As regulators scrutinize auto lending practices, companies in the F&I space have made compliance with state and federal rules a priority too.
F&I product administrator EFG Cos., of Dallas, is one such company. About a year ago, it appointed Karen Klees to fill the new role of compliance specialist. Klees recently amended her title to certified consumer credit compliance specialist after completing the Consumer Credit Compliance Certification Program from the National Automotive Finance Association.
Klees explained to Automotive News Special Correspondent Jim Henry how she would put her training to work at dealerships in 2015.
The talk at auto finance industry conferences centers on compliance as the growing arena in the CFPB era. Is that your experience, too?
Everyone I’ve come into contact with recently has identified ... stresses they are under from the Consumer Financial Protection Bureau and other regulators. It’s been a huge kind of coordinating task.
At the same time, the industry says it didn’t just discover compliance, right?
For us, we’ve always been focused on compliance. But when I started a year ago, it was a new position for us. It was a giant focus for us [before] and has been for the last 12 months.
You recently finished a certification course, which I understand was originally aimed at lenders. Does it apply to your business, too?
A lot of things I’ve learned apply to our business. For instance, focusing on our customer complaints so we can hone our responses to those complaints.
What about dealerships?
EFG is actively working with our dealer partners to put a more sophisticated and formal complaint management process in place. The CFPB is almost completely complaint-driven. In other words, their efforts are directed by the consumer complaints. This means not only addressing and handling complaints but also analyzing the complaint data.
What kind of analysis?
What type of complaint was it? Who was the complaint about? How often have we seen this same complaint? How often is this person complained about? Is this process, or location, or practice something that draws a lot of complaints?
What do you do with the data?
You review it on a quarterly basis to identify trends and make procedural, structural or personnel changes to correct the problems that you see from your data to prevent future complaints -- and document the changes.
Are dealerships using the National Automobile Dealers Association’s policy in which dealers set a fixed rate for dealer reserve and then document any discounts?
We are working with our dealer partners in how they are actively implementing NADA’s Rate Administration Guidelines to protect both their business and the lenders’ businesses.
What about F&I products?
Our dealer partners understand that the cost of the products that customers purchase must be appropriate to the value they are receiving from the product. The CFPB has been collecting data on the pricing of ancillary products that are sold on loans. Although they have not acted yet on this data, they have it and are deciding what to do with it.
The CFPB doesn’t have jurisdiction over dealerships. So can it do anything?
While the CFPB does not have authority over auto dealers, they have collected a lot of information on the auto industry. They share their information with other government agencies that do have authority over dealers, for example the Department of Justice, the Federal Trade Commission and state attorneys general. So the bottom line is we are all in this together, and it is very important for the dealers and the lenders to work together.
What are some examples of poor practices to watch out for?
These are exaggerated examples, but for instance selling GAP on a vehicle that has 50 percent down. Selling a $4,000 service contract on a $5,000 vehicle. Dealers should all be looking to price their ancillary products consistently.
From start to finish, how long did it take to get certified?
It took me the better part of a year. You have to pass the test on one unit before you can move to the next one. The final module was in Las Vegas. That took another two days. It was very comprehensive. I felt like I took a legal course, like I had passed a legal course.