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The Reynolds and Reynolds Company

Terrence J. O’Loughlin

Director of Compliance


This presentation is not meant to provide you with legal advice. Please consult your attorney for legal advice. The printer makes no warranty, express or implied, as to content or fitness for purpose of this form. Consult your own legal counsel. It is therefore incumbent on our customer to seek legal counsel concerning appropriate use of F&I forms.

Fine Print


Terrence J. O’Loughlin, J.D., M.B.A.

Before joining Reynolds in 2006, Terry worked for fifteen years in the Economic Crimes Section for Florida’s Office of the Attorney General. He led a task force that examined more than 100,000 motor vehicle files, of which Terry personally audited over 5,000. He was also the mediator of Florida’s Motor Vehicle Lease Disclosure Act, a statute he helped draft.

Terry also served as a consultant to the Federal Reserve Board’s

Leasing Education Committee, an observer for the Uniform

Consumer Leases Act Committee, and a consultant to

“PrimeTime Live,” “Dateline,” and various other media.

Terry has routinely assisted numerous state agencies

regarding motor vehicle fraud and written articles for

Consumer’s Digest, F&I Magazine, Consumer’s Research,

and more.


Terrence J. O’Loughlin, J.D., M.B.A.

Previous Licenses

Life and Health Insurance – Pennsylvania

Property and Casualty Insurance – Pennsylvania

Life and Health Insurance – Florida

N.A.S.D. Series 7, Series 6 and Series 63


Ancillary Product Committee – American Financial Services Association

Board of Governors – Conference on Consumer Finance Law

Consumer Financial Services Committee – American Bar Association

Federal Reserve Board – Advisor –Lease Education Committee

Multistate Litigation Section – Florida Attorney General’s Office

Participant in Various Consumer Interest Groups – NACA, CFA, NCLC, NACPI



How Can I be of Assistance – My Experiences

Definitions and the Industry

The Perspective of Regulators and Others

The State of the Law – A Labyrinth in Quicksand

The Law and Legal Considerations


Vexing Issues

Government Action and Illustrative Cases

Considerations and Recommendations


How Can I Be of Assistance

- My Experiences


How Can I Be of Assistance

- My Experiences

Sell service contract with exact same terms as manufacturer’s warranty.

Sell a five year service contract on a three year lease which can’t be transferred

Trailer Hitch


Misrepresent terms and what’s covered

Not submit the policy

Hide the policy

Charge twice for the same product but merely rename it

Policeman paying cash, $3,000, and not getting a receipt or credit


Definitions and the Industry


Confusing Words

Flammable, Inflammable,

Unravel, Ravel

Corporeal Hereditament, Incorporeal Hereditament

Vehicle and Vehicle



Retail Installment Sale Contract versus Loan


Ancillary Product A product which aids, or is attendant upon, the principal product, the vehicle. It is subordinate in nature.


A contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils.

Review of Definitions


Review of Definitions


A warranty is simply a promise that a proposition of fact is true. This concept is further defined by federal and contract law. The party making the warranty is the warrantor or seller. The party who may avail himself of the warranty is the warrantee or buyer. An express warranty is one that is explicit and definite.

Written Warranties

Manufacturers provide written warranties regarding the vehicles which they produce. The federal law, the Magnuson-Moss Warranty Act (or “


Moss”) governs written warranties.


Review of Definitions

Uniform Commercial Code

Implied Warranty of Merchantability

As a merchant, who is in the business of retailing vehicles, the dealer is representing, by implication, that the vehicle is generally equipped and suited for the purposes of a vehicle.

Implied Warranty of Fitness for a Particular Purpose

If a consumer tells a dealer-merchant that he is buying the vehicle for a particular purpose the dealer is on notice regarding what the consumer is going to be using the vehicle for. The dealer-merchant is then averring that the vehicle being sold is appropriate for the stated purpose.


