Complying with auto financing regulations at dealerships starts with vehicle salespersons, not finance and insurance staffers.
So says Bruce Foster, who trains dealership personnel for the JM&A Group.
“F&I compliance isn't confined to the dealership F&I office,” he says. “When it starts with the salesperson, it becomes all the more critical.”
And depending on vehicle salespersons' unfamiliarity with F&I rules, a lot of violations can start on the lot.
Foster and Chris Costello, a JM&A compliance attorney, led an interactive Q and A session entitled “Making Ethical Compliance Work” at an F&I Management and Technology conference. It covered F&I mistakes that often occur at dealerships.
Testing their legal awareness, session attendees used hand-held electronic devices to answer multiple-choice questions on how to handle common scenarios played out in short video-clip enactments.
On the lot, a customer asks a salesperson, “How much will my monthly payments be?”
Which is the correct answer?
a.) There's not enough information to assess the customer's creditworthiness, so providing an approximate quote is allowed.
b.) The salesperson is not required to give accurate price quote until he or she gets the customer inside and presents numbers on paper. So on the lot, the salesperson can orally quote any price he or she wants.
c.) Legally, the salesperson can provide an estimated payment amount without disclosing the term or annual percentage rate (APR).
d.) Regulation Z and state attorneys general require payment quotes to include the APR, terms and amount financed upon which that quote is based.
The correct answer is d. Accordingly, the salesperson should say something such as: “It depends a lot on the APR, credit rating and down payment. The people inside spend all day doing that. They can answer that question. Let's take a test drive first.”
The scenario shows that “salespeople on the lot need to know about F&I,” says Costello. And there's this: “The customer asking those questions could actually be an investigator from the attorney general's office,” he says.
Here's a seminar scenario involving a cash deal:
A customer asks how, without alerting the IRS, he can pay cash for a vehicle with a sales price exceeding $10,000. What is the dealership's obligation, if any?
a.) Since the customer wasn't using funds from an illegal source (such as gambling or illicit drug sales) the dealership is not required to file an IRS FinCen 8300 form.
b.) Since the dealership never received more than $10,000 in outright cash, it doesn't have to file that IRS form.
c.) It's the F&I manager's job to report this information, not the salesperson's. Since the customer didn't consult with the F&I manager, the dealership is not required to file the IRS form.
d.) Helping the customer structure a transaction so an IRS FinCen 8300 form doesn't need to be completed is a severe violation and should never be done.
And the correct answer, which 88% in the audience got correct (but which also means 12% could get in deep trouble with the IRS) is d, as in telling the customer: “Sorry, I am required by the IRS to fill out the form.”
Costello says: “You don't want to mess with the IRS. We heard IRS undercover agents were going around posing as customers asking this in North Carolina. Make sure your sales people know the law and its penalties. It doesn't just pertain to a situation of a customer taking out cash and counting out $100 bills.”
Here's one more scenario, called “Sunday Night”:
A sale is conducted after banking hours, so the F&I has the customer sign a blank retail installment sale contract. How does this action affect the dealership, if at all?
a.) Having a customer sign a blank contract is illegal. The F&I manager is required to provide the customer with a fully completed retail installment agreement before he or she leaves the store.
b.) Signing a blank contract is acceptable since the customer can void the contract if he or she doesn't agree to the final terms.
c.) Spot delivery is allowed in the state, so asking the customer to sign a blank agreement is allowed. It's a condition of delivering the car.
d.) The customer agreed to sign a blank contract so the responsibility for the terms falls on him.
The correct answer is a, which 92% of workshop participants got right.
“We couldn't make this stuff up,” says Foster. “This happens. There are still folks out there who are doing it wrong, and who don't understand the repercussions of their actions.”