mvSF Exam Guide
Why is an examination conducted?
In conducting an examination, the department is looking to see whether the licensed institution is in compliance with state and applicable federal laws.
What topics does the examination address?
The examiner will address the following topics, at a minimum, when conducting an examination in order to ascertain whether a licensed institution is compliant with state and applicable federal laws:
- General Compliance and Licensing
- Requirements as to Contracts and Separate Disclosure
- Contents of Contract and Disclosure Requirements
- Prohibited Provisions of Contract
- Transfer of Installment Sale Contract
- Other Costs Included in Amount Financed
- Finance Charges
- Refinancing Installment Sale Contract
- Default Charges
- Refund for Prepayment of Contract
- Reinstatement of Contract after Repossession
- Redemption and Termination of Contract after Repossession
- Sale of Motor Vehicle after Repossession
- Deficiency Judgment
- Statement of Account to Buyer
- Payment Receipts
- Executed Contracts; Release of Liens
- Prohibited Charges
- Buyer's Waiver of Statutory Protection
- Compliance with applicable federal laws. (Examples: Gramm-Leach Bliley Act, the Federal Trade Commission’s Safeguards Rule, the Fair and Accurate Credit Transaction Act, the Fair Credit Reporting Act, and the Equal Credit Opportunity Act)
Who conducts an installment seller examination?
The Department of Banking and Securities’ Bureau of Compliance, Licensing and Examinations performs examinations of non-depository licensees of the Department. The Bureau employs examiners who have the qualifications and experience to conduct examinations in a professional manner.
what is expected during the course of an examination?
In a typical on-site examination, the department examiner arrives at the institution and reviews all materials on the premises. In most cases, the examiner will do the following during an on-site examination.
Request access to the tools necessary to conduct the exam. These tools include the following:
- An adequate workspace. The workspace needs enough table room for the examiner to spread out the paperwork of, and efficiently review, a third party financed automobile sale.
- An electrical outlet. The outlet will preferably be located at the examiner’s workspace because the examiner needs the power for a laptop.
- A photocopier. The photocopier access is needed in the event that the examiner needs to make photocopies of any of the documents being reviewed.
- A place to secure items. The secure place needs to accommodate the examiner’s belongings as well as the institution’s files.
- Hold a meeting with the institution’s management to get an understanding of its operations.
- Provide a questionnaire for the management to complete. The questionnaire includes three requests for information that might require some management research. Management will be requested to provide:
- Name and address of the institutions to which the institution assigned contracts in the past year;
- Volume number and monetary value of contracts written in the past three years; and
- Name of any employees who have been charged, convicted, pleaded guilty or no contest to any criminal offense, except summary offenses, along with an explanation of why that individual is employed by the institution.
Request the names of, and access to, the people who can provide the required materials and information. Ask the institution to provide the following documentation:
- Written policies and procedures established by the institution in order to comply with the state laws;
- Written policies and procedures established by the institution in order to comply with federal laws, such as the Gramm-Leach Bliley Act, the Federal Trade Commission’s Safeguards Rule, the Fair and Accurate Credit Transaction Act, the Fair Credit Reporting Act and the Equal Credit Opportunity Act;
- Log of credit denials which will be reviewed for any violations of the Equal Credit Opportunity Act; and
- Log listing all third party installment sales contracts written during the prior two years or access to the contracts themselves.
Generally the examiner will request to see approximately 30 installment sale contracts along with the supporting paperwork. The examiner may request additional contracts depending on the circumstances of the examination and the size and complexity of the institution. There is no limit as to how many contracts the examiner may request.
Request additional documentation when examining an institution that operates as a buy-here-pay-here, such as:
- Servicing records, including records of payments, fees, calculation of interest, etc.; and
- Additional notices, such as notices of repossession, when applicable.
Ask follow-up questions regarding each sale either during or after the examination.
Discuss any issues that may arise during the course of the examination in order to determine how the issue occurred and how it can be corrected.
For example, if the examiner notices that the institution appears to have overcharged a fee, the examiner will bring the issue up with the institution while on-site and then request that the institution look into the discrepancy. The examiner will also discuss with the institution the ways to correct the overcharge issue, if it is confirmed, and the ways to prevent future overcharges.
The examiner’s goal is to determine if an issue truly exists, to conclude whether that issue was singular or systemic and to accomplish all corrective action during the examination when possible.
Hold an exit meeting with the institution’s management to summarize and review any issues and answer any questions that arose during the examination. The institution will be requested to sign a form verifying that an exit meeting took place.
Require the institution’s management to sign an agreement which will set forth any corrective actions for the institution to take and the deadline by which those corrective actions must be completed.
The process for off-site examinations is similar to those for on-site examinations. In a typical off-site examination, the department examiner will do the following:
- Call the institution to schedule the examination. During this phone call, the examiner will:
- Verify certain contact information with the institution;
- Request that the institution send clean, full copies of the specific documents (outlined above in the on-site examination section) to the Department by a certain date; and
- Advise the institution of the range of dates when the examination itself will occur so that the management can be available by telephone.
- Send a letter to the institution confirming the information discussed during the initial phone call.
- Call the institution sometime during the given range of dates to advise the institution that the exam is commencing and to conduct the management interview.
- Contact the institution as issues arise to discuss how and why the issue occurred and how it can be corrected by the institution.
- Call the institution at the completion of the examination to conduct an exit interview to summarize and review any issues that arose during the examination. The institution will be requested to sign a form verifying that an exit meeting took place.
- Electronically mail to the management an agreement to sign and return to the epartment. The agreement will set forth any corrective actions to be taken by the institution and the deadline by which those corrective actions must be completed.
When is an examination conducted?
The department may conduct an examination at its discretion. On average, the department examines every installment seller at least once every five years. However, the department may choose to examine a licensee at any time, including in response to specific consumer inquiries.
A department examiner will attempt to call in advance of an examination to notify the institution of the scheduled examination date. Although it is not required to do so, the department will attempt to accommodate previously scheduled obligations of the institution when possible in order to not interfere with the institution’s ability to conduct business. During the scheduling phone call, the examiner will tell the institution whether the scheduled examination will be conducted as an on-site examination or as an off-site examination.
In some cases, the department will conduct an examination during normal business hours without prior scheduling. In this event, the examiner will attempt to not interfere with the licensee’s normal business practices.
How are the examination costs invoiced?
For either on-site or off-site examinations, once the department processes the internal examination report, it will send an invoice to the institution’s management. The invoice will reflect:
- The amount due to the department for the costs of the examination calculated at a rate of $508 per examiner per day only, with no fees related to travel, expenses, or incidental expenses being included in the invoice; and
- The due date for the invoice to be paid to the department.
An institution’s failure to pay the invoice by the due date may result in additional fees and the filing of compliance actions related to the institution’s license.
Disclaimer: This information is presented as guidance to licensees regarding the usual manner in which the Department of Banking and Securities conducts examinations. No legal rights, benefits or defenses are created by the posting of this guidance. The department is permitted to conduct examinations in the manner it deems fit and may alter its approach on a case by case basis. This information in no way binds the department to any specific examination procedure.