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F&I Gotchas: The Deal Jacket


It’s fun to say, not so fun to hear—particularly when you’re hearing it from the Federal Trade Commission, Consumer Financial Protection Bureau, or other regulatory authority. And those regulators are looking for reasons to say it. If you don’t have the proper training and procedures in place in your finance and insurance department, your dealership is open to threats such as fines, jail time, expensive lawsuits, reputational damage, and even the closure of your business.

Are you adequately guarded against that risk?
Do you know the most common F&I compliance issues and how to solve them?

KPA District Manager and F&I Team Supervisor Ryan Daly is here to help. Drawing on his years of experience in dealership finance and banking, Ryan works alongside our clients to ensure their compliance with the myriad laws and regulations that apply to automotive transactions. We asked him to offer insights into a few of the biggest “gotchas,” starting with deal jacket liabilities.

Here’s what Ryan has to say:

“A deal jacket is a vehicle transaction in which the dealership is acting as a bank. Due to this, there are many regulations and requirements that must be followed, and forms, disclaimers, and signatures are all dependent on the specific deal. Some of the laws include the Truth in Lending Act, Office of Foreign Assets Control rules, and red flag regulations.

I can’t tell you how many times I’ve seen a dealer fraudulently changing customer’s credit applications or not adhering to the Fair Lending Act. You would not believe how many dealers have violated that one by marking the rate up on non-English speaking customers.

You also need to ensure you’re not payment packing. The FTC has strong guidelines to make sure you’re not inflating customer payments with fraudulent figures. I’ve seen some dealers intentionally give the wrong information to the customer to manipulate the payment to sell a product and make more money. The rules make very clear that you can’t do this.

All dealerships that extend credits must follow Regulation Z, the Truth in Lending Act. TILA protects customers in their interactions with lenders, including car dealers, by requiring full disclosure of the cost of credit, the term of the loan, the total amount of the loan, interest rate, and so on. Penalties for non-compliance range from a couple thousand up to millions of dollars.

Too many dealerships overlook OFAC and red flag policies. OFAC aids in identifying terrorists and money launderers, with fines that range into the millions. Red flags identify people who have stolen identities. I’ve seen dealers bypass this rule simply to sell a vehicle. Noncompliance and its associated costs are never worth the sale. In one dealership group, for instance, I uncovered a major payment-packing situation. Once the issue came to light, the GSM and finance director who were in on it were let go. This has resulted in lower sales due to management turnover as well as a bad reputation in the community they serve.”

We’ll be sharing more of Ryan’s F&I “gotchas” over the next few weeks here on the KPA blog. Don’t get got—receive the latest F&I compliance insights by subscribing here.

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Ryan Daly

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