THE CRITICAL ROLE OF DEAL JACKET AUDITS Ensuring Compliance and Mitigating Risk BY BRAD MILLER, CHIEF COMPLIANCE/REGULATORY OFFICER, COMPLYAUTO In the fast-paced world of automotive retail, deal jacket audits are becoming increasingly important for dealerships looking to stay compliant and avoid regulatory and consumer risks. This article examines why these audits matter, the challenges dealerships encounter in conducting them effectively and recent regulatory actions highlighting their significance. WHAT IS A DEAL JACKET AUDIT? Deal “jackets” are comprehensive files containing all documentation related to a vehicle sale or lease, and they serve as the primary record of each transaction. These are essential records of a vehicle sale or lease, and they tell a story of compliance and of process. These files contain disclosure documents, contracts, registration and titling information, financial information, receipts and other transaction records, and can easily run into hundreds of pages. Many dealerships conduct audits of these deal jackets for a variety of reasons. This means that they will (either themselves or, more likely, with the assistance of an outside expert) review a selected number of deal jackets, and review them in detail to look for compliance, business and other issues. Why only a select few? Because deal jacket audits are complicated, time-consuming and difficult to do properly. Ideally, dealers would review each deal jacket carefully, but as a practical matter, there has never been time to do so (until now). WHY AUDIT DEAL JACKETS? Auditing deal jackets is essential for several reasons: 1. Compliance Verification: Regular audits ensure that all required documents are present and properly completed and signed, demonstrating dealership compliance with state and federal regulations. 2. Fair Lending Documentation: An audit can ensure that dealers properly document steps taken in the sales and leasing process to ensure fair lending practices. 3. Risk Mitigation: By identifying and correcting errors or omissions early, dealerships can reduce the risk of costly penalties and legal actions. By addressing issues like Red Flags compliance and identity verification, dealers can also address potentially costly business risks from identity theft and other fraudulent activities. 4. Process Improvement: Audits can reveal inefficiencies or recurring issues in the sales and F&I processes, allowing for targeted improvements. They can also help identify issues with lender requirements, stipulations or errors that will delay payment from a lender. 16
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