What Sonic is doing to curtail F&I crime

TV expose, state AG probe prompted changes

Sonic posts signs in all its dealerships telling customers of their F&I rights. The one above is in the office of Chris Knippelberg, finance manager at Mountain States Toyota in Denver.

For the past 15 years, the most important compliance program at Sonic Automotive has been in its finance and insurance division.

"F&I represent the most risk to an auto retail company of any of its businesses," said Steve Coss, general counsel for Sonic. "You need a comprehensive program that attacks F&I fraud in many ways. It starts with the tone from the top."

Sonic, of Charlotte, N.C., ranks No. 5 on the Automotive News list of the 150 largest dealership groups based in the U.S., with retail sales of 135,932 new vehicles in 2014.

Sonic takes compliance seriously, in part because it was burned once.

In 2003, the NBC TV news program "Dateline" featured Sonic in an expose of dealership finance practices. The report suggested that some dealerships charged minority customers higher retail interest rates to finance vehicles than it did comparable white buyers.

The Florida Attorney General's Office had investigated Sonic's Clearwater Toyota and Clearwater Mitsubishi stores for overcharging, and Sonic agreed to change its business practices as part of settling the case.

Sonic's then-president, Jeffrey Rachor, imposed interest-rate ceilings at Sonic dealerships, ordered dealership audits and increased employee training.

Rachor also asked Ted Kraybill, president of ESI Trends in Largo, Fla., to develop a "compliance risk score" for Sonic. The score is used today as part of an annual report Kraybill does for the group's dealerships from employee feedback. It helps dealership leaders make sure the F&I offices are in compliance, Kraybill said.

Sonic's Coss said the "Dateline" incident was "incredibly painful" and spurred the company to make several changes starting in 2004 to thwart F&I crime.

The result?

"They've absolutely worked," Coss said. "We have not had a significant regulatory investigation or complaint in a decade."

Specifically, Sonic now:

  • Uses electronic F&I product menus. Paper menus had made it too easy for stores to make payment mistakes or possibly slip in products a customer did not agree to buy. "That was a big step," Coss said. 

"It was making sure we had a transparent electronic menu so that each customer saw the exact price and impact on their monthly payment."

  • Posts signs in all its dealerships informing customers of their F&I rights and explaining dealer reserve -- the share of a customer's interest rate the dealership makes for arranging the loan. 
  • Conducts criminal background checks and drug testing on every hire. 
  • Uses Web-based tools to better deliver training and verify that its done. 
  • Audits stores regularly for compliance with Sonic's F&I policies. 
  • Offers an anonymous tip hotline for employees to report any bad behavior by colleagues. It gets 20 to 25 calls a month, Coss said. Most are minor issues, but every now and then, he said, "There is one you need to look at, so we have to take all of them seriously."

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