Compliance tools key for equipment dealers, lenders

As the equipment industry faces increased scrutiny from federal and state regulators, compliance tools may be a solution to multiple risk management concerns. 

Equipment dealers and lenders face disclosure compliance issues through the FTC Safeguards rule and Section 1071 of the Dodd-Frank Act, which regulate how consumer information is managed.  

While these regulations primarily affect the compliance department, the risk management implications go deep for financial institutions, Mehul Madia, special counsel at Sheppard Mullin Richter and Hampton’s Washington office, said at Equipment Finance Connect 2024 on May 7 in Nashville, Tenn.   

“You have your front line, your business team that’s supposed to be doing ongoing diligence, … [and] risk assessment of what’s going on; you have your legal team managing legal obligations; but other business units need to get involved,” he said.  

“Financial institutions have to take a broader scope on how to manage … risk.” 

Manufacturer concerns 

Manufacturers also face compliance challenges with environmental, social and governance (ESG) accounting and reporting, LeaseAccelerator Chief Executive Michael Keeler, told Equipment Finance News. 

Manufacturers “have the added burden downstream of figuring out what is the embedded carbon inside the assets that they produce and ship to their customers, and they need to understand their own carbon footprint to be able to tell you what’s in the product that they’re sending to you as well.” 

Nearly 70% of public companies and more than 80% of private companies in the United States do not report on leased asset emissions, according to the 2023 Global Lease Accounting Survey by LeaseAccelerator and EY.  

In addition, many companies still manage accounting and compliance manually on spreadsheets, Keeler said. 

As a result, dealers, lenders and OEMs need more complete accounting and compliance solutions to collect and report the necessary information and ensure its security. 

AI, automated solutions

With dealers, lenders and OEMs looking to better manage risk, technology like AI and automation represents a potential solution, David Costa, chief technology officer of Kubota Credit, said during a May 6 panel at Equipment Finance Connect 2024. 

If the industry can discover the “role can AI play with respect to compliance evaluation and coaching at the end goals, that’s something that would deliver a great deal of value for us and make the idea of a compliance audit a little bit less terrifying,” he said. 

As AI and automation improve efficiency, dealers, lenders and manufacturers can better control the process and potentially facilitate more transactions while keeping costs down, Keeler said. 

“That’s a really powerful platform for companies, not just for the buyers and users, but for the controllership,” he said. “They can basically automate that control and get completeness in their lease portfolio.”