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FTC investigates biweekly payments

The Federal Trade Commission is investigating biweekly payments as a product sold in dealership F&I departments, according to a memo the National Automobile Dealers Association sent members last week.

“NADA Legal and Regulatory Affairs has received a number of questions and comments about biweekly payment F&I products and it has also come to NADA’s attention that the FTC has recently issued civil investigative demands to dealers in connection with such products,” the May 8 memo said.

A civil investigative demand is a request for documents or testimony.

A spokeswoman for the FTC refused to comment. NADA would not identify which dealerships reported receiving civil investigative demands.

“The bottom line is that dealership F&I personnel must be aware of the specifics of these or any other F&I products they sell, and must ensure that F&I staff are properly trained to accurately and adequately disclose all fees and costs, and not to overstate any potential benefits,” the NADA memo said.

Customer value?

With biweekly payments, customers make the equivalent of 13 monthly payments a year instead of 12. The extra payment is applied to the loan principal, so the loan can be paid off faster. That saves on interest charges and can also get the customer out of a negative equity position faster.

However, NADA said the fees associated with biweekly payments can essentially wipe out the interest rate savings. In the memo, NADA presented what it called a typical example, in which a customer saves $656.61 in interest on a loan of $27,342.96 but pays $613.50 in fees -- an initial fee of $399, plus $1.95 every two weeks, which over 110 payments adds up to $214.50.

“In fact, it may be that such products simply do not present any customer value in the context of any prime loan,” the NADA memo said. It said a dealership could get in trouble in that example if an F&I manager pitched biweekly payments as offering “substantial savings.”


The NADA memo received a heated response from Robert Steenburgh, CEO of U.S. Equity Advantage, an Orlando-based company that offers biweekly payments. He wrote NADA a letter, delivered on May 12, to protest the way it characterized biweekly payments. A spokesman for NADA said the association wouldn’t comment on Steenburgh’s letter.

Steenburgh told Automotive News that biweekly payments offer benefits besides interest-rate savings. For example, he said, customers are less likely to be upside down at trade-in time. He also said it was unfair to suggest that unsavory sales pitches were exclusive to biweekly payments.

“Any product or service in a dealership can be sold in a false and deceptive manner,” Steenburgh said in the letter. “It was irresponsible to single one out.”

You can reach Jim Henry at

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