Customer Education Isn't a Bad Thing

I wrote it last year and I’ll write it again: the Risk-Based Pricing Rule (RBPR) represents our chance to “uphold our job requirement.” I agree that you shouldn’t be held responsible for the financial education of your customers. However, just for a second, think about the doors a conversation about credit can open.

Before we get into that, there’s one thing you need to understand about this new rule: The Federal Trade Commission (FTC) and the Federal Reserve Board (FRB) went out of their way to make complying with it as easy as possible. Think about it: You don’t have to evaluate the rate your finance sources offer your customers. Nor do you have to calculate the impact of your markup on a deal-by-deal basis. If you did, then I’d understand why many believed this rule would be the death of F&I.

But you don’t. In fact, all you have to do is present a credit score disclosure notice to every one of your customers who applies for credit. And don’t forget about the host of companies lining up to help you automate that process.

Will it add to your process? Sure, but let’s try to pull out some positives here.

Take the dealer exception I just described, which the National Automobile Dealers Association lobbied for on our behalf. Did the FTC and the FRB have to listen? Did they really have to consider what goes on inside the dealership? No, they didn’t.

The agencies also listened when dealers talked about how they might not know the credit score their finance sources pull on their customers in cases of two-party financing. That’s why, if you’re handling the notice on your lender’s behalf, as the rule allows, you can use the credit score you pulled, even if it’s different from the one your finance source pulled on your customer.

The FTC and the FRB also considered how you comply with the rule when it comes to telephone and Internet customers. They’re actually allowing dealers to figure out when it is “reasonably practical after the credit score has been obtained” to hand the notice to your customers. For out-of-store customers, that could mean mailing the notice or handing it to the customer when he or she comes to the dealership to consummate the transaction — the rule specifies that the notice must be handed to the customer before that point.

RouteOne recommends handing the notice to the customer after an approval decision is communicated to the consumer; but, again, it’s up to you to determine when it’s reasonably practical.

Now, let’s think about what this rule is asking you to do — hand every customer who applies for credit a credit score disclosure notice. Yes, the rule is set up so the customer, armed with his or her credit information, can walk out the door without ever buying a thing. But seriously, how many of your customers are really going to seek out better terms? I mean, the California state vehicle code the exception is modeled after has been in effect since January 2006, and I haven’t heard any complaints.

But let’s think about this notice for a second. Can you think of a better way to introduce the F&I process to your customer than by handing them this notice? After all, it lets them know where they stand and that your F&I guy or gal can arrange for financing with one of the major auto lenders, local banks and credit unions — maybe even the one they already belong to. That’s one heck of a credibility builder, don’t you think?

The new notice is going to be a reality check for some of your customers, especially for those below-prime customers bent on buying a vehicle you know they can’t get financed on. So, this notice may be your way to transition them into a more finance-appropriate vehicle. It could even represent a nice segue into why your customer may need your F&I products.

Hey, you guys are the experts on the frontlines, so I’m sure you can figure out a couple of ways to use this rule to your advantage. Heck, I bet someone will even come up with a nice cash conversion technique that utilizes these notices. And that’s my point. It’s time we start making these rules work for us, rather than against us, and the RBPR is a great place to start.