Wednesday, August 01, 2007

The F&I Express – Station #8 - Compliance

A happy customer takes delivery and drives away with their new RV. Life is always sweet when things are new. It’s when things break that the customer begins to scrutinize the transaction for any infractions, misconduct, and unfair or deceptive business practices. F&I is the last place the customer spends any great length of time, and I promise you, it is the first place he remembers when things go wrong.

Packing Payments

F&I is the compliance station in every deal. In the past, many dealerships engaged in a practice known as “packing payments.” Packing payments occurs when the sales team quotes a monthly payment that either has a nonrealistic APR or includes F&I products that are not disclosed to the customer. The customer has no real knowledge of what the bare monthly payments are, and has no accurate information for comparison. This practice ruins the F&I manager’s credibility out of the gate, not to mention violates a plethora of regulations.

Packing payments is viewed as an unfair and deceptive business practice in most states. And, each state hosts a website for its attorney general. I recommend that each of you take the time to view your state’s website.

Highlighting the Contract

The practice of highlighting a contract should be stopped as well. The federal government already stresses specific disclosures, by darkening the lines around the federal disclosure boxes on installment contracts. Highlighting where the customer signs detracts from the disclosures. Also, the customer needs a copy of the contract in his possession prior to obtaining any signatures. If the customer wants to take the installment contract home for further review prior to signing, he has that right. The dealership also has the right not to deliver the vehicle until it has a signed installment contract.

Disclosing the Itemization

It is my understanding that everything must be identified in the installment contract. When I entered the business in California, I was unaccustomed to using anything but retail installment contracts. As you may know, California maintains the single document rule, which means the installment contracts are very lengthy and continue to grow each year.

Some dealerships insist on grouping products on one line of the installment contract. Think audit trail. Where is the audit trail leading when a service contract is purchased, in addition to tire and rim, in addition to road assistance, and only one fee and one company is identified on the “purchased from third party lines?”

Here are my thoughts from an audit trail perspective. Everything purchased should have a line itemizing the selection and indicating that it is an optional purchase. This way there is no hint of impropriety.

California enacted the “Car Buyer’s Bill of Rights.” Part of this regulation has the F&I Department disclosing, on a separate form, the customer’s credit score and from what credit bureau it was obtained. Additionally, F&I needs a separate disclosure form signed that shows the bare payment with nothing but the vehicle purchased, along with a complete itemization of F&I products and services purchased. This document also restates the retail costs in addition to the new payment. After all this, there is little doubt that the products purchased in F&I cost extra and are optional purchases.

Preventing ID Theft

By now, every dealership should have policies and procedures in writing to address the safeguarding of consumers’ nonpublished information. The Safeguards Rule went into effect May 23, 2003.

F&I represents a gold mine for identity thieves. We have copiers, deals, computers, and we have access to all sorts of nonpublished consumer information. Evaluate your facility and your current processes. Take action to shore up the weak areas of document security.

As with any process, put them writing. Make sure everyone knows about them. Be observant, be diligent, and use common sense.

If you need more information on the Safeguards Rule, visit the Federal Trade Commission’s Web site at or Google it on the Internet. The FTC has many documents about it.

Buyer’s ID

In every lender agreement you will find a clause about the dealership making certain “warrants” to the lender. One such warrant is that the customer is who he claims to be. Look at the driver’s license and use common sense. If the driver’s license shows a male who is 5 feet 10 inches, and you have a female who is 6 feet 3 inches, I can tell you there is an identity problem.

The new Red Flag regulations coming down the pike will undoubtedly give us more to ponder. At the time of this article no one knows for sure what they are going to entail.

Again, best practice is to look at the customer’s ID and see if the description fits and if the photo matches, and pay attention to the inner voice that each of you have.


According to the Office of Foreign Asset Controls (OFAC), every business is required to check everyone they do business with against a SDN list produced by the Department of the Treasury.

Everyone is defined as parts, service, sales, F&I customers, vendors, employees, contract employees or consultants.

Currently, you have three ways to comply with this regulation.

1. You may check the names with a PDF file, which can be obtained online. Google OFAC and find the U.S. Treasury site, then click on SDN list. This action will automatically download the most recent PDF file onto your computer.

2. You may contact your credit bureaus and have them check as they are pulling the credit history.

3) You may use a stand-alone company to complete the name searches. First Advantage CREDCO is a solution, Bridger Systems is another solution, and US Patriot is a stand-alone solution.

Compliance is cheaper than fines or class-action lawsuits. Take time to review what you do and how you do it. I recommend that you become proactive regarding compliance issues. Demonstrate to the regulators that you do the right things because they are good business practices.

This article is not meant to be legal counsel. It is meant for education purposes only. As with any legal issue, please consult with your own legal counsel regarding any and all of these issues.

RV Executive Today, August 2007, P. 31-33