Author Archives | Brian Reed

PALS 2017: Cancelations Create a Challenge for Lenders and Providers

PALS 2017: Cancelations Create a Challenge for Lenders and Providers

One of the themes from the recent P&A Leadership Summit was the industry challenge of F&I product cancelations related to operating processes and compliance issues for both F&I providers and lenders. I had the opportunity to moderate a cross-functional panel of representatives from some of the leading F&I providers in the industry to discuss these provider and lender challenges.

The panel included Rob Berger of Wise F&I, John Davenport of Safe-Guard Products, Jim Portell of Auto Trac System and Al Sacko from AmTrust Financial. The focus of the panel was to identify current challenges in the F&I product cancelation processes between F&I providers and lenders as well as to discuss workable solutions.

Here’s Your Problem

Recently, there have been numerous articles in major newspapers and trade magazines about lenders being out of compliance relative to GAP cancelation refunds at the time of payoff. This has resulted in lenders revisiting their compliance programs relating to product cancelations — not only on GAP payoffs but on repossessions as well. Many lenders are following Ally’s example by announcing wholesale process changes, including processes to cancel GAP contracts on all payoffs in all 50 states.

Challenges for lenders today related to F&I product cancelations include:

  • Numerous states require lenders to ensure that consumers get a refund of unearned GAP premium within 60 days of payoff.
  • Several law firms are recommending that lenders refund unearned GAP premiums on payoffs in all states from a UDAP perspective.
  • Some lenders have relied on estimated cancelation refunds on repossessions versus actual refund amounts, which can result in reporting the wrong loan deficiency balance to credit bureaus.
  • The CFPB is now reviewing how lenders process product cancelations on repossessions and how long it takes the lender.
  • At various lender conferences, representatives of the FTC, DOJ and CFPB have all made vague statements about the role of the lender in ensuring that consumers are not taken advantage of.

Challenges for F&I providers today related to F&I product cancelations include:

  • The operational aspects of providing lenders quotes for refunds
  • The operational aspects of providing phone call updates to lenders on the status of cancelations
  • F&I providers processing a greater number of cancelations
  • Dealing with increased frequency and severity of claims while seeing increased cancelation rates and the overall impact to the profitability of the product

All F&I providers on the panel indicated that they are seeing an increase in cancelations from lenders over the past 90 days. This is the result of lenders adhering to the state laws requiring them to ensure the consumer gets their GAP refund within 60 days of payoff.

Texas enacted new legislation effective Sept. 1 that requires GAP to be canceled as well. They all indicated that more of the cancelations that they are receiving are “lender-initiated cancelations” versus the dealer initiated cancelations that they have historically seen. More of the F&I providers are evolving their internal processes to better accommodate lender-initiated cancelations.

Frequency and Severity

The F&I providers clearly understand the compliance and regulatory requirements lenders are facing. The increase in cancelations that they process plus providing the lender other related information has impacted provider staffing. The frequency and severity of the GAP contract cancelations are putting pressure on pricing. Providers are reporting one or more pricing increases this year with more to come. As the GAP premiums increase, it can hit against whatever maximum advance the lenders allow.

Dealerships also play a role in the equation. In a later session at PALS, a group of F&I directors, who very much supported the timely processing of cancelations, discussed a likely occurrence that is happening at some dealerships: After receiving a cancelation letter from a lender, it ends up in the trashcan or held in a “special file” for 90 to 120 days.

There are two things that F&I mangers don’t like: paperwork and chargebacks. The result of receiving product cancelations is both. This is one reason why lenders are moving to sending cancelations directly to the F&I providers to work around the processing delays that may occur at the dealerships.

The panel discussed the confusion that takes place based on different type of cancelations and different lender processes. One of the challenges discussed was a customer-initiated cancelation that is processed by the provider. The provider can process and send their portion to the dealer, but the dealer has no idea if the loan is active or paid off. There are no controls in place with most providers and dealers to ensure that, if a loan is still active, the refund check is sent to the lender rather than the customer.

