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HOUSTON — With the close of another year, most buy-here, pay-here
operators will evaluate last year's performance by comparing their financial
results with the past. They will base their goals and strategy for the next
year by looking at financial and operating metrics like unit sales, gross sales
revenue (in dollars), the growth in their installment portfolio and their net
income.

Although these represent the standard benchmarks for
planning, they omit a very critical element — compliance.

The BHPH industry faces some important new legal and
regulatory challenges from the newly formed Consumer Financial Protection
Bureau (CFPB), the Federal Trade Commission (FTC), and the attorney generals'
offices in each state. All of these regulatory authorities will be monitoring
consumer complaints to identify regulatory violations and those operators who
are violating the rules.

These regulators will investigate consumer complaints and
have the authority to levy substantial fines for non-compliance.

During 2012, regulatory activity and monitoring of subprime
auto compliance violations increased significantly and more scrutiny in the
future should be anticipated. Overall BHPH industry compliance will be judged
on how each individual operator complies with the rules and regulations.

To date, I have noticed that operators are taking different
approaches in complying with these challenges. Some are waiting to see what
2013 will bring. Others are more proactive in their approach to compliance and
a few are ignoring these compliance threats altogether.

In these circumstances, I recommend that all BHPH operators
do the following:

—Carefully scrutinize their advertising and websites for
statements which could be construed as false or misleading.

—Determine that their documentation matches their internal
policies and practices.

—Make written disclosures of all important contractual terms
to every consumer.

—Update and document their internal collection, underwriting
and compliance policies and procedures in writing and ask employees to sign a
written acknowledgment that they have read and understand them.

—Establish written consumer-complaint resolution procedures
and protocols.

In 2012, many operators addressed the first four points and
appointed a chief compliance officer as required. Written consumer complaint
resolution procedures and protocols have not been priorities in the past but
need to be in the future.

You should have a competent attorney review your disclosures
and contract documentation and help you develop a "compliance management system."
This will be money well spent.

I also recommend establishing a welcome calling program
shortly after each sale to ascertain whether the consumer had a positive buying
experience. During that call, all consumer complaints should be taken seriously
and addressed by the operator at that time. Consumer complaints are best
resolved before they become a compliance issue with regulators.

In cases where the consumer is being unreasonable, an
operator's written policies and procedures can be used to evidence how that
operator deals with consumer complaints. Upon investigation by a regulatory
authority, the documented policies and practices will be considered in those
circumstances.

Complaint resolution is important in building a positive
bond between operators and their customers. The old saying "treat others like
you would like to be treated" applies here. Both the consumer and the operator
must work together over the life of the deal to be successful.

This year, the regulatory authorities will carefully
scrutinize collection procedures. Collectors must be particularly careful to
avoid violations of the Fair Debt Collection Practices Act. This will require
more individual knowledge and training.

Although the year ahead is full of legal and regulatory
uncertainty, prudent operators should start the year with a proactive approach
to compliance. You can't control what others do but each operator must be
responsible and accountable for their own actions. Best wishes for a prosperous
New Year.

Ken Shilson is president of the National Alliance of Buy-Here,
Pay-Here Dealers (NABD), which will host its 15th Annual National Conference and
Dealer Academy at the Wynn in Las Vegas on May 19—23. For registration or
for more information, visit www.bhphinfo.com or call (832) 767-4759. Shilson is
also president of Subprime Analytics (www.subanalytics.com)
which performs electronic portfolio analysis and due diligence services for
financial institutions, which provide capital to the subprime automotive industry.
NABD will be in Booth No. 1229 at the National Automotive Dealers Association Convention
& Expo in Orlando, Fla. on Feb. 8—11.


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