F&I and Showroom, May 2013

Compliance fair fa i r Now more than ever dealers are left with unanswered questions about fi nance reserve discriminatory lending and other regulatory concerns Two attorneys share their opinions on those topics with F I and Showroom By Stephanie Forshee L egal experts Rob Cohen and Michael Charapp co authored Auto Dealer Law a legal guide covering the purchase sale and operation of car dealerships The two attorneys sat down with F I and Showroom to give their candid views on the state of the industry the future of the F I department and what dealers can expect from the consumer protection agencies F I Theres been a lot of talk about the Consumer Financial Protection Bureau CFPB interfering with dealership practices with fi nance reserve being the most recent example Just how close is the F I department to losing fi nance reserve Charapp If fi nance reserve systems ended Im not sure what the future of the F I department is I dont mean to be dark about this but if the reserve system ended there are certain things that will not be cost effective to keep an F I department I think the pressure will be extreme 30 F I and Showroom May 2013 but I think the system is so important to the proper functioning of the retail system among dealers that there will be pushback so I dont see it going away But there are going to be some real battles over this Cohen I agree If they try to eliminate fi nance reserve I dont think that would stand legal scrutiny Finance reserve is a signifi cant source of an F I managers income its not just a kickback as some of the plaintiffs attorneys and consumer groups call it It does not actually result in consumers paying higher interest rates Thats a falsehood F I So what do you think consumer advocates and even regulators are missing when it comes to dealer participation Cohen Dealers are a retail outlet for fi nancing Wholesale fi nancing is always cheaper than retail fi nancing Thats the whole idea If consumers were unable to go to dealers for their fi nancing there is this misconception ISTOCKPHOTO COM ZENTILIA out there that the rates would be so much lower that these rates without the yield spread would be so much lower that dealers are making all this unnecessary profi t as a result Its simply not true Can you buy a car directly from the factory No you have to go through a dealership because theyre the retail outlet Its the same thing with vehicle fi nancing You cant go directly to Ally and get fi nancing at the same price the dealership is getting it from Ally It doesnt work that way Its not a markup Its not a profi t that the dealer is somehow pulling out of thin air It exists because the dealer is doing the work to arrange the fi nancing Theyre taking the credit application running the credit report doing some of the initial underwriting collecting the information from the customer accepting a certain amount of risk in doing the delivery of the vehicle and theyre marketing to these customers All of these are real raw costs asso