There were various recommendations that came from the panel on how lenders and F&I providers can work better together:

  • Form an industry task force that is multidimensional and for which the providers and lenders would work together to develop best practices for the industry.
  • Automate the process between providers and lenders that would result in complete transparency between the lender, providers and dealers.
  • Ensure that the consumers have confidence that if they deserve a refund, they get it.
  • Offer no chargeback programs to dealers where reserves are set up for chargebacks similar to losses.
  • Feel and express empathy for each other.

The end conclusion of the panel was that the best way for the industry to solve the problem of the processing of product cancelation process and related compliance challenges was for the F&I providers and lenders to engage with each other.

From an industry standpoint, lenders need to better understand the challenges of F&I providers and F&I providers need to understand the challenges of lenders better. If you are an executive in the P&A segment, and you are interested in joining a task force as described above, please reach out to me right away.

Posted in Featured Articles, Product & Technology0 Comments

Increase Efficiencies and Promote Compliance in F&I Product Cancelations

Increase Efficiencies and Promote Compliance in F&I Product Cancelations

Dealers, agents, auto finance sources and F&I product providers share a common interest in efficiently processing canceled products and issuing refunds to consumers in an expedited manner. In addition, the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), the U.S. Department of Justice (DOJ), state attorneys general and consumer protection groups have all show interest in the way ancillary products are marketed and managed, and the CFPB has specifically stated it will target service providers that make it difficult to obtain a refund for canceled products.

Cancelation requests are increasing, and all parties have an obligation to process them appropriately. Slowdowns only delay the inevitable, create more work, and give customers the wrong impression. The current process puts an enormous burden on dealers, who are forced to spend an inordinate amount of time completing and submitting paperwork when they would prefer to be serving customers.

To solve this problem, providers and lenders can work together and move toward an industry wide digital solution to automate, standardize, ensure consistency and objectivity, remove the probability of human error and increase efficiency. Connecting product providers and finance sources on a digital platform will also eliminate paperwork and excessive phone calls to help ensure consumers receive prompt, accurate refunds. The system will also demonstrate to regulators that the F&I industry takes compliance very seriously, and that no member of our industry has any desire to deny refunds owed to consumers.

Let’s take a closer look at how the current cancelation process works and how intelligent technology connecting providers and finance sources improves upon it.

The Problem

Product cancelations and refunds are mandated by regulators, but are often delayed or left unprocessed. This has led to dissatisfaction among car buyers, frustration among dealers, finance sources and product providers, and scrutiny from state and federal regulators.

Over the past six years, the CFPB, FTC and DOJ have undertaken a number of enforcement actions targeting auto finance companies and product providers. The vast majority are based on alleged violations of federal UDAP or UDAAP statutes, which forbid unfair, deceptive or abusive acts and practices. These actions have forced targeted companies to devote time and resources to respond to examination requests and adopt enhanced compliance processes. In some cases, resolution has included significant remediation and substantial penalties.

Without a shared platform, the parties responsible for processing cancelations and issuing refunds are forced to communicate by phone, fax and U.S. mail. Dealers submit their completed forms with no immediate feedback or verification. Product providers must then manually enter the data on the forms into their systems to process cancelations and issue refunds. An utter lack of communication and transparency is inherent in the current system. Phone calls, emails and faxes go back and forth, increasing costs and eroding productivity. This further slows the process and creates even more frustration and distrust among consumers.

Worse yet, if a regulatory agency or state attorney general were to investigate, they would oftentimes find little reassurance that the existing product cancelation process has the consumer’s best interest in mind. In many cases, it would be extremely difficult to easily discern the status of a given cancelation or refund. No regulator could be blamed for calling for increased scrutiny of the F&I industry. Indeed, in past bulletins, the CFPB has specifically instructed its examiners to focus on dealer-arranged financing, GAP coverage and vehicle service contracts.