Review of Definitions

Service Contracts

Service contracts may act as warranties but they are not by legal definition. They are certainly contracts for services relating to the maintenance of the vehicle. But they are not intrinsic to the purchase of the vehicle as they are paid for separately, an additional sum of money.

As Is – No Warranty

This simple term should be thought of as the complete avoidance of any warranties or promises regarding the condition of the vehicle. The purchaser of the vehicle must trust his own examination of the vehicle which may have defects.


Review of Definitions

Disclaimer Defined

A disclaimer is a disavowal or renunciation.


A Crucial Disclaimer


Examples of Ancillary Products

Extended Service Contracts

GAP (Guaranteed Asset Protection)


Dent Removal Financing

Credit life, accident or disability insurance

Other insurance products


Rust proofing

Paint sealant/clear coat protection

Fabric protection


Plastic door-edge guards

Mud Flaps

Appearance Packages/Environment

Packages/Tinted Windows

Tire and wheel protection packages

Prepaid maintenance packages

Road Service/club membership

Theft protection/car alarms/auto




MVA, DRP, Dealer Prep

It is estimated that there are over 5,000 variations of these products


Some Industry Details

In an April 2016 report, investment bank Colonnade estimated the F&I products market to be a $77 billion industry, with retail sales of vehicle service contracts estimated at $28 billion in 2014.

Another source puts the vehicle service contract (VSC) industry totals at $29.4 billion at retail.

And according to the NADA, 41.9% of new vehicles sold have a VSC attached to the deal.

Over 20,000 off-shore ancillary product companies are headquartered in the Caribbean serving the automobile industry


The Perspective of Regulators and Others


The Federal Reserve Board


The Federal Reserve Board


US Fidelis


US Fidelis

Maryland sought $25,000,000

There were other settlements.


2016 CFA/NACPI Consumer Complaint Survey Report


2016 CFA/NACPI Consumer Complaint Survey Report

Appendix B

Tips for Consumers from the 2016 CFA/NACPI Consumer Complaint Survey Report


Resist pressure to buy extended warranties or other expensive add-ons when you purchase a car. They’re usually not worth the cost and don’t provide much more protection than you already have under the warranty and your insurance coverage.


Richard Cordray’s

Four D’s



Dead Ends

Debt Traps


Heavily Regulated Industry





Clean Air Act

Clean Water Act

DOT Hazardous Materials



Resource Conservation

IRS Inventory Valuation


Clean Air Act

EPA Hazardous Waste


VIN & Parts Marking


Age Discrimination Revenue Recognition ADA

Harassment COBRA Workers Comp

Equal Pay Act Immigration Act FMLA

Child Support Drug Testing Wage & Hour

Ethics Hiring


Can-Spam Act

Information Privacy

FTC Privacy Rule

Telemarketing Sales

Truth in Advertising

Required Disclosures


Auto Labeling Act

Credit Card Processing

Deceptive Trade Practices

DOE/EPA Mileage Guide

Used Car Rule

Payment Packing

Spot Deliveries

Straw Purchase

NHTSA Regulations

IRS – Sales Incentives

EPA Emissions

Written Warranty



Patriot Act

Cash Reporting Rule




Credit Reporting


Honesty/Ethics Rankings, Gallup 2016

1 Nurses

3 Doctors13 Lawyers (previously 19)

20 Insurance Agents

21 Car Salesmen

22 Congressmen

Only 22 professions ranked for the past 30 years

Car Salesmen were mired in last place for almost all 30 years


Public Perception


Public Perception

Edmunds website puts it bluntly:

“Not every extended auto warranty company is out to rip you off, but over the course of our research, we found that the honest ones are few and far between.”

