doing already anyway. But most providers and their agents see this as a sales and marketing effort, not a compliance duty. In fact, it is both.
  2. Provide effective training on both product knowledge and legally compliant presentation/disclosure techniques. Again, one would think this is obvious and universally followed. Not so. Even as I was drafting this article, I got a phone call from a channel partner employee who informed me one of its dealerships, as a regular sales tactic, presented an initial payment that included a VSC and GAP. Honestly! Unvarnished payment packing as a baseline practice — in 2016! The point for the product provider is to provide verifiable training content so that, when the class action lawsuit comes, Unethical Dealer can’t say “My provider made me do it.”
  3. Prove the F&I personnel who sell your products actually took and understood your training. There are multiple ways to de-fur this feline. You or your agents can conduct onsite training at the dealership, or at your home office, or it can be done online. Be sure there is a test at the end so you can prove the students paid attention and learned the material. That way, if a different (and illegal) practice is used, you can prove it didn’t originate with you. Best practice here would be to require successful completion of the training before an F&I manager was allowed to represent your products in front of a live customer. Annual refresher training is also important.
  4. Encourage the F&I personnel who sell your products to learn the law that covers their activities. Product providers and administrators aren’t law firms, and they generally avoid giving anything that resembles legal advice in their own name. But everybody wins when F&I personnel know the law that impacts their jobs. Providers and administrators are in a position to encourage that training and make opportunities for it available. Multiple certifications are available to demonstrate this level of training, but that’s a topic for the next issue.

Within your dealership clients, you have a zone of compliance. Be sure to keep your clients safe in that zone.

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F&I Think Tank Adds Top Compliance Experts


TAMPA, Fla. — Organizers of F&I Think Tank, the F&I manager-geared event preceding Dealer Summit 2016 this May, announced that six of the top dealer compliance experts in the industry will be at the Sheraton Tampa Riverwalk Hotel for the preshow event’s “Busting Compliance Myths” panel session. These individuals will field questions from attendees in a 20 Group-like setting, as well as provide an update on key regulatory battles taking place at the federal and state levels.

The panel, which will take the stage at 5 p.m. on Tuesday, May 3, will also take on several long-held beliefs in F&I and offer their take on whether or not they’re legally valid. Examples include the 300% rule (offer 100% of your products to 100% of your customers 100% of the time) and disclosing the base payment on the F&I menu.

“This is going to be a fun session,” said Gregory Arroyo, editorial director of F&I and Showroom and Auto Dealer Today magazines. “Our compliance experts are going to separate fact from fiction when it comes to some of these recommended best practices in the F&I office. They will also take questions from the audience in what promises to be a lively discussion.”

Moderating the panel will be respected compliance and training expert Robert Harkins, who serves as vice president of training for American Guardian Warranty Services Inc. He’s also served as master of ceremonies for a number of industry events, including F&I and Showroom’s annual Industry Summit.

Panelists include David Robertson, executive director of the Association of Finance & Insurance Professionals; Michael Tuno, president and founder of World Class Dealer Services Inc.; Jim Ganther, president of Mosaic Compliance Services; Randy Henrick Esq., associate general counsel for Dealertrack, and Karen Klees, certified consumer credit compliance specialist for EFG Companies.

Tuno is a 20-year veteran of the auto industry and has served as an F&I instructor for the National Automobile Dealers Association since 2007, while Klees was one of the first 100 professionals to earn the National Automotive Finance (NAF) Association’s Certified Consumer Credit Compliance Specialist designation. Henrick, a more than 30-year veteran of banking and consumer financial services, is the author of the annual Dealertrack Compliance Guide, while Ganther began his career as a business attorney and litigator in Washington, D.C., and Tampa, Fla., and is currently a member of the National Association of Dealer Counsel.

“We have the who’s who of dealership compliance,” Arroyo added. “I don’t think there’s another event that can make such a claim.”

F&I Think Tank was created in partnership with Ethical F&I Managers, a more than 5,000-member Facebook group founded by F&I and Showroom’s “Mad” Marv Eleazer. The preshow event is included in the price of a full show pass to Dealer Summit 2016. For more information or to register, click here.

