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About a year before the Consumer Financial Protection Bureau (CFPB) released its controversial March 2013 guidance on dealer participation, agency officials were laying a plan for how it would regulate the auto finance segment. That plan was contained in a Feb. 20, 2012, memorandum Assistant Director Patrice Ficklin and former Assistant Director Rick Hackett sent to Director Richard Cordray.
The first mention of F&I products appears on Page 2 of the 13-page memo. “In addition to interest rate markups, F&I offices engage in sales of high-margin aftermarket products,” the memo read, in part. “Given the amount of discretion, and apparent lack of controls or monitoring on the F&I offices, there is a significant opportunity for discrimination, in addition to the lack of transparency, in the sale of these products.”
In a footnote at the bottom of the memo, which Republican members of the House Financial Services Committee made available last fall, the two officials acknowledge the bureau might not have jurisdiction to regulate F&I products, even protections like credit insurance. “… “[d]ifferences in the availability, rates, and other terms on which credit-related casualty insurance or credit life, health, accident, or disability insurance is offered or provided to an applicant does not violate Regulation B.”
The Equal Credit Opportunity Act’s Reg. B prohibits creditor practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance funds.
The bureau’s apparent acknowledgement, however, hasn’t stopped industry insiders from speculating on how the bureau might target F&I product sales. In fact, Hackett, who spoke at the magazine’s annual conference in 2014, offered several scenarios on how the bureau might proceed. One of them involved the data the bureau collected from the tens of millions of transactions it reviewed during its dealer participation investigations. If the bureau comes up with its own determination on how F&I protections should be priced, he said, anything above that price could be called a “finance charge.”
The bureau, he added, could then say a finance source provided “reckless substantial assistance” for financing a product with an artificially inflated price. “So there’s the question: Will the bureau try to make finance companies a cop for dealers’ pricing of ancillary products?” Hackett asked the audience during his address.
The most recent theory I’ve heard was shared at the magazine’s F&I Think Tank event this past May. It came from attorney and dealership compliance expert James Ganther. While discussing the National Automobile Dealers Association’s Fair Credit Program and Policy, he said the bureau may tell finance sources not to advance on products sold by dealers who don’t have a fair pricing program in place for their F&I protections.
I bring all this up for two reasons: First, I’ve been hearing a lot of chatter, including from some of my competitors, that the CFPB is getting set to target F&I product pricing. I’m guessing the bureau’s Supervision and Examination Manual is the reason this is bubbling up. Updated last June, it contains a section on ancillary products that says such protections are subject to review by CFPB examiners. However, the section seemed to focus more on how those products are disclosed and marketed.
The second reason I bring this up is because Ganther will join a slate of the who’s who in dealership compliance at this month’s Compliance Summit, which will be held Aug. 29-30 as part of Industry Summit 2016 at Paris Las Vegas. Other names include former regulator and current director of compliance for Reynolds and Reynolds, Terry O’Loughlin, The Warranty Group’s assistant general counsel and head of regulatory affairs, Aaron Lunt, and trainer and compliance expert Gil Van Over.
So if your dealership is without a compliance officer, or your sales and desk managers are submitting credit applications or quoting payments, or maybe you have a few salespeople who are interested in the F&I trade, register today. And this special event isn’t limited to dealer personnel. Agents, product provider reps, and even finance source reps can take advantage.
Here’s the best part: Registrants who complete the event’s comprehensive, four-hour review session on Tuesday, Aug. 30, and successfully complete a written exam will earn Certified Automotive Compliance Specialist status.
But that’s not all. Day Two of the event features a special technology day that will focus on new digital sales and F&I solutions hitting the market. Then on Aug. 31, the day Industry Summit concludes, the best trainers in the business take to the stage to lead a full day of F&I training. So make plans to be with us later this month. I’ll see you there.
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