Consumer Reports Once Again Dismisses Extended Warranties (2016)

Don't Buy Extended Warranties

You'd be smarter to set aside the money you'd spend to cover repair costs yourself

Most vehicle warranty extension offers are


Northeast Contact for Better Business


CFPB Perception

CFPB's recent request for information relating to ancillary products:

Among other practices and concerns, the Bureau has found or alleged that some companies offering ancillary products failed to accurately describe those products, [and]

offered products that provided little or no benefit to consumers without disclosing this fact … .


Other Comments

“Yes, the

Fallops Tube on your car is covered under our extended vehicle service contract.”

Ancillary sales marketing call

Attorneys General and State Agencies

Every consumer organization I know

“Closing the Deal: Car Buying’s Hidden Trap”

Ancillary Products


The State of the Law

A Labyrinth in Quicksand




The Law and Legal Considerations


Unfair and Deceptive Trade Practices Acts or UDAP

Tendency or capacity to mislead a consumer


Retail Installment Sale Contracts and Ancillary Product Treatment


Retail Installment Sale Contracts and Ancillary Product Treatment


Retail Installment Sale Contracts and Ancillary Product Treatment


Retail Installment Sale Contracts and Ancillary Product Treatment


Example of a Dealer Agreement


This Dealer Agreement made this ______day of_________, ______, between ________________________, a _____________________ with its principal office located at ___________________________________________ (“Company") and

, a(n)

corporation, doing business as

with its principal place of business at


WHEREAS, Company is in the business of purchasing Contracts (as defined in Section 2) from duly licensed motor vehicle dealers for its own portfolio and /or subsequent sale and assignment; and Company desires to purchase Contracts from Dealer from time to time subject to the terms and conditions hereof; and Dealer desires to sell Contracts to Company from time to time subject to the terms and conditions hereof.


Example of a Dealer Agreement

Compliance with Law

. All business practices, acts and operations of Dealer are in compliance with all applicable federal, state and local laws, regulations and ordinances, including as applicable, the Federal Trade Commission’s Used Car Rule, the Fair Credit Reporting Act (“FCRA”), the Equal Credit Opportunity Act (“ECOA”) and Regulation B, the Truth-in-Lending Act (“TILA”) and Regulation Z, the GLBA and Regulation P, and any other Federal Trade Commission (“FTC”) or Consumer Financial Protection Bureau (“CFPB”) rules and regulations.


Example of a Dealer Agreement

Dealer’s Representations, Warranties and Covenants Regarding Each Contract

. As of the date hereof and as of each and every date Dealer forwards a Credit Application or offers a Contract for purchase to Company, and as of each and every date Company receives a Credit Application to review or buys a Contract hereunder, Dealer hereby represents and warrants to Company the following regarding the Contract being purchased:












Vexing Issues


Majority /Minority Positions on Ancillary Products

Can credit life insurance be offered?

Yes in all fifty states

 Is a license required?

Yes in all but one state

Can credit accident and health insurance be offered?

Yes in all but one state and the District of Columbia

Is a license required?

Yes in all but Nevada and D.C.


Majority /Minority Positions on Ancillary Products

Can credit unemployment insurance be offered?

Yes in but two states and D.C.

Is a license required?

Yes in all but four states and D.C.

Are refunds of credit insurance premiums required upon prepayment?

Yes in all 50 states

Must property insurance premiums be refunded in the event of cancellation of the insurance?

Yes in all but 7 states

Do consumers have the right to cancel any of the insurance sold in conjunction with the credit transaction?

Yes in all but 7 states where the terms are not totally clear


Majority /Minority Positions on Ancillary Products

May the dealer force-place property insurance when the consumer fails to obtain the required insurance?

Only in Ohio is it prohibited.


Majority /Minority Positions on Ancillary Products

Can the dealer sell and finance gap insurance issued by a third party?

In six jurisdictions the answer is no.

If so, would the financing of gap insurance be subject to an insurance premium financing law?

Generally not.

If the dealer may sell and finance gap insurance issued by a third party, subject to an insurance premium financing law, is a license required for the dealer to offer this product?

In all but three states.


