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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