CFPB and F&I eMenus
New fair lending requirements that affect automobile dealerships were issued by the Consumer Financial Protection Bureau (CFPB) last year. While these requirements directly address lenders, the CFPB views automobile dealerships that arrange for and sell credit to vehicle purchasers as indirect lenders.
As such, automobile dealers are now required to have in place certain F&I practices to ensure dealer F&I processes comply with The Equal Credit Opportunity Act and its implementation regulation, Regulation B. Dealerships that comply minimize their risks to allegations of practicing, promoting or otherwise creating negative “disparate impact” on consumers. The following practices will help you adhere to CFBP; for complete descriptions, contact me:
1. Use a Credit Score-Driven Rate Matrix
For customers who expect to finance, and an interest rate to be used to compute preliminary payments prior to accessing their credit score, the interest rate quoted should be a mid-level default rate. Use this mid-level default rate for all such transactions. If a customer balks, work from rate based on actual credit score report.
2. Standardize Dealer Participation
When the dealership employs a bank to finance a customer, the buy rate is marked up at the full allowance by the lender. The law allows you to come off this standardized margin rate for individual customers to adjust final payment to:
(1) match or beat a competitive offer;
(2) achieve a final payment that meets the customer’s ability to pay; and,
(3) match any published promotions. Be consistent and use this rate on first pencil with all customers.
3. Use a Vehicle-Only Base Payment Quote
To clarify what might be included in a customer’s final payment for lending/leasing purposes, disclose to customer a vehicle-only payment that does not include products.
4. Standardization of Product Gross Margins & Lock-Down Menus
Use a standardized, consistent margin rate for the various products you sell and use this same margin rate for each customer to whom you present the products. The law allows you to come off this standardized margin rate for individual customers to adjust final payment to:
(1) match or beat a competitive offer;
(2) achieve a final payment that meets the customer’s ability to pay; and,
(3) match any published promotions.
5. Use of a Model-Compliant Menu that Shows All Products, Prices, Rates & Forms
Use a locking-down menu that includes display of all presented items. Dealers using eMenu systems that integrate with the dealer management system say these best practices help them achieve improved F&I results and comply with CFBP. In a market of shrinking margin opportunity and increasing compliance requirements and oversight scrutiny, technology tools like eMenu software can help dealers boost aftermarket product penetration and PVR, improve customer satisfaction and keep the F&I process compliant to the law.
Jim Maxim, Jr. is President of MaximTrak Technologies, www.maximtrak.com. Reach him at [email protected].