Majority /Minority Positions on Ancillary Products

Can the dealer offer (and finance) a gap waiver agreement between the dealer and the consumer?

No, in three jurisdictions.

Is such a gap waiver considered to be an insurance product in the state?

Generally, no.

If the dealer may offer (and finance) a gap waiver agreement between the dealer and the consumer, is a license required for the dealer to offer this product?

It appears so in seven jurisdictions.


Majority /Minority Positions on Ancillary Products

Does state law permit a dealer to charge a purchaser in connection with a retail installment sales contract for Vendors Single Interest Insurance (VSI)?

No in six jurisdictions but they are large jurisdictions.

If state law permits a dealer to charge a purchaser in connection with a retail installment sales contract for Vendors Single Interest (VSI) insurance, is a license required for the dealer to offer this product?


What state law disclosures are required to be provided by the dealer in connection with Vendors Single Interest Insurance (VSI)?

Varies substantially.


Majority /Minority Positions on Ancillary Products

May the dealer offer a service contract?

Only one state denies dealers this opportunity.

Is such a service contract considered to be an insurance product in the state?

It varies.

If the dealer may offer a service contract, is a license required for the dealer to offer this product?

It would appear that ten jurisdictions require some form of license.


Majority /Minority Positions on Ancillary Products

Does state law limit “AS IS" sales of motor vehicles? (evading warranties)?

21 states place limitations on “AS IS” sales

May the vehicle be equipped with a starter interrupt device?

In almost all cases the answer is yes. In certain states it is unclear.


Majority /Minority Positions on Ancillary Products

May a dealer sell and include in the financing antitheft products such as etch, alarms, or GPS?

In almost all states the answer is yes.


May the dealer disclose the price of those products as part of the cash price or separately itemized them in the retail installment sale contract?

It varies. If it is construed to be insurance it generally must be itemized but in some states it all must be itemized


How does the state classify such devices: insurance or other than insurance?

It varies


Composite of Advocates’ Viewpoints



“Loan” Packing

Targets the Payment Buyer (88% of the market)

Focus is only on the monthly payment not length of time, cash, or sales pricePayment Buyers may not realize that ancillary products or “cheap products” have been added


Why Dealers Like “Add-Ons

Huge Profit Margins

Appearance packages (pinstripes, door edge guards) have a mark-up of 2,000%

Maintenance packages cost a high initial price but may not be used by consumer

GAP and service contracts may have a 100% to 300% mark-up


Market value adjustment, Dealer Retirement Fund, Fraud Fund


How Dealers “Get Away With Huge Mark-Ups”

No Monroney Label for Ancillary Products

No MSRP for products

Payment Buyer Confusion

Payment Packing

Finance Managers work backward from monthly payment

Use software to identify the most profitable deals

May rehash the deal if underwriter balks

Must work within restraints of customer’s income or down payment


Challenging “Abusive Add-ons”

Are they properly disclosed?

Some states require the Retail Installment Sale Contract, Lease Contract, Buyer’s Order, or Lease Order contain itemized charges not included in the MSRP

Are the ancillary products hidden?

was the sales price “bumped up?”

Do ancillary products produce a sales price in excess of the MSRP?

It may be a violation of both state and federal law if the vehicle is sold in excess of the advertised price

In other words, if the sales price exceeds the advertised price due to the addition of ancillary products, there must be an itemization of these products


Other Legal Attacks

Was the bona fide product offered in good faith?

The UCC requires good faith

Courts have limited authority to police unreasonableness under a materiality theory - equities versus written agreement

Does the ancillary product have any value?

Does everything you sell have to have a benefit equal to its cost? Can someone sell an item which has no real value (a pet rock) legally? Contract law generally is not concerned about value for value.

Some FTC cases suggest that a retailer can be prevented from making a reference to a deceptive price as this price implies a value.

A similar argument is the view that such transactions are unconscionable

Unfair or Abusive?


