Once in a rare while, I run into something in the F&I world that I’ve never heard of. Yeah, even after 39 years doing what I do, I am occasionally flummoxed.
That was the case when a friend asked me about the “300 percent rule.” I drew a blank and told him so. So, he enlightened me, telling me that some F&I trainers teach F&I managers to offer 100 percent of the products to 100 percent of the dealership’s customers 100 percent of the time.
“Oh, the 300 percent rule,” I said, as if I knew what it was all along.
My friend asked if there was a legal reason why a dealer might want his or her F&I folks to follow the 300 percent rule. As I thought about it, I realized the answer might be tougher than I had originally thought.
There is actually some sense to the rule. I can recall a case in which an elderly couple was not offered — and did not buy — credit life insurance. The husband died shortly after, and the widow sued the dealership, claiming that the dealership had an obligation to offer the insurance. Stories like this one cause dealers to begin using forms that provided for the express election or decline of coverage, indicated by a customer signature or initials. That precaution would provide evidence that the dealership had offered the coverage, providing it with a legal shield.
Another way to provide such evidence would be to have a policy stating that all products and services available in the F&I office were always offered to every customer. Dealership personnel could testify about the policy and the fact that it was followed in a particular instance. Such testimony would provide the same sort of shield (although not as strong) as the signature or initial method.
Another possible reason for the rule has to do with menu selling and payment packing. Payment packing occurs when the dealership’s representatives pad a payment quote to permit ancillary products to be included in the deal without the buyer’s consent. Attorneys general around the country have brought actions against dealers who engage in payment packing. One way to prevent payment packing is to offer ancillary products to each buyer in the form of a true menu, with a price for the vehicle only, and with correspondingly higher prices as the buyer elects to add more products to the deal.
Yet another legal reason for the rule comes from the Equal Credit Opportunity Act and Regulation B. Both regulations prohibit discrimination in any aspect of a credit transaction on a “prohibited basis,” such as age, race, marital status and the like. When some dealers hear “discrimination,” their immediate reaction is to assume they are required to treat all buyers exactly alike. While I understand that reaction, it goes too far.
You can treat buyers differently, provided that you don’t do so on a “prohibited basis” — as the term is defined in the ECOA and Reg. B — or in violation of similar state credit discrimination laws. But for those dealers who think that way, any rule that says you do the same thing every time with every buyer would seem comforting.
Some dealers balk at the 300 percent rule, saying, “Why do I need to offer GAP to a buyer with 50 percent down?” That’s a very good point, since trying to sell GAP to a buyer with that kind of down payment could be grounds for an unfair or deceptive trade practice claim or a fraud claim. The same goes for offering a service contract to a buyer of a 120,000-mile car when the coverage excludes vehicles with more than 100,000 miles. Maybe the answer is to modify the 300 percent rule by saying, “We will offer 100 percent of the products that a customer is eligible for or that can apply to his or her transaction to 100 percent of the customers, 100 percent of the time.”
A word of caution is in order, however. A dealership that gets its compliance advice from an ancillary product provider’s trainer can be on very thin ice, as not all of the trainers know their stuff. Now that I think about it, the same can be said for a dealership that gets its compliance advice from a magazine article like this. The point is, make sure to talk to your lawyer before deciding anything.
Thomas B. Hudson is a partner in the law firm of Hudson Cook LLP and the author of several widely read compliance manuals available at CounselorLibrary.com. ©Counselor Library.com 2012, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to F&I and Showroom magazine. HC# 4833-1017-3457 (1/13).
