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Debunking Base Payment Myths

December 7, 2012

So, what did you think of Tom Hudson’s column last month on showing the base payment on the menu? He basically confirmed what many of you have always thought, that there is no law that specifically addresses what needs to be on the menu. But, like Hudson, I would never recommend anything that goes against an industry best practice.

Instead, I wanted to use this month’s column to explain my reason for asking Hudson to take on that topic. It’s not that I wanted to debunk what is, in my opinion, a good practice to follow. All I was after was an answer to a question that comes up often on our F&I Forum and other social networks I frequent.

But I have to be careful. As Hudson wrote, states like California do have rules addressing the base payment as it relates to F&I. That’s why I also asked David Robertson, executive director of the Association of Finance and Insurance Professionals (AFIP), to weigh in.

Here’s what Robertson said about the menu as a compliance tool: “A menu is simply a mechanism employed to alert customers to the full array of owner-indemnification products offered by the selling dealer. In its simplest form, it is nothing more than a marketing tool.”

He went on to say that more sophisticated menus include declination sections to “affirm the customer’s decision to not purchase certain items.” And, well, that’s what California requires under the Automobile Sales Finance Act (ASFA), as noted by Hudson last month. That rule was designed to rid the state of payment packing by requiring that dealers hand car buyers a separate, written disclosure showing their monthly payment with and without the F&I products purchased.

Now, that rule went live in California on Jan. 1, 2006, the very same day the California Car Buyer’s Bill of Rights went into effect. Many industry insiders at the time feared those rules would spread like wildfire to other states. And I think this mythical base-payment-on-the-menu rule was born out of that fear, especially since the ASFA specifically calls out products sold in the F&I office.
Decades ago, the Truth in Lending Act’s Regulation Z was enacted to promote the informed use of consumer credit by requiring that terms and costs associated with borrowing are calculated and disclosed. And according to Robertson, it requires that the dollar amount disclosed to the customer is limited to the cost of owning the vehicle after taking into account the amount allotted for the trade-in, any dollar amount still owed on the trade-in, cash down, and any rebates or discounts.

Sounds like a sales issue, right? Well, Robertson added one caveat: “In some cases, a customer may elect to purchase an aftermarket product or service contemporaneous with the acquisition of the new or newer vehicle, in which case the price of this item will be included in the agreed-to figures.” That still puts the Reg. Z disclosure after the menu is presented, right? Well, not so fast.

“For credit-challenged customers for whom the need to find a willing lender is an integral and crucial component of the vehicle ownership experience, the F&I practitioner may become actively involved in the purchase process,” Robertson noted.

Robertson said he recommends showing the base payment on the menu because it lends instant credibility to the F&I process, allowing the
“always-skittish car buyer to track a vehicle’s agreed-to purchase price from the sales department-issued buyer’s order to the F&I office-initiated [menu] presentation.”

So, yes it’s a best practice, but that doesn’t mean this publication is recommending anything other than what is accepted industrywide. However, I don’t think we can get better at doing things the right way if we operate under false pretenses, which is why I wanted an answer to this debate.

See, I believe we as an industry do need to come to a consensus on how things should run in the F&I office. I’ve covered too many industries to know that an industry that’s not’s unified in how it operates leaves itself open to scrutiny. And that’s why I’m always supportive of associations that aim to bring consistency. Because when regulators start poking around, the first people to whom they turn to learn how things work are associations like the AFIP and the National Automobile Dealers Association (NADA). And if what they say doesn’t match up with what we’re doing, well, you know what happens next.

Look, I don’t know about you, but I’m feeling pretty good heading into 2013. Consumers and the auto finance industry have finally shaken off 2008 and 2009. I guess I want to do my part to make sure nothing disturbs our drive to recovery. 


  1. 1. George Angus [ December 08, 2012 @ 05:06AM ]

    The FTC has determined that the Truth in Lending Act requires that, when the customer negotiates a payment with the sales department, before they agree to a final payment, (they call it consummation) they must be given “written disclosure” of certain terms of the agreement such as APR, monthly payment amount, length of the loan and a full, written disclosure of any add-ons that were included in the payment calculation. Attorney Generals have also determined that not doing so is a deceptive practice.
    Therefore, in the first 30 seconds the customer is with the F&I manager, we insure there was no "payment packing" by having the F&I manager immediately verify the exact “written disclosure” that the sales department used to quote the payment.
    We made sure that the sales worksheet, “write-back”, sales disclosure, (or whatever form it took), included, in writing, the rate, term, down payment, and the actual "bare" payment it took to buy the vehicle. This assured that “payment packing” was not occurring and developed a “pattern of proper disclosure” in the way the dealership negotiated and quoted payments.
    We included that step because some sales departments felt they could “pack” payments when negotiating as long as the F&I manager disclosed the “bare” payment on a menu when they got to the F&I office, after the deal was negotiated. We determined, to meet the rule, that’s too late. Putting the base payment on your menu or putting it somewhere on your IPad or tablet is fine. But it is irrelevant in terms of the payment packing issue. Waiting to reveal the actual, base payment somewhere on a menu when you are presenting F&I products does not meet the rule as defined and enforced.
    As you say, a standard should be developed and a separate, full written disclosure of agreed to terms, rate, and base payment, before F&I gets involved, assures that no deception occurred and can be verified in writing.

  2. 2. Gregory Gershman [ December 10, 2012 @ 04:28PM ]

    Nice, very concise article, good job Greg!

    While there may not be a spelled out guideline for presenting a base payment on a menu, I could not imagine a circumstance where it could be an acceptable business practice to avoid any and all disclosure.

    There is not one court, written regulation or not, that would side with a Dealer if there was any question of a fair and equitable disclosure. In the eyes of a court there is no Finance Department, or Sales Department, only a Dealership. Any idea of being excluded from rules and regulations that govern deceptive practices by Sales is a fairytale.

  3. 3. Bill Douvris [ December 19, 2012 @ 02:49PM ]

    I started in this business when the aftersale items included whips and goggles. The best and most profitable presentation is an honest disclosure of terms, rates and payments. In addition to the base payment on the F&I menu, our clients should also see the prices for all of our protection products. As a consumer, when I see an item without a price, my thoughts are that the price is too high and the person making the presentation does not believe in the value of the product or service. The F&I Department provides service and value for every car and truck buyer. It is a disservice to everyone involved in the sale - bank, dealership and buyer - to make less than a full, fair, honest disclosure of all the terms of the sale. The truth will set you free from compliance violations and reduce chargebacks. Isn't it ironic that doing the right thing contributes most to the bottom line over time!

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