Other Legal Attacks

Is the description of the ancillary product ambiguous or misleading?

A very brief description of the product such as two or three words on the Monroney Label, or elsewhere, may not be informative enough

It could be a violation of the UDAP statute


Charge twice for the same product by giving it two different names

Represent that the ancillary product was provided by the


when it was added by the dealer

Charge for the ancillary product but not provide it or submit premium to third-party


Bank Fees

Internal undisclosed bank fees are charged for credit-challenged consumers

Failure to disclose these fees misleads consumersSale of profitable add-ons make it possible to cover the bank fees


Proposed Consumer Advocates’ Solutions

Add-ons cannot be introduced until after all other terms and conditions of the sale are concluded

All ancillary product prices are posted

All terms and conditions of the sale are presented with, and without, ancillary products

Total profit earned by dealer on ancillary products should be posted

A disclosure should be provided which explains the relationship between the dealer and the ancillary product provider

Consumer’s right to cancel and rebate terms should be provided




Government Action and Illustrative Cases


Government Action



WHEREAS, “packing” is the deceptive practice of misrepresenting monthly payments to consumers during auto sales and lease negotiations in order to facilitate the sale of automobile related products and services; and

WHEREAS, consumers are entitled to be dealt with in a fair and non-deceptive manner during negotiations to buy or lease a car, including their right to receive timely, accurate and non-misleading information about the cost of the vehicle and all related products and services; and




Massachusetts Attorney General Maura Healy entered into three separate settlement agreements during 2016 with major national banks and insurance companies that refund homeowners who were improperly charged for forced-plan insurance policies;

New York Attorney General Eric


brought action on January 20, 2016, against multiple auto lenders for alleged use of deceptive sales tactics to sell add-on products and services;

Massachusetts Attorney General Healy reached a settlement with finance companies on March 16, 2016, over allegations of charging interest rates that exceeded the 21 percent cap due to the inclusion of GAP coverage on subprime auto loans (see above);


Indiana Attorney General Prosecutes Dealer for Etch Violation.

The settlement involved the sale of "etch" insurance. The AG charged Tom Roush, Inc., with wrongfully including a charge for vehicle etch insurance in its $279 document fee or charging the same fee to customers who did not agree to purchase the insurance. Under Indiana law, a document fee must be negotiable and may only include those costs that are directly incurred in the processing of a vehicle purchase.

Under the settlement agreement, consumers who bought a vehicle from March 1, 2012, to March 1, 2014, and either did not agree to buy etch insurance or otherwise did not receive the insurance will receive a $129 refund. Customers who paid the fee during this time and signed an etch insurance agreement will be refunded $85. The dealership also agreed to pay $2,000 in costs to the AG's office.


Indiana Attorney General Prosecutes Dealer for Paint Protection Deception

This settlement involved the sale of exterior paint protection. The AG accused Kia of Muncie of charging customers for

Xzilon exterior paint protection but failing to apply the coating. The state launched its investigation after receiving a tip from a former employee that the dealership continued to charge consumers for the product, even though it had run out of its supply and stopped applying it to vehicles.


Florida Attorney General Settles GPS Case for $5,000,000, June, 2017

A Jacksonville, Florida, car dealership and its president have agreed to provide more than $5 million in debt forgiveness to consumers to resolve litigation brought by the state attorney general’s office over allegedly misleading business practices, like using GPS devices to track cars without the purchasers’ knowledge, the office said Friday. 

Florida Attorney General Pam


office has secured a consent order resolving its complaint accusing Beach Blvd. Automotive Inc., financing arm Beach Blvd. Auto Finance Inc. and president John O. King Sr. of shady business and sales practices that violated state consumer-protection law, according to a news release.

Under the consent order, the dealership is required to make changes to its business practices on top of providing debt forgiveness, paying $2,500 to cover certain deposits consumers were forced to make and forking over more than $280,000 for attorneys’ fees and costs,


office said.


