Unknown Speaker 00:01
Welcome to the toto note podcast hosted by Jim Rhodes founder and head coach at the octane group. Join us while we dive into the questions that matter most to buy your pair operators in the world of subprime auto finance. This episode is brought to you by our friends at Neil. And now, here's your host, Jim Rhodes. Welcome,
Jim Rhoads 00:22
everyone to the toasted oak podcast. We're thrilled today to have distinguished guests. Brent Carmichael joining us again, he's a regular co moderator, co presenter, co speaker, whatever we want to call him with the tote the Note series, and we're grateful, Brent, that you're able to come and bring your expertise to the conversation. Of course, you many of you recognized on the screen, Steve Levine, who is the attorney with Ignite consulting partners, longtime expert in the compliance arena. How long have you been doing this, Steve?
Unknown Speaker 00:55
Oh, gosh, I hate to admit it about 30 years.
Jim Rhoads 00:58
Wow. Yeah, yeah. You I just say you've been done since I've known you has been been a good well, for myself. Yeah. And obviously, the compliance world has changed a ton. That's what we're here to talk about our theme for today is, you know, how to be compliant in the area of underwriting. So this is an interesting thing for me, because as a former dealer, myself, I watch how dealers are out there, you know, we watch these same conversations on Facebook and social media, Steve, that you see, and just, you know, must use I saw you say recently, it's good that people keep you in business. Like there's folks around need compliance attorneys, right is, is a no shortage of work for folks like you. But I think what we want to try to do today is to help dealers understand, okay, what what can I navigate in the underwriting space? How can I be flexible, you know, as a buy here, pay here, dealer, which is one of the things I've always said, Brent is one of the things that I love about the buy here, pay your space is that ability to be flexible. We're at the end of the day, we're out there providing an unconventional finance solution. So now we got to figure out how can we be at least conventional enough to be compliant? And so it's, this should be a fun conversation. And I think, Steve, you can just kind of share your background as it relates to underwriting in particular, I know you cover all all aspects of of compliance, but you want to talk about the that part of it first.
Unknown Speaker 02:20
Yeah, I mean, certainly, we had a lot of questions about underwriting. And, you know, I'm here to tell you, I think you can have the best of both worlds, you can have a written policy that is objective and sets forth the criteria, while at the same time, leaving the dealer the ability to, you know, make decisions and run their business, the way they see fit. What I look for, if somebody tells me they have a policy, and then tells me they're making three exceptions a day, well, that's not a policy. Right. So So you know, there is a way to balance it all.
Jim Rhoads 02:59
Yeah. So Brian, I know you got a lot of questions in there before you jump in there. I'll explain that Brent, for those who don't know him as a consultant and longtime moderator 15 years now with NCM, one of the most prestigious firms in the business of 20 groups. And so, Brent, you bound to have questions for Steve?
Unknown Speaker 03:17
Well, I was gonna say just right off the bat, Steve, do you like the word policy? Or do you like the word guideline better when it comes to underwriting because policy seems almost the black and white? Right? I kind of got to do it this way. But would you prefer to have guidelines as opposed to policies when it comes to to underwriting,
Unknown Speaker 03:36
I actually want to see you have a policy that because I think that's what regulators and auditors expect to see. So I think it's important to have that now, if you want to have some additional guidelines, or if you want your policy to kind of go into detail and do a little bit of both. I think that's okay, too. But but but I think your aspiration has to be a policy.
Jim Rhoads 04:01
And then I would also like to follow up just to make sure I, when we talk about auditors and regulators like Who are they who would be the ones who would be governing this particular aspect of our business?
Unknown Speaker 04:15
Well, you know, you have the CFPB. At the federal level, you certainly have a lot of state regulators that are interested, especially when when discrimination claims are made. You know, more importantly, and some things I think that dealers overlook. This is their capital provider, wants to see their underwriting policy, and they're going to audit them to that policy as well. Not to mention, again, if certain allegations are made, you may have a plaintiff's lawyer that's digging into that policy. So it may have a lot of eyes. So it's important to have something that means what it says,
Jim Rhoads 04:55
Yeah, that's a lot brand. What did you hear that? Well,
Unknown Speaker 04:58
I guess my question would be And again, I'm gonna put my dealer hat on here a little bit. Really? What are my chances? Steve, I'm really getting in trouble for this. I mean, are regulators are you hearing? Or have you heard? Or have you seen regulators that went into a dealership Buy Here Pay your finance company, whatever, specifically for their underwriting as the lead reason they were there? Or is that typically one of those, they kind of got in trouble for something else first, and then they looked at that while they were there?
