Are most dealerships prepared if regulators begin to examine F&I product sales? Not yet, F&I insiders say.
Dealers have certainly seen the warning signs. During the past few years, regulators’ watchful eyes on the auto finance industry have led to multiple enforcement actions against dealers and lenders.
The Consumer Financial Protection Bureau has settled with auto lenders for potentially discriminatory lending practices. The Federal Trade Commission has initiated Operation Steer Clear and Operation Ruse Control for enforcement actions over issues ranging from deceptive ads to loan application fraud. And states’ attorneys general have kept tabs on dealerships’ business practices, specifically in the F&I office.
But few of those actions have focused on F&I product sales. Without a clear signal of where and how regulators could come down hard, dealerships haven’t taken steps to head off enforcement, F&I insiders say.
“It’s like anything,” said Terry Dortch, president of Automotive Compliance Consultants. “You’ve got 25 percent of dealers out there trying to do things the right way. They realize there are problems that they have to deal with from a regulatory aspect.”
But half of dealerships, he estimates, wait until someone tells them to get compliance in check or until they have to. Other dealers say they don’t care; they’re not changing their ways.
F&I product pricing has been on the radar of dealers, trainers and product vendors for “a very long time and nothing has happened,” said David Missimer, legal counsel for Automotive Compliance Consultants. The Crystal Lake, Ill., dealership consulting firm’s concern focuses exclusively on dealership compliance issues.
The product providers have been telling dealerships that to increase profits, they need to sell more products, rather than pad margins.
Dealerships know that, but “as far as any type of change in pricing, should the feds move on ancillary products, I don’t think [dealers] are really ready even if they say they are,” Missimer said, adding that the big dealership groups are an exception.
Tony Wanderon, CEO of F&I product provider National Auto Care, said he doesn’t know whether anyone is ready for the unknown, but dealers should be “diligent in their oversight of their F&I departments and [make] sure they [meet] the standards you would expect a regulator would want you to provide.”
That applies to both pricing and clarity of explanations. Dealerships should make a “clear and conscious” effort to explain the benefits of F&I products, Wanderon said. Even if terms are disclosed, the customer could misunderstand them, he added.
The CFPB has jurisdiction over financial products. “The CFPB is salivating over dealerships’ ancillary products because they feel it is fertile ground for disparate impact,” the term for de facto discrimination even if no discrimination is intended, Dortch said.
But the bureau has some hurdles to overcome before it could regulate F&I products. Currently, the FTC and state attorneys general are taking it on.
Attorneys general have always had dealership oversight, but now they are playing a bigger role, Dortch said. And the CFPB is likely helping. “The CFPB has a huge complaint database. For all the complaints they don’t have jurisdiction over, they don’t get thrown into a trash bin. They get passed on” to other agencies that do have jurisdiction, such as the FTC or state attorneys general, Dortch said.