The growth of special finance has provided a win-win situation for dealers, finance companies and customers. Dealers are selling more cars, finance companies are making money and credit-challenged customers are getting new opportunities to finance their purchases. And when it comes to compliance, there really is no difference between prime and subprime, as the rules are the same for both. However, the risks and exposures for non-compliance are not, as they increase dramatically when it comes to subprime lending.

Prior to a gvo3 & Associates compliance audit, we ask to review a dealership’s sales and F&I report so we can select the deal files we want to audit. I try to include as many subprime lenders on the list because it only takes a review of a few deal files to determine the dealership’s level of compliance. In this article, I would like to recommend several best practices to ensure your special finance efforts are considered compliant.

Acquisition Fees

If you’ve had any F&I training, you know that acquisition fees can’t be added to the sale price of the vehicle. They should be treated as a cost of sale. The problem here is that sales people and sales managers may not have the same amount of training. Even though your state may not require you to post a suggested retail price on a used car, there are other ways to determine if you’ve increased the price.

Most dealer management systems (DMS) have an inventory management system with an established retail price. You may also have advertised the vehicle in the newspaper or may have posted it on your Web site. I’ve also found multiple worksheets in the deal file that clearly indicate the price was increased. If you’re going to be active in special finance, your sales staff must be trained to qualify customers so the deal and credit terms can be properly structured.

Credit Applications

To properly structure the deal and credit terms, you must run a credit report early in the sales process. The issue here is how to get the customer’s consent. Our recommendation is for you to have the customer complete a credit application in the presence of a trained F&I professional. If you’re using an UP card, a worksheet, or some other form to get the customer’s consent, make sure the consent statement is in the same size font as the other printed information on the form, which it is no less than a 10-point font. You should also make sure that the customer’s signature line is directly below the consent statement.

Some dealerships will get the F&I department involved right away if they feel the customer qualifies for special finance. Others will have the customer fill out a credit application during the sales process. If your process is to complete the credit application during the sales process, make sure the customer completes the employment and income sections. The F&I manager will most likely interview the customer and can make the appropriate corrections, with the customer’s initials, before the application is submitted. If your process is for the salesperson or F&I manager to fill in the credit application, then it is important you have the customer initial his or her time at a residence, time on the job, and income. Also make sure that they sign the bottom of the application. This rule also applies to printed applications submitted through DealerTrack or RouteOne; as customers should initial the same information. This process provides a very defensible position that you didn’t alter the information provided by the customer.

Down Payments

A common issue with down payments in special finance is the hold check. If you take a hold check and submit the contract to the sales finance company before the funds are collected, you technically have a deferred down payment. There are two issues with deferred down payments. First, most lenders do not allow deferred down payments because it is a violation of your dealer/lender agreement. The second issue is a deferred down payment must be properly disclosed on the retail installment sales contract (Reg. Z).


Let’s go back to the first issue. Dealers who take hold checks have stopped taking the risk of collecting the funds and are using check guarantee services. There are two different scenarios. The first is where the customer indicates the funds are in the bank but the dealership wants the check guaranteed. No problem here. The second is where the customer indicates the funds are not in the bank but agrees to have his or her account electronically debited on a future date. Some services will even give the funds to the dealer within 48 hours. In this situation, even though the funds are guaranteed to the dealer, the dealer could still be found in violation of his dealer/lender agreement, and may have an initial funding issue. Or the dealership may have to buy back a contract at a later date since the original contract stated that the customer’s down payment was made with collected funds. Remember, most special finance companies conduct pre-funding and post-funding interview calls to the customer.

F&I Menu Selling

In many cases, the advance on special finance deals is limited and does not allow for funding of F&I products. Some will allow a service contract or GAP coverage, but that’s about it. When I don’t find an F&I menu in a deal, the excuse is usually, “Oh that was a special finance deal.” The problem here is the same as with regular finance customers. What if there’s a lawsuit and the customer comes back to you and says you never offered him or her credit life, or a service contract or GAP protection? The best practice is to run a menu on every customer. If you are limited on the advance, show the customer how much additional cash he or she would need down to purchase the products. This will eliminate any future issues.

Adverse Action Notices

I covered adverse action notices in the February issue of F&I Management & Technology. When it comes to special finance, you are more unlikely to submit unqualified co-applicants or have a deal unwound. Understand your responsibilities on this issue and make sure you have a process in place.

Separation of Duties

If you’re going to be active in special finance, then you must ensure you have checks and balances in place. This type of financing is very aggressive and you can’t have a false sense of security — that everything is OK just because the deal was funded. That’s why I recommend to dealers that the person handling book out sheets is different from the person submitting the funding package.

Special finance and compliance are not mutually exclusive. Introduce the right processes and controls and you will realize the full benefits of this growing market segment.

Joe Bartolone is an associate with gvo3 & Associates, a nationally recognized sales and F&I compliance consulting company. For more information visit

About the author