Consumer Financial Protection Bureau Targeting Extended-Service Contracts

by Jon LeSage, Deal­er Digest Dai­ly

SITUATION:
Con­sumer Finan­cial Pro­tec­tion Bureau, which over­seas buy here pay here deal­ers, might be tar­get­ing finance and insur­ance prod­ucts such as extend­ed-ser­vice con­tacts and oth­er add-ons

A Philadel­phia attor­ney has been see­ing signs of inves­ti­ga­tions by bureau of sev­er­al auto lenders – not in for­mal stage yet, but seek­ing more infor­ma­tion

If this is the case and sale of after­mar­ket F&I prod­ucts restrict­ed, would hurt deal­er prof­its

Pub­lic deal­er groups not wor­ried that bureau is tar­get­ing deal­er reserve since groups had shift­ed focus from prof­its on deal­er reserve to mak­ing prof­its on F&I prod­ucts

Auto­Na­tion said it gets about two-thirds of its F&I rev­enue from sale of F&I prod­ucts and about a third from deal­er reserve

In Q1, Auto­Na­tion pulled in F&I per vehi­cle rev­enue of $1,322

SIGNIFICANCE:
Deal­er reserve is prof­it deal­er­ships make by adding to customer’s inter­est rate on loans nego­ti­at­ed at deal­er­ship

Bureau said it believes that let­ting deal­ers set final inter­est rate for cus­tomers cre­ates poten­tial for dis­crim­i­na­tion against legal­ly pro­tect­ed groups such as minori­ties.

Indus­try asso­ci­a­tions deny deal­ers or lenders tol­er­ate dis­crim­i­na­tion

Bureau lacks juris­dic­tion over deal­er­ships except for BHPH, but bureau said in con­nec­tion with deal­er reserve that it would hold lenders respon­si­ble for deal­er­ship actions

That approach also could apply to after­mar­ket prod­ucts, rou­tine­ly financed in same retail install­ment con­tract as loan

Con­sumer Finan­cial Pro­tec­tion Bureau work­ing through lenders on areas that affect deal­er prof­its

Poten­tial­ly at risk – finance reserve on loans arranged through deal­er­ships; extend­ed-ser­vice con­tracts; and oth­er after­mar­ket F&I prod­ucts that are financed.

Source: Auto­mo­tive News

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