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‘Knowledge Is Power’ at Texas Compliance Summit


AUSTIN — Organizers of the upcoming Texas Compliance Summit have confirmed that “Knowledge Is Power,” a panel discussion led by Jim Ganther, president and CEO of Mosaic Compliance Services, will convene at the event, which is scheduled for Nov. 16–17, 2015, at the Hilton Austin Airport Hotel.

“The dealers and dealership personnel we meet in Austin will be there to learn,” said David Gesualdo, show chair and publisher of Auto Dealer Today and F&I and Showroom. “Jim Ganther and his panel will give them a crash course on the current regulatory climate.”

Ganther helmed similar panels in past Compliance Summits in Miami and Chicago, drawing participation from fellow attorneys and compliance experts as well as leading agents. “Knowledge Is Power” is part of the “Rules and Regulations” portion of the agenda and will be the first of three panel discussions. Other topic headings will include “Your Responsibilities,” “Easy-to-Implement Processes and Controls” and, finally, “Is It Compliant?,” an open-forum discussion between speakers and attendees.

More information about Texas Compliance Summit, including the full agenda, will be available soon at the event’s website. Registration is open now. Attendees who register on or before Oct. 26 will enjoy a $100 discount.

For sponsorship and exhibition opportunities, contact Eric Gesualdo via email hidden; JavaScript is required or at 727-612-8826.

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Compliance Summit to Feature Rules and Regulations Panel


CHICAGO — Organizers of Compliance Summit have announced the inclusion of a panel discussion devoted to Rules and Regulations. The panel will be part of the Midwest event, which is scheduled to take place April 20–21, 2015, at the DoubleTree Chicago O’Hare in Rosemont, Ill.

“Rules and Regulations is a multifaceted topic,” said David Gesualdo, show chair and publisher of Auto Dealer Monthly and F&I and Showroom magazines. “That reality is reflected in the group we selected to lead this important discussion.”

The panel will be moderated by Jim Ganther, an attorney and compliance expert who serves as president of Mosaic Compliance Services. He will be joined by Robert Steenbergh, the founder and CEO of US Equity Advantage and Marc Waite, corporate counsel for Gurley-Leep Auto Management.

“I believe the composition of this panel is perfect for their task,” Ganther said. “We have a dealership group attorney in Marc Waite and a product provider attorney in Robert Steenbergh.”

More information about Compliance Summit, including registration and travel information, is available at ComplianceSummit.com. For sponsorship and exhibition opportunities, contact Eric Gesualdo via email hidden; JavaScript is required or call 727-612-8826.

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Finding and Monitoring Fraud in Claims


With large service providers paying out thousands of claims per month, claims fraud has always been an issue in the auto industry. “Unfortunately, so much of the public knows so little,” says George Krnich, vice president of claims and risk management, American Auto Guardian, Inc., “that it is often easy for a repair shop to tell them that there are repairs that they really don’t need.”

With the exception of the US Fidelis debacle, fraud is typically not an issue of large providers failing to pay out valid claims; rather, it most often lies with dealers, service departments and repair shops exaggerating claims. While the majority operates with integrity, there are always some who take advantage of the system and, according to those we spoke with, there are many ways in which they do so.

Steve Pearl, president, The Oak Group, says, “If fraud were the norm, no one would be in the underwriting business. Dealers who consciously commit fraud signify less than 1%, but the cost skews the losses.”

Providers we spoke with said they had never had a situation escalate to the point of actually having to bring charges against anyone for fraud. When fraud is suspected, common practice seems to be for the provider to first alert the agent and allow them to work with the dealer to resolve the issue. “If they work with us,” says Krnich, “then identifying the problem is the first step. The agent and dealer talk to the people involved. After that, the dealership may give us a discount on certain things as a means of restitution – to get their numbers down and so they look profitable again.”

Krnich listed several steps that are key to identifying and preventing fraud:

  • Properly train the claims adjustors
  • Invest in software and resources to quickly verify part pricing and labor times
  • Quality reporting software
  • Intensive training for the risk management personnel who dissect info and extrapolate data to properly analyze the dealers

Dave Robertson, executive director of the Association of Finance & Insurance Professionals, (AFIP), pointed out that it is not legal for a dealer to sell an extended warranty of any type; they can only sell service contracts and must refer to them as such. He believes that one of the best things a provider can do to guard against fraud is to create a situation where the dealer participates in the underwriting process, so if he controls his losses, he can make more money on the program. “I did that with my own program in the past. If I could get the dealer in bed with me – so to speak – then I wouldn’t have them reconditioning used cars on me.”

