I just got my letter from U.S. Bank reminding me about its policy regarding the Equal Credit Opportunity Act (ECOA). The act makes it unlawful for any creditor to discriminate against any applicant on the basis of race, color, religion, national origin, sex, marital status or age. U.S. Bank has sworn to uphold it, and the letter says it plans to stick to its policy. It’s clearly a trickle-down notice stemming from the heat the bank’s getting from the Consumer Financial Protection Bureau (CFPB).
That’s not all. The bank has developed a “Dealer Monitoring Program” to review rates and F&I product pricing. It appears the finance source wants to see if we’re overcharging minority customers and, if so, for what reason. And if that reason isn’t acceptable, the bank is threatening to take “further action.” Geez, Louise!
The Federales can’t leave well enough alone. If they continue to pressure banks, we will soon see the demise of profit. This is why it makes sense to evaluate how we price what we offer to customers.
Now, when it comes to a financial transaction, there are a number of factors that come into play. One of the most important factors is the education of the customer. This is one area in which the CFPB might actually be helping. The agency’s Financial Coaching Initiative was developed to give transitioning military personnel and economically vulnerable consumers sound advice from certified financial coaches. It’s a small step in the right direction. How many of your customers would have benefited from a crash course in personal finance before they got neck deep in credit card and student loan debt?
The fact is, just like the price of a car is negotiable, so is the financing. The last retail installment sales contract I checked clearly stated the annual percentage rate may be negotiable with the seller, who may assign this contract and retain the right to receive a part of the finance charge. The enrollment forms for vehicle service contracts, GAP coverage and every other add-on clearly state that enrollment is voluntary and not required to complete the purchase or the financing.
In most states, these items are just as negotiable as the price of the car. That begs the question as to why this is even a problem at all. The government doesn’t want anyone paying more than they should. So how do companies like Walmart get away with selling an item at a 1,500% markup? Simple. They do it everywhere, and no one complains.
Had the automotive industry began its growth with the same approach that conventional retail adopted, we wouldn’t be having this conversation. Our industry has been steeped in negotiation since the horse-trading days. Mass production led to planned obsolescence, the commissioned salesperson and dealer-arranged financing. The negotiation sales model has been challenged and defeated many times, and yet the automobile industry keeps rolling on. Even though some recent studies and surveys indicate that customers hate the time-honored sales process, they always prove the analysts wrong. Customers love to haggle. It gives them a sense of “winning” a great deal so they can brag to friends and neighbors. They do it in the F&I office, too.
Listen, we will always be hated by those who would have us selling cars and F&I products out of a catalog or exclusively on the Internet — and that includes the manufacturers. I mean, no matter how ugly or inefficient, car dealership employees have been able to make a fine living selling the customer on the idea of how great they will look driving a Pinto or Pacer and persuading them to sign for sticker as though it were a crime.
These haranguers are the minority, yet they raise the biggest ruckus. Though I believe we should adopt consistency with product pricing, if the customer sees the value and is willing to pay the asking price, then there is no foul.
If we leave pricing up to regulators, then every single product we buy would have the exact same price at every store in every city at all times of the year. The free enterprise system would be destroyed and a good many corporations along with it. The result would be a handful of companies monopolizing the market and irreparably damaging the economy.
We must fight the urge to cave in and push our legislators to repel such nonsense, lest we run the risk of select agencies dictating how we will shop, choose and ultimately pay for what we buy to protect our cherished chariots.
Marv Eleazer is the F&I director at Langdale Ford in Valdosta, Ga. Email him at firstname.lastname@example.org.
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