To avoid losses from chargebacks, auto lenders should study up on the F&I products they finance.
Auto dealers reserve the right to choose their F&I product providers, but lenders that fund products from these vendors should vet them alongside their dealership clients.
Evaluating F&I products and product providers is no easy task. There are hundreds of F&I product companies and thousands more F&I products. Many of the companies are private, meaning that they don't have to disclose data on how high their product penetration is or how many dealerships they work with. Moreover, there's no database that lenders can consult that monitors factors such as how prompt refunds are, whether F&I product pricing is reasonable relative to coverage and whether the coverage is comprehensive.
But understanding the value of F&I products before agreeing to finance them can safeguard auto lenders from chargebacks, says Rich Apicella, executive vice president of technology company F&I Express.
Auto lenders should also keep up to date on F&I products as they're rolled out. In the past year, several notable F&I product companies such as EFG Cos., JM&A and Protective Asset Protection have launched F&I products exclusive to electric vehicles.
Another way lenders can protect themselves is to examine car deals to ensure F&I products make good sense for the customer. Apicella says if a down payment or a vehicle trade-in value offsets more than half a vehicle's cost, a GAP product isn't likely to provide value.
Selling F&I products to customers who don't need them may attract the attention of the Consumer Financial Protection Bureau, Apicella said, as the agency has noted in recent supervisory highlights that it plans to monitor such sales.
Lenders should research the disclosure and cancellation obligations of the F&I products they're funding and speak regularly with dealership clients about their chargeback tallies. Monitoring existing and emerging F&I products from the coverage to the cancellation process should be an integral part of a lender's risk management program.