To many consumers, the F&I process of filling out a loan application, negotiating a finance contract and getting credit approval is the worst part of a vehicle-buying experience they dislike in the first place.
Not surprisingly, the experience is the wellspring of many lawsuits.
'We're seeing lots and lots and lots of lawsuits' that originate in the F&I department, said Michael Charapp, a Washington lawyer who is general counsel for the Virginia Automobile Dealers Association. His practice also represents more than 100 dealerships.
Complaints are unavoidable. In an industry with no fixed prices, customers are always going to worry they paid too much for their vehicle, no matter how ethical the dealership may be. For most people, a new vehicle is the second-biggest purchase in a lifetime after their home.
David McKay, director of Auto Finance and Insurance Practices for J.D. Power and Associates, says there is a lot of room for honest misunderstanding in the F&I department, especially when the salesperson quotes one price and the F&I manager comes up with another.
Even so, he points out, a narrow majority of buyers report they are satisfied with the overall sales experience.
According to a 2000 J. D. Power survey, which included some F&I-oriented questions, 54 percent of respondents said they were 'completely satisfied' with the sales experience, up from 48 percent in 1998.
Those who said they were less than completely satisfied cited these key reasons: 'broken promises,' 'complicated price negotiations' and an 'intimidating environment.'
Some complaints about the F&I department stem from a lack of training, Charapp said in a presentation to the Consumer Bankers Association Automobile Finance Conference in Orlando, Fla., on March 13.
F&I managers have a long list of legal standards to meet, any one of which can be the basis of a lawsuit. They include federal Truth in Lending and Equal Credit Opportunity requirements and myriad state laws.
'For what they do, there is no one in the dealership less well trained than the F&I people,' he said.
But training, with an emphasis on ethics and legal responsibilities, is available. The captive finance companies, banks, private training firms and the Association of Finance and Insurance Professionals in Bedford, Texas, all offer such training.
The fact remains that there are enough genuine unethical practices to keep the F&I department's terrible reputation alive.
'People dislike high pressure and the intimidating environment,' said John Walsh, president of the Institute for Ethical Behavior in Scottsdale, Ariz.
Walsh, who has spent the past year researching auto finance and talking with hundreds of consumers and F&I managers, said in a telephone interview that he plans to launch a new course called 'Ethics Training for Financial Managers.'
Before entering the automotive field, Walsh conducted ethics training for commodity brokers and stockbrokers.
Walsh said he heard reports of several unethical tactics in his research, such as the 'high penny roll.'
That's where the F&I manager arbitrarily adds 99 cents to a customer's loan payment. Instead of $350, for instance, the monthly payment becomes $350.99.
People seldom question this, he said. But for a dealership selling 400 cars per month, the seemingly insignificant overcharge can generate more than $50,000 per year.
He also said some finance managers tell buyers with marginal credit that they must buy credit life insurance before the bank will give them a loan. That also is a lie, he said.
Add-on items are another opportunity for an unethical F&I manager. These products range from insurance policies to hard items such as alarm systems and fabric protection. To get rid of these, the customer may have to go through the finance contract and reject each item one by one. This takes time and adds to the frustration of the process. Customers might even be told they cannot remove add-ons, such as alarm systems, which is false.
Charapp pointed out that subprime customers are a growing source of complaints against F&I departments. He said dealers should cut their dependence on subprime financing, which grew sharply in the mid- to late-1990s.
'Subprime is a cancer on the dealership,' he said.
'No. 1, it is damaging to the sales force. The sales force learns they no longer have to sell products; they just have to match the payment with some kind of (car). The salesmen quit selling.'
Secondly, he said, it affects customer service in the dealership.
'Rightly or wrongly, the dealership people look at substandard credit customers as people they're doing a favor for - `If it wasn't for me, you'd be using bus tokens.' That is not an attitude that leads to customer satisfaction,' Charapp said.
'Problems with lawsuits come from subprime credit. Almost every lawsuit I see has a Truth in Lending issue, and two-thirds come from subprime lending. Those are the people who are most apt to have a problem.'
Spot delivery is another problem area likely to cause complaints. In a spot delivery, the customer takes delivery before financing is approved. The customer agrees to return the car to the dealership if the dealership cannot assign the loan to a financial institution.
It sometimes happens that the dealer cannot get the financing at the promised rate, but can get it at a higher rate.
So the customer has to redo all the paperwork if he or she wants the car. Customers can feel cheated if they have to come back to the dealership and redo the paperwork, and perhaps pay more.
McKay of J.D. Power suggested skipping spot delivery altogether. 'If the F&I manager has any doubt the deal will be approved, he should not close it,' he said.
McKay said the F&I process must change.
'Anything the manufacturers and dealers can do with F&I to improve the value of the products offered and rework the process itself will be welcomed by consumers,' he said.
'There is no need to use high-pressure tactics if true value is delivered. F&I managers don't have to play games with customers when they have a legitimate value story. The better F&I managers do that.'
To be fair, the F&I department is under tremendous pressure to produce. And F&I managers, who are paid by commission, have every incentive to pad prices.
'The fundamental issue dealers face is pressure on pricing. Dealers are selling new cars at a loss, and the F&I department becomes a source of profit,' said Jeremy Anwyl, COO of Edmunds.com, an online auto industry information source.
About 53 percent of the nation's dealers would not be profitable without F&I income, said Paul Taylor, chief economist of the National Automobile Dealers Association. According to NADA, the average dealership lost $228 per vehicle in the new-car department in 2000 when F&I income is excluded. With F&I income, the average dealership made a profit of $137 per new vehicle.
In the face of that pressure, McKay said, customers have pretty basic expectations: 'Auto finance providers need to set up the loan or lease correctly, bill their customers accurately and in a timely fashion, and give their customers a sense that they got a good deal for their money.'
John A. Russell is a free-lance writer in New York. Staff Reporter Jim Henry contributed to this report.