Finding the limits of fair pricing
Hudson: More F&I scrutiny
Even if your state doesn't restrict the pricing of products sold in the F&I office, there are some basic steps a dealership should take to limit risks.
It's uncommon for states to place specific caps on the markup for F&I products, said Tom Hudson, a Maryland lawyer who specializes in F&I issues. But even without such statutes, regulators are watchful and have the authority to crack down on dealerships they believe to be charging egregious markups.
Pennsylvania regulators, in repealing a product markup cap earlier this year, pointedly said they would continue to review transactions to determine whether markups are excessive. State attorneys general can use unfair and deceptive acts and practices laws against a dealership if they think an F&I product is unfairly priced, Hudson said.
Hudson also expects the federal Consumer Financial Protection Bureau eventually to more closely scrutinize the sale of aftermarket F&I products.
Could selling a window etch product for $1,000, for instance, catch the bureau's attention? The cost of that product to the dealership typically is a few tens of dollars or less.
"I'd be interested to see if the feds get interested in really significant markups like that," Hudson said.
Extremely high markups also can expose a dealership to consumer lawsuits. Hudson said he points out markups that might raise red flags when conducting audits for his dealership clients.
Some dealerships have gone to one-price policies on aftermarket products in part to avoid accusations of price discrimination. While that's one option, it's not necessary if a dealership is careful to avoid treating minorities and other protected classes differently, Hudson said.
"Provided you don't run afoul of federal discrimination laws, there's nothing wrong with selling one good or service to a customer at one price and to another at another price," he said. "Dealers do it all the time with the cars they sell."
Dealers can take other actions to protect themselves, Hudson said:
Review product pricing with the dealership's lawyer to make sure the lawyer feels the pricing is defensible.
Consider implementing a policy that caps the markup to what the lawyer feels is defensible.
Ask consumers to sign an arbitration agreement as part of every transaction. It should say that both parties agree that any dispute will go to binding arbitration if either party requests it. To pre-empt the possibility of a class-action lawsuit, the agreement also should include a provision saying there will be no class relief.
You can reach Amy Wilson at firstname.lastname@example.org.