Recording F&I Transactions? Here Are Three Things To Consider

 An editor of Automotive News recently reported on a seminar held at a F&I conference where the panelist generally endorsed using video cameras to record transactions in the F&I office.  There are pros and cons to recording these transactions.  While recordings can be helpful tools for enforcing compliance, training staff, and rebutting accusations by consumers of wrongdoing in the F&I office, they can also be the “smoking gun” of unlawful business practices that provide plaintiffs or regulators with the evidence needed to impose costly penalties and damages.

Deciding whether to record F&I transactions takes more thought than merely selecting what equipment to use.  Before you get your cameras rolling, you should consider the following:

Will You Record Every Transaction?  That one transaction your staff forgets to record could be the one where problems arise.  Worse, an employee who is violating the law may selectively record transactions or edit recordings in order to hide any transgressions.  If you decide to record your F&I staff, you should consider mandating that every F&I transaction is recorded.   If a consumer refuses to be recorded, document the refusal, and maintain adequate records to help reconcile all transactions against ones recorded.

How Does Recording F&I Transactions Fit With Your Coaching And Counseling Processes?  You should train your staff on how to record the transactions, including obtaining the consumer’s informed consent.  This will require developing a consistent script to use with consumers to obtain consent, and some written document signed by the consumer evidencing consent.  You will need to designate who will review the videos and what remedial steps are taken when problems are discovered.  Remember, supervisors should not to use the videos in a manner that demeans or humiliates their subordinates.  These ‘candid camera’ moments, used at the expense of the employee, could provide ample evidence for an employment discrimination claim.

How Does Recording F&I Transactions Fit With Your Compliance Programs?  Laws such as the Safeguards Rule and the Red Flags Rule impact how you record F&I transactions and store the recordings.  It is likely that these recordings will capture information protected by state and federal law, such as nonpublic personal information, so you will have to take necessary steps to protect this information, and determine when breaches occur.  You will need to amend the documents and records you maintain for compliance programs accordingly.

 

 

Avoid Bundling and Packing When Selling Finance and Insurance Products

Pressures on margins have led many dealerships to renew focus on Finance and Insurance (F&I) sales as a way to add incremental gross profit to new and used vehicle transactions.  Many find the temptation to adopt sales tactics of yesteryear alluring and now are reviving techniques like bundling and packing to increase F&I gross.  While using these methods may increase F&I gross in the short term, using both can expose the dealership to costly liability.  For the purpose of this article, F&I sales include anything from traditional F&I products such as extended service contracts, insurance and so on to aftermarket products like paint sealant and accessories. 

 A quick refresher on what constitutes bundling and packing is in order.  First, packing occurs when your staff fails to itemize the payment for a vehicle absent any additional products and instead combines the base payment with payment for F&I products into a single payment.  Bundling, a derivative of packing, happens when all F&I products are combined into one price or payment quote when the consumer perhaps only wished to purchase one or two products. 

 

Here’s an example of each: 

Car payment without products:                                                               $200/month,

Additional F&I products (etch, service contract,etc):                   $100/month

 

Packing = Quoting customer $300/month without disclosing that $100/month represented products other than the vehicle itself

 Bundling = Quoting customer $100/month for F&I products without disclosing the price of each product separately

 Plaintiffs’ claims arising from bundling and packing will center on the dealership’s failure to disclose, the price or payment of the vehicle and the ancillary F&I products sold at the time of sale.  Without proper disclosure, Plaintiffs can initiate a multitude of claims alleging fraud.  First, Plaintiffs may allege that they were unaware they purchased anything other than the vehicle itself.  Or they may allege that the dealership staff predicated their loan approval and purchase of the vehicle on purchasing additional F&I products.  Yet another allegation could be that they intended to buy only one of the products but were told they could not purchase them independently.

