Lenders are aware that increased regulatory scrutiny of ancillary products, such as GAP insurance, is coming down the pipeline, but there’s little consensus among the Consumer Bankers Association’s Auto Finance Committee as to what aspect of these after-sale products should be monitored, said Robert Griffin, indirect lending manager at Commerce Bank.
“There wasn’t a guidance on what really is the issue with them,” Griffin told Auto Finance News. “Is it the value of them? Is it the pricing of them? Is it the monitoring of the vendor? We looked at it from several angles, we tried to increase our monitoring a little bit for penetration of after-sale products, or an increase in one region. But, we haven’t made any changes, it’s more just watching it.”
Both at the dealership level and on digital channels, the industry is likely to experience an “expansion” of regulation around these insurance products, said Andrew Kriz, an attorney in Nissen & Elliott LLC’s automotive finance legal services group. One thing to watch: It may not be officially necessary to state that these products are “optional,” but a dealer definitely can’t say that they are “required,” he explained.
“It falls under Federal Trade Commission jurisdiction, the Consumer Financial Protection Bureau could be involved, and state attorney generals, so you have dual federal and state activity,” Kenneth Rojc, managing partner of Nisen & Elliott’s automotive finance group, told AFN. “They are looking at deceptive trade practices: what is being sold? Is it of value? Is it being represented? Is it being sold as a condition of credit — that would potentially be a [on its face] deceptive practice.”
With more auto originations moving to digital channels online, dealers are increasingly turning to ancillary products as a larger source of revenue, Kriz said. However, with the potential of more regulation on the way and FinTechs such as AutoFi and AutoGravity piloting ways to include these products in the online process, dealers are growing increasingly “nervous,” he said.
“If this information is delivered digitally, one of the potential tensions would be with the F&I managers of dealerships,” Rojc said. “If they are not having the opportunity to talk with these individuals and run through their portfolio, [the dealers] may not have the same profitability crack at the consumer then you would with someone just going into the dealer.”
Learn more about the tech and disruption in the industry at Auto Finance Innovation 2017, May 17-18 in San Diego. Visit www.autofinanceinnovation.com and to learn more about the Auto Finance Risk & Compliance Summit, visit www.afrcs.com.