With the Consumer Financial Protection Bureau (CFPB) quickly ramping up its influence over auto-finance, it is widely expected that F&I products will be the next area of scrutiny. As a lender, there are a few ways to proactively prepare your institution for this next step in CFPB regulation.
The first, and most obvious step is to set limits on how much you’ll fund for the sale of F&I products. Be aware, however, that as the CFPB is reducing the dealer profit from rate markup, dealers will be looking to maximize profit from F&I product sales. They will be looking for lenders who are competitive with their funding options. Look at your entire compensation plan to ensure that it not only promotes consistent pricing, but also fairly and competitively compensates the dealer for the business.
As with all of the vendors that a lender uses, the CFPB is likely to require lenders to vet all product administrators. Savvy lenders are reviewing the contracts to get a better view into the product administrator’s practices, and their customer service standards.
For example, each contract should have a cancellation section, detailing how consumers may cancel the service. It’s important to review the cancellation section, in-depth to make sure it meets all individual state and federal requirements, and it clearly communicates the cancellation process to be carried out in practice.
In addition, it is a good idea to review each contract’s terms and conditions to ensure the F&I product is designed to pay covered claims; then, compare the contract with the product collateral to ensure all local, state and federal advertising rules are followed, especially Truth in Advertising.
With this information in hand, your institution can better implement funding policies and procedures around the sale of F&I products. However, the products themselves don’t provide a full picture of the contract holder’s customer experience. So, it’s also important to perform due diligence on the product administrators themselves.
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