Currently, F&I professionals are being asked to adapt to two gigantic paradigm shifts. The first is regulatory pressure from the Consumer Financial Protection Bureau (CFPB) and the second is a consumer-driven push for a faster transaction in light of technological advancements. How are these shifts affecting the F&I department and their profitability? Let's delve into that issue.
The Auto Finance Industry's Battle with the CFPB
When the Consumer Financial Protection Bureau was created in 2011, it didn't take them long to zero in on the auto finance industry (despite the fact that it is not under their jurisdiction). That scrutiny has only intensified in recent years - just look at what's happened recently with Ally, Fifth Third Bank and Toyota.
Specifically, the agency has often worked with the Department of Justice to investigate the ability of dealers to mark up the interest rate of a loan as a key cause of discrimination. While they have stated that dealers deserve to be compensated fairly for the work they do, they believe minority borrowers are sometimes subjected to illegal and discriminatory pricing caused by dealer markup.
The auto industry has met the CFPB with broad resistance on this matter and many others, but the writing is on the wall. The industry is shifting toward standardized interest rates offered to consumers at every credit tier with little to no dealer markup or rate profit participation.
As F&I expert Jim Ziegler put it in a recent blog post: "Even though we are kicking and screaming all the way to the slaughterhouse, the Consumer Financial Protection Bureau will prevail in the end…we can stand in front of the freight train, but we're not going to stop it."
As I'm sure you know, such changes are already taking place. Many big time banks and lenders are already setting markup caps to avoid the long arm of the law. Toyota Financial Services agreed to lower its markup caps in their recent "voluntary" settlement with the CFPB and DOJ.
So the question remains: How will this affect profitability?
The Hassle over Transaction Time
The digitization of everything has led to a consumer-driven push for a faster and more efficient transaction. F&I departments are doing their part to get on board, and more and more stores are trying out different ways to digitize the F&I experience.
Yet Ziegler believes that F&I is too often labeled the scapegoat whenever dealers evaluate their processes. He thinks that the pressure from the never-ending battle with the transaction time and the increased digitization of the F&I office has led auto finance professionals to forget about the second purpose of their job: selling.
While technology is helping to speed up the F&I process, the increase in speed may be hurting profitability because F&I pros are less focused on the social and sales skills needed. Dealers and general managers would be wise to realize that F&I is still a type of sales position.
It's a balancing act, but trained and experienced finance professionals understand that selling the menu has to remain near the top of the pecking order. When selling remains at the forefront of the process, in addition to the implementation of helpful digital elements, then profitability doesn't have to be compromised in the quest for a shorter transaction time.
When you think about it, these two paradigm shifts tie-in together almost perfectly. If the industry moves to a flat-rate system, then the F&I department won't have to spend as much time justifying rate. Then, the process will be faster and it will allow F&I professionals to dedicate their time to selling the products that actually benefit the consumer.
That said, the CFPB's constant probing into the auto finance industry and the consumer-driven push for a faster transaction time does not have to kill profitability. A successful F&I department will still be able to engage the customer and move the menu products - it's just a matter of making sure that the office is focused on selling.
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To learn more about what we can do for your store, get in touch with us by calling 888-535-2277 or by filling out our contact form online. We look forward to hearing from you.