Many dealers warn: Accept a gift and get fired

When George Angus started in the F&I industry in the 1970s, finance and insurance managers routinely accepted cash and perks directly from lenders or F&I vendors.

Today, says Angus, head trainer for Team One Group, of Scottsdale, Ariz., "In most dealerships it's a firing offense, that's how serious it is."

Dealerships' prohibitions against such incentives, and the enforcement of those prohibitions, are likely to be ratcheted higher due to concerns that federal regulators are looking more closely at F&I products and how they are priced.

"We prohibit our finance managers from taking incentives -- gift cards, things like that," said Brian Leary, vice president of finance and insurance at the Larry H. Miller Dealerships, of Sandy, Utah, the nation's 10th largest dealership group as ranked by new units retailed.

"We want the focus to be on what makes a deal right for the customer," Leary said at the American Financial Services Association Vehicle Finance Conference in New Orleans prior to the NADA convention in January.

Instead of direct payments, most dealerships now insist that vendors direct any incentives via dealership management, Angus said.

"I don't know of any dealer, anywhere, who wouldn't be really mad if they found out somebody was paying their F&I managers directly," Angus told Automotive News.

Experts said many dealerships are re-emphasizing that policy today because watchdogs such as the Consumer Financial Protection Bureau and the Federal Trade Commission are looking more closely at F&I practices.

The CFPB has made it clear that it wants to end discrimination in auto loans originated at dealerships. That includes unintended discrimination in the form of procedures that nonetheless result in a so-called disparate impact, for example, higher payments for protected classes such as minorities or women.

The CFPB's major push so far has been to seek to eliminate dealer discretion in setting dealer reserve. Dealer reserve, or dealer markup, is the small amount of interest that lenders allow dealerships to add to the lender's interest rate on a car loan to compensate the dealership for helping to arrange the loan.

The CFPB says dealer discretion can result in a disparate impact, or higher interest rates, for legally protected classes of borrowers such as minorities.

In addition, the CFPB has demonstrated an interest in F&I products such as extended service contracts and guaranteed asset protection.

So far, the CFPB hasn't addressed dealership product pricing directly. But in a consent order last year, the CFPB said U.S. Bank, of Minneapolis, and Dealers' Financial Services, of Lexington, Ky., were responsible for misleading marketing aimed at military service members. The marketing exaggerated benefits and understated costs for extended service contracts and GAP, the CFPB said.

Based on that action, some F&I vendors are concerned the CFPB could delve deeper into F&I products, including pricing, how that pricing is set and the cost-benefit relationship for consumers.

In that environment, an F&I manager could cause real problems for a dealership if he or she chose one vendor over another based on which one yielded the best compensation for the F&I manager, instead of which one was the best deal for the customer -- especially if that resulted in higher prices for legally protected borrowers, Angus said.

"That kind of kickback is strictly verboten and could be considered a disparate impact," he said. "The pricing of products is going to come under scrutiny. Any kind of spiff like that -- cash, gift cards, trips -- no one should be paying anything directly to the F&I manager."

Spokesmen for several of the nation's largest dealership groups -- including AutoNation Inc. of Fort Lauderdale, Fla.; Group 1 Automotive Inc. of Houston; Penske Automotive Group Inc. of suburban Detroit; and Sonic Automotive Inc. of Charlotte, N.C. -- said their groups are as opposed to F&I managers' receiving incentives from lenders and F&I vendors as Larry H. Miller Dealerships is.

"We do not allow spiffs, gifts, prizes, gift cards or any other type of 'outside' comp,'" said Marc Cannon, senior vice president of corporate communications and public policy for AutoNation.

Pete DeLongchamps, Group 1 vice president of manufacturer relations, public affairs, and financial services, said violating the rule is a firing offense. "It's not just for lenders, but for all F&I providers," he said.

Group 1 and the other public dealership groups said they would allow vendors to contribute to incentive programs for F&I managers, as long as the dealership group is aware it's going on and controls how it's paid out.

"I have a budget, and I want to control it," DeLongchamps said. Besides the ethical considerations, DeLongchamps said he's not convinced that token, unauthorized spiffs for F&I managers are even effective.

"Rather than somebody paying out $5,000 in $100 bills direct to F&I managers, I'd rather take that $5,000 and match it," he said. "Now you've got $10,000 to create some kind of incentive program."

Dave Robertson, executive director of the Association of Finance & Insurance Professionals in Colleyville, Texas, wrote in an e-mail that besides firing any F&I manager who was caught taking money directly from a vendor, most dealerships would likely stop doing business with that vendor as well.

But, he added, "That's not to say it doesn't happen."