F&I and Showroom, February 2015

Finance Insurance PASSING THE COMPLIANCE TEST The current regulatory environment demands that dealers take a good hard look at their processes and policies F I pro offers some T recommendations By John Lovin he Consumer Financial Protection Bureau CFPB has not wavered in its belief that policies that allow dealers to mark up the interest rate on retail installment sale transactions creates a fair lending risk with Toyota and Hondas captive fi nance companies being the latest fi nance sources to be targeted The attention dealer reserve is getting has caused some fi nance sources to limit rate participation while others have eliminated dealer markups altogether This bureaus activities have left dealers with a lot of unanswered questions Is the CFPB coming after dealers next If so how can a dealership protect itself If fi nance sources are pressured into eliminating rate participation how will dealers make up for the lost revenue Lets examine these questions individually Question 1 Is the CFPB coming after dealers next In December the CFPB fi ned DriveTime Automotive Group 8 million for making harassing debt collection calls to its customers and for providing inaccurate information to the credit bureaus Other than that the bureaus primary focus has been on dealer participation policies but there is chatter the bureau could turn its attention to F I product sales While it may seem like the bureaus 22 F I and Showroom February 2015 next target is dealers remember that most dealers fall outside the bureaus jurisdiction See thanks to the hardfought exemption the National Automobile Dealers Association lobbied for franchised and independent dealers with car repair capabilities and who dont hold their own fi nance contracts are not subject to the bureaus enforcement supervision and rulemaking The latter condition is why the CFPB was able to target DriveTime Besides with more than 17500 franchised dealers in the United States and countless used car dealers it would be diffi cult for any regulator to target every dealer However its clear the bureau intends to affect dealer practices through its indirect regulation of auto fi nance sources And dont forget that the Dodd Frank Act the law that created the CFPB gave the Federal Trade Commission expedited rulemaking authority with respect to dealers It also called for information sharing between the two agencies Question 2 If lenders eliminate rate participation how can I make up for the lost revenue Larger dealer groups have already fi gured out that the No 1 reason for chargebacks is consumers refi nancing their auto loan because the dealer charged them too much rate In response these dealer groups have instituted internal rate caps that limit the amount a fi nance manager can charge over the buy rate But I have to say I am shocked by the amount of rate I see some dealers charge One dealer even bragged to me that he was the leader in fi nance reserve at his last 20 Group meeting Rate provides no value to the customer and the more educated consumer will refi nance What does provide value are F I products Thats why service contracts maintenance agreements GAP paintless dent repair and tire and wheel protection should be in every fi nance managers arsenal It is also important to employ a structured F I selling process There are still a lot of F I offi ces that dont use an electronic menu costing their dealerships thousands of dollars monthly because they arent presenting 100 of their products to 100 of their customers 100 of the time Successful dealers employ a structured F I sales process that includes a customer interview conducted at the salespersons desk a menu that ensures that all products are presented 100 of the time and an acceptance declination sheet Question 3 How can I protect myself if the CFPB starts targeting dealers Again the bureau does not have authority over dealers who have repair ISTOCKPHOTO COM KEMALTANER