Bronx Honda charged "certification fees" of up to $1,995 for the warranty coverage already included with American Honda certified pre-owned vehicles.
Payment packing is a top area of concern in the F&I office in terms of compliance, wherein a dealership finance manager inflates vehicle costs to obscure additional products the consumer did not consent to purchase.
The value of the F&I products, and what dealerships are charging for them, also are problems, according to Patty Covington, a partner at Hudson Cook.
"Some products, they say, are really not worth the paper they're written on," she said.
Using terminology such as "voluntary protection products" is part of the industry campaign to improve the perception of finance office activities.
The American Financial Services Association published a white paper during the pandemic that highlights the advantages of "optional protection products," and cited a 2017 study suggesting that consumers were fully informed of debt protection products and their option to refuse them at the point of sale.
Dealership reserve, or dealership participation, has undergone a similar public relations cleansing. In 2013, the CFPB leveraged anti-discrimination laws in an attempt to force auto lenders to limit or eliminate dealer reserve. After a spate of consent orders and sweeping changes from some of the nation's largest auto lenders, Trump clipped this power in 2018.
Still, the dealership community is eager to disassociate dealership reserve with the idea of an undisclosed kickback. The National Automobile Dealers Association disseminated advice for how dealerships can approach reserve after the Department of Justice determined in 2007 that a dealership, Pacifico Ford, violated the Equal Credit Opportunity Act through its dealership reserve program.
Rescinding the guidance likely prevented further consent-order activity that occurred with major auto lenders in the early years of the CFPB, Covington said. Still, concerns over disparate impact remain a consideration for regulating installment contracts.
"The dealer participation issue has never gone away completely," she said. "I don't think that's what the CFPB will focus on, but the FTC may seize on the issue with respect to dealers."
Because disparate impact remains an unfair, deceptive act or practice under the FTC's description "means it's still very much out there" as a reason the agency can use to investigate a dealership, Henrick said.
Dealership experts have long advised establishing a set interest rate markup for dealership participation.
NADA's program outlines possible reasons retailers can give if they are required to explain why they deviated from their established dealership reserve amount.
Still, concerns that dealership reserve leads to minority and female customers paying more for auto loans than white male customers in similar financial situations is a concern among federal regulators.
Dealership leaders have learned from cases such as those of Bronx Honda and Gunderson Chevrolet, Eleazer said.
The Los Angeles-area Gunderson, owned by AutoNation Inc., once was one of the largest Chevy stores in the country. In 2002, the California Department of Motor Vehicles charged Gunderson with fraud, deceit and misrepresentation to more than 1,500 customers in the first case in which dealership employees were criminally prosecuted for tactics common in the industry.
In Eleazer's opinion, dealerships introduce liability by failing to address customer complaints.
"The thing some dealers forget is the law usually sides with the customer," he said. "Sometimes, unwinding is better than irritating a customer and eventually writing a settlement check."