Be careful with disclosures and ancillary products.
There remains a great deal of confusion concerning the proper, and compliant, manner in which a dealership is permitted to discuss payments with a consumer when there is an ancillary product to be sold, and incorporated within the financing.
With the recent fears created by the vast amount of compliance and regulatory information coming from the “Alphabet Soup” of federal regulatory agencies. That includes the newly established CFPB (Consumer Financial Protection Bureau). I have received an untold amount of requests to aid in this sea of regulatory confusion.
In order to best provide viable solutions and/or information regarding this specific issue, I visited with credible experts, and pundits in the field of federal finance laws regarding existing and new rules, laws and regulations.
The following is one viable solution and action to consider when a dealership is assisting a consumer with securing a finance source for the purchase of an RV or boat. And, within this financing arrangement, the dealership wants to include the sale of an ancillary product.
The key to remaining in compliance is full disclosure. Ensure that the consumer is properly presented, and is completely aware of any Ancillary product being offered. The usage of a “menu presentation” is greatly encouraged to aid in this process.
An area of concern that has drawn attention in this regard is when the inclusion of an ancillary product brings the total amount financed to an amount that would reduce the APR that the lending institution will charge.
For example, a common lending practice is to offer a “tier level” approach to financing. Included within this practice could be the following guidelines: if the amount financed is $24,999 or under, the wholesale APR offered by the lender is 3.99 percent. However, if the amount financed is $25,000 or higher, the offered APR now becomes 3.74 percent.
This is where the slippery slope comes into play. There are several federal regulations that prohibit the dealership from “enticing” or “coercing” the consumer into purchasing an ancillary product with a deceptive approach. Such as the F&I manager incorrectly telling the consumer that, “The lender will reduce your rate if you buy a service contract.”
However, since the lending institution does, in fact, offer an “across the board” APR reduction to EVERYONE, provided the amount financed reaches certain levels, and therefore would not fall under the dreaded threat of “disparate” treatment. Then it would be permissible to inform the consumer that financing certain levels will allow a reduction in their offered APR.
A proper presentation could go as follows: “Mr. & Mrs. Consumer, I did want to point out that the reason your APR is a quarter point less than originally presented is due to the fact that the lending institution offers reduced rates based on the amount financed and, since the total amount financed has increased, it permits a reduction in the APR.”
A suggestion here would be to include a written explanation or acknowledgement from the consumer. This could be on your menu presentation form, or on the buyers/purchase order. The verbiage should remain simple.
Naturally, the dealership should have a legal advisor draft whatever verbiage they feel would be appropriate.
It is important enough to state, once again, that the key in these situations is full disclosure to, and non disparate treatment of all consumers.
A great source to field questions, and seek potential solutions to these types of issues, is a reputable compliance educator/consultant.