It’s a common occurrence. The cost of F&I and aftermarket products sold by a dealership ultimately becomes part of the consumer’s monthly loan payment when financing a car purchase. The finance source paid the dealership upfront to ensure the consumer has the safety, security, and comfort afforded by the aftermarket products purchased.
But what happens when the consumer looks to use these products and services only to find out their policy doesn’t exist? All too often, a situation occurs where the consumer has no coverage in effect when it’s needed. Both the consumer and the financier have paid their part for a policy they expect to be in effect. How could this happen? Why would this happen? Who’s responsible and who’s going to fix it?
Mind the Gaps
Consumers, banks, and finance companies aren’t the only ones looking for answers; so too are the U.S. Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, and they are joined by the governing bodies of many states.
The information gap in the contract origination process can feel almost impossible to understand, let alone solve. A breakdown in communication between the dealer, finance source, and F&I product provider often starts the moment a consumer purchases a F&I product from the dealership and can derail the entire lifespan of a contract.
This misalignment is further fueled by a commonly manual, disjointed contract and remittance process, making it easy for the contract or payment to never achieve activation by the F&I product provider.
At the end of the day, it’s all about using technology, to work better and deliver an enhanced experience to keep consumers happy and business thriving.
A communication gap regularly bubbles up at two key points during the origination process: The first is when an F&I product is purchased by the consumer and funded by an outside source, the dealership must in turn remit the payment to the F&I product provider. Unbeknownst to the consumer and lender, if a problem occurs with remittance — for any reason — coverage is never activated.
Similarly, there are cases where a contract is voided, for various reasons, and a corrected version is submitted by the dealership (usually within 30 to 60 days of contract origination). If the aftermarket product contract is never resubmitted along with payment to the product provider, no policy or coverage will be in effect when the consumer needs it most.
Regulations and Next Steps
Faced with both federal and state regulations, these knowledge and communication gaps can put lenders in jeopardy of steep fines and damage their reputation in market. At the federal level, both the CFPB and the OCC keep a sharp eye on how lenders handle the refunds due on F&I products — and many states are now putting their own regulations in place.
Amid rising regulatory scrutiny, any gap or breakdown is exacerbated by a current lack of transparency in the market, making compliance an uphill battle for lenders. To consumers, it can feel like lenders and dealers are deliberately misleading them — which is far from the truth. Dealers, lenders, and product providers are looking to correct this misconception using technology; helping them work better together to deliver a more open, accurate, and seamless experience for the consumer.
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The stakes are high for all parties. Lenders understand the need for consumer protection in this regard, and lenders are trusting that the products they are funding on behalf of consumers are indeed in effect. Without consumer trust, people will stop buying these products, and the whole system will fall apart; hurting dealer, financier, and product provider profitability as a byproduct.
So, how do you close the communication gap in the origination process?
It starts with F&I product verification, arguably the most important step for both finance sources and F&I product providers in a broader compliance management program. Lenders can leverage new digital verification tools to confirm all their funded policies are activated and will result in coverage for the consumer.
Verification requests are typically initiated 60 to 180 days after origination, allowing enough time for the contracting process between the dealership and product provider to be finalized. Once the verification request is sent, the product provider is able to determine whether the dealership has remitted the wholesale cost of the product to activate the policy. The verification process promotes a collaborative environment that enables dealerships, product providers, and finance sources to share data, helping drive greater market transparency, compliance, and consumer trust.
At the end of the day, whether you’re a dealer, finance executive, F&I product provider, or regulator, it’s all about using technology to work better and deliver an enhanced experience to keep consumers happy and business thriving. With the right verification processes in place, all parties can work together to overcome the current gap in communication that’s threatening their profitability and negatively impacting consumers.
Gary Peek is vice president and general manager of F&I Express.