Attorney General Actions

Massachusetts Attorney General

In recent months, the Massachusetts attorney general has entered into Assurances of Discontinuance with three sales finance companies over practices involving the sale and financing of GAP. Under the settlements, the companies have agreed to refund nearly $13 million in finance charges (including the GAP fees), delinquency charges, collection fees, and refinancing charges paid to date on the affected retail installment sale contracts. The companies - Santander USA Holdings, Inc., American Credit Acceptance, LLC, and Westlake Services, LLC - also agreed to waive those fees on the contracts going forward and to pay $375,000 to the Commonwealth for the violations.

The settlements allege that assessment of GAP fees pushed some transactions beyond the maximum 21% APR permitted for indirect auto transactions under Section 14 of Chapter 255B of the Massachusetts General Laws. Section 14, in addition to establishing a maximum rate, also limits the fees and charges permissible on an indirect auto transaction. The Division of Banks has interpreted this language to mean that only those fees that are expressly permitted by the statute may be charged. GAP fees are not among the authorized charges set forth in Section 14.


Attorney General Actions

Legal Action by NY Attorney General Eric


On June 17, 2015 his office announced a settlement with Paragon Motors of Woodside, Inc. (d/b/a Paragon Honda), Worldwide Motors Ltd. (d/b/a Paragon Acura), and Civic Center Motors Ltd. (d/b/a White Plains Honda). The agreement provides more than $13.5 million in restitution to consumers and concludes an investigation of these dealerships for the alleged unlawful sale of credit repair services, identity theft prevention services, and other "after-sale" items to 15,000 consumers - items that the AG claimed sometimes added more than $2,000 in hidden costs and fees to a car's sale or lease price. Also, the jointly owned dealerships will pay $325,000 in penalties, fees, and costs to the state.


Illustrative Cases


Illustrative Cases


Dealer’s Disclosures weren’t clear enough as to whether the product, etch, was insurance or not.

Citation Unavailable


Auto Club Memberships are insurance under Georgia law.

Love v.


Tree 614 SE 47 (2005)



Dealer had no duty to offer credit life insurance.

Younker v. The Citizens Commercial Bank and Trust Company, 2004 WL 1770439 (Ohio App. August 9, 2004).


Illustrative Cases


May a Dealer have liability for not inquiring about a preexisting condition prior to selling disability insurance.

Parker v. Protective Life Ins. Co. of Ohio 2006 WK 2241590 (2006)


Is a Vehicle Theft Registration System, or etch, an insurance product?


v. Cutter Management Co


Can the misaligned printing of a retail installment sale contract deny the intended application?

Franco v. A Better Way Wholesale Autos, Inc., 2016 U.S. Dist. LEXIS 26130 (D. Conn. March 1, 2016).


Illustrative Cases


Did dealer fulfill requirements to include VSI under “Amount Financed?”Hicks v. Star Imports, Inc., 2001 U.S. App. LEXIS 3443 (4th Cir. (W.D. VA) March 7, 2001).



Can a dealer ever become a fiduciary?

Crow v. Fred Martin Motor Company, 2003 WL 1240119 (Ohio App. March 19, 2003).


Does a dealer need a False Pretense Endorsement?


is Coast to Coast Auto Sales, Inc. v.


Insurance, Inc., 2014 U.S. Dist. LEXIS 50281 (S.D. Ind. April 11, 2014).


Illustrative Cases


Is etch an insurance product?Pope v. TT of Lake Norman, LLC

, 2007 WL 2480242 (W.D.N.C. August 28, 2007).



May a dealership which enters into a service contract disclaim an implied warranty of merchantability?

