Two old geezers are sitting on a porch with a hound dog between them. They watch as the dog hikes up its leg and starts licking itself. One old guy says to the other, “I wish I could do that.” The other one says, “You’d better not. That dog will bite you!”

Yes, it’s an old joke, but it’s a good one to keep in mind when you’re training your F&I staff — especially if you have an old car dog on your team who is deceiving customers in an effort to increase profits. That dog will bite you, and when it happens, it won’t be a joke. But it will be expensive.

One Fine Day

It has been more than 20 years since one of the country’s largest F&I providers paid a huge fine to the State of Washington for “failing to comply with the provisions of the Consumer Protection Act.” They were fined for “teaching, training, counseling, tracking or aiding or abetting others to misrepresent, directly or by implication, the amount of a monthly automobile payment.” In other words, teaching the fine art of payment packing.

It’s been 16 years since the National Association of Attorneys General adopted its resolution regarding “Consumer Protection Regarding ‘Packing’ During Car Sale/Lease Negotiations.” You would think every dealer, sales manager and F&I professional would have gotten the message by now that quoting inflated payments in an effort to increase dealership profits is illegal.

You would be wrong. Just a few months ago, the New York Attorney General’s office charged several dealers with payment packing and other deceptive practices, alleging they engaged in a pattern of “illegal and deceptive behavior” from 2009 to early 2014. Those dealers paid fines in excess of $14 million.

Payment packing is the old car dog’s sales technique of quoting inflated payments that include the cost of optional items that the customer has not agreed to purchase. Those optional items included without the customer’s knowledge or consent might be a vehicle service agreement, environmental protection, or coupons for discounted admission to Disneyland.

The idea is to get the buyer to focus on the monthly payment instead of the selling price of a vehicle. Customers are presented an inflated monthly payment using a “four-square” worksheet. Typically, the initial payment is quoted using an inflated interest rate or short term that is not disclosed, or the old car dog simply includes an additional dollar amount of $1,500 to $3,000 to inflate the payment.

Modern Payment Packing

As desking software has become increasingly sophisticated, some dealerships have replaced the old four-square with computer printouts that generate numerous inflated payments. Even highly educated buyers can fall victim to payment packing with sales and F&I processes designed to confuse and obfuscate the actual figures.

Thanks to the Internet, consumers are much better informed with regard to their financing options, current interest rates and the true monthly payment. Many show up having already obtained a copy of their credit bureau report, shopped various sources for financing and interest rates and calculated their monthly payment on a lender or manufacturer’s website.

Consumers and regulators have zero tolerance for someone who lies, gives consumers inaccurate information or dodges questions. Today, quoting inflated monthly payments as a negotiating tactic — or leaving room in the payment to hide the true cost of F&I products — is simply not an option. As Doug Walsh, assistant attorney general in the State of Washington puts it, “Consumers are entitled to accurate, non-misleading monthly payment quotes. When they don’t get them, it’s deceptive and unlawful.” Even an old car dog can understand that.

Rules of the Road

While the vast majority of sales and F&I managers are honest, when someone is having a bad month or trying to hit that stair-step incentive, desperate people do desperate things. To help ensure there is no possibility for deception by anyone involved in the sales process, your dealership must have a plan when it comes to quoting monthly payments. That plan needs to include written guidelines that everyone involved in the sales and F&I process is expected to follow. Failure to follow the dealership’s written guidelines will result in immediate disciplinary action, up to and including termination.

Your written guidelines should include:

  • Utilization of an interest rate guide to ensure consistent payment quotes prior to and after obtaining a customer’s credit bureau report. The average interest rate for customers within an established credit score range should be determined by the dealership’s management team and used to calculate payments for everyone in that range. These rates must be utilized consistently to eliminate the possibility of disparate impact.
  • No one may provide — or instruct a customer to provide — inaccurate or misleading information to a finance source. Inflating a customer’s time on the job or their income on a credit application is bank fraud, as is submitting false information to a lender about a vehicle to inflate its value so the lender will increase the loan amount.
  • Whatever interest rate a customer is quoted, no one should ever make a commitment that it is the “best rate” available. Whenever someone in the dealership tells a customer “We’ll get you the best rate we can,” they’re creating potential legal liability for the dealership, whether that promise was made on the showroom floor or in the F&I office.
  • No one may include the price of any optional product in any payment quoted to a customer during the negotiation of the selling price of the vehicle, unless that customer has specifically requested that product be included. Telling the customer what else their payment includes after they’ve agreed to it is not disclosure. It’s payment packing!
  • Any payment quoted by sales or F&I personnel must be accurate. The payment may reflect no more than a $5 range and must include the amount financed, APR, and term used. The only legitimate variable is the number of days to the first payment. Any payment quote can take this into consideration, but that’s the extent of an acceptable range.
  • No payment may exceed maximum interest rate markup of X percent on loans of 60 months or less or Y percent if the term exceeds 60 months. Any reduction in the markup below the maximum for any reason must be documented using the rate modification form recommended by the National Automobile Dealers Association.
  • The cost for all products must be fully disclosed to the customer. The maximum allowable markup for each aftermarket product or F&I product should be determined by the dealership’s management team. No aftermarket or F&I product may be sold for more than the maximum price or allowable markup established by the dealership.
  • The price of the vehicle being purchased may not be increased to offset negative equity in trade-in. According to Reg Z, negative equity can be disclosed in one of two ways: applying a customer’s down payment toward any negative equity and disclosing any remaining difference on Line 4 of the installment sales contract or disclosing the full amount of the negative equity on Line 4. Never, ever inflate the price of the car they’re buying and the trade-in allowance to hide the negative equity.
  • An F&I menu must be included in every deal to confirm your team is offering every product to every customer every time. That menu must also disclose the term, APR, principal and interest payment for the vehicle prior to any F&I products being included. At the outset of every menu presentation, the F&I pro must disclose that the purchase of all products is completely voluntary.
  • A final menu that includes the customer’s signature must be included in every deal. It must document the term, APR and monthly payment the customer has agreed to, including any products purchased (and declined to purchase). The monthly payment, term, and APR the customer agreed to on the menu must also match the payment, term and APR shown in the Truth-in-Lending box on the retail installment sales contract.

Finally, your dealership should have a written code of conduct that every employee is expected to live by. You must have written guidelines for quoting interest rates and payments in each stage of the buying process that ensures they are accurate, and are not being used to deceive or mislead customers.

Ronald J. Reahard is president of Reahard & Associates Inc. and ranks among the industry’s leading F&I trainers, authors, consultants and speakers. [email protected]

About the author

Ron Reahard

President of Reahard & Associates

Ron Reahard is president of Reahard & Associates Inc., a Dealers’ Choice Award-winning provider of F&I classes, workshops, and in-dealership and online training. Contact him at [email protected].

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