The Solution

Intelligent technology, while not the whole solution, is an important part of the solution. The second part of the solution involves using intelligent technology to automate the product cancelation and refund tracking process for the mutual benefit of finance sources, providers, dealers and consumers.

Implementing a standardized digital solution appropriately to automate and enforce policies, ensure consistency and objectivity, and remove the probability of human error considerably reduces the risk of regulatory noncompliance. By using intelligent technology to stay ahead of regulators, industry stakeholders can be fully prepared for examinations, all while increasing efficiency and remaining focused on managing the core business.

Providers and finance sources are under the regulatory microscope. Let’s work together and move toward a standardized digital process that can be used industrywide.

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E-Contracting for Aftermarket F&I Products – “The Secret Sauce”

E-Contracting for Aftermarket F&I Products – “The Secret Sauce”

Every aftermarket provider and administrator wishes 100% of their business was conducted electronically today. When I talk to non-automotive people about how most car dealerships today prepare finance contracts and aftermarket product contracts on 3-ply forms on an impact printer, they don’t believe it. Almost every industry has moved away from pre-printed 3-ply forms that require manual processing by a third party. So will that ever change at car dealerships? My answer is a clear and unequivocal – YES!

The best e-contracting platform is one that aggregates aftermarket product providers so the dealer can go to one place where he can obtain access to whomever he does business with, and every dealer I talk to desires this type of process because it is their belief that it is faster and easier than putting that 3-ply form into their computer like they do today.

As with most things in today’s economy, the cost for this type of platform is a consideration that is a must. A great approach to reduce expenses for the dealer is to have the administrators and providers assist in covering (or reimbursing) a portion, if not all, of the nominal fee that is associated with running the platform. By doing this, the dealer and provider and administrator secure the “value added” concept because for the administrator and provider, every contract that can be delivered electronically adds value, and of course if the dealer does not see the value in it, there is no value for anyone involved.

Now, to convince a dealer and his F&I Manager that e-Contracting is the way to go, I could go through and list all of the benefits that exist for preparing aftermarket products in an electronic format, but in my opinion the F&I Manager may not necessarily buy into the idea, especially if he/she can stick a 3-ply form in their impact printer that was developed in 1963 and get it done quicker, then that is what they are going to do.

The dealer may fully acknowledge that electronically processing contracts will eliminate errors, additional double or triple data entry in other parts of the dealership, and result in more legible and professional appearing forms. But the bottom-line is you need to deliver all of these benefits (then some), AND make sure the process is faster for the F&I Manager than using the 3-ply form, because for the F&I manager, the other benefits just don’t seem to apply to them and thus they see minimal benefit in using it.

So, we need to deliver value to the administrator and provider while making it an easier and faster process for the F&I Manager at the dealership. Is this like solving for world peace or world hunger? No. It is just a matter of the proper work flow management, supported by the right technology.

Based on feedback I have acquired from the market, I think there is a ‘secret sauce’ that can make this happen – so that every dealer will move away from 3-ply pre-printed forms that are error prone, and often require redundant data entry, yet at the same time not forcing the dealer to go to multiple websites. The ingredients of the secret sauce are as follows:

  • Whatever you do, the process needs to be faster than what the dealer does today.
  • Dealers are not going to go to multiple web sites because they do business with multiple providers – It is just way too time consuming.
  • Don’t make a dealer get a rating for a product unless they need to. If a dealer consistently sells a 1000,000 mile wrap product on all new cars – they should not need to go get a rating on that product. They should just validate the data and print the contract.
  • If a rating is needed, it must be fast. For example some providers will supply a rating in as little as 5 seconds or less, while others can take up to 45 seconds (or longer) and I can tell you now – that dog does not hunt. By having a variety of providers available on the platform, you can eliminate those “sleeping dogs” and move the process along in record time. Because lets face it, if a rating is really needed, the process needs to be fast, fast, fast.
  • If a dealer is selling multiple products from multiple providers, do not make them review and validate all of the same data on every product – the dealer should never have to validate and review data for any product or provider more than once.
  • Make sure the dealer has a good printer and good internet connections. It is amazing to me that a dealership can have millions of dollars invested in IT but they try to save a buck by having a slow internet connection. Successful dealers need the right tools to be successful and the Internet is a critical tool for dealers to have today.