“No one wants to have the reputation as ‘the provider who sues their dealers,’” says Ganther, “Providers are in the claims management business and they have to manage claims in real time. They have to be willing to put up with [fraud] to a certain extent, so where do they pull the plug?

“The effect of the recent improving car market is 25-30% fewer dealers than a few years ago and more cars are being sold,” says Ganther, “Everyone is breathing a bit easier now. Dealers were fighting for their lives a few years ago. The temptation to use their service provider as a piggy bank is much less today than it was then.” Ganther says he recently spoke with the president of a large provider at NADA who said, “If you are not making money in this market, you need to be in another line of work.”

An Industry-Wide Watch List?

There are many ways fraud is dealt with, depending on the circumstances and severity. “Basically the claim would be denied and, in some instances, if there is an ongoing trend, the stores could be cancelled from the program, or they are added on to our [internal] watch list,” says Rhonda Chaplin, claims manager, NWAN.

Large providers may have their own internal “watch list” for dealerships and repair shops who seem a bit shady or are known to have been fraudulent, but how about the communication between providers with this information? On what level is it okay for them to share names of dirty dealers with another provider? According to Ganther, some years back there was talk of creating an industry wide list of fraud perpetrators, for the good of the industry. It sounded like a great idea at first, but ultimately, no one was willing to get his or her hands dirty by being responsible for contributing to or maintaining the list. There was also the question of the legality of it. And, once someone was on the list, what did they have to do to get off the list? Say for example there was a change in management. Nothing came of it in the end, but it is still a topic some consider worth talking about.

No doubt, fraud is a reality and all service providers have their own processes in place to deal with it. Certain companies, however, made it clear that it was not something they wanted to discuss. One company referred to their methods of dealing with fraud as “proprietary and confidential practices” and more than one company declined discussing the topic at all in an interview or even went as far as saying that fraud was not an issue for them. It seems providers could be afraid of losing their edge in catching fraudulent practices by revealing their methods to the public.

Ganther pointed out that when one provider finally drops a dealership for fraudulent practices, there is always another agent who will be right there willing to pick it up. “The agent has the incentive of getting commission and they may not have the exposure to the downside of working with a fraudulent dealer.” So, there is always a revolving door and the cycle continues.

Types and Detection

With the option of filing claims online, could the need for initial verbal communication with the service contract administrator eventually become a thing of the past? Would filing a claim online, as opposed to with a person over the phone make it easier to commit or get away with fraud because it is easier to lie to a computer than a person? The answer may not be what you expected.

Chaplin says she does not foresee this becoming a problem. “In our experience, the means in which the claim is started doesn’t have an impact on the validity of the claim itself. Typically we will still speak with the customer or repair facility at some point, prior to the claim being approved. Given the way that our process is designed, we see a higher volume of calls than we do fax or email claims. It tends to be more efficient for the facility. We are moving towards shifting the percentage towards a higher volume of electronic claims with new developments with our administration system. This should make it just as, if not more, efficient for the repair facility.”

Krnich, on the other hand, says that adjudicators are skilled in reading the subtle cues when speaking to someone over the phone, and picking up if something just does not sound right. While currently, all of their claims are handled over the phone, he said eliminating the personal contact could lend itself to eliminating that critical part of fraud detection. Currently, they only have a means for excessive wear and tear (EWT) claims to be filed online, and Krnich says he does not predict that changing anytime soon

Following up with a customer in an interview, in order to get an accurate recounting of events leading to the repair can be crucial in determining the details of a claim. Chaplin says that often, if you call a customer shortly after the claim in question was filed, then “the flood gates will open.” The customer likely has not had a chance to be “coached” or prompted by the repair facility, an advisor or technician and the customer just wants to get their vehicle repaired.

Chaplin said that while you hate to say you are looking for fraud, you always want to be mindful of it, looking at each claim from beginning to end, “Sometimes it is obvious, other times you have to dig a little deeper… If you ask all the questions and it turns out that the answers are right, then wonderful – you have done your due diligence and you can more on.”

