F&I as we know it today began to take shape during the 1990s. That’s when consumers and consumer-protection groups began expressing their concerns regarding the sales and F&I processes some dealerships employed. As a result of those protests, the industry realized it was time for a change.

That led dealerships and their F&I offices to abandon the old-school, aggressive approach adopted during the early years of F&I, ushering in a new, more open process. Today, compliance and ethics are no longer just buzzwords. They have become a critical element of the F&I process.

Somewhere along the way, dealers began to rely on their finance offices to serve as a “backstop” to their compliance efforts. I don’t blame them. That’s where most customers — and their paperwork — end up, and the typical F&I manager receives more compliance training than the typical sales consultant. But today’s regulatory environment calls for compliance at every stop on the road to the sale. So let’s take a closer look at the changes we have undergone and how successful dealers have adapted.

A New Era
The compliance revolution had a number of causes. The legal system definitely had a role, but it would take a combined effort from dealers, vehicle manufacturers, finance sources, and F&I product providers to make compliance a top priority. And it wouldn’t be long before the industry realized the value of developing and maintaining well-trained F&I producers, individuals whose responsibility is to stay up to date on the rules of the road.

That period is also when operations began realizing that the best way to preserve and protect the integrity of the dealership was to operate separate F&I departments, where the deals are completed, the legal disclosures are performed and the paperwork is signed.
This realization would bring about another important change: As dealers began to realize the benefits of a compliant F&I process, they started looking for new ways to improve the customer experience. They just needed an effective way to ensure customers understood what was being presented to them, which brought about the emergence of the F&I menu.

The menu has evolved quite a bit through the years. The only aspect that hasn’t changed is the transparency it drives and the profits it delivers to dealers’ bottom lines. Better yet, it has done all that while increasing customer satisfaction. Today, the menu is a key component of the standard F&I process employed by a majority of dealerships. When used correctly, it offers the most compliant, transparent and time-efficient tool for maximizing F&I profitability.

Last Line or Front Line
So how do you use the F&I menu? More importantly, to what degree do you rely on it to demonstrate transparency? You can say F&I is your compliance backstop, but merely having a last line of defense doesn’t mean you’ll never be invaded.

The simple truth is that compliance starts not in the finance office but on the showroom floor. Your store is on the hook the minute the sales consultant makes contact with the customer. And that could be a problem for most operations given the limited training on ethics and compliance most sales pros receive. For those stores, the so-called backstop becomes more of a heat sink.

When the F&I staff bears the burden of cleaning up the clutter, a lot of unnecessary tension is created between them and the sales team. Adding fuel to the fire are the attitudes of many F&I managers who, when presented with a “stripped-out” deal, incite a riot. That conduct will certainly influence how deals are processed and negotiated, but it doesn’t have to be that way.

The Art of the Disclosure
Finding common ground with your customer starts with managing deals within the confines of our regulatory environment and utilizing a consistent process that is honest, upfront and ethical. Most violations that occur during the sales process are due to incomplete disclosures, so let’s start there.

Nondisclosure occurs when a customer agrees to a monthly payment on a worksheet that is missing one of the following required items: the amount financed, the monthly term and the interest rate. In other words, “You can take delivery at $350 a month plus, plus, plus, with approved credit.”
The next cardinal sin is payment packing, which occurs when your unsuspecting customer agrees to a monthly payment that is higher than the vehicle’s actual payment based upon net to finance for the term. The F&I manager — or, less often, the salesperson — fills the space afforded by the overstated payment with products or services the customer never agreed to. This practice is illegal, and dealerships caught engaging in it have paid dearly.

The Credibility Gap
There was a time when F&I pros were expected to think only in the short term. That mindset led to serious problems, some rising to the level of federal bank fraud, with customers encouraged to inflate their income or add to the time at their current residence or job. F&I managers also engaged in “powerbooking,” a practice in which the vehicle’s book-out sheet is falsified to include nonexistent features or equipment.

These violations, if not corrected, put the dealership and its employees in jeopardy, and not just with regulators. The fact is, lenders quickly lost confidence in dealers when they found false information on a credit application or repossessed a car or truck that barely resembled the vehicle described on the book-out sheet. Customers got wise as well. Their complaints sometimes evolved into class-action lawsuits that led to heavy penalties.

Though it’s always been my belief that the most important role of the F&I manager is to deliver the car, I would also maintain that their top priority is to protect the integrity of the dealership and its employees. Once the customer agrees to the terms of the deal, the baton is passed to the F&I manager, who should grasp it with the full intention of solidifying and delivering it in an upfront, honest and ethical manner.

The Road to Transparency
Deals enter the F&I office in a number of different stages, shapes and sizes. The manner in which you, the F&I professional, work the deal is the only constant. Brush off the peer pressure. Be upfront with your customers and allow your menu process to provide transparency. Whether it’s a three- or four-column menu or a four-square — be it paper, electronic or tablet-based — what matters most are the steps you take that lead up to your menu presentation and your actions during and after.

First, you must sit down with the customer to review and validate all the information obtained by the sales consultant and contained in the credit application. Verify the equipment listed on the book-out sheet prior to submitting the deal to the finance source. Establish credibility with each customer by confirming the figures and making sure they understand them. You’ll be surprised at their reaction when you say, “These are the figures you agreed to, and it turns out there may be a better option available for you.”

If you want favorable results, go into each presentation with good intentions. Your customers will appreciate it and your actions will be more credible and well received. Give them the opportunity to make an informed decision. Your reward is a more effective presentation, a more transparent deal and higher levels of customer satisfaction.

Gerry Gould is director of training for United Development Systems Inc. (UDS). Contact him at [email protected]