Pub. 1 Issue 4

13 WINTER 2014 Protect yourself against markup disparities You can decrease the chance that the CFPB will challenge your dealership about its indirect auto finance policies by applying some specific ideas. This is definitely one area where you can protect your dealership and stop many problems from becoming serious just by not letting markup disparities happen. This is a much better approach to take than continuing to do business the way you always have and hoping no problems will surface. The government’s interest in preventing discrimination is both reasonable and obvious. However, discrimination is not the only possible reason why minorities might end up paying higher markups, especially when the business reality is that margins are small and maximizing profit is not a simple matter. Other reasons include the following: • Many businesses have friends-and-family discount pro- grams. • Manufacturers sometimes offer subvention programs where the dealer is limited to a one-percent reserve. • The customer could only afford a specific dollar amount on a monthly payment. Making the sale depended on staying within budget, and staying within budget meant cutting participation. • Interest rates are not high, but they are competitive. Not matching a great rate from a bank or credit union means losing the opportunity to finance the purchase. • "The customer came in with a great rate from her credit union. I had to match it or lose the financing on the deal." • "The customer said he could only afford a payment of $350 a month. I had to cut the participation in order to keep the payment within his budget." All these reasons can affect the rate markup, and all are legal, legitimate, and nondiscriminatory … if they are documented. If no record is kept as to the reasoning behind the rate markup, then it could as easily be caused by discrimination as by any- thing else. Protecting yourself is as simple as having a standard markup policy and documenting any exceptions. The Association of Finance & Insurance Professionals (AFIP) has a program for dealers and the associated financial institu- tions that does exactly what needs to be done to stay on the right side of the law and to reduce the chances of any government agency deciding to target them and their lending practices. You can find out more about the services offered by AFIP at www. afip.com , but basically the program consists of the following: 1. A dealer sets the standard markup in advance and then uses it unless there is a defensible and legal reason for making an exception. 2. In cases where there is a reason for making an exception, the dealer fills out a form that states the reason. (AFIP provides the form.) One copy goes in the dealer’s files, and the other copy goes to the financial institution that makes the loan. This policy does not prevent a government agency from check- ing on a dealership, of course, but it does make short work of any suspicions the government agency might have. By having a standard policy and tracking any exceptions, it becomes a simple matter to prove that the dealer is treating customers fairly and staying within the law. Other companies offer similar programs. RouteOne (www. routeone.com) offers the same form as AFIP, and it offers its own form as well. DealerTrack Technologies (www.dealertrack. com) has its own form as well. All three forms use the criteria set by the DOJ as being legal, nondiscriminatory reasons for a price break on the cost of credit. The risks you face from being charged with credit discrimination are serious ones. These companies help you protect your dealer- ship. You don’t have to use their services, of course, but make sure you do something to provide the necessary legal protection for each sale your dealership closes. Having a policy to follow, and documenting any exceptions, is a relatively easy strategy to take. It certainly won’t do your dealership any harm. THIS POLICY DOES NOT PREVENT A GOVERNMENT AGENCY FROM CHECKING ON A DEALERSHIP, OF COURSE, BUT IT DOES MAKE SHORT WORK OF ANY SUSPICIONS THE GOVERNMENT AGENCY MIGHT HAVE.  Indirect Auto — continued on page 14