Contributing Author: Karen Klees, Certified Consumer Credit Compliance Specialist, EFG Companies
Recently, U.S. Bank issued a letter to its dealer partners describing the Bank’s policy in regards to fair and responsible lending. Well, that in itself is not news. Lenders have been issuing letters of that nature for the past few years. However, this letter did mark a significant milestone in the CFPB’s regulation of the automotive industry. In this letter, U.S. Bank became the first lender to explain a monitoring program with a heavy focus on how F&I products are priced and sold.
To date, dealers have had substantial leeway with F&I pricing practices. The only minor cap dealers have as far as marking up products is concerned, is how much money lenders are willing to fund. So, it’s natural for dealers to pucker when a lender like U.S. bank says they are watching for potential discriminatory practices in F&I.
However, from a lender standpoint, U.S. Bank is taking proactive steps to protect itself before any regulatory decisions are made. And, it’s possible that other lending institutions may follow suit, especially those who’ve already felt the influence of the CFPB.
As a dealer, you could simply say “Good Riddance!” to any lender who tries to restrict F&I product markup. However, you could be losing quality lenders in the process. And, then there’s the potential eventuality that the CFPB will have all lenders monitor F&I product pricing. Rather than purely reacting, a better option might be to begin the process of preparing your dealership now for industry trends that could impact your business.
This starts by reviewing your pricing models to ensure they are:
- deemed fair by any reasonable person;
- consistent with a written policy for your dealership,
- clearly defined for circumstances related to rate deviations, such as: less coverage, longer term, etc. to ensure that rates are not arbitrarily negotiated; and,
- actively reviewed by your legal department, ensuring guidelines are adhered to without exception.
It’s understandable for dealers to resist changing their F&I practices. However, as any dealer who’s faced the challenges of the Great Recession will tell you, change is sometimes necessary. It keeps your business strong and competitive. So rather than waiting for others to force you to change, establish yourself and your dealership as a leader by addressing it and demonstrating to the industry that you can not only survive, you can thrive.
EFG Companies has helped dealerships navigate the changing regulatory landscape for close to 40 years. Find out how we keep our dealerships profitable and compliant with AFIP certification, extensive compliance training and follow-up, and with a certified consumer credit compliance specialist.