The CFPB hinted strongly in consent orders this year that it would like to see more disclosures on pricing and coverage with regard to F&I products.
"We've got to be on our toes. We've got to look how we're training," said Steve Amos, president of F&I product provider GSFSGroup, during a panel discussion at the Industry Summit, an annual F&I conference, here last week.
"We've got to have a real industry effort for us to pull this off," he said.
Amos and other executives said at the conference that F&I administrators need a campaign to educate regulators, such as the CFPB, about their industry. "They really don't know our industry, and yet they are regulating our industry," Amos said.
F&I administrators sell extended-service contracts and other F&I products such as guaranteed asset protection and tire-and-wheel policies. They administer the reserves that are used to pay claims and typically arrange for insurance to back up the products. In some cases, they are insurance companies themselves.
The F&I product industry has been on high alert since June when the CFPB ordered U.S. Bank, a unit of Minneapolis' U.S. Bancorp., and Dealers' Financial Services, of Lexington, Ky., to refund a total of $6.5 million to military service members who got auto loans through Dealers' Financial Services' Military Installment Loans and Educational Services program.
According to a consent order, the CFPB said the companies misrepresented the cost and coverage of extended-service contracts and GAP. The CFPB ordered Dealers' Financial Services to rewrite disclosure forms to emphasize that add-on products are optional; they don't have to be financed along with the vehicle; and that financing the products costs more than paying cash. U.S. Bank dropped its participation in the MILES program.
Las Vegas conference participant Dave Duncan, president of Safe-Guard Products International, acknowledged there are some abuses in the industry. He said dealers need to exercise restraint in pricing F&I products and that lenders should put a ceiling on how much they will approve for F&I products financed at the same time as the vehicle.
"I've heard of an F&I manager charging $1,500 for GAP and $1,500 for tire-and-wheel on a Chevrolet. I don't care where you're from, that's price gouging," noted Duncan, who has said in the past that a realistic ceiling for GAP would be $800.
Amos agreed with Duncan that $1,500 for some F&I products is too high.
"I'm a 1,000 percent believer that disclosure will help with sales because our products have value," Amos said. "We can't be selling GAP for $1,500 or $1,800 or whatever because that's going to cause problems for dealers."
Scott Karchunas, president of Protective Asset Protection in St. Louis, appealed to common sense. "Your products and what you sell them for -- there has to be some relationship to shared value," he said. "It's all got to translate into common-sense value."
At the conference, F&I administrators and NADA asked each other for help.
NADA Chairman Dave Westcott called on the administrators to join dealers in asking elected officials to question the CFPB's aims and methods in trying to eliminate the dealer reserve.
Later, the F&I administrators said they would like NADA to return the favor and include F&I products in the overall industry effort to "educate" the CFPB.
"One of the things we really need to do something about, and I would like to see NADA do, is educate the CFPB that there are certain perils of ownership, and these products protect consumers from them," Duncan said.
Jimmy Atkinson, COO of AUL, a service-contract provider in Napa, Calif., added: "We have to have a concerted effort to reach out and educate. If we don't, we're going to be on the defensive."