Villanueva v. Toyota Motor Sales, U.S.A., Inc


2007 WL 1469442 (Ill. App. May 21, 2007).


If a consumer prepays his retail installment sale contract is he responsible for applying for a rebate?


v. Jim Moran & Associates, Inc


2008 WL 4946213 (11th Cir. (M.D. Ga.) November 20, 2008).


Illustrative Cases


Are consumer’s signatures indicating that he understood the terms and conditions of the disclosures sufficient?Robinson v. Carport Sales and Leasing, Inc.


2015 U.S. Dist. LEXIS 5024 (M.D. Fla. January 15, 2015).


Is etch an insurance product?

Pope v. TT of Lake Norman, LLC


2007 WL 2480242 (W.D.N.C. August 28, 2007).


Can a motor vehicle sales finance act limit dealer profits on Service Contracts?

King v. Ford Motor Credit Company 2003 WL 21459654 (2003)


Illustrative Cases


If a dealer sells a service contract at the time of sale may the dealer disclaim an implied warranty of merchantability?

Villanueva v. Toyota Motor Sales, U.S.A., Inc

., 2007 WL 1469442 (Ill. App. May 21, 2007).



What controls – the statement by the F&I Manager that the consumer needs to purchase the GAP waiver for financing or the signed RISC which states the opposite?

Robinson v. Carport Sales and Leasing, Inc.

, 2015 U.S. Dist. LEXIS 5024 (M.D. Fla. January 15, 2015).



Does an F&I Manager need to investigate whether a vehicle qualifies for a service contract?

AML Motors, Inc. v. Thomas

, 2012 Tex. App. LEXIS 2981 (Tex. App. April 18, 2012).


Illustrative Cases


Is etch insurance?Seekamp



Automotive Group 2010 US Dist. LEXIS 23786 (2010)


If a dealer doesn’t tell the consumer that he represents a third party service contract company, and this company goes bankrupt and can’t perform, is the dealer liable to make the repairs as promised by the service contract?

Simon Chevrolet Buick, Ltd. v. Rhode Island Department of Administration


2013 R.I. Super. LEXIS 8 (R.I. Super. January 7, 2013).



Is a collateral protection program for BHPH dealers considered insurance?

Sidecars v. Texas Department of Insurance, 213 Tex. App. LEXIS 6516 (2013)




Illustrative Cases


Can a disclosure be required even though it is untrue?North Shore Auto Financing, Inc. v. Block


2010 Ohio App. LEXIS 2009 (Ohio App. June 3, 2010).


Considerations and



Initial Considerations

Is the product and a vehicle protection product?

Or is it something else such as a service contract or insurance of some type?

A technical analysis is necessary.

Is a license or a certificate of authority needed?

What type of license and what is the licensing authority?

What type of limited line insurance license do F&I Managers need, if any?


Initial Considerations

Can the product be financed as part of the retail installment sale contract?

Can it be included in the cash price?

If unable to include it in the cash price, the dealer looks to whether the state expressly allows additional charges, is silent with respect to additional charges, or limits additional charges to those that are expressly provided in the statute.


Initial Considerations

Can the dealer add the price of the ancillary product to the cash price?

But, the ancillary products must always be itemized somewhere to avoid allegations of payment packing.

Of course, if the charge is paid to a third party, the Truth in Lending Act requires a creditor to separately itemize the charge and identify the party paid. If TILA applies and it's a third-party charge, the charge must be disclosed separately in the contract, and special TILA rules apply.


Initial Considerations

Finally, a dealer must look back to federal and state law to determine whether he must provide any other disclosures associated with the sale of the aftermarket product. Federal law may require a creditor to make certain disclosures in order to exclude charges from the calculation of the finance charge. Under some state laws, disclosures must accompany any warranty for a vehicle protection product. Other state laws require auto clubs to provide disclosures to their members. Service contracts and insurance are also heavily regulated.


Initial Considerations

Does your dealership have all

ancillary documents required by federal and state law to be provided to a consumer at the time of sale, such as warranties, additional product disclosure menus, contract cancellation agreements, and conditional delivery agreements?



