Is It Illegal to Sell F&I Products?

Let’s get a couple of things out of the way.

It is wrong for a car dealership’s finance and insurance staffer to pack payments. That’s a discredited practice occurring when a duped customer unwittingly agrees to a monthly payment that’s higher than the actual payment on a vehicle.

Payment packing is how a Slim Shady slips in aftermarket add-ons, using the payment spread. Laws now explicitly forbid that.

“You must tell the car buyer what the monthly payments are for the car only,” David Robertson, the Association of Finance and Insurance Professionals’ executive director, tells me.  

Spot deliveries are wrong if the malfeasant intent is to jerk around customers after they’ve taken delivery of a car pending final loan approval. The con is to call them, say the financing fell through and try to get a larger down payment, higher interest rate or the like. Called a yo-yo deal, it’s a definite no-no.

Payment packing, yo-yo sales and other F&I wrongdoings are rare these days because they are subject to prosecution, as they should be, and the vast majority of dealerships won’t brook stuff like that.

“There is zero tolerance at our dealerships,” Tyler Corder, CEO of the 27-store Findlay Auto Group in Las Vegas, says at this year’s F&I Conference and Expo.

That said, selling F&I products is perfectly legal. But listening to some uber-consumer advocates, you’d think F&I stands for “fraud and illicit,” even when business is conducted above board.

An online consumer-advice article calls the “F&I room” the “last place the dealer can make money.” That sounds ominous. At least the story didn’t refer to it as the F&I holding cell.

In addition to offering protection products someone just might want, the F&I office also arranges financing for many customers, some of whom are credit-challenged and need all the help they can get.

Yet, the article puts it this way:

“The F&I manager poses as a financial advisor who is on your side while arranging a loan. However, they are really there to make extra profit for the dealership by increasing interest rates, selling extended warranties and add-ons…”

I recently appeared on a webcast along with the author of a new book offering car-buying tips. He claims extended warranties are the biggest dealership “rip offs.”

On the show, I noted that customers can take or leave them, but no one is forced to buy extended warranties or any other F&I product.

Obviously, a firm selling service contracts wants to collect more money than it pays out in claims. But is that a rip off? If so, insurers such as Allstate and State Farm are conning millions of policyholders.

Some people don’t want extended warranties, some swear by them. What many people don’t know is that buyers of them include dealers and their staff.

“I have a service contract on my car,” Marv Eleazer, F&I director at Langdale Ford in Valdosta, GA, tells me. “My dealer just bought a Ford Edge for his daughter and put a service contract on it. Many of our managers and technicians have them.

“So why would a dealer fork over for a service contract? Why would auto technicians buy them when they can get this work done?”

Eleazer, a 22-year F&I veteran, quickly answers his own question: “Because they recognize two-thirds of the costs of repairs are parts. An extended service agreement is not a rip off. It is a quality product that protects people.” 

Rick McCormick, director-training at Automotive Financial Services, recalls offering fatherly advice to his daughter who had bought a new car.

“She asked which F&I products she should buy,” he says at the F&I conference. “I said, ‘Get everything, because that’s what you need.’”

Arguably, someone could get by without buying every F&I product offered. But Eleazer decries rabid consumer watchdogs that snap at anything that smells of F&I.

He believes in what he sells. “Many people need the coverage that’s offered to protect them against loss,” he says. “They need to know about these products.”