The National Automobile Dealers Association says finance and insurance products have been misconstrued in the press, through government enforcement and in lawsuits. So this year, NADA, along with other trade groups, began promoting a policy that dealerships across the country can adopt to help ensure they are compliant when selling F&I products.
Groups promote F&I compliance policy
"They're frequently lumped into a category that suggests that all voluntary protection products are gratuitous, and unnecessary and overpriced. Those that are familiar with the products understand that they offer considerable value and peace of mind, and we want to make sure that people understand that," said Paul Metrey, NADA's vice president of regulatory affairs.
"We also want to make sure dealers are provided with a helpful, optional compliance tool to try to ensure that their operations are compliant, transparent, and at the end of the day, consumer friendly as it relates to voluntary protection products," Metrey said.
NADA in April sent a notice to its members about the policy, which it created in concert with the National Association of Minority Automobile Dealers and the American International Automobile Dealers Association.
Mike Alford, chairman of NADA's regulatory affairs committee, told dealers in a letter that the policy is not mandated by any state or federal regulation. But, he added, dealerships that adopt it would promise transparency when selling F&I products and establish procedures to ensure a policy is followed. The policy advises dealers on handling product selection and cancellations, presentations, pricing, advertisements and customer complaints, Alford wrote.
NADA worked with NAMAD and AIADA, plus F&I product companies, dealers, dealer lawyers and compliance experts, to craft a two-page policy and a larger instruction booklet.
"The hope is that it provides dealers with tools that they may not currently have to try to shore up their procedures," Metrey told Automotive News.
Dealerships that institute the policy put up a poster or sign in finance offices explaining the policy and make disclosures during the F&I menu presentation with consumers, Metrey said.
NADA isn't tracking how many dealers are adopting the guidelines, but Metrey said anecdotally they've heard some members have.
Charlie Gilchrist, 2019 NADA chairman and president of Gilchrist Automotive, said he followed NADA's template, modifying it in a few places, and early this year implemented the guidelines at his SouthWest Ford store in Weatherford, Texas. Last month, he said he planned to launch the policies at his other dealerships.
Gilchrist said adding the policy was a "fairly easy process," and employees have had no problems. Small signs are posted in the dealership F&I offices that explain to consumers that the store has adopted the policy.
"It makes us a better dealer," he told Automotive News. "We actually have a pricing process that we follow now. I think it makes our F&I or business managers a little bit more comfortable and confident when they price the products. And they document the reasons they deviate down from the process. It gives them a little comfort, and as a dealer, it gives me a lot of comfort."
Gilchrist said since adopting the policy, SouthWest Ford's F&I profits have not declined. It's a question he has been asked by several dealers.
This isn't the first set of general or voluntary guidelines that NADA has issued. In 2014, the association along with NAMAD and AIADA launched a Fair Credit Compliance Policy & Program, which recommends dealerships adopt a set method for determining dealer reserve — the retail margin dealerships earn for arranging a loan. In cases in which the dealership reduces the preset amount of compensation, it must document the reason.
Metrey said many dealers have adopted that policy or something similar, though he gave no specific figures.
Metrey is spreading the word about the voluntary protection products guidance by speaking with state dealer associations, accountants' groups and at conferences for groups such as CU Direct, the Consumer Credit Industry Association and the National Association of Dealer Counsel.
Damon Lester, president of NAMAD, said his association supports the effort.
"We've distributed the program to all of our members via email, website link and [a] mention in our newsletter," he told Automotive News in an email.
NADA provided advance copies of the policy to the Automotive Trade Association Executives to give dealer associations time to share with their members information if state or local laws differed from the NADA policy.
For example, Metrey said, California requires a specific disclosure with voluntary protection products and Florida has a pricing statute about voluntary protection products.
"Dealers want to speak to their counsel regardless ... about to what extent they should adopt a policy template and how it should be tailored to their operations," Metrey said. "It's always an important exercise."