There’s a lot of speculation floating around about the Consumer Financial Protection Bureau (CFPB)’s recent targeting of dealer participation. What’s important in times like this is that we focus on what we know to be fact. To help, here are four facts about F&I in 2013:
1. Regulatory oversight of F&I practices is greater than ever before: The Obama Administration is all about protecting consumers. Granted, our economic system works best under the rule of law and when subjected to empowered oversight, but the political pendulum never stops in the middle. With a Republican-controlled House putting the brakes on additional consumer-related legislation, the administration — in addition to launching the CFPB — has given free investigative rein to the state and federal agencies governing the F&I process.
2. Agency tolerance is lower, and penalties are more severe: The agency’s method of operation is to bust chops on the first visit. Randy Henrick, associate general counsel for Dealertrack Technologies, basically says you may not know your actions violate a law until you receive legal process from the CFPB. Your consent order resolving the CFPB’s allegations and the penalties you pay will then operate as guidelines for others.
“This philosophy is currently shaping consumer finance protection by both the CFPB and the Federal Trade Commission,” Henrick says, citing the five complaints the FTC brought in 2012 that alleged deceptive dealer advertising.
The dealers named in those complaints settled with 20-year consent decrees, even though no consumer had complained and the advertising at issue had not been the subject of any prior rule, regulation or legal action by the FTC. That means not only is the government wielding a swifter sword, it’s a bigger one. And one could argue that the recent penalties have increased disproportionately in relation to the severity of the transgressions.
3. One can’t hold a position that requires the execution of legally binding documents without knowing what’s in them or without being fully conversant with the rules that govern them: Let’s say your family is waiting at an airport departure gate for a Hawaiian holiday and you happen to get into a conversation with the pilot for your flight. He’s quick to tell you that, during his flight training, his instructor told him he was a natural-born aviator. But the pilot also mentions that he’s been so busy flying airplanes, he’s never had the time or inclination to study the rules required to obtain a commercial pilot’s license. In fact, he doubts whether he could pass the required FAA written exam.
Would you allow your family to board this flight? How quickly would you hire a lawyer to sue an airline after learning it exposed your family to such peril? Car buyers and state and federal regulators hold the same view when faced with acts that reflect gross ignorance of — or indifference to — the governing state and federal rules or what constitutes fair play.
4. A lesson learned decades ago is more relevant today than ever before: Years ago, when I manned an F&I office, I recall a customer asking me: “Young man, what’s on the back of this installment sales agreement?” I didn’t have a clue, so I told him it was the “fine print.” That was the wrong answer. The customer, who turned out to be a lawyer, responded, “Well, nitwit, the front of this document contains the numerical representations and the back addresses the terms and conditions of the contract. And you are about to ask me to sign a legally binding document you’ve never read and don’t understand.”
I learned a very powerful lesson that day. And after thoroughly reading every contract in my office after that, four incredible things happened: First, I sold more of whatever I was pitching. Second, my charge-backs dropped to nearly zero. Third, I was never the center of a news exposé. And fourth, when the opportunity arose decades later, I put up the money to help start the Association of Finance and Insurance Professionals (AFIP).
If you aren’t willing to meet the basic demands of your job — reading the binding legal documents you’re asking customers to sign and mastering the rules governing the F&I process — then there’s one thing you can do: If you and your employer are to avoid the wrath of the CFPB, the FTC, your state AG, the local TV news, or a jury, you need to go back to selling cars.
There is an expectation within our society that people earning six-figure incomes are true masters of their craft. The state and federal regulators, as well as the plaintiff’s bar, are bent on culling those who aren’t. And that’s the honest truth about F&I in 2013.
David Robertson is the executive director of the Association of Finance and Insurance Professionals. He can be reached at [email protected].