Dealers, lenders still angling over laws governing F&I tactics

Dealers and auto lenders are keeping a close eye on various dealer-backed state laws that seek to restrict what automakers’ captive finance companies can do to induce dealerships to sell F&I products backed by the factory or a specific vendor.

“We see it as a growing trend,” said attorney Danielle Fagre Arlowe, a senior vice president at the American Financial Services Association, a lender group based in Washington that, in general, opposes the laws.

Last month, AFSA distributed to its members a white paper on “Ancillary Product Provisions,” providing a state-by-state update on laws that were proposed or passed in the past couple of years.

For instance, AFSA said a law took effect in Oklahoma in November that prohibits an automaker from using sales volume of F&I products sponsored by the manufacturer to measure the performance of a dealer’s franchise.

And New Jersey has a bill pending that would prohibit a manufacturer from “requiring or attempting to require a franchisee to offer any finance, insurance, warranty, service or repair plan or other product of the franchisor or affiliated financial institution.”

Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, told Automotive News last year: “For an automaker to create incentives or offer benefits or withhold benefits contingent on whether the dealer adequately represents a third party -- a party that’s not a party to the franchise agreement, and the captive is not a party to the franchise agreement -- is fundamentally unfair.”

State dealer associations also maintain that captives shouldn’t be allowed to refuse to finance F&I products administered by third parties on the same contract as the vehicle -- a severe handicap for getting those products sold.

Actual examples of that practice appear to be few and far between, but dealer groups around the country cited that threat in interviews last year. And at least one captive, VW Credit Inc., acknowledged it now finances third-party GAP contracts as a result of dealer feedback.

But lenders worry about a worst-case scenario in which a third-party administrator goes bankrupt. In that case, a lender could be held liable for claims on service contracts it financed but had no control over.

Said Arlowe: “The providers of vehicle financing should not be directly or indirectly forced to finance unapproved products from unknown companies.”

You can reach Jim Henry at

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