Questionable F&I Practices Aren’t Worth the Risk
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Questionable F&I Practices Aren’t Worth the Risk to Your Business

Regulators are taking a hawk-eyed view of the market right now. Now is not the time to get fast and loose with your deal jackets.

Ryan Daly is KPA’s F&I District Manager, East Central Region. KPA helps dealerships improve safety and stay compliant. Trusted by 10,000+ clients, including eight of the top 10 automobile dealership groups, KPA offers a unique combination of expert Environment, Health, and Safety (EHS), HR, and Sales F&I consulting, software, and training. KPA enables dealers to comply with state and federal regulations and proactively manage programs to reduce costs, minimize risk and increase productivity.

Regulators Are Watching

The automotive market is hot right now and the scramble to come out ahead is on for your dealership. But beware because, on the flipside, regulators are signaling that they’re taking a hawk-eyed view of the market right now and have made it clear they’re watching. Now is not the time to get fast and loose with your deal jackets.

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The Consumer Financial Protection Bureau (CFPB) released a statement at the end of February saying that it’s got its eyes on car loans, specifically auto lending competition and loan-to-value ratios. It made clear that it will be working with the Federal Trade Commission (FTC) and Federal Reserve Bank Board of Governors to address market issues. 

You’re in the business of making money, but you’re also responsible for staying out of the crosshairs of those groups I name-dropped above. A fine from one of them will wipe out any effort or money you might have earned on a murky deal and put you in the red. It also damages your reputation for customer service and as a good business in the community.

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Here are a few things you need to remember with your deal jackets. 

Credit Applications

I’ve lost count of the number of times I’ve seen a dealer changing customer credit applications fraudulently, violating several regulations and requirements. Changing credit applications or not adhering to the Fair Lending Act isn’t an acceptable business practice and certainly doesn’t help your customer. Your information must be accurate. You would not believe how many dealers mark the rate up, particularly with customers whose primary language isn’t English.

Payment Packing

The FTC has transparent and stringent guidelines for payment packing to ensure those customer payments aren’t inflated with fraudulent figures. Some dealers will intentionally give inaccurate information to a customer to manipulate the price, sell the product and make more money. The rules clearly state you can’t do this. 

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Any dealership that extends credit must follow Regulation Z, the Truth in Lending Act (TILA). TILA protects customers’ interactions with all lenders, including car dealers, by requiring the complete disclosure of the following:
• Cost of credit 
• Term of the loan 
• The total amount of the loan 
• Interest rate, etc. 

The penalties for not complying with these requirements can range from a couple thousand to millions of dollars. And again, it puts your business reputation in jeopardy. I once uncovered a significant amount of payment-packing within a dealership group. Once the issue came to light, the general sales manager and finance director implicated in the case were fired. The turnover lead to a decrease in sales and a hit to their reputation in the community.

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Red Flag Rules

It’s easy to ignore red flags and Office of Foreign Assets Control (OFAC) rules. You need to run your customers by OFAC’s list of Specially Designated Nationals to ensure they’re not listed as a terrorist or money launderers. Disregarding this search can cost you into the millions. It’s also just as critical to your business’s credibility that you’re keeping an eye out for any potential identity theft red flags. I’ve seen dealers bypass this rule to sell a vehicle. 

We’re all trying to make the best of the current economy and turbulence in the automotive industry. Just knowing that regulatory agencies are on the alert can be more than half the battle to protecting your business, reputation and your employees. Noncompliance and its associated costs are never worth the sale.

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