Krnich agreed. He said often it is almost blatant. “Fraud can be detected when a repair facility or technician says the wrong things, or they try to charge for 10 hours of labor when a repair actually takes only 7 hours. They forget that we have the resources to know how long a repair takes.”

“There are just a few bad apples out there and the good people have to pay for what the bad people do,” added Pearl.

Common Scenarios

Fraud can run the gamut from a repair shop trying to get a few more dollars on a repair to larger, more costly trends within a dealership. One commonly seen scenario is a new vehicle owner bringing their vehicle to the repair shop, reporting a problem that occurred within days of entering the contract, or even on the way home from the dealer after purchasing a preowned vehicle. In these cases, the dealer who sold the vehicle might be committing fraud – especially if this is a pattern with newly purchased preowned vehicles. If the dealer was aware of a problem with the vehicle but purposefully did not make a needed repair prior to the sale, knowing it would be covered under the customer’s newly purchased service contract, they commit fraud. Some are as blatant as a dealer not properly reconditioning a vehicle but throwing in a limited warranty or service contract with the sale and telling the customer that it will cover a needed repair as soon as they purchase the vehicle. Situations of this nature tend to only be detected when they run in trends at a given dealership.

The easiest thing for an administrator to do is to cancel the dealer, according to Robertson, but if in many cases, if they work with the dealer on procedures on how to effectively use the program, an account can be salvaged, resulting is a reasonable claims level. “I once had a dealer who had extremely high claims, so I sent my representative out. They determined that the dealer did not have enough service advisors to adequately handle the customers. When customers would come in, instead of taking the time to assess the situation, they would just file a service contract claim. My rep suggested they hire a few more service advisors and in doing so, the claims frequency went down significantly and we salvaged the situation.”

Another common scenario occurs when someone has traded a vehicle in and they are no longer the owner. The service department could try to take advantage of the situation and file a claim on the vehicle, knowing that the customer covered by the contract is no longer the owner, but not reporting the sale, in order to get the repair paid for under the customer’s service contract.

Ganther noted a situation that is usually not detected until it shows up in the loss ratios. A disreputable dealer could sell and backdate service contracts in the service drive in order to cover a costly repair. The repair would then be post dated in order to comply with the terms of the contract. Also, he stated that service managers sometimes view a contract as an invitation to see what is covered, in addition to the repair a customer brought the vehicle in for. They tell the customer that they found and will take care of an additional problem. The customer usually does not mind, or may even be appreciative and the mechanic makes more money by charging for unnecessary repairs, knowing they will be covered by the service contract.

Our claims experts agreed that staying on top of things comes down to having good communication and detailed reporting. “Putting good processes in place, training associates on what to look for, doing customer interviews, asking additional questions and keeping your eyes open,” are all key according to Chaplin.

Chaplin added that monitoring trends in an important part of detecting fraud. “We look at trends with facilities – do they do an overabundance of a particular type of claim? Or maybe they have a lot of claims that are right out of the gate – claims within the first few days of contract entry. We look at things like a particular advisor or technician being involved regularly in a certain type of claim. My team is really good about noticing trends as they do several claims with a particular repair facility. We do loss ratios on a monthly basis. If anyone has a high loss ratio, we look at those a little bit closer and we can send out an inspector a little more often.”

Krnich described a similar process used by his company and noted that the type of vehicle a dealer sells will dictate their loss ratios to some degree. “We have software and other means in place to analyze what loss prevention ratios should be. If the ratio has typically been 70% then jumps to 95% one month, then we will begin monitoring them more closely. It could be fraud, or it could just be that they had two large claims that month that caused the change.

“If you are abusing the system,” Krnich concluded, “eventually over time, it will show.”

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An Interview with Jim Ganther


We sat down this month with Jim Ganther, founder and president of Mosaic Compliance Services. Ganther chatted with us about how he got into the compliance business from his start as an attorney, and where he sees the industry going. He noted that ignorance of regulations and what’s required of dealerships and F&I managers is one of the biggest problems facing the industry today – if they don’t know the laws, they can’t adhere to them, he noted. Check out the interview above for his thoughts, and what he sees as some of the solutions to the problem.

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