No dealer principal is unaware that federal eyes watch their operations these days—and in new and often somewhat threatening ways. I’m referring, of course, to the Consumer Financial Protection Bureau, the CFPB. The Agency’s fixation with dealer reserve has created havoc and concern despite the lack of any direct oversight by the CFPB over most franchised automobile dealers.
In addition to dealer markup, the CFPB views the sale of ancillary products out of F&I as fertile ground for Agency action. Specifically, the agency is interested in service contracts, GAP and numerous other products sold in dealership F&I offices.
The CFPB must overcome significant legal hurdles to push forward with such an agenda, but the Agency has been anything but shy when it comes to pushing the legal envelope. CFPB actions against major financial services funding these products give cause for concern.
Given this scrutiny, please give careful and weighted consideration to how you insulate your business from these potential threats.
One of the best defenses a dealership can embrace to this end is to adopt a compliance management system to ensure compliance oversight. Consider these questions, which may help clarify why this oversight is so necessary today:
- Does your F&I have available for consumers copies of sales and marketing materials for each product offered in the dealership? Have customers reviewed these materials prior to a purchase decision?
- Is the content of these sales and marketing materials for each product current and accurate, do they contain the proper disclosures, and do they accurately depict what is and what is not covered?
- Do you have customers sign off on declined products?
- Is the benefit provided to the consumer by the product reasonable with respect to the cost of the product?
- Does your dealership have established and published prices for each of the F&I products being offered?
- Does dealership policy and practice require that each customer be treated equally regarding the sale of ancillary products and the cost they are being charged for said products?
- Does the dealership pay employees a commission based upon the price they obtain for an ancillary product? If so, does the dealership monitor the sale of these products to ensure that employees are not taking advantage of certain individuals and classes?
- Does your F & I Department use a menu to sell ancillary products?
- Does the menu clearly describe the product, its cash cost, and the financed cost?
The CFPB has no direct control over your dealership, but has power over the resources that fund your business, and by relationship, your practices, which means a compliance program matters very much.
Contact me for more detail.
David R. Missimer, [email protected], is General Counsel for Automotive Compliance Consultants Inc. He spent 28 years in private practice as a seasoned litigator and trial lawyer with a proven record of getting excellent results in all types of cases. He represented lenders, auto dealers and numerous other entities and individuals in State, Appellate and federal Bankruptcy courts. He has worked with dealership compliance issues since 2004. He joined Automotive Compliance Consultants in 2003. He is a member of American Financial Services Association and National Automotive Finance Association as General Counsel of Automotive Compliance Consultants Inc.0