We at F&I Express are practicing these very concepts and have not only been successful with dealership growth, we have successfully signed on with over 15 administrators and providers, and are finalizing a product called F&I Express 3.0 which will enable dealers to use that ‘secret sauce’ by preparing an electronic contract, with no errors, no redundant data entry, with the administrator/provider having a real time transmission of the contract data… and all in less time than it takes the dealer today with the 3-ply pre-printed forms.

I have no question that this is what is needed, this is where the market is going and that at a certain point in the near future – administrators and providers can dramatically reduce their print costs and dealers can throw out their Oki-data impact printers. Amen.

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Are You Getting the Results You Want with Your E-Contracting Website?

Are You Getting the Results You Want with Your E-Contracting Website?

There has been a buzz in the marketplace over the last few years about e-contracting and what transforming your business as an administrator/provider would do for your bottom line. The companies that were early adopters in developing e-contracting capabilities on their website did so in part to provide them with a competitive advantage.

A number of aftermarket administrators and providers have built very elegant websites with great functionality. As time has progressed and more companies have developed different types of e-contacting capabilities, many of these companies are disappointed because the use of these websites has not met initial expectations.

So the question is … what needs to happen to drive market acceptance of e-contracting in the aftermarket F&I space?

To best answer that question, let’s look at the progression of the processing of credit applications electronically. In the mid to late ’90s, a number of auto finance companies developed their own system for dealers to electronically submit credit applications. Dealers liked the functionality but did business with a number of different finance companies. Dealers did not like having to go to multiple websites to submit credit applications so they did not use it.

Along came Route One and DealerTrack and they made it easy for the dealer by aggregating all the lenders on their websites. A dealer could go to one place to submit all credit applications electronically. After the dealers went through the typical change management curve, the percentage of applications that dealers submitted electronically went from a very low percentage to virtually all of their credit applications being submitted electronically.  The business model that focused on “ease of use” for the dealer allowed the tipping point to be reached for the submission of credit applications.

Over the last year I have met with many of the administrators, providers and their agents who have their own proprietary websites for e-contracting. Along with their dealers, they are saying that they need to be able to process their aftermarket e-contracting from one site because dealers do business with multiple administrators and providers.

At the same time, everyone realizes now that e-contracting is not a differentiator because everything processed in the F&I office will be done electronically. If you do not possess the capability, you are now at a competitive disadvantage.

The good news is that the components of driving the marketplace to 100 percent electronic processing are attainable. The technology is not the issue, it is in place. Even if the computer systems you are using are “older” this can be done.

It has been previously mentioned that one of the main challenges for dealerships to adapt web services is the technology they use, specifically when it comes to “legacy systems.” The simple truth is many dealerships have not upgraded their technology and may be under the false impression they need to spend thousands of dollars to make web services work.  The term “legacy system” gives a false impression that the system is outdated and cannot be used.

What many dealerships and administrators need to know is that legacy systems (i.e., AS/400) can be used to make this happen. For example, First Data Corp., which is one of the largest credit card processing companies in the world, relies on an AS/400 platform and has for many years. These large systems are capable of running multiple jobs at a time including batch and interactive jobs. They are practically infinitely scalable, and are most often a single server instead of a server farm, which is often the case with PC-based systems. These platforms are known for tremendous speed and ability to “crunch” numbers.

So regardless of what system you are using, it is essential to know that e-contracting can be attained. The No. 1 critical success factor is making it easy for the dealer to use. This is accomplished by providing the dealers an easy way to process all of their business without jumping around to multiple websites with different logins and passwords, no redundant data entry and validation of the data so that when the contract is printed, it is always correct. The e-F&I office will be in place sooner rather than later – is your company ready?

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