Unknown Speaker 05:29
So I think there's actually a couple of different answers to that question. As compared to say, you know, 10 years ago, yes, I think this is a much bigger issue. The regulators are looking at a regulator that shows up, you know, say it's a state regulator that comes in every couple of years and does an examination. That's what they do, I don't think they're going to be digging through your underwriting policies. Unless there have been complaints made about maybe whether whether they'd be discrimination complaints or complaints about the rates being used, then maybe, you know, on the other hand, you've got a specially there are some state regulators right now that are all over this. And I personally think that, that they're trying to find things, that they have a certain view of the industry that they don't particularly look at the industry very favorably. And this is one of the issues that they like to get into. So, for instance, if you're in the northeast, I think you've got a lot of state regulators that are more likely to want to talk about your underwriting policy. If you're in other parts of the country, not so much. So it's not one size fits all, because we are.
Unknown Speaker 06:52
And again, I don't want to minimize the importance of underwriting compliance. But you know, I try to stay up with the trades as much as possible. And typically, when a finance company has gotten in trouble, it's for something else first that they went in for first, it was some other complaint. And then they got into the underwriting side of it and found that they were making more exceptions than what they were supposed to or not. And I get the question a lot. I mean, like, how important is this brand? How often I mean, is that is a regulator really just going to come in just out of the blue? And just want to see my underwriting guidelines? And what I tell them is what you've always told me, yeah, you need to be prepared for that. I mean, you need to be ready, that they just going to show up at your doorstep and want to take a look at these things. So don't assume you have to get in trouble for something else first, I guess.
Unknown Speaker 07:37
And then I'll tell you that the CAC lawsuit that the CFPB brought that the New York AG, Massachusetts has brought similar that there's been a couple of other states that they're getting into underwriting because at the heart of it, they are looking for discrimination.
Jim Rhoads 07:57
That's the third time that we're Yeah, yeah. Yeah. And so that's what I think about with underwriting, I think is, you know, how am I going about if I'm a dealer over there, my dealer creditor, right, I'm making this decision. So how do I go about that, you know, without the appearance of discrimination. And you know, Brent and I are quite familiar with some of the underwriting software's out there that are quite good. And they're definitely solving a lot of what would be compliance problems, because they're, they're making sure that they're complaining that, but I like the idea of having this guideline or policy where I can follow that software, I write the policies into that software, I stick with that process. And then I have an exception making process, right, because you're gonna make exceptions to your policy or your guideline. But your policy or your process for making exceptions is pretty clear. When that helped me,
Unknown Speaker 08:45
that would absolutely help you. And if you've got some sort of tool that you're using, say that in the policy, right, and, you know, I love those tools, I think they're very beneficial to a dealer, I think it really takes them out of the danger of subjectivity. The trick is, you know, I tell this to folks all the time, if you're gonna go that direction, you have to listen to it. You just can't listen to it when you want to listen to it. Yeah.
Unknown Speaker 09:15
Well, and you got to be consistent in how you use those as well, because I know you've seen this, Dave, I have, I'm looking through their scoring system. And I look at the application, well, wait a minute, this probably really should have been graded here and not here. And then I'll find another application where it is scored that way. So then we have to have that conversation with the dealer. Look, you guys got to sit down and go over the definitions within your scoring system and make sure everybody's on the same page. Because Steve scored it this way. Jim scored it this way. And it's the exact same basically application that we've seen there. So something I've seen probably more too often than I should have, is have I had to put that in a recommendation that hey, it's time to review the definitions of your scoring system. And make sure everybody on understands what they are supposed to be.
Unknown Speaker 10:02
Yeah, and Brent, that's a great point. A lot of times I've seen companies implement a scoring solution, and the others happy as a clam. But they didn't train the underwriters actually making the decisions. And there can be disconnects, you know, six months, a year later, that only get picked upon when you do the audit. So you really have to make sure when you go in this direction, train them and then train them again.
Jim Rhoads 10:33
Yeah. So I think from over here, Brent, you know, as a consultant advisor, much like what you do, I'm always super clear about we don't do accounting, we don't do legal. So when people ask me, anything in the sphere of legal, I just say, once you call Steve, let me get you his number and Fort Worth and talk to him about the legal side. Because we just, we stay away from that, however, we're trying to obviously, advise folks operationally in a way that will, you know, keep them compliant. And so that's where I wonder like, I'm not as familiar with the safeguards rule and some of the things that would have come before that. So I am I understand that we're supposed to have on our team, somebody who's designated as our compliance person, and they would also probably need to oversee this underwriting process, am I right?
