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Payment packing brings unwanted scrutiny

November 23, 2010
By Gil Van Over

Second of Two Parts

Part One (See Sept. 30 CATA Bulletin) reviewed why dealers are under attack from attorneys general for payment-packing. Part Two offers tips for dealers to help ensure their sales and F&I processes are in compliance. A methodical process is a proven approach to achieve the desired results: Communicate the expected standards. Make sure employees know what payment packing is and that they do not practice it in their sales approach. Provide training.

After telling employees what is not acceptable, provide them with continuous training on the accepted method. Disclose, document, disclose, document. Properly disclose all aspects of the transaction, including agreed-upon vehicle price, available F&I products and financing terms (term, APR, monthly payments) and obtain the customer's signature at each stage. Documenting his or her agreement to the price helps provide a plausible defense against payment packing. Monitor for compliance. Assign an employee who is not part of the sales and F&I process to review customer files periodically for compliance, or retain an independent outside party to review files. Keep records of any reviews.

A review should confirm compliance with the Equal Credit Opportunity Act and the Truth-in-Lending Act, and identify any payment-packing. If any noncompliance is found, take corrective action and document the action. This process provides the foundation to ensure that the dealership is compliant, but other tools still are needed to complete the structure. Four critical documents provide evidence to fend off payment-packing charges, by confirming that the customer agreed in writing to pricing at every aspect in the sales and F&I process. Four-square A document used during the sales process, whether it is a four-square or other sales technique, is the starting point.

This tool generally is used to gain customer acceptance on vehicle price, cash down, trade-in value and payoff, and sometimes the monthly payment. Be careful here, though. If a monthly payment is quoted, use an APR to calculate the payment. The APR should be the same APR that the customer ends up with on the Retail Installment Contract. After a rate is agreed upon in the sales process, don't adjust it when the customer reaches the F&I process, as a way to sell F&I products. F&I Menu Many dealers are joining the F&I Menu selling parade, and with good reason. Early returns indicate that when every customer is offered every product and permitted to make an informed decision about the features and benefits of the products, as well as the effect on his or her monthly payment, three things happen. Product penetration increases, customer satisfaction improves and less time is spent closing the deal.

This menu, when completed properly, should show the transaction price that the customer agreed to in the sales process, reflect the pricing of each F&I product being offered, and show the increase in the monthly payment for any product or package of products chosen. Finally, the customer must sign this form, to indicate acceptance of any products chosen. Buyer's Order This form contains many different provisions and disclosures, depending on the dealership. To defend against payment-packing charges, a Buyer's Order must reflect the vehicle price that the customer agreed to in the sales process as well as the premiums for any F&I products the customer purchased in the F&I process.

Retail Installment Contract The final form to use to defend against payment-packing charges is the Retail Installment Contract, which also is signed by the customer. If the amount financed is not consistent with the total amount due indicatedon the Buyer's Order, you've got problems. As stated in Part One, the dealer is a lender in the indirect financing transaction with its lenders. That means the dealer has an obligation to comply with the Equal Credit Opportunity Act, which prohibits discrimination in the credit process. One way to ensure salespeople are not involved in discriminatory pricing is to pull the 20 deals from the prior month which have the highest F&I profits.

Look at the driver's licenses. If all 20 customers are under 21 or over 65, all females or all of a specific nationality, there may be reason for concern. Finally, while analyzing those 20 files, look at the retail installment contract to make sure the Dealership Management System is programmed. The system provides proper disclosures in the Truth-in- Lending box. Omitting the name of the company that an insurance premium is being paid to is a common mistake. The disclosure should show the name of the company, the name of the product and the premium for it.

For example: "To: (Name of provider) for GAP , $495.00" By establishing expectations of proper conduct, training the required methods, disclosing and documenting every part of the transaction, and periodically monitoring the processes for compliance, a dealer can go a long way towards helping his attorney defend against payment-packing charges. Gil Van Over is president of gvo3 Consulting and provides proactive F&I Office compliance review services for automobile dealers. He is also available as an expert witness. He can be reached at (312) 961-9065