American First Credit Union’s dealer rating system has allowed the credit union to identify and address fraudulent GAP selling practices, which the Consumer Financial Protection Bureau highlighted as an area of interest during last month’s Auto Finance Risk & Compliance Summit, said Michael Williams, the company’s director of consumer lending.
American First was able to flag a dealer who was telling consumers GAP insurance was necessary to receive funding, after a borrower assigned a poor rating to his dealership experience, he told Auto Finance News. Any dealership that scores a three out of five or lower is put on a “watchlist” and goes through a review process, Williams added.
“We want to know why, we want to know details, we want to know exactly what happened during that process to see if it’s become a trend,” Williams said. “We’re expecting [scores of] four and five, because that means we’re doing our job to vet out the dealership before we sign them.”
Once the borrower revealed the fraudulent act, American First explained this was not its policy and instructed the borrower to go back to the dealer to cancel the plan, if he desired. In the meantime, the lender withheld the dealer’s funding until the matter was resolved.
“We just want to make sure that we’re doing right by everyone,” Williams said. “We’re not painting the dealer as a bad actor, because we’re doing business with them. … If [it’s not resolved], we usually settle the relationship and say, ‘Your business practices don’t match with our business practices,’ and we move on.”