Unknown Speaker 11:18
I think partially, yes, you should have somebody I don't care whether it's a small dealership with just a couple of people, you should have somebody that you can point to and say, yes, they are accountable for compliance doesn't necessarily need to be the same person that that handles your underwriting, as long as there's some sort of, you know, familiarity, where the compliance person understands the basic underwriting concepts and how things work. And vice versa, whoever's doing your underwriting leadership has to know a couple of things about compliance to where the landmines are.
Jim Rhoads 11:55
Okay. So going back to this thing about flexibility, you know, if I'm this buy here, pay here, dealer out there, and you know, Middletown, Pennsylvania, whatever I'm trying to figure out, how can I look at the book and I see my guidelines, and it says, I'm trying to stick to six months on the job and certain credit profile, but I've got this person here who, you know, maybe is an exception one way or the other, you would recommend that they proceed, how based on the checklist, so to speak, whether that's in a on a paper checklist or in a in a sophisticated software, they've got this guideline that did this policy, how would you recommend they go about making those exceptions?
Unknown Speaker 12:33
So I think the first thing that folks need to understand is exception logs are very important that they can really save you if there's any sort of question down the road. And, you know, I preach this to our clients. And it's always easier said than done, that they may develop good habits for a couple of weeks or a couple of months. But but then inevitably, the exception log kind of falls by the wayside. That's why one of the things that I encourage folks to do is I love quarterly compliance meetings. Anybody that has heard me speak as heard me talk about quarterly compliance meetings, one of the things you talk about in those meetings is okay, let's break out the exception log. Are we making exceptions? What's the commonality for those exceptions? Do we need to change our policy, because we're calling them exceptions, but apparently, this is now part of our policy, and we need to change our policy. And that becomes important because if you ever have to defend yourself, you're able to show we did make an exception, we recognize an exception, and here's why we made it. Maybe they had more downpayment, maybe there was a reason they they switched jobs, whatever it is, and if you do that you're greatly diminishing your risk of somebody coming in and saying, Well, you see, this is proof that they're not even following their own policy. Yeah, I think there's
Unknown Speaker 13:58
an exception, though, Steve. I mean, real quick. I'm sorry, Jim, what would be considered an exception? I mean, very few dealers I know have like literally black and white. Of I don't even have most of them don't have it in writing in the first place. Right? If they don't say we're going to do this, we don't want to do you know, we were 42 months? Well, if I do 43 months, is that an exception? On a one time deal, I mean, would that be considered
Unknown Speaker 14:24
I do think is an exception, because you said 42 months is the policy. You know, for instance, if you say that our minimum downpayment is 500, and you decide to take 400 That's an exception. If you say that, that we need to show stability of this much time at the residence, and then you get less than that. And you look at the totality of the application, and you want to do that deal. You coded as an exception, and why are you making that exception?
Unknown Speaker 14:55
Okay, I'm gonna put my dealer hat back on now I'm going to have the longest exception log in recorded History. Because we all know that when it comes to Buy Here Pay Here underwriting the only black and white policy is It depends, right? Because it does it just depends on everything, how much money they have down how much the car, all of this stuff is at all. It's it's an interdependence kind of thing. That's why I went, I'm gonna go back to my earlier question with the you like policy, or do you like guidelines? Say, I don't have exceptions, typically in a guideline, right? I do have exceptions of policies. So should we have it again, it's semantics, I get it. But the top of my document to me would be underwriting guidelines, then, from having to and this is gonna sound bad, because there's my dealer hat again, I'm probably gonna go to jail for this. And I don't want to have to worry about that exception thing, right? If I say, we like our terms to not exceed 42 months. And if I go 43, to me, that's not an exception, because I like it, I don't put it in black and white, that we only do 42 months and that we only do $500 down on a thing. So
Unknown Speaker 16:04
I think you could accomplish the same thing in a policy, you could say that we have a $500 minimum, we will consider exceptions based on mitigating factors. You know, I think you can leave yourself room and still have it be a policy.
