A friend recently told me that a controversial topic among F&I managers nowadays is whether an F&I menu presentation should list the base payment on its menu.
If you are new to the concept of menu presentations, let me tell you what is involved. When an F&I manager wishes to sell a car buyer things like GAP, credit insurance, service contracts and similar services (we pointy-headed lawyers refer to these items as “ancillary products”), he or she will often present the customer with a written description of the various products and will ask the buyer to select those that he or she wants to purchase from a menu.
The items that appear on the menu are often grouped into marketing packages. The group containing every possible product is usually identified as the “Platinum Plan,” while lesser plans would be identified by references to lesser metals — the Gold Plan, the Silver Plan on down to, I suppose, the Tinfoil Plan. The question is whether the customer’s payment, minus any plan or ancillary products, should be listed on the menu.
According to my friend, when that topic is discussed, those who are against showing it on the menu always ask where the requirement to do so exists in the law. My buddy says that he has come to believe that showing the base payment is more of a best practice than an actual rule (in most states), and that the purpose is to create a paper trail which demonstrates that the car buyer was aware of the base payment when products are presented and sold.
Note that it is the rule in California, and probably in some other states. In California, prior to the execution of a motor vehicle retail installment sale contract, the Automobile Sales Finance Act requires a separate written disclosure be given to the buyer that discloses the monthly installment payment with and without the optional products or services to be purchased.
But, as far as federal law is concerned, the critics are correct in their assertion that the law (the federal Truth in Lending Act and Regulation Z) does not expressly require that a menu presentation show a base payment. That isn’t the end of the analysis, however.
The federal disclosure laws require that the cost of many ancillary products, such as credit insurance, be included in the finance charge and the APR, unless the purchase of those products is voluntary and not required as a condition of the extension of credit, and unless certain disclosures regarding the products are made. In addition, state attorneys general have filed enforcement actions against dealers for engaging in a practice called “payment packing,” which involves selling buyers ancillary products that the buyers later claim they did not know they were buying.
Menu presentations have been developed, in part, to provide a way for the dealer to prove that the purchase of ancillary products was voluntary for federal disclosure purposes, and, by showing that the customer had various choices in selecting products, to provide a defense against payment packing charges.
So, even if federal law and the law of your state do not require the disclosure of an optional products menu, would I advise a dealer to use one and to disclose a “base payment” as part of the menu presentation? Without a second thought, yep, I would.
Disclosing the base payment as part of the menu presentation eliminates the possibility that a plaintiff’s lawyer or state attorney general could argue that the customer was misled into thinking that the Tinfoil Package was the lowest cost option available. There might be ways to prove that outside the menu presentation, but including that base payment disclosure in the menu presentation makes sense as a best practice. And remember, what happens in California often does not stay in California.
States other than California may have laws and regulations dealing with this topic, so, as is always the case with this legal stuff, take your lawyer to lunch and make sure he or she understands what you are up to and has signed off on it.
Thomas B. Hudson is a partner in the law firm of Hudson Cook LLP and the author of several widely read compliance manuals available at CounselorLibrary.com. ©Counselor Library.com 2012, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to F&I and Showroom magazine. HC# 4814-2525-8257 (11/12).