Must Say No-No to Yo-Yo

The F&I panel session was most informative. For all the reforms visited upon the loan and insurance practice in dealerships over the past few years, it was clear at a end of four presentations that ways are being found to exploit the F&I side of the business despite all the codes of ethics, rate caps and class-action settlements of recent years.

Much of the practice remains a “malpractice” and many dealerships, publicly or privately owned, are facing intensified consumer scorn for letting F&I remain such a transaction tinderbox.

Presenters at the F&I session were the immediate past chairman of the National Auto Dealers Assn., Charley Smith; the founding general manager of the highly-respected Association of F&I Professionals (AFIP), Dave Robertson; the senior vice-president of one of the most admired privately owned dealership groups in the U.S., Denver-based Burt Automotive Network's John H. Held; and firebrand consumer advocate Rosemary Shahan, who is based in Sacramento, CA.

The session reflects a 3 to 1 majority of speakers voicing a “free market” attitude toward what has been termed the “control room” of a dealership's operation: F&I services and products for new- and used vehicles.

Robertson urges more education of F&I practitioners, pointing towards certification and embracing a rigorous course on disclosure of every item and price being offered in the transaction process.

Smith, a Buick-Pontiac-GMC dealer in Hobbs, NM, served as 2004 chairman of NADA in the aftermath of the F&I “scandals” of 2002 and 2003. NADA has renewed its stand against legislation to impose loan rate caps but adopted a code of ethics. Smith urges dealers to publicly display the codes in their stores.

The Burt dealerships have hired Spanish-language salespeople in all their dealerships for the convenience of Hispanic purchasers, says Held. Language difficulties have increasingly become a sales stumbling block for dealerships across the U.S., and Burt's model is one any store could replicate as the ranks of Spanish-speaking buyers increase. Full communication is an important part of F&I transactions.

Lawsuits that led to rate caps by defendant lenders and publicly owned megadealers were filed on behalf of African-American and Hispanic plaintiffs alike.

The blockbuster of the day came from a presenter who was unable to be there in person because of illness — Shahan, president of the Consumers for Auto Reliability and Safety. In her prepared text, she tells of a growing scam that seems to have been invented to make up for income lost to the rate cappers and full disclosure of every form of rate pack.

It's called “yo-yo” financing. It happens when buyers are told after purchase and delivery that they've flunked credit qualification and will be reported as a thief or to their employers if they don't accept a higher interest rate and larger down payment.

“One of the first objectives in ‘yo-yo’ financing,” Shahan says, “is to get the buyer to surrender his or her current vehicle, known in the trade as ‘de-horsing’ Commonly, the driver is persuaded to drive the vehicle back to the dealership to sign more papers. The dealer (or F&I manager) claims the traded-in vehicle has already been sold. Then the buyer is told the vehicle can't be driven home unless the deal is changed to one less favorable for the consumer.”

Coming from a hotbed of consumer activism in the F&I area, Sacramento, the capital of California, Shahan is well aware of the Gunderson Chevrolet scandals in El Monte where more than $2 million was returned to victims of F&I rate packing, and several employees were convicted of criminal fraud.

California is in the throes of deciding whether to cap loan fees either through a legislative bill or initiative petition to be placed on a statewide ballot.

The California Motor Car Dealers Assn. is opposed to the concept, if it takes the form of a $150 flat loan fee. CMCDA's senior lobbyist, Brian Maas, warns that imposing a flat fee on loans “would wreak havoc on the way cars get financed.”

“Yo-yo” financing wreaks havoc, too, if pursued by dealers. And as Shahan indicates, hell has no fury like consumers wronged.