(A)mending the Customer’s Perception of F&I
The recent Dateline television segment and a rash of newspaper articles identifying the worst of F&I practice put the dealership’s financial office once again in the spotlight. These media reports, showcasing a minority of practitioners, create an environment of mistrust and put a damper on productivity. Customers enter the F&I office on high alert and low reception.
An upcoming 60 Minutes exposé will showcase dealer reserve. California has a measure in motion that will allow dealerships to make only $150 in reserve. Aside from permitting lenders to make more money, I do not see how this limitation will assist the customer. The retail percentage will not go down. The credit risk will not abate, nor will the consumer’s credit score increase as a result of this action.
Previous court rulings have stated that at the time the customer signs a retail installment contract, the dealership is viewed as the lender. The dealership then discounts the note to the lender. The courts have also stated that the dealership has every right to make a profit on the financing. With this legal backdrop, I wonder why the press and certain consumer activist groups insist on dealership profit disclosure?
Can you imagine what would happen to department stores and grocers if they had to disclose how much profit they made on each of their sales?
Clearly, vehicle dealerships are in the retail business and already comply with regulations that mandate disclosures. I believe that most dealerships strive to adhere to both the explicit letter and implicit spirit of the law governing Regulation Z and thereby conduct their business in an ethical manner.
F&I products and services are merely the tools which provide a positive financial experience during the average ownership of a vehicle. The primary reason people purchase these policies is for the peace of mind they provide.
The fact remains there will be no better time than right now for you to review your policies and procedures regarding F&I products and services. Federal regulations are almost a full time job these days. Here is a short version of your “To Do” list:
• Regulation Z and Negative Equity
• Safeguards Rule Implementation (5-23-04 deadline)
• DO NOT Call list – state and national
• OFAC – Patriot Act
• Anti-Money Laundering
All of these require written policies and procedures and employee training.
Dealers be(a)ware!
Dealer Marketing Magazine, March 2004, p.12