The five steps that follow didn’t present themselves in an epiphany or stroke of genius. In fact, they’re not even new. They’re simply common sense, and I’m simply reiterating what we should have been doing all along.
Step 1: Read and understand the covenants and conditions of the documents you are asking your customers to sign.
You can’t ask your customers to sign binding legal documents that you’ve never read and don’t understand. So be sure you know the terms and conditions found on the back of installment sale and consumer lease contracts.
You should do the same for every aftermarket product you sell. Hey, the more you know about your products and services, the more reasons you can give a prospective buyer to say, “Yes.” And there is a wealth of sound customer benefits to be discovered in the fine print.
Step 2: Establish a working knowledge of the state and federal laws governing the vehicle funding and owner protection processes.
It’s impossible to know whether your actions are legal or not without knowing the rules that govern the activity. And as we’ve come to learn, breaking the rules begets more rules and higher levels of scrutiny. AFIP certification is one way to achieve this objective, but other alternatives are available. Bottom line, knowing the rules provides you with the tools to meet the specific needs of a wider range of potential customers without crossing the line.
Step. 3: Set reasonable F&I markup thresholds for all products and services.
The Consumer Financial Protection Bureau’s objective is to ensure that customers are treated fairly in F&I transactions. That’s why the implementation of a dealer participation rate modification form with a markup of between 150 to 200 basis points over the buy rate is strongly recommended. Reasonable markups should also be established and consistently applied on all aftermarket products.
As a financial services manager, you are soliciting the vehicle funding, negotiating a mutually agreeable funding arrangement, disclosing and consummating the installment sale or lease agreement, and providing customers with the opportunity to obtain needed owner protection products. As such, you have earned the right to be compensated for performing tasks that otherwise would have been performed by a bank, credit union or other finance source.
You also have the right to make a profit for your efforts. However, the profit must be commensurate with customer benefits derived from the products and services. It should not be based on factors unrelated to the elements of the transaction that may be deemed detrimental to the buyer.
Step 4: Be a student of the game.
The old adage that yesterday’s sales technique is today’s felony is only half true, as yesterday’s sales techniques were likely illegal — or unethical — yesterday as well. What is true is there is a direct correlation between your mastery of the relevant facets of your job and how well you succeed professionally and financially.
And as we know, the F&I field is in a constant state of flux, with the vehicle funding offerings and owner protection options constantly changing. Regulations also seem to be promulgated with a high degree of regularity these days. Then there’s the Internet, which is influencing customer awareness and ushering in the paperless process. Buyer expectations also vary by generation.
What is certain is that a steady stream of customers wouldn’t be sitting across from you if they didn’t want a new vehicle and, in most cases, would benefit from one or more of the owner protection products available. However, you can’t sell what you don’t know. And the more you know about the people, products and processes, the more you’ll sell.
Step 5: Purchase a small mirror and keep it in your desk drawer.
In those inevitable instances when breaking a rule will get the deal done, pull out the mirror and look at yourself. You’ll see the person your customers, employer, finance sources, vendors and family are counting on to do the right thing.
No rationalization or justification will belie the fact that you’ll know it’s wrong if you break the law. You’re either ethical or you’re not. It’s the one decision that determines how others see you — and how you’ll see yourself — for the rest of your life. So take a long look into that mirror before you decide which path to take.
David Robertson is executive director of the Association of Finance and Insurance Professionals. Email him at [email protected]