Add-On F&I Products: Know What You’re Selling
Federal and state regulators have been using the term transparency quite a bit the last couple of years. Use of the term is particularly prevalent in the sale of add-on products.
The Consumer Financial Protection Bureau (CFPB) has made the sale of products a priority, and garnered settlements in the hundreds of millions from banks for the sale of credit card add-on products. Agencies having direct jurisdiction over automobile dealers have taken notice of the CFPB’s success and tactics, and are taking a much closer look at what is being sold out of dealership F&I departments.
Regulators are not only looking at the disclosures you provide at the time of sale, they are very much interested in the types of F&I products being sold. This inquiry goes beyond whether the benefits and exclusions of a particular product are equally displayed and disclosed.
Both state and federal officials are looking at whether the consumer derives a benefit from the product given the cost. Two recent actions are illustrative.
In the first action, a New Jersey dealership paid $184,000 as part of a settlement with the FTC that resulted from it selling a “biweekly payment program” as an add-on to consumers financing the purchase of automobiles.
The FTC took issue with the product because its cost and associated fees generally exceeded any savings the consumer could expect to receive under the program, thereby rendering it worthless to most consumers who purchased it.
In addition, the consent order bars dealerships from representing that a payment plan product saves consumers money, unless the amount saved exceeds any fees or costs charged in connection with the payment program.
In the second action, the New York Attorney General entered into a consent decree with a dealership group settling the state’s action, claiming fraudulent, deceptive, and illegal business practices in connection with the sale of add-on products.
The major complaint by the state was the promotion and sale of credit repair and identity theft protection services contracts. The state took issue with both the products and the price being charged for the product by the dealerships, which in some instances exceeded $2,000.
Numerous other violations were alleged by the state against the dealership and its practices in the sale of ancillary products. The sale of credit repair services was, however, the catalyst for the case, which resulted in the dealership group paying $325,000 in penalties and $13.5 million in restitution to consumers.
The takeaway from these recent cases is simple:
- If you are selling anything with credit repair in the product description, you should stop.
- If biweekly payment plans are a part of your F&I portfolio, you had better make sure the true costs, including service fees, are being disclosed prior to sale. Charging a consumer $700 in costs and fees to save $250 in interest is not a sales process you as a dealer want to be involved in.
For more information on this subject, contact the author or visit the Automotive Compliance Consultants website.
David R. Missimer, firstname.lastname@example.org, is general counsel for Automotive Compliance Consultants Inc. (www.compliantnow.com). He spent 28 years in private practice as a seasoned litigator and trial lawyer representing lenders, auto dealers and numerous other entities and individuals.