As the industry is moving, in varying degrees, from manual processes to digital processes, the desking process is one process that is ripe for digitization — perhaps even at the top of the list of the processes that should be converted.

We have a few working theories in our consulting practice. These working theories help us to focus on probable areas of concern as we begin reviewing deal files. One working theory is that if a dealership is still buying Sharpies to complete paper four-squares, we will probably find a higher percentage of packed payments or potentially discriminatory pricing — that’s if we can fully decipher the scrawl and figure out whether the green Sharpie is the first pencil or the final agreement.

It can be difficult to detect some of these methods with a colorful, confusing four-square. Maybe that’s why some sales managers or general sales managers insist on keeping their paper forms and buying Sharpies.

At the least, we usually find that there is not a consistent approach to quoting the first pencil.

There are two primary sales processes in the industry today: Some dealers will not quote payments during the sales process and focus on negotiating the trade difference before “TO’ing” the customer to F&I. Other dealers employ a process where the focus is on the payment from very early in the sales process. Some dealers use a combination of the two.
For dealerships that quote payments as part of the sales process, there are many compliance pitfalls a dealer must guard against. Working the trade difference is not as susceptible to compliance issues — after all, if you don’t quote a payment, you can’t pack a payment.

The first potential compliance issue with quoting payments is an expectation from the Dark Side that the payment quote is accurate for what is disclosed and contemplated at that point in the negotiation. One contingent of the Dark Side, the attorneys general, coined the phrase “payment packing” around 30 years ago and considers it a deceptive practice.

Payment packing can take many forms, such as including undisclosed F&I products in the payment quote, using an undisclosed short term to artificially increase the payment, using a rate that is higher than the known rate if an approval has already been obtained, extending the number of days to first payment, or shortening the number of payments per year. Of course, the old-school, ubiquitous “leg” is packing a payment.

It can be difficult to detect some of these methods with a colorful, confusing four-square. Maybe that’s why some sales managers or general sales managers insist on keeping their paper forms and buying Sharpies.

Another problematic issue with quoting payments can be perceived discriminatory pricing. If I conducted an analysis of the first pencils during a period of time, and the results show that any of the protected classes under the Equal Credit Opportunity Act were quoted higher rates than the rest of the deals, an allegation of discriminatory pricing could be leveled.

Many dealers who quote payments during the sales process have implemented a policy on how first pencil payments are to be quoted. Essentially, it depends on whether the credit score is known or not. If a credit bureau has not been pulled, the dealer requires that an average rate be used to quote the first pencil. If a credit bureau has been pulled, a published rate matrix determines what rate must be used on the first pencil.

Additional policy requirements include the disclosure of term, no more than 45 days to first payment; always use 12 payments per year; do not include undisclosed F&I products; do not add leg; and keep the payment spread to $5 or less.

While a kink can still pack payments using an edesking system just as easily as if she were still using a Sharpie and a four-square, the edesking system tracks the history of the pencils. Using such software, I can tell what the first pencil is and if it is compliant with the dealership’s desking policy. I can tell if the manager had a credit approval in hand and quoted a payment in excess of the approval’s max rate. I can tell if the number of days or number of payments per year were manipulated to pack the payment.

In fact, it is easier for me (or a member of the Dark Side) to verify that the payments are packed when an edesking software is used. This is a huge benefit for the dealer principal to understand who is following the dealership’s desking policy and compliance training and who the rogue kink is.

Gil Van Over is the executive director of Automotive Compliance Education (ACE) and the founder and president of gvo3 & Associates. Email him at [email protected].