Unknown Speaker 16:24
That's what I'm, that's what I'm looking for there. Because, again, you go around any of my 20 groups, and you say, okay, and we've done this underwriting survey thing in the past, and it's like, you know, minimum down to 500. So if somebody gave him a 400, you wouldn't take it. Well, yeah, it depends, right. So I know there's people out there listening going, Wait a minute, I mean, I may take less than 500. So what is my if I put down my minimum down is 100. Well, if somebody comes in with 75, will you take it? Yeah, it depends kind of thing. I think that's kind of where the struggle with underwriting policies is, is. We think it is kind of a black and white that if I put 500, then I can't take less? Or if I do I really have to be able to explain that.
Unknown Speaker 17:05
You can, you can't explain it. Yeah, the thing I hate to see is I asked to see an exception log and you know, it scrolls. Got it goes on forever. And that's when Okay, guys, we need to rewrite the policy, exceptions or overruling the policy?
Jim Rhoads 17:22
Yeah, I think, you know, Brent's enjoying putting his dealer hat on, I'm gonna put an auditor hat on for just a minute. And I'm going to pretend that I show up at one of Brent's dealerships, you know, one of his clients are his 20 group members. And I'm going to ask, okay, I see these exceptions, I see that you're trying to be flexible and help people in the community and you have this policy I see. But you consistently make exceptions for this four customers, and you let some customers in with an exception at $350 down. But what about this customer here? Who meets all the checklist? And you turn them down? Like, what's the story behind this one you passed on? So that's, that's what I'd like to understand. What do you think, Steve?
Unknown Speaker 18:00
You know, I think in that case, you, you use a scoring system for that reason. And like I said, at the very beginning, if you use a scoring system, you need to do with the scoring system says and not Yeah, a lot of times I see tension, when folks get on a scoring system? Well, it's not intuitive to what I would have done. So I'm going to make all these exceptions. And that's where you run into that subjective risk. Now, if you're not using a scoring system, you know, I again, I think it comes down to making sure that the content of the policy itself gives you enough room there, you know, and let's face it, a lot of this discussion is, is going to take place after after the horse has left the barn, you know, the auditor shows up or the regular show shows up. And they've got this preconceived notion that while the customer thinks that that they were discriminated against or something didn't go in their favor, and you almost have to prove No it did, we followed our policy. And to be able to make that argument, you know, the more data and information you have available, the better. So you don't have to go back. Try to remember what was I think it on this deal a year ago?
Jim Rhoads 19:17
Yeah. And I think what I'm hearing brand is that, you know, we're not likely to have an audit knocking on our door unless there have been complaints. But if they did show up, they're probably looking through a lens of discrimination. They're looking for primarily some evidence of discrimination, perhaps some other things we haven't really addressed here. But that just lends me to think that I need to be mindful that if I'm a dealer, if I'm, if I'm the director of the, you know, underwriting department, I need to be mindful of those things. Because I want to make sure that I'm consistent across the board. I don't have anything that looks like favoritism. Right. So so that's kind of where I'm thinking we're probably able to stay safe and I think then Steve, I'm trying to figure out okay, so I have somebody who meets my check lest they score in a in my system, or they check all the boxes, but I have some other reason that I've, I've observed something or I've discovered something in my due diligence or whatever, we want to call that in the approval process. And I, and I'm uncomfortable. So how can I operate from a place of insecurity, like, Brian, I'm sure you're familiar, I've seen contracts, and I used to have one of my own contracts as a dealer that just said, you know, if I, if I feel unsecure, there's some basis for insecurity, got information and customers leaving the town with collateral or, you know, moving or destroying the collateral or whatever. So there's some basis for insecurity in the contract. But it's a point of the underwriting approval, is there such a thing as finding something that just makes me insecure?
Unknown Speaker 20:45
I think you could do that, as long as you're being objective. It can't be based on their age, or, you know, religion or color or anything like that, you know, national origin, things like that. But but if it is, you know, they've had a repossession within the last x or, you know, I heard from so and so dealer that, that they they repossessed the car, and it was in shambles. You know, if they tell you certain things in the conversation that leads you to believe that they're going to abuse the collateral, or take it someplace, you don't want to take it, those are all valid reasons. Yeah. But But it can't be for any protected class reasons.
Jim Rhoads 21:34
I think the part that is that is dinging me to brands is like, Okay, I'm a Texas dealer. And I've got this person here whose application says they lived in Texas all their life, but they're they got a Minnesota accident, you know, it's like, you know, those are the kinds of things are like, what am I? What am I to do? You know, I'm almost obligated to provide the financing. You see? So that's what I'm trying to what do you think Brent?
