Recently, I was reading through some older articles in F&I and Showroom and came across one including a reader’s comment that caught my attention. Though the article was several years old, the comment was made this year. In summary, it was by a former dealership employee who said payment packing was still prevalent within the industry.
As part of the conversation with our clients, we cover a wide range of compliance topics and concerns that occur in the dealership. Discussions range from bank fraud and identity theft to desking processes and paper trails. We assist dealers with creating policies and procedures, then train them on those and audit against them. Our compliance reviews focus on areas of risk, adherence to rules, regulations, laws (state, federal and dealer), as well as providing actionable items.
One critical area of concentration is establishing compliant desking practices to prevent inconsistent payment quotes or payment packing from occurring in the dealership. Payment packing is the practice of quoting a payment that is higher than the actual payment required to purchase the vehicle for the price agreed upon at that point in the negotiation.
There are several payment-packing scenarios. Here are a few of the more common ones and/or the ones we have seen in recent years:
If the customer’s credit bureau report is not pulled, using an annual percentage rate other than the dealer’s default rate
If the bureau report is pulled, using an APR inconsistent with the dealer’s rate matrix
If approval is in hand, using an APR higher than the buy rate, plus the maximum markup
Using more than a $5 payment range
Using more than 45 days to first payment
The number of payments per year being fewer than 12
Including undisclosed F&I product(s) in the payment quote
Adding an arbitrary amount to a true payment
Dealerships should adopt a consistent approach to desking their deals. There are a couple of acceptable options: using a rate matrix, using a default rate, or having approval in hand.
Using a Rate Matrix
If the dealer pulls credit prior to the first payment quote, a matrix should be used to determine the APR to quote the payment. The matrix may change from time to time based on interest-rate environment.
Using a Default Rate
If the dealer does not pull credit prior to the first payment quote, the dealer should adopt the use of an average APR. This rate could be the average over 90 days from your dealer management system or the captive’s rate for the U.S average score of 705. This average APR may change from time to time.
Approval in Hand
If the dealer has submitted the deal to a lender and received an approval, the time stamps on the desking worksheet and the approval will line up, and that is the dealer’s defense for the exception to the desking policy.
If a dealer must deviate from its policy, the best defense is to document, document, document. Utilize the notes section in the desking tool or write a note on the worksheet to explain the reason for the deviation. Say the factory is offering a special rate or the customer says they can get 5.99% from their bank; put in the notes, “factory special rate – 2.99%, or quoted customer bank rate - 5.99%.”
Put Your Desking Solution on Lockdown
As part of the policy, the dealer should require no more than 45 days to first payment, always use 12 payments per year, and keep the payment spread to $5. To help minimize these scenarios, request that the desking solutions vendor lock down days to first payment and payments per year and set the payment range to $5.
Remember, having a defensible desking process in place helps mitigate claims of payment packing.
Penelope Bell is an associate at Automotive Compliance Education.
