F&I and Showroom

NADA 2014

F&I and Showroom, the industry's leading source for F&I, sales and technology

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Compliance No. 3: Undisclosed Price Adjustments This involves changing the customer's agreed-to price without full disclosure. If the price or terms change for any reason, the change must be disclosed and agreed to in writing by the customer. Failing to do so will be considered fraud and subject your store to criminal prosecution. No. 4: Falsifying Customer Information This practice was criminally prosecuted several times in 2013. It involves falsifying credit applications by creating nonexistent income or reducing debt to make the borrower's debt-to-loan ratio more appealing to the fnance source. Oftentimes, this type of bank fraud is done to get deals bought that had no chance of getting done otherwise. But no matter the intent, falsifying credit apps is considered a felony. a legal doctrine that says creditors can be sanctioned whether the discrimination was intended or not. So far, the CFPB's use of disparate impact has centered on rate markups, but the bureau could easily apply the legal theory to product pricing. If it ever does, you could face charges of discrimination if you charge an individual who falls in a group protected by the ECOA signifcantly more for an F&I product than someone who isn't protected by the law. No. 7: Full Disclosure Several dealers have recently run afoul of the law for not disclosing all the terms, rates and products included in the sales contract and price of the vehicle. Not only is it mandatory that all products and terms be disclosed to every customer, you also have to be able to prove that a complete disclosure was made. No. 8: Paperwork No. 5: Fraudulent Auto Loan Modifcation If your store is in the practice of recommending frms to customers that promise to reduce their monthly car payment, you may want to rethink that practice or at least check up on the companies you're recommending. These frms typically pledge to reduce a consumer's payment by 25% to 40% for a fee that ranges between $350 and $799. But what happens in some cases is the customer is told to stop making payments on his or her auto loan, increasing the risk that their vehicle will be repossessed. Once the upfront fees are collected, the promised loan modifcations are never done. Not only do customers not beneft from the services they paid for, their vehicle gets repossessed by the fnance company. No. 6: Disparate Impact The Equal Credit Opportunity Act does not allow creditors to impose different terms or conditions on a loan based on a consumer's race, color, religion, national origin, sex, marital status, age, or because he or she receives public assistance. Disparate impact is 8 F&I and Showroom NADA 2014 There are a slew of documents dealers must complete to comply with state and federal laws. Most dealers are aware of the list, but there are a couple areas dealers may want to pay particular attention to given recent enforcement actions. For this article, I'd like to cover Form 8300. Anyone who receives $10,000 or more in cash in a single transaction or a series of related transactions while conducting their trade or business must fle a Form 8300 with the IRS. And compliance is required if the payment is made in one lump sum, broken up into two payments that total $10,000 or more, or is part of a single transaction (or two or more related transactions) that causes the total cash received within a 12-month period to total more than $10,000. Helping a customer avoid the fling of a Form 8300 is a severe violation and should never be allowed. The penalty for intentionally failing to fle a Form 8300 in a timely manner (within 15 days after receipt of the cash) is $25,000 or the amount of cash received and not reported, whichever is greater. No. 9: The Privacy Rule The Privacy Rule applies when you extend credit to someone in connection with the purchase of a car for personal, family or household use, arrange for someone to fnance or lease a car for personal, family or household use, or provide fnancial advice or counseling to individuals. If you engage in these activities, which all car dealers do, any personal information you collect to provide these services is covered by the Privacy Rule. Examples of personal information covered by this requirement include an individual's name, address, phone number or any other piece of personally identifable information. In a typical vehicle transaction, the rule applies if you collect personal information about someone in connection with the potential fnancing or leasing of a car, even if that person does not fll out a formal application. The Privacy Rule does not apply if a person buys a car with cash or arranges fnancing on his or her own. No. 10: Conditional Rebates Offering to lower your customer's interest rate if he or she agrees to purchase F&I products is a clear violation of the TILA. There are many legally permissible reasons for adjusting your customer's interest rate, but doing so in exchange for your customer buying your products isn't one of them. Charge whatever rate you want, but don't tell or even imply that you're lowering the customer's interest because he or she agreed to purchase your products. These are just a few of the areas we've seen regulators target, but there are others. A little common sense and honesty will eliminate most problems, but you also need to stay up to date with the laws governing automobile transactions — something with which your state dealer association can help. George Angus is the training director for Team One Research and Training, a company specializing in scientifc, research-based program development and training. Email him at george.angus@bobit.com.

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