Unknown Speaker 21:56
Well, and the one thing that that I challenge the dealers that I work with, is I don't like the underwriter to ever actually see or talk to the customer at all. Because I mean, if you think about the and I'll just go to the top, Ford Motor, granite, JMac, Exeter, none of them ever see or talk to the customer at all, they base their decisions solely on the information in the data provided. And I think that kind of takes out not only the subjectivity, but the opportunity to discriminate at that point. I mean, Jim, you've been around, I've sat across from a customer that was the nicest Yes, sir. No, sir, in the whole wide world and look crappy on paper, short job short res didn't make very much money. You know, I know Steve's gonna make this payment selling the car, never seen him again. And then I've had that that customer in there that's dropping the F bomb, right and left, and you just go, this guy is never gonna make a payment no matter what I can just tell. And then you never hear from again, because he makes all of his payments on time. So I think that can lead to discrimination with us sitting down and talking with the customer or seeing the customer, because it can give us a preconceived notion. I mean, you know, some of the questions I've heard them. Well, they were tweaking. I mean, how do you know? Yeah, right. I mean, you don't they're acting different. But how do you know? So I turned him down, because I thought they were using, why don't want to stand up in front of a judge and Jerry, and you know, throw that one out there because it would be Excuse me, Mr. Carmichael, you happen to be an expert in drug addiction and drug treatment. Right. So So you know, those are the kinds of things that that that worry me, and he kind of mentioned, one has a Minnesota accent, but says he lives in Texas all his life, you know, the out of state driver's license thing to me is one that really, you know, for some reason, we assume that if somebody hasn't gotten their driver's license switched over, that they're a high risk, and I've had dealers literally tell me, No, we won't sell you a car. If you don't have an in state driver's license, and there's some states I get it, because you can't register the vehicle that an in state but but some of the others, I'm going and see this would be more of a question for you. I know that's not really technically a reg B violation, right? Because I mean, didn't say you can't discriminate based on where their driver's license was issued. But to me, that seems like that would be a compliance issue to literally say, I'm turning you down. Again, in a state where you don't have to have a valid in state driver's license as a dealer to register a vehicle so to speak, Arizona being one of those South Carolina, they being another one where their dealer can't physically register a car without it. But these other states man, that seems to me like that's, that's typical.
Unknown Speaker 24:25
But But what is the policy say, getting back to how the policy is written, does it say in state driver's license, and I think of business has a valid business reason for wanting their customers close, and being able to find them? So I think you could say in state driver's license, and in your example about you know, Texas accent and Minnesota driver's license, and the story is just not adding up. Nothing you said, leads me to believe that there's any sort of discrimination like that it's just the story is not adding up. All right. And I think that's okay, too. Okay, let's make that decision. Typically given
Unknown Speaker 25:05
in your example, there's gonna be something else if we're doing our due diligence as far as the application review, that's gonna say, yeah, he says he looks as a mom and dad and has all his life but credit report or something else, again, if they don't have that lovely Texas accent that we all love, that that would probably lead us to believe that there was something else there with us.
Jim Rhoads 25:26
Right. So what I'm hearing is it's probably not appropriate, Steve to have in my policy manuals, or some sort of a he ain't from around here clause. You know, that probably doesn't make sense. Let's talk about marketing for a minute. Like, you know, one of the things we see out there is dealers who have this really broad blanket, you know, marketing approach that basically says something along the line of everybody rides, you know, or your paycheck is your your approval or whatever that sounds like. So how does that complicate the work for you as a compliance attorney?
Unknown Speaker 25:59
I boy, yeah, you've hit upon one. I've been wrestling with dealers over this for several years now. Because I think that that certainly the CFPB several of the States, I mentioned earlier, that this whole Ability to Repay theory, that it is not enough, just to look at income, you have to have confidence in the ability to repay, and certainly if you're saying everybody's approved, or you know, your your, your, your job, pay stub is your credit. They're not thinking about that whole bigger picture. And I think that leaves them vulnerable, especially in some of those states that I mentioned. Yeah. So
Jim Rhoads 26:42
I wonder then how you would advise and maybe not just that marketing example. But when you've got somebody who's, especially that situation where we talked about a, the, they seem to meet our checklist, I'm gonna assume that our checklist is not publicized, I would be advising our dealers to keep that internal that nobody knows that we're looking for six months on the job, or 500, down or aside from our internal team. But when when I do have somebody I turned down, what would be the recommendation on the notice of credit decision? When we send that out? I'm sure that comes up for you as well.
