Dealers can run afoul of the Truth in Lending Act’s Regulation Z, leading to a potential violation (and financial penalty) that need never happen.
Often such missteps are simply due to an oversight in processes or a misunderstanding of how this regulation applies to dealerships.
The Truth in Lending Act is intended to ensure credit terms are disclosed clearly and conspicuously, so consumers can understand credit terms and costs. Click here for details from the federal government.
Regulation Z details the disclosures and mechanisms for structuring and communicating loan details to consumers.
The marketing and sale of F&I add-on products is overseen by the Federal Trade Commission’s Unfair or Deceptive Acts or Practices Act and similar state laws.
To avoid trouble with regulators, dealers should follow best practices designed to avoid deception, the appearance of deception and misrepresentation in the F&I office.
Those best practices include making available sales and marketing material for each product offered, having accurate product descriptions with the proper disclosures and describing clearly what is and isn’t covered by various protection plans.
Here are some self-regulating questions to ask:
- Does the product provide a benefit to the consumer commensurate with the price being charged? In other words, is the product benefit reasonable with respect to the product cost?
- Does the dealership have established prices for each of the F&I products it offers?
- Are all customers treated equally on the sale of ancillary products and the costs charged? Is every customer given equal opportunity to review and accept or decline the various aftermarket products sold?
- Are employees paid a commission based on the price they obtain for an ancillary product and, if so, does the dealership monitor the sale of these products to ensure employees are not taking advantage of certain individuals?
- Is a menu used to sell ancillary products? Does the menu clearly describe the product, its cash cost and the financed cost?
Following best practices will go a long way to avoiding legal issues with consumers, FTC fines and state penalties. Remember the key word to regulators: transparency.
David R. Missimer is general counsel for Automotive Compliance Consultants. He spent 28 years as a litigator representing lenders, auto dealers and others. He is at [email protected]
