“Disparate” Times Call For “Disparate” Measures

For F&I departments, it’s gotten to be a long and difficult road to compliance.Just when you think you have it all figured out, something new comes along that forces you to re-think, re–plan and re-adjust.For some time now determining customer rate has been up for debate. How much rate is too much?Does rate tier make a difference?Is it up to the lender to impose caps? The CFPB has chosen this as a cause for concern and even though they cannot come into your dealership, they do impact the way F&I offices function.In separate ways the NADA and the AFIP have made recommendations for dealing with rate that they both feel will keep your dealership in compliance and off the radar screen. The first issue is how to use rate to estimate a payment when you don’t have a credit application or bank approval. Both organizations recommend a method that is based on the year of the vehicle being sold and the term of the payments.But it goes further than that.David Robertson, executive director of AFIP, says that additional factors have to be considered.First, you need to post your rates where they can be easily seen.Then, the rates you are using have to be “statistically verifiable”.In other words, what made you choose those rates?The recommendation is that you take 60 to 90 days worth of rates and average them together to determine what your posted rates will be. The rates that you use also have to be accurate to the situation.In other words, “you can’t pack a payment using rate.”While that may cover you for payment estimation, there are additional decisions to be made concerning the actual rate charged.Both the NADA and AFIP recommend making a decision on how much to increase the lender’s buy rate, then stick to that decision.If you decide that you will increase the buy rate by 2% on new vehicles and 1% on used, and don’t adhere to it, disparate pricing comes into play and you can be accused of discriminating against a customer by charging them differently than the majority of your customers.Note that we are talking about the amount that you increase the buy rate, not the rate itself.There are several questions that are raised here and without writing them out, here is the answer to them all—The Dealer Participation Form (NADA) or a Rate Modification Form (AFIP).These are forms that list specific reasons why you decreased the rate spread.They include bank limits, competitive rate issues, and more than enough other reasons to cover any dealership occurrences.When you reduce the rate spread, complete the form, get it ok’d by your compliance officer, send a copy to the lender and put a copy in the file.I can hear you groaning over this. But like form changes and price increases, it’s not going away.So work with your compliance officer and your local, state, and national auto associations to educate yourself and keep your dealership safe from violations.