Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
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By Kelly Wadlinger OV E R THE CURB DEFENDING OUR PURPOSE The CFPB is cracking down on dealer participation programs, and experts are concerned. But the magazine's back-page columnist believes F&I; pros will rise to the challenge. Up until about three months until l ago, we we praising the eforts we we were the N h of the National Automobile lers Association (NADA) e Dealers A other e and other dealer advocates for winning d i winning dealers an exemption from o from the Consumer Financial Protection Bureau (CFPB)'s jurisdiction. But it's clear we were only fooling ourselves if we thought the bureau was going to give up that easily. In February, at least four banks were warned by the CFPB that policies that allow dealers to mark up customer interest rates could be in violation of the Equal Credit Opportunity Act (ECOA). Te bureau's investigation will try to uncover evidence of discriminatory pricing on the part of their dealers. So the CFPB is essentially regulating us through fnance sources, which means we need to prove that we are responsible and ethical enough to have the discretion and fexibility of lending programs that allow for reserve. In a bulletin issued on March 21, the CFPB said this about dealer participation programs: "… Because of the incentives these policies create, and the discretion they permit, there is a signifcant risk that they will result in pricing disparities on the basis of race, national origin and potentially other prohibited bases." It almost feels like the CFPB has forgotten that auto dealers — while excluded from its jurisdiction — still have to comply with the ECOA or face repercussions from the FTC. As news spread of the CFPB's actions, many fnance professionals expressed frustration over what appears to be an attack on fnance reserve, a signifcant part of our bottom lines and income. Some F&I; pros argued that they don't discriminate against anyone — that their job is to make money, which means maximizing every opportunity regardless of who is sitting in front of them. Tat's a reasonable argument, but, as an attorney might say, you have to prove it. Assertion 1: "I don't discriminate against anyone." To assert discrimination, the CFPB will use the legal doctrine of disparate impact. Tat means the agency doesn't have to prove intent. All it has to do is prove that you did through statistical analysis. Some fnance pros have the misguided impression that a reg- Kelly Wadlinger is the studio lead at Faulkner FIAT of Harrisburg, Pa., a position which encompasses the roles of both finance and sales manager. After joining the business as a salesperson in 2006, Wadlinger quickly determined that she had a passion for the industry that needed to be shared. KWadlinger@AutoDealerMonthly.com 36 AUTO DE ALE R MONTHLY • M AY 2013 ulator is sitting in an ofce looking at driver's license photos or checking for last names to determine if an individual is part of a protected class. Trust me, that's not happening. While I could not locate the exact methodology the CFPB is using to determine discrimination, it has been suggested that census tracts could be used as a basis for its analysis. If a particular area or neighborhood can be shown to be paying a higher percentage in rate markup and has a predominantly minority population, the bureau will consider that a pretty good indicator that discrimination did occur. Tat means the ECOA has been violated. Yikes. Assertion 2: "I maximize every opportunity." I have sat in the fnance chair for years, and I regularly talk to trainers from across the country. So I know that maximizing every opportunity is the way of the F&I; manager. Tat's not a bad thing if you're handling every customer the same way. But what happens on those bad days? Maybe its a string of bad customers, or maybe your sales department is pressuring you to speed it up. Or maybe your sitting in front of a customer at 11 p.m. when your technically supposed to be of at 8 p.m. Yes, the goal is to maximize every opportunity, but even the best of us have our of moments. Once again, if you are statistically more likely to maximize your rate opportunity with a protected class — whether or not you intended to — you are in violation of the ECOA. So, does that mean I think the CFPB is onto something? Not by a long shot. I believe this is an opportunity to prove ourselves as professionals. Tat means looking at our processes to determine how we can make them better. Is your desk manager "winging" the rates based on gut feeling? Ten create a rate chart and make him stick to it. Do this by frst determining what your standard markup is going to be for all customers. If you have to deviate from it, make sure you note the reason. Also be sure to have someone audit those exceptions frequently. Te goal here is to be able to prove that your process is designed to be uniform across all classes, and that you are dedicated to fair lending. At the end of the day, the CFPB and the public have a negative perception of the indirect auto lending channel. Tat means we must actively work to disprove what they think happens in our ofces. And we can do that by providing great service to our customers, securing fnancing for them when no one else would, saving them hundreds of dollars by beating their credit union's rate, and informing them about all of their protection options so they're not stuck with a hef y repair bill afer their warranty expires. Yes, the goal is to make money, just as long as the customer is the ultimate winner.