Dealer-backed laws limit captives' power to compel sales of branded F&I products

Several new state laws are taking effect that limit the power of automakers’ captive finance companies and preferred lenders to compel dealerships to sell F&I products backed by the factory or a specific vendor.

Laws took effect in Florida and in Mississippi on July 1, and one took effect in New York on June 16. A law in Oklahoma is expected to go on state books beginning Nov. 1, according to the American Financial Services Association, a Washington-based lender trade group.

With some significant differences, the new laws generally make it harder for captives and preferred lenders to favor their own F&I products or to discriminate against F&I products from third parties.

Florida’s new law, for instance, prohibits a manufacturer’s “affiliated finance company” -- a category that includes preferred lenders not owned by the manufacturer -- from refusing to purchase a finance contract or charging an additional fee solely because the contract is used to finance ancillary products from a third party.

“The basis of this legislation is to maintain freedom of choice,” said Ted Smith, president of the Florida Automobile Dealers Association, which is based in Tallahassee. “The dealer should be able to go to an openly competitive marketplace and choose products that are right for the consumer.”

The Florida dealer association didn’t get everything it initially wanted in the bill, Smith said. The new law states a captive or preferred lender can no longer reject contracts or charge extra based on third-party F&I products alone. And the law potentially allows captives to structure deals to favor contracts that include their own favored F&I products, he said. For instance, a lender theoretically could withhold incentive programs from contracts it doesn’t want, he said.

In Mississippi, a manufacturer, or its agent, is not allowed to “require or coerce” a dealer to sell only products offered by the manufacturer or to measure dealer performance based on the sale of those products, according to an AFSA summary of the new laws.

However, the Mississippi law also requires dealers to disclose to consumers “orally and in writing” if a product is not offered or endorsed by the manufacturer, according to AFSA. Some dealers complain that part of the law discriminates against third-party products.

“This legislation is all over the place,” said Danielle Fagre Arlowe, an AFSA senior vice president and one of its attorneys, referring to variation state by state and even contradictory provisions within some of the same state laws.

In general, she said, lenders oppose the idea of being made to finance third-party F&I products because they may be liable for claims if the third-party provider goes out of business.

New York’s new law says a manufacturer is not allowed to “directly or indirectly coerce, or attempt to coerce” a dealer to exclusively sell F&I products “offered, endorsed or sponsored” by the manufacturer. However, manufacturers are allowed to offer incentives to dealers to make a “voluntary decision” to sell those F&I products, AFSA said.

The New York law says a manufacturer can require dealers to disclose to customers if a product is not offered or endorsed by the manufacturer, according to AFSA. That’s similar to the Mississippi law.

Other states have tackled laws, too. South Carolina, North Carolina and New Hampshire enacted laws in 2013 that restrict captive finance companies from trying to enforce exclusivity for F&I products, according to AFSA. A law touching on similar issues is being considered in New Jersey.

You can reach Jim Henry at

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