Just about every business journalist out there is offering their take on the Consumer Financial Protection Bureau (CFPB)’s investigation of the indirect auto lending industry. Who can blame them? This is a hot topic, especially in light of the fact that some of these same banks were caught up in the lending crises that cast this nation — if not the entire global banking system — into one of the worst recessions ever.
In the eyes of the public, the CFPB appears to be the knight in shining armor. It’s mounted and ready to take down the cloak of mystery surrounding dealer-arranged financing and the products we sell.
Never mind that the bureau has absolutely no authority over dealers (thanks to swift action by the National Automobile Dealers Association (NADA)). It’s obvious it believes we should be operating by its standards.
However, the bureau has taken a different tack to get at dealer profits and is targeting the indirect lending community.
This isn’t the first time dealer reserve has been on the chopping block. In the late ’90s, class-action lawsuits against many major lenders — which were settled before being ruled upon — created a pretty level playing field with respect to allowance of rate markups by dealers. Most dealers reacted by focusing more on product sales, and customers benefitted greatly. Reserve commission also has been pared down considerably over time, and ethically minded dealerships are more customer-centric than ever before.
In addition to the myriad of federal changes which govern us, many state legislatures have upped the ante by adding their own rules. These changes make it increasingly difficult to do our job. But, time and again, ethical F&I professionals have risen to the occasion by reinventing themselves and their processes.
In the hurricane of legislation borne from consumer complaints, the champions of this industry keep raising the bar of professionalism. And as we recently witnessed, several of the publicly traded dealer groups posted increased results in their F&I departments.
Now let’s suppose for a minute that the CFPB ordered all the lenders to stop buying contracts from dealers in which the wholesale rate was increased. We would be relegated to simple flat payments. Would pandemonium set in? Absolutely not! I can tell you right now that the cream would still rise to the top.
When rate markups first began to be limited, fear struck the hearts of many — especially those producers who relied heavily on reserve. But we rose to the challenge and were better for it. Top-performing F&I practitioners always figure out a way to be successful. Living in a world with flat payments would be no exception.
Yes, I’ve read unconfirmed reports that the bureau issued subpoenas to examine product pricing by dealers that the banks have funded. It’s looking for discrimination against protected classes the same way the bureau’s examining reserve payouts. I could be wrong, but I seriously doubt enough evidence can be gleaned from this study that will definitively prove its suspicions. Just consider the massive matrix of coverages and pricing offered by service contract providers.
Look, we’ve lived through countless threats to our profession. Anyone remember the F&I kiosk? It was supposed to replace us and drive up profits. Now comes Richard Cordray and the CFPB, striking fear into the dealer community by trying to eliminate a major profit center.
There are even people in our ranks already lining up to try to profit from all this ballyhoo. A well-known compliance individual just sent me a reprint of The Wall Street Journal article and said that, in case the bureau is successful, he has a fail-safe against dealer oversight.
The smartest thing we can do is be certain we don’t discriminate. We are offering value and peace of mind to all of our customers with products that address their risk. Worrying and fretting about things that haven’t come to pass can only distract us from our mission.
Will there be some changes? Maybe. But even so, we’ll figure it out a way as we always have.
I’ve been in contact with some of the largest banks in the country, and they’re obviously concerned. But I have not received a single letter from a lending source limiting reserve on the scale the CFPB’s recent activities would suggest. So let’s be patient and watch this thing play out. I’ll bet you’ll be surprised at how little our jobs will change.
Marv Eleazer is a finance manager at Langdale Ford in Valdosta, Ga. E-mail him at [email protected]