Karen Klees, certified consumer credit compliance specialist at EFG Cos., advises dealers to install a written F&I compliance process and to train employees regularly on the practices they expect.
Klees, 60, spoke with Automotive News Staff Reporter Hannah Lutz.
How can dealers ensure they are compliant?
Dealers all seem to have an idea of what they would like specifically their F&I managers or their salespeople to do. But what I find missing is having these policies in writing. I talked to a dealer a couple of weeks ago and he rattled off in detail his specific wishes in how he wanted a certain thing handled. When I asked him if he had it in writing, he did not. It leaves a lot of room for error.
Who would document those written policies -- the dealer or legal counsel?
A little bit of both. The dealer has to first put together how he or she wants things to be handled, but I would always recommend that dealers run anything they put in writing by their own attorney because that’s who is going to have to defend them if there’s ever an issue. There are myriad laws out there. Dealers should have a written process for how they want to handle each of them.
How should dealers develop that written process?
Many [F&I] administrators are helping dealers at least outline what they should have in writing. We also have available to our clients the ability to become AFIP certified [certified by the Association of Finance & Insurance Professionals], which not only teaches them about the laws they need to comply with but also explains to them in detail what the consequences are in violating those laws. They need to sign that they will agree to adhere to these laws.
There also needs to be consequences written into the processes in case someone violates a process. Some of those consequences are dictated by the law and some can be developed subjectively by the dealership.
Where does the enforcement come from?
In general, enforcement comes from the employee’s direct supervisor, but ultimately it has to start from the top down. The dealer has to be the person that is holding his general manager accountable and the general manager needs to be holding his sales managers accountable. Compliance doesn’t work if it starts from the bottom up. It only works if it starts from the top down.
How should dealers train their F&I managers on compliance?
Training needs to not happen just once; it needs to be ongoing. When an F&I manager comes to our training class, they’re taught. Our field team comes out and reinforces that and does regular training. But there should be somebody in the dealership who is a designated compliance officer, who is tasked with making sure the staff is repeatedly trained on processes the dealership expects. Certainly when someone is brand-new, training needs to be brought to the compliance officer’s attention. It’s going to depend on how quickly dealership staff turns over, but I would say at least every six months dealerships should review everything they expect. And if something new comes out, there should be training before the regular interval comes.
When regulators look at F&I products, what do they watch for?
The CFPB is the one gathering the data, and while they don’t have the enforcement authority over auto dealers, they do have the ability to share that information with people who do have enforcement authority over auto dealers, such as the FTC.
[Some] of the most active regulators are the states’ attorneys general. My best advice is consistent pricing. They’re not going to regulate how much you can make. The market will regulate how much you can make. But they are going to have an issue with inconsistency.
How can dealers ensure that pricing and selling are consistent with every customer?
First, make sure there is a menu in every deal that shows they’ve offered 100 percent of the products to 100 percent of customers 100 percent of the time. Then dealers need to cap how much they’re going to allow the products to be sold for so there’s no gouging. Someone needs to watch the F&I recap [or summary] sheets to make sure there isn’t a swing on one particular product.
How should dealers determine a fair cap?
I would cap it based on a certain amount over the cost. I’d cap the profit. The dealership pays X amount of dollars for a service contract. The dealer may say [to employees], “I don’t want you to make more than $500 or more than $1,000.” It could be any number they choose, but it should be capped at a certain amount of profit.
I don’t think regulators are trying to set what profit can be. They just want to make sure we’re not making $100 on one person and $1,500 on another.