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F&I’s Code Red

December 1, 2010

Compliance is a funny word in this industry. But I guess that shouldn’t surprise me, given that the most recognizable names in our little corner of the world belong to an attorney and an individual who founded an association to keep attorneys away.

Of course, Hudson Cook LLP’s Tom Hudson and the Association of Finance and Insurance Professionals (AFIP)’s David Robertson mean much more to our industry than that, but you get my point.

Now, the fact that there’s an industry named after the word “compliance” isn’t what amazes me. What amazes me are the emotions the word elicits. There’s fear, anger and even pride.

I say “pride” because some of you F&I managers wear your compliance knowledge like a badge of honor. I say “fear” because two issues into my career here, I received an e-mail from a compliance expert that read, “IT’S ACCEPTANCE RATES.” The sender’s point was that the word “penetration” was like a homing beacon for regulators and attorneys.

A wise F&I manager once told me that regulations are like the lines in the road, and his job is to keep his dealership in between those lines.

At times, though, it does seem like our industry’s compliance experts make those lines a little tighter, right? In fact, one could say that some of the best practices these experts preach don’t actually appear in any regulation. Take for instance this discussion that took place recently on the F&I Forum about disclosing the base payment on an F&I menu.

The question came up in October, after Automotive News published an article about F&I’s 7 Deadly Sins. Yes, we published a similar article back in 2008, but we don’t mind inspiring our competitors every now and again. Hey, it was a good piece, and it’s still well worth a read.

What had everyone up in arms was one section of the article under the heading, “Noncompliant Menu Sales.” What followed was a warning that F&I managers are required to disclose the base payment on the menu. The gang didn’t disagree that it was a practice worth following. Their beef was that nowhere in the 19 and growing regulations we face on any given deal is there any guidance about how menus should be used. And don’t think they didn’t look.

The gang tore apart Regulation Z. One member even posted the regulation’s actual language. There was not one mention about any menu. Searching the Truth in Lending Act didn’t reveal anything either.

It kind of reminded me of that scene in A Few Good Men. You know, when Kevin Bacon’s character asks Cpl. Barnes to locate the chapter in the Marine Corps’ recruit training manual where the term “Code Red” appears. Well, like Code Red, the need to disclose the base payment on the menu doesn’t really appear in any rulebook, but that doesn’t mean you shouldn’t do it. Via e-mail, I asked the AFIP’s Robertson to weigh in.

“What the federal regulators expect is for a consumer to be informed as to what the vehicle will cost on a monthly basis, based on a representative and statistically verifiable APR and term,” he wrote. “And it has to be just the price of the car, not the price of the car and a hidden vehicle service contract or some ‘leg’ for the F&I department.”

What Robertson is referring to is payment packing. What regulators are concerned about is whether the payments quoted during the sales negotiation include F&I products the customer doesn’t know about. It would seem to be a sales desk problem, right? Well, not exactly.

You have to remember that when it comes to court cases, paper trails are key. And when it comes to a dealership defending itself against questions of deception, a written confirmation on your menu that the base payment was disclosed to the customer can go a long way. And that’s what compliance experts are trying to tell you — the more we can document that no deception was involved, the better off we are.

But there’s something else you need to understand. Product providers weren’t spared when regulators in the state of Washington went after dealers for payment packing, so let’s just say they have a stake in this too. Lenders are another reason why you need to button up your processes. Hey, we were spared from the Bureau of Consumer Financial Protection, but they weren’t. So, you can bet they’ll be a little more careful about what they approve going forward.

Listen, we’re entering another period of rulemaking. Transactions that involve financing will be put under the microscope, and deception is what rulemakers are after. So, rather than ask, “Why should we?” ask, “What more can we do?”


  1. 1. Ron Ream [ December 04, 2010 @ 01:32PM ]

    I always listed the base or “unprotected payment” as I would refer to it at the bottom my menu. I was taught that it was required, to protect the dealership and F&I manager. The benefits included in each payment were listed above it. When the customer chose a payment of course I would try to up sell and bump them to the next highest payment. When all was said and done, I would circle the chosen payment and have the customer initial next to it. If the customer wanted to go with the unprotected payment then I would circle and have them initial that. My waivers of protection were also printed on the back side of the four square. Pick your payment and level of protection then verify what you don’t want to take advantage of. There were a few occasion where I had to go back in files and pull the four square / waivers of protection out of a deal jacket. One time it was an executor of an estate for a gentleman who had bought a vehicle 6 mos earlier wanting to know if we had sold and or offered live insurance. “Sorry for your loss, but your brother did not take advantage of the life insurance he was offer on his loan.” The dealership and my tail were both covered.

    The four square was the most time consuming part of the delivery, after that in was sign, sign, and sign, done. The problem, general managers want the customer in and out of the F&I office as quickly as possible. Most F&I managers are trained on how to use a menu and how to be compliant. But when the emphasis is on getting the customer in and out of the F&I office a manager can become careless.

  2. 2. Marv Eleazer [ December 06, 2010 @ 06:38PM ]

    As Gil VanOver so expertly pointed out, menu's and compliancy aren't kin. Menu usage is a "best practice"-nothing more. I've read just about every opinion there is on the quote 'base payment' for which there is NO legal identification nor revelation and I've gotta say that unless your menu provider lists the 'base payment' for each and EVERY term/payment scenario in the same font size/color next to the payment with the incremental product offerings included then it's a WASTE of printer ink to have the BP on the menu in the first place. It's usually listed at the top or bottom of the page in small sized (.000008) fonts in opaque colored text. If you're so 'ethical' and are truly desirous of disclosing the BP then do it right next to the packaged payments offered in each category or don't bother at all. This is why I stopped printing the BP on my menu because any attempt to singularly list it is no disclosure at all rather it's a lame attempt at soothing one's conscious.

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