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The Seven Deadly Sins of F&I

The combination of the current economic conditions and the modern litigious environment makes paying close attention to regulatory compliance and best practices a must for dealers across the US. 

The Seven Deadly Sins of F&I are the seven most common errors that cause dealers to become the targets of media exposes, class-action lawsuits, and high-dollar regulatory fines.
1.  The Word “Best”
You can NEVER use the word “best” when discussing the finance charge (APR).  It isn’t a sin (or against the law) to post a reasonable markup over the buy-rate.  The F&I practitioner (on behalf of the funding source) solicits, negotiates, processes and discloses the installment sale agreement, and as such, should be fairly compensated for this work.  

But to a reporter or a plaintiff’s lawyer, the word “best” implies that the rate quoted is either the dealer’s buy-rate or the lowest rate known to man.  To the F&I practitioner it’s the buy-rate, plus a couple of points.

You have no idea what funding resources are available to the customer, and as such simply have no way of knowing what the best rate for that customer might be.  There is nothing wrong with telling customers that they are free to explore what rates are available to them, but if they want to finance where they brought the car, the rate quoted is the rate available.  If a customer poses the question, your response should be, “if you wish to finance here, this is the rate that’s available.”  And that’s it.

2.  Forging Signatures
Under no circumstance should a customer’s signature be forged on any purchase document, funding document, or any other document relating to the acquisition of an automobile.  Anyone who does this is committing a felony.

3. Overstating Income
Overstating the customer’s income on a credit application may convince someone to purchase the deal (and increase the amount of your paycheck in the immediacy).  Unfortunately, it won’t generate the extra income necessary for the customer to make the monthly payments.  It’s a recipe for repossession and charge backs – and it is against the law.  

4. Non-Compliant Menu Sales
Human nature being what it is, what was intended as a sales aid is now being used as a  scam.  Menus are being configured to hide the loaded payment or altered after the fact to document acceptance of products the customer did not agree to buy.  Since an altered menu becomes a documented lie, when handed to the jury as Plaintiff’s Exhibit 1, the results are predictable.  

Within this same vein, the more basic question might be, “is the menu I’m using legally compliant to start with?”.  Unfortunately, there isn’t a single statute to consult to test compliance.  There are, however, very specific standards for determining what constitutes acceptable business practices.  If a menu is being employed, it is recommended that a copy of it be kept on file with a letter from a qualified attorney affirming it has been thoroughly reviewed and found to meet the established legal and fair practices standards.  

5.  Packing Payments
The payment quoted a customer during the purchase process must be limited to the agreed-to cash price (or trade difference) of the vehicle (and, if applicable, the taxes and fees) at a representative APR and term – and nothing more.  Regardless of how sophisticated or subtle, any additional margin will be viewed as a deceptive practice (even if it is simply the resulting of non-duplicitous acts like rounding up or down for quicker math).  Simply put, the government wants the customer to be told how much the car will cost  –  not the price of the car plus a hidden $15 dollars per month to offset the cost of a VSC.

It is worth noting that the recently enacted California Car Buyer’s Bill of Rights specifically addressed the practice of payment packing.  Equally significant, the text is purposefully broad in stating exactly what it is.  It will be left to the courts to determine what constitutes a packed payment.

In addition, it is recommended that the APR used in this situation be based on the average retail rate charged for that class of buyer (new/used, prime or non-prime) in the store over the past ninety days.  This practice gives the dealer a statistically verifiable and legally defensible basis for the rate quoted.  Also, the term used to quote payments should be representative of the repayment periods for similar deals.  

6. Non-Compliant Disclosure
The changes to the Official Staff Commentary to Regulation Z regarding the proper form of contract disclosure are quite specific.  The customer must have ample time before being asked to sign the contract to review its contents.  You cannot pull the installment sale agreement out of the printer, place it in front of the customer, and start reciting the TILA disclosures.  The new mantra is that the customer must hold (to review) not just see the contract prior to its being disclosed.

If an installment sale contract has been processed (the blanks have been filled-in) but it has not been disclosed – and the customer wants to take a copy with him for review – he  is to be given one.  If the contract has been fully disclosed but the customer doesn’t want to sign it – and wants to take a copy with her – she is to be given one.  Also note that some states require that the customer must leave with a copy of the contract signed by an officer of the dealership.

7.  Flying Blind
In a thirty-day period, an F&I practitioner will execute more contracts than most lawyers.  The F&I process is so awash in a sea of paper, it’s easy to forget that the products and services being solicited, negotiated, processed, and disclosed are, in fact, binding legal agreements, and as such, must satisfy the requisites for what constitutes a legal contract.

If the F&I practitioner is the person charged with consummating the contractual agreements relating to the purchase of the vehicle, its funding arrangement, and any owner indemnification products, it should be assumed that this individual is fully cognizant of the terms and conditions found in the documents he or she is asking the customer to sign.

The question the reader needs to answer is “if I am in court and under oath, could I accurately answer questions regarding the covenants found on an installment sale contract, the terms and conditions in the body of a vehicle service contract or GAP agreement, or the good health standards on a credit insurance certificate?” If you couldn’t, you’re placing your employer and yourself in a highly vulnerable situation.  

It is recommended that the F&I practitioner read the binding documents used in the course of business, then write a full explanation of them as they’d explain it to a customer or the plaintiff’s bar.  The interpretations should be passed to the dealer or his or her lawyer for a critique.   

Knowing the parameters of the agreements will not only help avoid an inadvertent error, it will also clearly define what can be done.  It’s easier to wire marginal deals if there is a clear understanding of the rules governing the transaction.  

Abstinence is better than absolution
It might seem that the miscreant acts noted above are too obvious to mention.  However, the Seven Deadly Sins where drawn from actual lawsuits filed against car dealers.  Since F&I is one of those occupations in which naivety will get you into as much trouble as dishonesty, preemptive care should be taken not to be found wanting on either side of this equation.

The regulatory knowledge and ethical standards that comprise it make the AFIP Certification Program the preferred defense for prevention-conscious dealers. 

For more information on the AFIP Certification Program or for marketing copies of this article, go to or contact AFIP at 817.428.2434.
Copyright 2008 - Association of Finance & Insurance Professionals