Remember that time when you were driving down the freeway? On autopilot, not paying particular attention to the satellite radio, no text messages to respond to, no one in the passenger seat blabbering away.
Your mind meanders through a thousand different thoughts, nothing in particular, everything in general. Like observing yourself in a maze from above, hitting dead-ends, turning down a different hall, finding your way through to the destination.
All of a sudden, a brilliant idea smacks you upside the head! A new way to improve your processes, your market share, your advertising, your employees’ motivation, your whole business model. An enhancement to your business model from an unlikely source.
Today, I propose just such an unlikely idea from a seemingly unlikely source: that your F&I and sales disclosure compliance model should mirror the F&I and sales processes at dealerships in California.
Because what is required by statute in California should be considered best practices in the other 49 states.
Why California?
Generally speaking, according to a few of my fellow consultant friends who specialize in leading 20 Group discussions or income development, California dealers maintain higher grosses, profits and customer satisfaction ratings than dealers in a majority of the other 49.
One of my past employers saw fit to send this Midwestern boy to Southern California early in my management career. I like to say that I got a decade’s worth of experience in my two-year stint. I went there with trepidation. I had bought into the Kool-Aid that California dealers were aggressive to the point of being deceptive. California dealers were innovative – after all, they perfected the spot delivery process about the same time Mr. Gore invented the internet.
A few years after I left, the infamous expose on Southern California F&I managers going to jail for payment packing ran on one of the national morning shows. This expose put California dealers right next to Washington state ones on the shelf of noncompliant dealers in consumers’ minds. As a refresher, some Washington dealers ran afoul of the state attorney general for the practice of providing consumers with a “protected payment” handwritten with Sharpies on the four-square without disclosing F&I products.
What I now know is that the reality about California dealers is completely different from the aggressively deceptive stereotype. California dealers, like most dealers, are bright, driven, flexible, aggressive, adaptable, resilient businesspeople.
When the California Car Buyer Bill of Rights forced disclosure by statute, the dealers used all those qualities to modify and improve their processes. The process changes resulting from new legislation help complying California dealers to have a deal file that can withstand the scrutiny of a deceptive-practices inquiry.
California RISC, aka 553
The same Retail Installment Sale Contract, or RISC, (the 553, for you California dealers) that enabled dealers to pack payments in the mid-‘90s now gives a California dealer its best defense against packing products.
There are sufficient lines to disclose theft-deterrent product, surface-protection product, service contracts, and Gap.
Essentially, the purchase price of the vehicle, optional after-market items, and every product purchased in F&I are separately disclosed on the 553. If the form is properly executed, a customer cannot support a claim that she did not know what she was purchasing or how much it cost.
Can you say that about the RISC in use in your state?
Pre-Contract Disclosure
By statute, California dealers must execute a form called a Pre-Contract Disclosure. On the PCD, the base amount financed, term, APR and payment are disclosed. Also on this form is the list of the optional products, with pricing, that the customer agreed to purchase in F&I, including the total amount of the optional products purchased. Finally, there is a disclosure of the final agreed-upon payment, including the purchased products. It is very clear on the PCD what the payment walk is, and it obtains the customer’s agreement to it.
The PCD is a supplement to the menu in California. It’s required only on retail financed deals, so leases, cash deals, and outside lien transactions would not have a PCD. A properly executed menu is still a best practice on all deals.
In the past, I have put forth the notion that the Federal Sentencing Guidelines, the Safeguards Rule and the Red Flags Rule provide a good compliance model for dealers. I still maintain that thought.
The California disclosure model fits nicely into an overall compliance model.
Good Luck, Good Health, and Good Selling!
Gil Van Over is executive director of Automotive Compliance Education (ACE), founder and president of gvo3 & Associates, and author of “Automotive Compliance in a Digital World.”
