What’s Next in Credit Compliance

As the Consumer Financial Protection Bureau continues to increase pressure on compliance regulation, the market is wondering what will come next. Will more lenders implement flat rates? Will the CFPB find a way to extend its influence into the F&I space? Will Congress step in and impose restrictions on the CFPB?

With so much up in the air, both dealerships and lenders are waiting to see what is in store.

But instead of waiting, it’s time to focus on operations. With many dealers decreasing their reliance on finance reserve and pushing more on product sales, you can bet the CFPB is watching.

While the CFPB’s influence lies primarily with the lending community, the bureau has been clear that lenders also are responsible for the actions of their vendors and partners. This applies to who they use to service and collect their loans, as well as who originates them.

So, while it primarily has focused on rate administration as it relates to loan origination, the CFPB is beginning to take issue with the sales practices of F&I products.

Recently, U.S. Bank issued a letter to its dealer partners describing the bank’s policy regarding fair and responsible lending. While lenders have been issuing letters of this nature over the past few years, this one marked a significant milestone since the CFPB’s regulation of the retail lending industry. In this letter, U.S. Bank became the first lender to explain a monitoring program with a heavy focus on how F&I products are priced and sold.

To protect your dealership, take a deep look at your F&I product presentation with your legal team and address any issues that may arise. Consistent pricing is key during this time of heavy scrutiny. While the bottom line is important, review how much you typically make on each product and create a reasonable, predictable and consistent range for mark-ups.

It’s also important that dealership managers are trained on selling techniques to demonstrate a product’s value while also providing accurate pricing information. Review state and federal regulations on F&I. Work to implement a completely transparent selling process.

A great compliance training resource is Association of Finance and Insurance Professionals certification, which helps ensure F&I teams have the appropriate processes and controls in place to navigate all the federal, state and local laws that affect a dealer’s operations.

Many dealerships now feel like they are caught between a rock and a hard place, facing increased pressure from government oversight to implement more compliance processes, while dealing with consumer pressure to shorten the sales process.

With more informed consumers walking into dealerships, your sales force has the unique opportunity to quickly address a customer’s vehicle needs and move on to discussing the value of purchasing at your dealership as well as endorsing the products provided in the F&I office.

By including the sales team in the product presentation, the manager can focus on answering questions, overcoming objections and finalizing the purchase. Implementing a process like this allows the dealership the leeway to ensure compliance measures are met, while also utilizing the consumer’s time in the most efficient manner.

John Stephens is senior vice president of Dealer Services at EFG Companies. He can be reached at 972-445-8910 and [email protected].