Unknown Speaker 27:15
You could go a couple of different directions like that, just depending on the circumstance, but but I want to make one thing clear with with the whole Ability to Repay arguments. And I don't mean to get on my soapbox, but But what I struggle with is CFPB, state regulators, they've given no guidance on on what they expect creditors to do. It's just this theory, well, they don't have the ability to repay, and therefore you're setting them up to fail. But but they haven't said that. This is what the ratios should be. This is what we expect to see that this is what the analytics show. So it's addressing a moving target. And, you know, like we've seen, we've seen with a couple of different companies, what were their regulators go after them? And and whatever they were doing wasn't enough. But they never told them, they should have been doing anything different. Yeah. So I really struggle with giving guidance in this area, because it's such a slippery slope. And what does it really mean ability to repay? You know, I always go back to the fact that I've had this debate with plenty consumer advocates, at some point, that there's got to be personal accountability on the part of the customer to know their situation, and know whether they have the ability to repay or not, why is it inferred on the creditor? That we're the one that has to be tasked with that? When if it's the person that that's making that choice? It's ultimately their responsibility?
Jim Rhoads 28:58
Right? thing on that, Brent? I got a cup. No, no, I
Unknown Speaker 29:01
just, I was gonna say kind of back to Jim's question. If I'm going to turn somebody down for the I just don't feel right. Right. I mean, you know, we have sent out an adverse action and your choices are typically information obtained from a credit reporting agency, or information obtained from a third party? Would that be a third party?
Unknown Speaker 29:23
I don't think that's
Unknown Speaker 29:25
not. We haven't really heard anything from anybody. We just got a bad feeling because again, the accident didn't work out or the way he was acting. So we still click that as third party, which I think I believe we have to if they ask you in writing, right, we have to produce proof of what we found out or something along those lines. So you have the ability to pay thing. And again, most of the dealers that I work with, and Jim, I know most of the ones that you work with as well, you know, have a good internal metric tracking system, you know, so they know they kind of look at their losses. And you know, I think most of them can validate Hey, the reason that we put them in this much payment is because historically, if we've kept somebody at that percent or less, they have a better chance of performing. Right, we hear the 25% rule, right 25% And net no more than car payments has kind of been proven out doesn't say that nobody charges off under 25%. But we know that once you get over that percent, that the severity and the frequency both increased fairly drastically at that point. So you know, it's not one of those that we can't go to the CFPB and say, well, 25% rule, because subprime Analytics says so and agora says so and you know, NCM says, oh, nada says so. But I think most of them can can fade that you set him up for fail, you know, the hard part is the the self employed. Right? The 1099 guys that if they don't have you know, it's, it's August, how do you get that verification of income? Those are the ones I think it probably be more of a struggle for us to be able to validate that ability to pay on those because that really is a crapshoot at that point, it's really hard to nail down. What do they actually make with that?
Jim Rhoads 31:06
Yeah, I think I should have warned our viewers and listeners when we started in here that we might run a little long today, because there's, there's a ton of stuff. And as we talk, there's more stuff that comes up that I think about Steve, we may have to have you back on a future episode to kind of dig into some of these elements. Because one of the things that's also happening in our industry is I hear Brett talking about that, as you know, we've seen dealers wrestling with this whole new thing around term of loan. And we're hearing about dealers having crazy high car payments, probably because they're trying to fit the same kind of deal into a certain term, I would guess. But we're advising our clients to look first at payment to income, make sure that the payment is comfortable, because customer can't be successful, the payment doesn't fit. And so look at that. And but now we've got this weird term thing that we're having to figure out, because if I'm gonna let the customer in with a reasonable down payment, keep the payment, you know, comfortable relative to their income, suddenly, I've got this crazy term that I don't I want the customer to be successful, I'm probably going to have a conversation with the customer about the term or whatever. But it's like, that's one of the problems we see dealers wrestling with, I don't expect you to have the answer to that. I'm just saying it's one of the things that we're seeing in in this industry of late is that it's just a really a wrestling match to to make it all fit.
