Consumer Financial Protection Bureau Targeting Extended-Service Contracts

extended warranty

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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