As the media exposés, class-action lawsuits and regulator administrative actions seem to suggest, there are an infinite number of ways for what happens in an F&I office to be abused or misconstrued.
Even though each point of contention is the result of a unique set of circumstances, in 99.99 percent of problem situations, one or more of the following transgressions sets the process in motion.
1. The word “best”
Don’t ever use the word “best” when discussing the finance charge (APR). First of all, let’s be clear – it’s neither a sin, nor against the law, to post a reasonable markup over the “buy-rate.” If markup isn’t a sin, why the prohibition against the word “best?” Because we are paying for the abusive mark-up practices and disclosure sins of the past. To a reporter or plaintiff’s lawyer, the word “best” implies that the rate quoted is either the dealer’s “buy-rate” or the lowest rate known to man. To the F&I practitioner, it’s the “buy-rate” plus a couple of points. The correct response to a “best rate” inquiry is “If you wish to finance here, this is the rate that’s available.” And that’s it. And it’s the truth, because you have no idea what funding resources are available to the customer and simply have no way of knowing what the “best rate” for that customer might be. There is nothing wrong with telling customers that they are free to explore what rates are available to them, but if they want to finance where they buy the vehicle, the rate quoted is the rate available.
2. Forging signatures
Under no circumstance should a customer’s signature be forged on any document relating to the acquisition of a vehicle. Anyone who forges a signature is committing a felony.
3. Overstating income
Overstating the customer’s income on a credit application might result in a deal being purchased, but it won’t generate the extra income necessary to make the monthly payments. Overstating income is a recipe for repossession and charge backs. Intentionally altering a credit application is a felony.
Creditworthiness decisions are based on the actual performance of literally hundreds of thousands of vehicle purchase and funding transactions. In the heat of the moment, mesmerized by the allure of a new vehicle, the customer might agree to any arrangement that consummates the sale. The onus is on the F&I practitioner to keep the elements of the transaction in perspective and within established moral and legal parameters.
4. Mousing menus
What was intended as a sales aid is now being used as a slight-of-hand scam. Menus are being configured to hide a loaded payment, or altered after the fact to document acceptance of products the customer did not agree to buy. Since an altered menu becomes a documented lie, when handed to the jury as Plaintiff’s Exhibit 1, the results are predictable.
Within this same vein, the more basic question might be, “Is the menu I’m using legally compliant to start with?” Unfortunately, there isn’t a single statute to consult to test compliance. There are, however, very specific standards as to what constitutes acceptable business practices as they relate to proper disclosure. If a menu is being employed, then it is recommended that a copy of it be kept on file, clipped to a letter from a qualified attorney affirming that it has been thoroughly reviewed and found to meet all of the established legal and fair practices standards.
5. Packing payments
The payment quoted a customer during the purchase process must be limited to the agreed-to cash price (or trade difference) of the vehicle, and if applicable, the taxes and fees, at a representative APR and term — and nothing more. Regardless of how sophisticated or subtle, any additional margin constitutes a “leg” and will be viewed as a deceptive practice. Simply put, the government wants the customer to be told how much a vehicle will cost.
Intentionally and consistently rounding high for an estimated APR or rounding artificially low for a repayment term might be innocent shortcuts for quoting payments, but if challenged, could prove to be an indefensible “leg.” If an estimated payment is quoted prior to weighing the customer’s creditworthiness against the thresholds provided by the funding sources, it should be clearly stated the payment is an estimate. Also, it is recommended the APR used in such estimates be based on the average retail rate charged for that class of buyer (new or used — prime or non-prime) in the store during the past 90 days. This practice gives the dealer a statistically verifiable and legally defensible basis for the rate quoted. In addition, the term that’s used to quote payments should be representative of the repayment conditions for most deals.
Keep in mind that patterns of practice are easily identified during the discovery phase of a lawsuit.
6. Noncompliant disclosure
The customer must have ample time before being asked to sign the contract to review its contents. You cannot pull the installment sale agreement out of the printer, place it in front of the customer and start reciting the Truth in Lending Act disclosures. The new mantra is the customer must hold — for the purpose of reviewing — and not just see the contract prior to it being disclosed.
If an installment sale contract has been processed (the blanks have been filled in) but it has not been disclosed — and the customer wants to take a copy with him for review — he is to be given one. If the contract has been fully disclosed but the customer doesn’t want to sign it — and wants to take a copy with him — he is to be given one. Also note that some states have a requirement that the customer must leave with a copy of the contract signed by an officer of the dealership.
7. Flying blind
In a 30-day period, an F&I practitioner will execute more contracts than a lawyer. The F&I process is so awash in a sea of paper, it’s easy to forget the products and services being solicited, negotiated, processed and disclosed are, in fact, binding legal agreements. If the F&I practitioner is the person charged with consummating the contractual agreements relating to the purchase of the vehicle, its funding arrangement and any owner indemnification products, it should be assumed this individual is fully cognizant of the terms and conditions found in the documents he or she is asking the customer to sign.
Ask yourself, “If I am in court and under oath, could I accurately answer questions regarding the covenants found on the back of an installment sale contract, or the terms and conditions in the body of a vehicle service contract or GAP agreement, or the good health standards on a credit insurance certificate?” If you can’t, you are placing your employer and yourself in a highly vulnerable situation.
It is recommended the F&I practitioner read the binding documents used in the course of business and then write on a piece a paper what he or she believes to be the terms and conditions of the agreements. The interpretations should be passed to the dealer or his or her lawyer for a critique.
Since F&I is one of those occupations where naiveté will get you in as much trouble as dishonesty, you should take pre-emptive care not to be found wanting on either side of this equation.
David Robertson is the executive director of the Association of Finance & Insurance Professionals, an organization he co-founded in 1989 to support the in-dealership F&I process. psb