Current economic conditions and today’s litigious environment make paying close attention to regulatory compliance and best practices a must for dealers across the U.S. The following errors and bad practices are the seven most common reasons dealers become the targets of media exposés, class-action lawsuits and high-dollar regulatory fines.
1. Using the Word “Best” when quoting the APR
NEVER use the word “best” when discussing the finance charge (APR). It isn’t a sin, against the law or unethical to post a reasonable markup over the buy rate. The F&I practitioner – on behalf of the funding source – solicits, negotiates, processes and discloses the installment sale agreement and, as such, should be fairly compensated for the expense of originating the installment sale purchase.
If a customer asks if the APR quoted is your “best rate,” your response should be, “If you wish to fi nance here, this is the rate that’s available.” And that’s it. You can say it is “competitive.”
2. Forging Signatures
Under no circumstance should a customer’s signature be forged on any purchase document, funding document or any other document relating to the acquisition of an automobile. Anyone who does this is committing a felony.
3. Overstating Income
Overstating the customer’s income on a credit application may convince a funding source to purchase the deal, but it can eventually lead to repossession and chargebacks – and it is against the law. Forging a credit application is a felony.
4. Non-Compliant Menu Sales
Menus can be misused to hide the loaded payment or altered after the fact to document acceptance of products the customer did not agree to buy. If a menu is being employed, it is recommended that a copy of it be kept on file with a letter from a qualified attorney affirming it’s been thoroughly reviewed and meets established legal and fair practice standards.
5. Packing Payments
The payment quotes during the purchase process must be limited to the agreed-to cash price (or trade difference) of the vehicle – and any disclosed and agreed-to equipment, product or service (and, if applicable, the taxes and fees) – at a representative APR and term.
If, during the vehicle selection process, the customer’s creditworthiness hasn’t been determined, it is recommended that the APR used for monthly payment estimates be based on the running average retail rate charged for that class of buyer (new/used, prime or non-prime) in the store over the past 60 days. Also, the term used to quote payments should be representative of the repayment periods for similar deals. This practice gives the dealer a statistically verifiable and legally defensible basis for the quoted rate.
6. Non-Compliant Disclosure
The customer must have ample time to review the contents of an installment sale contract or consumer lease agreement before being asked to sign it. Best practices dictate that the customer hold, not just see, the document prior to it’s being disclosed. After handing the customer the agreement, two open-ended questions should be asked. “What part of the contract would you like me to go over with you?” and “Do you have any questions?” After responding to the customer’s statements, take the contract back and conduct the TILA disclosures.
7. Excessive Buy Rate and Aftermarket Product Markup
The markup over the buy rate should be within acceptable margins. AFIP suggests the use of a Dealer Participation Rate Modification Form and strongly recommends implementing the NADA Fair Credit Compliance Policy & Program. The retail price charged for aftermarket products must be commensurate with value received by the customer. Markup thresholds should be established, monitored and enforced.
It might seem that these miscreant acts are too obvious to mention. However, they were drawn from lawsuits filed against car dealers and action taken by regulators. Since F&I is an occupation in which naiveté will get you into as much trouble as dishonesty, make sure you’re both regulation-savvy and honest.
The Association of Finance & Insurance Professionals (AFIP) was established in 1989 to support in-dealership F&I personnel, as well as lenders and vendors. The association administers the multi-level state and federal regulation AFIP Certified F&I Profession program and implements a personal accountability code of ethics. 53,000 dealership employees and lender / vender personnel have completed the program. AFIP has received reports of five certified people getting their dealers in trouble.