Well...how much fun was last month's homework assignment? As
a refresher, I discussed defining moments in life and how
engaging in prohibited sales and F&I practices can define
your life, affect your livelihood and diminish your net
worth.
Here again, in alphabetical order, is my list of twenty
common prohibited practices still being employed by
reprehensible Sales Managers and F&I practitioners. The Evil
Empire has its laser gun aimed squarely at violators!
1.Blank, signed documents 2.Bundling products 3.Completing
documents after the fact 4.Credit card down paymnt.s
5.Dealer rebates 6.Falsifying information to lenders
7.Forging customer's signatures 8.Front end improvement
9.Handwritten entries 10.Including F&I products in the
vehicle price 11.Inconsistent product pricing 12.Menu
manipulation 13.Missing enrollment forms 14.paymnt. packing
15.Power booking 16.Product stuffing 17.Scooping rebates
18.Signature on file 19.Straw purchases 20.Trading rate for
product
Let the firing commence!
11.Inconsistent product pricing
The customer must sign at least three documents
acknowledging and accepting the price of the vehicle,
aftermarket items and F&I products. The pricing of these
items must be consistent on all forms. Hopefully, even the
most skeptical of Darth Vader's troopers must acknowledge
that the customer knew she was purchasing an ancillary
product if she signed three different forms that disclosed
the price of the product
Detection Methods:
1.Inspection and comparison of the various forms where the
product price is disclosed:
a.F&I Menu b.Buyer's Order c.RISC d.F&I product enrollment
form
2.The product pricing on forms 1a through 1d above is
consistent with the retail price on the internal washout
sheet
12.Menu Manipulation
Now that you have likely joined the growing list of dealers
who have an F&I Menu in place in your Business Office, you
are probably sleeping better at night. Well, WAKE UP!
My completely unscientific estimate is that the majority of
transactions that were closed with a menu in the last year
are flawed and probably help to support the dark side's
conspiracy theory that your dealership is purposely
misleading customers.
I see just about as many different versions of menus as I
see different versions of Buyer's Orders in the dealerships
I consult with. For example, there are:
·Handwritten menus that start with a blank sheet of paper
·Pads of pre-printed menus on which the F&I Manager is to
handwrite most of the information. These menus have either
been created in-house or supplied by the dealer's F&I
provider ·Electronic menus that display the information in
what Arlo Guthrie would describe as "8 by 10 color glossies"
what with all the color and graphics and cute little icons
Depending on which menu iteration you are on, rest assured
that nefarious F&I Managers can and will manipulate the
system you have in place. Again, my back of the hand
estimate of the comfort level you should have with each
version: ·Handwritten - absolutely no comfort ·Pre-printed -
25 percent ·Electronic - 90 percent, can approach 100
percent with proper safeguards
Next month I will discuss menu manipulation in detail, along
with some safeguards and remedies you can implement so that
you can fall asleep without the figuring out how many sheep
are in the herd.
13. Missing enrollment forms
Customers must sign enrollment forms for every product
purchased. Under no circumstances should F&I Managers be
paid on a deal if an enrollment form is missing. Enrollments
forms obtained after the customer leaves must be scrutinized
for inconsistent signatures.
Detection Methods:
1.The product is selected on the F&I Menu, the Buyer's Order
or the RISC and the enrollment form is not in the file.
2.Check with the Office Manager to determine if copies of
the product enrollment form are kept in a separate file.
14.paymnt. packing
paymnt. packing takes place in both the sales and F&I
process. This practice occurs when a paymnt. quoted to the
customer exceeds the actual paymnt. required to purchase the
vehicle for the price(s) agreed upon at that point in the
negotiation.
Detection methods:
1.The paymnt. quoted on the four square is the same as the
paymnt. on the RISC with a number of products sold. 2.The
paymnt. on the four square is substantially higher than the
base paymnt. on menu. 3.The paymnt. range on the four square
exceeds $10. 4.The base paymnt. on the menu is equal to the
paymnt. on the RISC with products sold. 5.The paymnt. on the
RISC does not increase over the paymnt. on the four square
or base paymnt. on the menu by a logical amount given the
dollar amount of the products sold. 6.The agreed upon paymnt.
at the bottom of a software generated menu is crossed out
and a lower paymnt. is handwritten.
For a more definitive discussion on paymnt. packing, go to
the archives of www.Dealer-Magazine.com and read my article
in the March 2004 issue titled "Stop paymnt. Packing - Now!"
15.Power Booking
This old practice of defrauding lenders to secure an
increase in the credit approval amount has catapulted onto
the top 20 list because of the recent lawsuit filed out
West. Power booking is the practice of showing non-existent
options on vehicles, which in turn increases the vehicle's
value.
Normally, the lending community pursues dealers for power
booking. However, in the lawsuit mentioned above, consumers,
not lenders, have filed against the dealer, the F&I Manager,
the public company that owns the dealership and the lenders
that bought the tainted receivables. Regardless of the
outcome of this case, how long do you think it took those
lenders to tighten up their underwriting on that dealer's
applications?
