Regulators and lawyers are watching dealers like hawks - and finance & insurance troubles can arise even for the largest dealer groups. It pays to be extra-vigilant in the F&I office, where so many contracts are proposed, sold or rejected.

In the latest dealer-beware action, UnitedAuto Group's Covington Pike Toyota was sued in Memphis, TN for allegedly adding a "finance reserve" to a loan policy without disclosure. The plaintiff won class-action status from a state court judge, bringing an appeal motion from the Bloomfield Hills, MI-based megadealer, the nation's second largest in new-vehicle revenues
The suit was the first of its kind against a megadealer following similar complaints against captive lenders. It poses a new and costly threat to dealers, large and small.

Non-disclosure helped prompt the judge in the Memphis case to accept the class-action request.

Two other megadealers, AutoNation and Sonic Automotive, have landed in trouble because some F&I managers "packed" unpurchased service and GAP contracts and credit life policies into the loan terms.

State investigators raided and seized records at AutoNation's Gunderson Chevrolet in El Monte, CA. F&I staffers got jail sentences and steep fines.

Sonic Automotive ordered a nationwide probe of its F&I staffs after its Chevrolet and Mitsubishi dealerships in Clearwater, FL, were sued by irate customers who claimed contract payments were more than they had been led to believe.
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"Disclosure to the customer is the best practice so you won't have to tell it to a judge," says Rob Mancuso, a former Chicago-area dealer and now communications director for Aon's Resource Training.

"Best practices" such as this one from Resource Training should get more than lip service:

"Disclose all costs related to the product or services offered, including the incremental increase in the monthly payment."

That applies to menus, the hot new sales tool, says a NADA bulletin. Although some F&I trainers dispute the premise (claiming that restaurant menus don't tell every ingredient of an entree or line itemize the fixed-price special), NADA takes a hard line: "The price of each product must be separately and individually listed."

Merely listing the total monthly payment or total package pricing isn't enough. NADA says the danger lies in how state regulators may interpret deceptive and fair trade practice laws.

Menus have become a big and lucrative F&I sales aid, usually presented with a single price (or monthly add-on payment), but sellers are now warned to itemize prices in order to stay clean.

In Illinois, for example, a tough regulatory state, Chicago-area dealers have frequently been cited for alleged false advertising promises on car payments or what is included in low-interest loans. Similarly, the North Carolina attorney general has advised dealers that ads must disclose the "real cost" of financing purchases.

The Washington State attorney general has declared that any agreement "should list all products requested and purchased by the consumer...When and how dealer personnel disclose (or don't) goes to the heart of the 'packing' problem."

Problems often emerge, as any F&I manager realizes, when a customer faces a service problem that occurs after expiration of the basic warranty and says it should have been dealt with by the "promised" extended warranty contract.

Or that he or she was told the power windows and brake drums were covered. Or, in a worst-case scenario, that the credit insurance policy covered disability as well as death, or vice versa.

To combat such misunderstandings, Dave Robertson of the Association of Finance and Insurance Professionals (AFIP), has crafted what he calls a "foolproof" truth-in-lending affirmation form. It has disclosure check boxes, charge itemizations and a holder-in-due-course statement that requires a post-presentation signature.

"It goes far in removing the likelihood of a customer claiming ignorance under oath when asked if the terms and conditions of the sale were disclosed," says Robertson. "It removes any opportunity for a customer to claim confusion as a defense."

In a controversial approach to keeping F&I managers and customers honest, Alabama dealers have pioneered in videotaping F&I sessions. Customers are notified in advance, with full permission required. But most F&I trainers see it as an unneccessary sales inhibitor.

"It could compromise the F&I manager and probably tends to lower his or her sales potential," says F&I trainer Ron Martin. "A good F&I manager doesn't need to use a video camera. It's best left back at the training schools for role-playing sessions."