Since these allegations center on lack of disclosure, the amount of disclosure you provide to the consumer will blunt claims of packing and bundling.  Your processes should center on providing consumers relevant information sufficient to make an informed purchase decision.  Here that means clear disclosure of the base price of the vehicle absent any F&I products and an itemization of the cost of each F&I product offered.  Unlike other compliance matters that may seem like a ‘sunk cost,’ improving your F&I processes in this manner may lead to increased gross.  Here are some best practices dealerships have adopted to disclose price and payment options to consumers:

Training:  Your staff should understand that either packing or bundling exposes the dealership to tremendous liability both from private plaintiffs (consumers) and state and federal regulatory agencies.  Federal agencies have shown a renewed interest in pursing claims of deceptive and unfair practices against dealerships.  Bad habits could lead to your dealership being the next subject of a press release of a regulatory agency.  Besides educating your staff on the dangers of bundling and packing, give your staff the training necessary to present payment options to consumers that will lead to incremental gross.  Many F&I consultants and trainers can help your staff develop skills to properly interview consumers to determine their individual needs, and tailor an F&I product presentation accordingly. 

Disclose Products Fully on Deal Paperwork:  Some F&I products and hard accessories, like running boards, leather seats, etc, that are physically installed on the vehicle by the dealership can be included in the sale price of the vehicle on the buyer’s order and retail installment sales contract.  However, other products should be fully disclosed on these documents and not aggregated into the vehicle’s sale price.  Disclosure requirements vary by state, so if you have a question of what can be aggregated into the price of the vehicle, please contact us. 

Use Forms Besides the Deal Paperwork to Further Disclose F&I Products:  Don’t rely only on the buyer’s order or retail installment sales contract for disclosure of F&I products purchased.  These documents have limited space to properly disclose the type of products sold and do not offer protection against consumers’ claims that they were never offered products that they later needed, such as GAP or Credit Life.  Instead, draft forms for each product sold or use the disclosure forms provided by the company your dealership uses for its F&I products.  Make sure that these forms have places where the consumer can acknowledge the price of the product, purchase of the product, and, in cases where the consumer has declined to purchase a particular product, a similar acknowledgement. 

Use a Menu to Present F&I Products:  If you aren’t doing so already, consider using a menu that itemizes products, their price, and provides base payment information for the purchase of the vehicle only along with payment options tailored to the customer’s choice.  This menu should have sections where customers can acknowledge that your staff presented the F&I products and their agreement to purchase particular products or their acknowledgement that they declined certain products.  Present menus to every customer who purchases a vehicle and retain the menu in the deal file.  Many DMS providers and F&I providers have menus that integrate with your DMS and offer compliance tracking too.

Review Deals for Compliance:  Your managers should review deals for signs of packing or bundling and address issues before they become problems.  Make sure deal forms are completely filled out, disclosure of F&I products are proper, and all of your customers are presented F&I products in a consistent manner. 

Please feel free to post any tips or best practices you may have in the  in the comment section.

Tips to Avoid Backdating Contracts

Recent actions by state and federal regulators have highlighted the importance of properly dating the retail installment sales contract and other paperwork associated with the purchase of a vehicle or vessel.  A common problem, called “backdating,” occurs when the dealership dates the deal paperwork prior to the date the dealership actually received bank approval and delivered the vehicle.  For example, suppose a customer visits the dealership on 4/1.  The sales staff begins working the deal on 4/1 by entering the consumer’s information into the dealership management system (“DMS”) and provides the consumer a quote to purchase the vehicle.  For any number of reasons the dealership does not obtain final approval from the bank until 4/7.  The consumer is then contracted and takes delivery of the vehicle on 4/8.  In this example, if the sales staff at the dealership dates to contract and paperwork on any day other than 4/8, they have backdated the contract and violated state and federal law.  Another example of backdating occurs when the sales staff dates a contract some time in the past in order to take advantage of manufacturer incentives that were more favorable on that previous date.  Backdating deal paperwork in this manner subjects your dealership to incentive audits, chargebacks and possible breach of the sales and service agreement with the manufacturer.

Many causes of backdating are easily avoided.  First, make sure that everyone responsible for processing deal paperwork is properly trained on why backdating is a problem and the consequences the dealership may face if backdating occurs.  Management should regularly audit deal paperwork to check for compliance.  Finally, contact your DMS to see whether your provider may have solutions to help minimize the risk of your staff erroneously backdating a contract.  For example, most dealership management systems (“DMS”) pre-print the date on the retail installment sales contract.   You can determine whether the date pre-printed is the date the consumer is entered into the DMS or on the date that the F&I manager converts the quote into a deal and prints the paperwork.