Detection Methods:
1.Create a parallel system that you likely have in place for
new vehicles:
a.Create a "used invoice" that shows the vehicle's year,
make, model, mileage and options at the time you put the
vehicle into inventory b.Obtain the Used Car Manager's
signature on the used invoice affirming that he or she
agrees with the equipment and mileage c.File this invoice
either in a book or in deal jackets, depending on how new
car invoices are filed
2.Implement a requirement that this used invoice be the only
bookout sheet permitted to be supplied to lenders as part of
the deal 3.Instruct the Billing Clerk to bring any
non-approved bookout sheets to your attention 4.Instruct
your lenders to bring any noon-approved bookout sheets to
your attention
16. Product stuffing
Product stuffing occurs when a product is included in the
amount financed/capitalized cost without the customer's
knowledge or consent. It is usually perpetrated using a few
other prohibited practices: Signature on file, forging
customer signatures, or missing enrollment forms.
True story from the trenches, this one a case I was working
on as an expert witness.
I found that the F&I Manager was stuffing Gap insurance into
the captive's lease deals, a captive that provides gap
protection as part of its lease agreement. The price the
dealer was charging started at $750 per deal and escalated
to over $1400 within a year. When I asked the dealer why he
would sell gap since it was included in the lease, he
replied that the gap protection provided did not cover the
customer's deductible. True, but the maximum deductible
allowed by this captive is $500. There is no way to justify
charging a customer $750 to $1400 for the possibility of
covering a $500 liability.
My next question floored him, and more than anything else,
convinced him to stop the practice. "If you did not have to
pay the gap provider a premium or the F&I Manager a
commission, where would the entire $1400 have gone?" The
answer, obviously, is gross.
The point is, stuffing products not only is deceiving the
customer, but frankly, also stealing from the Dealer, the
Sales Manager and the Salesperson.
Detection Methods:
1.Unsigned F&I product enrollment forms. 2.F&I product
enrollment forms that have blanks or "NA" in the product
pricing section. 3.The product is not disclosed on the F&I
Menu, the Buyer's Order, the RISC or on the F&I product
enrollment form, yet is shown on the washout sheet.
17. Scooping rebates
This practice is not as prevalent as it once was now that
Regulation M requires rebates be disclosed on the lease
agreement. Scooping rebates occurs when a dealership does
not disclose an available consumer rebate, does not include
the rebate in the retail or lease agreement as a reduction
to the amount financed/capitalized cost, and absorbs the
rebate into profit.
Detection Methods:
1.More common on leases than on retail transactions.
2.Compare the amount on the rebate form in the file to the
rebate disclosed on the RISC and/or lease agreement.
18.Signature on file
Signature on file is a form of forgery.
Not so long ago, in a universe governed by the dark side, I
was reviewing deal files. The very first file had an etch
agreement in it that showed "Signature on file" where the
customer's signature should go. I immediately went to the
F&I Manager and asked her about it. She replied that the
customer forgot to sign the agreement, that she had called
the customer after he left and asked him his permission.
I had to lift my pants legs and plug my nose it was so bad.
If this customer sued the dealer for deceptive practices, do
you honestly believe that the customer will remember the
conversation and agreement to put signature on file on the
agreement? Of course not.
As an aside, every file that particular F&I Manager closed
had an etch product and every etch agreement had "Signature
on file". She is now working somewhere else.
Detection Method:
1.Line for customer signature is completed with "Signature
on file", "SOF", "On file", "As agreed" or "File".
19.Straw purchases
A straw purchase is a specific form of falsifying
information to lenders. It occurs when the person who is
purchasing and driving the vehicle is not a party to the
retail or lease agreement, typically because the purchaser
does not have sufficient credit to finance a vehicle.
In some states, such as Texas, straw purchases are
specifically against state law.
Detection Method:
1.Evidence of straw purchase in the file:
a.Photocopy of a driver's license for someone not on the
RISC. b.Third party name on the initial four square or
customer welcome form. c.Insurance in third party's name.
d.A credit bureau report in the third party's name. e.The
third party signs the delivery receipt. f.Down paymnt.
receipts in the third party's name.
20.Trading rate for product
It is a potential violation of the Sherman Anti-Trust Act to
tie the price of a product to the purchase of a second
product. Trading rate for product does just that, it ties
the price of a product (a reduction in the APR) to the
purchase of a product (vehicle service contract,
maintenance, etc.).
In a trading rate for product scenario, the F&I Manager
innocently states, "If I reduce your interest rate by half a
point, you can purchase the service contract we discussed
and keep your paymnt.s the same. What do you think?"
Trust me, if your F&I Manager uses this word track once, he
uses it extensively. It will only take one mystery shopper
working for the plaintiff's bar to hear the message to start
changing the tee times in your PDA to depositions.
Detection methods:
1.The APR at the top of the menu is higher than the APR on
the RISC. 2.The agreed upon paymnt. at the bottom of a
software generated menu is crossed out and a lower paymnt.
is handwritten.
There you have it. I guarantee you that if I audited files
in your dealership, I would find one of these 20 prohibited
practices. Now is the time to beat the Evil Empire to the
punch and correct these practices before they find out about
them.
Gil Van Over is the president of gvo3 Consulting, LLC. He
will be discussing compliancy and litigation issues at each
F&I Mastermind seminar.
http://www.gvo3consulting.com
He assists dealers in developing and implementing a
litigation defense strategy for the F&I Office. Copyright
2004 by gvo3 Consulting, LLC. All rights reserved.
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