I was told an article published earlier this year in a competing publication set off a pretty lively discussion among members of a Facebook group for F&I managers. The article quoted a trainer as recommending that F&I managers show only the monthly payment for F&I products on the menu instead of the monthly cost of the add-on product plus the vehicle, particularly for payment-conscience customers. So query: How does this practice fare in today’s regulatory environment?
There is no federal law I know of that expressly addresses how costs for add-on products are disclosed on the menu. And I’m sure the trainer wasn’t suggesting deception. His point was that consumers are more focused on the monthly cost of a product. And I get it; you want the customer focused on the benefits rather than the price. Unfortunately, the regulatory trend is moving quickly in the direction of transparency — and, perhaps, to new lengths.
The Federal Trade Commission and the Consumer Financial Protection Bureau are showing significant interest in how things are disclosed to consumers. True, there are many federal statutes that require specific disclosures (Truth in Lending (TILA), anyone?) but none that address menu selling specifically. But the two agencies have authority to determine when a practice is unfair or deceptive (and in the CFPB’s case, abusive). So is it unfair, deceptive or abusive to only show the monthly payment for the F&I products on the menu? Certainly, there are standards to meet for these designations, but given the trend toward transparency, F&I managers should carefully consider their add-on sales practices.
It’s true that most people key in on the monthly payment rather than the full cost of something they’re financing. That’s the case with mortgages, right? I mean, I challenge anyone to tell me what the total cost of their mortgage is when all is said and done without looking at their TILA disclosure. I know I couldn’t tell you, but I sure as heck can tell you what my monthly payment is.
Why is that? It’s not because no one told me. It was in that TILA disclosure we all get in a stack of other closing documents. I might look at the “Total of Payments” and register that my mortgage is going to cost me a lot more than my house, but is that really going to stop me from closing? Not likely, because the number that’s important to me is the monthly payment — just like your car buyer. But the point is, I saw the total number.
Now I’m guessing the trainer wasn’t suggesting that F&I managers never disclose the total cost of their products. In fact, F&I managers who prefer not to show pricing on their menus will argue that they disclose all costs when reviewing the retail installment sales contract with the customer. But is that enough to avoid claims of unfair and deceptive acts and practices?
Unfortunately, I don’t have an answer for you. But consider whether it’s possible to juice up your scripts to tout the (honest) benefits of the products, such that the cost benefit equation is clear for your customer. If it’s appealing, the total cost shouldn’t scare them away. And I haven’t met an F&I professional yet who can’t get me refocused on the monthly payment.
Many of you know my partner Tom Hudson. What many of you may not know is that he spent some time in his youth selling mobile homes, which, by the way, is apparently not much different from selling legal services. Anyway, his approach to sales has been to abide by the “Mama Rule,” i.e., would you do that to your mama? It’s a good rule of thumb, and I can’t really blame the FTC and the CFPB for trending in that direction.
At the end of the day, I think we’d all agree that transparency is a good thing. In fact, I’m willing to bet we all expect to be told the cost of whatever it is we’re buying. If that’s true, why are we still debating whether it’s a good idea? Mama wants to know.
Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. Michael can be reached at [email protected] Nothing in this article is legal advice and should not be taken as such. Please address all legal questions to your counsel.