Unknown Speaker 32:14
I totally agree with you. And, you know, a lot of times you're going to have bad hacks down the road, you're going to have a regulator that looks at this and says, Well, the car was already six years old, and you sold it, you put them in a 72 or even 84 month term, you knew darn well, that that was gonna go past the mechanical life of the vehicle. You could save that on on a lot of deals, if you look at them one on one, but But as a practical matter, to get it to be affordable to end, they need transportation today. They're not going to be able to go get a car for 48 months. You know, I just think you kind of have to rely on the fact that that at some point common sense is going to prevail, and people are going to understand that they were trying to put the deal together for the benefit of the customer. Yeah. That way now. But yeah, hope.
Jim Rhoads 33:11
Yeah, I think we all hope that I think what I generally hear though, is if we can stay, we can create a set of policies keep that internal, and that we clearly document those exceptions when they come up. And we've got a practice of that. And then I think the other piece that I'm hearing is when we do have a customer who seems to meet the checklist, but we have to decline them for some other reason that we've got some justification in that that was kind of uncomfortable to me still, as a former dealer, like having to turn somebody away who seems to meet my checklist. But you know, I still would probably do it just because at the end of the day, it's it's our dollars and our you know, our judgment, right. But I think that when I hear a lot of that I'm I'm thinking back to when I first got in this business, Brent, I remember hearing about the FDCPA, I think Fair Debt Collection Practices Act, which applies to the collection side, and we were taught back at the beginning that technically, as dealers who were financing our own retail installment contract or own goods, we're not technically required to comply with FDCPA. But it was encouraged that we do that because it was the only rulebook around. And so we think it's a sensible set of rules anyway, so So I'm wondering in this underwriting realm, are Are we bound by the same rules as a bank, for example, when we're financing our own inventory? Is it same set of rules?
Unknown Speaker 34:31
It generally is. Yeah. Yeah. I mean, you're talking about Fair Credit Reporting Act FCRA. Credit Opportunity Act. Yeah, er, yeah.
Jim Rhoads 34:40
So I think what I'm hearing Brent, is we just need to we need to be consistent. We need to avoid anything looks like discrimination, which I think we all understand. That's sensible. We should all be doing that in our business anyway. And then when we have those exceptions, we should clearly make time to document them and then maybe we shouldn't make our life more difficult by casting such a wide net on the marketing side. It's been mobbed. ovation, it's really not necessary to do that, you know, to say everybody writes. So you know that as an example, I'm just picking one, I'm not picking on anybody who might have that slogan. I just mean when we when we cast that wide net and our marketing, now we really don't leave ourselves any place to go. For me that's uncomfortable, we have to turn somebody down. And I can't believe that. And I've seen it. I mean, I've actually seen dealers who will have to turn customers down for whatever reason. And so that's an uncomfortable place to be if I'm their attorney.
Unknown Speaker 35:27
Well,
Unknown Speaker 35:29
100% guaranteed, and that's, I think, that falls on customers deaf ears anymore. I think too many people have done it, that everybody knows that they're not going to be well, they won't be declined, they'll be approved, but it'll be conditioned. And I know Steve, and I don't like that game either. I played it when I was a dealer back, you know, back in the late 90s, early 2000s, being the only one in our market that did advertise, everybody was approved, and we physically did not decline. Anybody. But obviously the condition was pretty steep, which in theory was that declined, but we can hang our hats on. No, we didn't decline, Steve. We needed $5,000 down on a 4999 sale price. But we you know, he was approved at that point, I think, I think like I said, from a from a marketing standpoint, I think that's kind of fallen on deaf ears with customers anymore. Anyway, I don't like it. Because I've been around Steve for so long now that I think he just puts you in the crosshairs. I think those are the kinds of things. I don't think they come into our dealership looking for that. I think they're just hanging around on the internet, they come across a website that says 100% approved and they go hmm, I don't see anything here. I don't see with approved credit. I don't see any of that kind of thing there. You know what, I'm free Monday morning, let me go into that dealer. Just see what's going on with that. I think it just puts us in the crosshairs, to advertise stuff like that. And, again, we don't decline. But in I've seen and I've read the some of the companies that have gotten in trouble for, you know, large down payment, you actually did decline them. Now. It's bait and switch. Now it's an advertising compliance issue that you have. And then there's been some fines and punitive damage, for doing those kinds of things. So I just think stuff like that doesn't, you know, you want to advertise to our customer? Just tell them it's gonna be quick and easy. So you go make sure and make sure that it's going to be quick and easy. Right at that point? Because that's really what they want.
