Believe it or not, a lot of sales managers still ask me how much “leg” they need to leave in the payment for the F&I manager. In fact, as recently as last month, a manager messaged me to say that his general sales manager was demanding he leave a $30 a month leg in the payment he quotes consumers to help out the F&I department.

Regardless of how many years you’ve gotten away with payment packing, I’ll tell you this: If you get caught just once, it will ruin your life and career.

Let me repeat myself: You may not offer the customer a financial package with products included — even though you disclosed the existence of those products as being included in the payment. The one exception is if the customer has been clearly told he or she can buy the vehicle for the base payment at the base interest rate without the products.

Bottom line, there are no loop holes. Don’t like it? Get out of the industry.

Regulation Z of the Truth in Lending Act requires the provider of the loan (believe it or not, that means you — at least until the bank purchases the contract) to make the consumer aware of exactly how much it costs to finance his or her vehicle purchase. This allows the consumer to compare the cost of financing vs. paying cash. It also allows them to compare the cost of financing at your store vs. alternative sources.

To add heat to an already hot issue, many states are now treating payment packing as a violation of unfair or deceptive acts or practices laws. And in addition to any state penalties, Regulation Z violations can carry a felony penalty of $5,000 and one year in prison for each violation.

So to avoid penalties like these, you have to have a documented base-payment presentation — and only an F&I menu can meet this requirement. With the presentation of a base payment and rate, a customer signature on the menu and a copy of the signed menu in the deal jacket, I don’t anticipate you ever having a problem — although, if you’re using an electronic menu, I’d suggest having copies of those documents on paper too.

Believe it or not, even after I say all of this, some F&I managers still have unanswered questions. So I’ll address a few:

  1. “But what if I change the interest rate during the product presentation?” No problem — as long as the final payment (the one on which you contract the customer) is fully disclosed on the menu. Bear in mind that you may not lower or manipulate the rate as a way to get the customer to buy products.
  2. “But what if I just tell the customer the payment I’m presenting includes a product?” Also no problem — as long as you tell them what the payment, interest rate and term would be without any products, and they sign off on it.
  3. “So you’re telling me the sales desk can’t ‘range’ a payment under any circumstances?” No, I’m not. What I’m saying is that if anyone “ranges” a payment, they have to be prepared to disclose terms of the range. If the range is unrealistic or excessive, that would be a deceptive trade practice and is prosecutable.

If you have pulled a credit report — hard pull or soft pull — then a range is unacceptable in most states. You must offer the customer a payment based on a rate you can reasonably expect them to get from the lender. In other words, quoting a customer with an 850 FICO score a high payment based on 18% APR is deceptive, and it is a backdoor way of payment packing. Very few lenders even offer a rate that high for that level of credit.

I recommend presenting a payment range quote during negotiation, usually $10. This allows for a margin for error and certainly is not excessive or deceptive. But always check with your state dealer association’s attorney to find out what is an acceptable payment range in your state.

Unfortunately, in most dealerships today, F&I has become a catalyst for negative feelings, poor CSI and increased government scrutiny. And if you do something questionable in the F&I office, even if it isn’t a Regulation Z violation, there is always a way for a regulator to call it a deceptive trade practice.  

But remember, Jim Ziegler is not an attorney. Always check with your state dealer association’s legal department if you have questions.  

Jim Ziegler is the president of Ziegler SuperSystems Inc. Email him at [email protected]


Jim Ziegler
Jim Ziegler

President and CEO of Ziegler SuperSystems

Jim Ziegler ranks among the industry's most recognized and honored trainers, consultants, authors, speakers, and forecasters.

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Jim Ziegler ranks among the industry's most recognized and honored trainers, consultants, authors, speakers, and forecasters.

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