With the Consumer Financial Protection Bureau (CFPB) quickly ramping up its influence over auto-finance, it is widely expected that F&I products will be the next area of scrutiny. As a lender, there are a few ways to proactively prepare your institution for this next step in CFPB regulation.
The first, and most obvious step is to set limits on how much you’ll fund for the sale of F&I products. Be aware, however, that as the CFPB is reducing the dealer profit from rate markup, dealers will be looking to maximize profit from F&I product sales. They will be looking for lenders who are competitive with their funding options. Look at your entire compensation plan to ensure that it not only promotes consistent pricing, but also fairly and competitively compensates the dealer for the business.
As with all of the vendors that a lender uses, the CFPB is likely to require lenders to vet all product administrators. Savvy lenders are reviewing the contracts to get a better view into the product administrator’s practices, and their customer service standards.
For example, each contract should have a cancellation section, detailing how consumers may cancel the service. It’s important to review the cancellation section, in-depth to make sure it meets all individual state and federal requirements, and it clearly communicates the cancellation process to be carried out in practice.
In addition, it is a good idea to review each contract’s terms and conditions to ensure the F&I product is designed to pay covered claims; then, compare the contract with the product collateral to ensure all local, state and federal advertising rules are followed, especially Truth in Advertising.
With this information in hand, your institution can better implement funding policies and procedures around the sale of F&I products. However, the products themselves don’t provide a full picture of the contract holder’s customer experience. So, it’s also important to perform due diligence on the product administrators themselves.
How long have they been with their current underwriter? Do they hop from one underwriter to another, or do they establish long-term relationships. A general rule of thumb is the longer the underwriter relationship, the stronger the product reserves to pay claims.
Do they have enough reserve to pay claims? Look at how many claims are paid each year and their A.M. Best Rating, which signifies the company’s financial strength and ability to meet its ongoing insurance contractual obligations.
Do they abide by customer service best-practices? Evaluate how quickly they answer calls and process claims. Check to see if they provide answers to commonly asked questions in easily accessible areas, like their website or a customer online portal to initiate claims.
Do they have any customer service awards and recognitions, or professional certifications? Certifications like the ASE Blue Seal of Excellence, NAF Consumer Credit Compliance Certification, and AFIP Certification legitimize a company’s customer service statements. They demonstrate a culture of transparency, service and compliance consistency.
With the product knowledge and background on the product administrator, you can better equip your institution with the ability to work with dealers to ensure the products they sell are in line with your compliance initiatives.
One of the best was to ensure F&I product compliance is to provide loans bundled with the F&I products you approve. This provides you the ultimate control with regards to compliance and provides your dealer partners with income opportunity through the sale of upgrades.
With almost 40 years of innovating and administering consumer protection products, EFG Companies operates as a 100% administrator obligor on all product programs, removing any contingent liability from clients. EFG’s almost 30-year uninterrupted relationship with Assurant Solutions and their affiliated insurance companies, all “A” rated A.M. Best insurance companies, sets EFG as Assurant’s longest-standing Third Party Administration Partner.
Armed with a Consumer Credit Compliance Certification and a 100% AFIP certified field team, EFG’s compliance oversight is rated a top area of performance. The only provider awarded the ASE Blue Seal of Excellence, more than 90% of EFG’s adjusters are ASE certified, averaging of 15 years of experience. In a recent client satisfaction survey, EFG’s net promoter score ranked higher than USAA Banking and Apple iPhone, with 92% of dealers noting a high likelihood to recommend EFG.
Ensure future compliance and give your institution the competitive advantage by contacting EFG today.