Jim Rhoads 37:19
Yeah. Quick and painless. Yeah. So I have to believe both you gentlemen are familiar with Bill, may Potter believe he's, it's best to like, yeah, so he, I remember him sharing. And I think Steve, you would probably offer the same advice, as we should probably always as dealers try to avoid having our customers end up in an attorney's office. I mean, that's just the the strategy is let's not, let's not make them because anybody who can, if they feel wronged, whether it's correct or incorrect, if they feel wronged, then they may choose to engage somebody, or it's pretty easy to file a complaint, at the FTC website, and all these other places pretty easy for a consumer to file a complaint. So I think that's where we, you know, we need to be working. I think most dealers out there are, but it's just like, that's where I think we we step into dangerous territory when we have that customer who feels like they've been mistreated. And if they happen to have some, if they're a minority, or they otherwise have, you know, something else that that might make a strong case for being wronged, or, you know, mistreated, that that's obviously a scenario we want to avoid.
Unknown Speaker 38:28
I'll make a general statement back when I was doing defense work, I never handled a lawsuit that didn't start out as a complaint. Yeah, okay. And the totality of my experience, is, if you give the customer a pathway to ventilate, then they're going to take that pathway. If you don't, that's when they wind up going online, causing a social media storm or going to the regulator. So I tell our clients, feedback at name of your dealership.com, put it on your letters, have a sign at the dealership, give them a pathway, put one person in your company in charge of monitoring that and make sure it's not somebody that thinks they're always right. Yeah, make sure it's somebody that is going to objectively look at what happened here.
Jim Rhoads 39:19
Yeah, very good. Yeah. So I think we're probably at a place Brent, where we can wrap up, there's obviously plenty more to talk about, we have Steve back another time. And I look forward to by the way, Steve, when we get this thing edited and ready to go out to, you know, the worldwide interweb I'd love to have you on the morning show, we can kind of take some of the snippets of this and have a conversation, you know, to to wrap that up, but I might just let our listeners know that we're recording this in April of 2023. So obviously, information could change. So there's some of the stuff lives out on the internet for a long time. So just make sure and, you know, consult your attorney about whatever the latest regulations might be. And we think that attorney probably should be Steve Levine at Ignite consulting partner, so yeah, reach out to him. He knows the space quite well. Well, you heard him say 30 years in the industry. And we certainly see he's out there. And by the way, Steve, I got to take a moment to say, I see you guys giving so generously, you got your compliance unleashed coming up, I had the date written down, what dates is the what are your dates for compliance unleashed?
Unknown Speaker 40:16
May 22 to 24th. It is two full days of how to protect your business. Yeah, it's not boring compliance content, it is how to protect your business.
Jim Rhoads 40:26
Yeah. And that when people can pay and come and be part of that event, which I think is really important for people to make time to do that, but I just want to say to you guys are out there. So you and Richard are out there generously given lots of great information. And today's another example that we appreciate you making time to talk.
Unknown Speaker 40:42
Well, thank you so much for the opportunity. You know, this is what we do. We love dealers, we believe in the industry, and anything that we can do to contribute and help we want to do. Yeah,
Jim Rhoads 40:52
any closing thoughts there, Brent?
Unknown Speaker 40:54
No, I mean, I've like I said, I, I think a lot of Stevie knows that I have for many, many years and what they do for the industry, and I'm going to tell on him a little bit here. He he does a lot of stuff that he doesn't get paid for. That's all I'm gonna say. And we greatly appreciate that in the industry, because there aren't a whole lot of people that do that anymore. And what him and Richard do and what they're willing to do I have quite a few of my dealer clients at US that are we share clients with Ignite and like i said i all the all the respect in the world for Steven Richard and everything that they do for us.
Jim Rhoads 41:28
Yeah, for sure. I think there's at least one more guy that's doing a lot without getting paid. So I find that my bank balance is just I'm in that group. So yeah, so but
Unknown Speaker 41:39
his hourly rate jam is a little bit higher than what one of us can ever know.
Jim Rhoads 41:46
He's he's a he's very specialized in his expertise. So again, Thanks, gentlemen, for making time we'll wrap up there and just remember, you can always subscribe we've got a special playlist over on YouTube, you can subscribe to our YouTube channel, and you can find this information out on your favorite podcast channel. So thanks again for tuning into tote the note.
Unknown Speaker 42:05
Thanks for joining us. Please leave a review and don't forget to subscribe to tote the note. And thanks again to our sponsor, Neo. Find them at Neo verified.com. Until next time,