Follow the 300% Rule

F&I Manager should offer 100% of the products to 100% of the dealership’s customers 100% of the time.

There are cases where the failure to offer a product was grounds for a lawsuit.

Avoid allegations of discrimination pursuant to the Equal Credit Opportunity Act (ECOA) and Regulation B

May avoid the allegation of payment packing

It ties well with Menu Selling

“We will offer 100% of the products

that a customer is eligible for or that can apply to his transaction to

100% of the customers 100% of the time.”

The product needs to be appropriate to the consumer’s needs or it could be a UDAP violation.




Product Disclosure

The average new-vehicle purchase or lease has three ancillary products

Serves as a defense to allegations of

power-booking and payment packing


Minnesota Optional Products Disclosure


Menu Selling

Always list base payment without any ancillary products somewhere on menu

Have consumer sign or initial each page

Have a written menu plan


A Legal Sale versus Financing

On December 30, 2010, the office of the Montana Commissioner of Securities and Insurance published a memorandum stating that it would no longer regulate GAP waivers as insurance

The lesson to be learned here, particularly for ancillary products, is that the fact that a product is considered to be ‘legal’ does not necessarily allow you to charge a fee for it under the financing laws. Conversely, some jurisdictions may not limit financing-related fees, but may place substantial substantive limitations on a particular ancillary product.


Initial Considerations

Multistate Licensing

A dealer might be licensed in State A but not in State B. In such a case, the producer generally should not receive insurance commissions for sales of insurance that occur within State B or that are made to residents of State B.

Agency Appointment

The dealer might not be properly appointed in writing to act on behalf of an insurance company. Without the proper written agency appointment, the dealer might not be able to lawfully receive commissions from the insurance company.


Initial Considerations

A dealer/finance manager might be impermissibly splitting or sharing insurance commissions with a co-worker who is not licensed.

A customer might be charged the incorrect insurance premium amount, based on the applicable premium rate filing for the insurance product that was made by the insurance company with the applicable state insurance department.

Sometimes these errors arise because of inadvertent computer coding errors.

Other times, these discrepancies might occur because the insurance premium rate schedule used by the dealer and/or insurance company deviates impermissibly from the most recent approved premium rate filing on record at the state insurance department for the insurance product.


Initial Considerations

A dealer might be paid commissions in excess of those permitted by applicable law or in excess of those set forth in the applicable premium rate filing made by the insurance company with the applicable state insurance department.

A customer might be sold insurance without first receiving required disclosures (such as required disclosure of insurance eligibility requirements) and/or without signing documents that indicate that the customer understands that the purchase of insurance through the insurance producer is optional, not required.

A customer might be sold insurance for which the customer is not eligible (for example, due to the customer’s or the vehicle’s age) or that is otherwise not suitable for the customer (not in the customer’s interest).



Include notice of the inclusion of a GPS or Starter Interrupt Device





In direct marketing of ancillary products, target lists should be scrubbed of people who wish to be excluded.

Charge the same price for the same product or grouping of products

Monitor and adjust your menus, scripts, and practices as a consequence of consumer responses and satisfaction indices

Maintain a detailed menu log.



Invest in ongoing training.

Protect against rogue employees. Document management procedures.Hire an attorney who understands car law.

Utilize a consultant.

Beware of payment packing and the common illegal practices



Establish a compliance program

Establish a board with management oversight Appoint a permanent compliance officer who reports to that board

Respond to consumer complaints with a protocol

Have routine audits examining how the program is functioning and can be improved.



Establish a Compliance Management System.

Appoint a compliance officer.Compliance officer should become certified through a training program.

Take advantage of free sources of compliance information and support.

Rely on reputable vendors that can substantiate their due diligence.



Use standardized documentation.

Know minimum legal and regulatory requirements.Internally audit transactions.

Conduct regulatory reviews at the direction of your compliance officer.

Review document management procedures



Service Contract Recommendations from Missouri Law

Provide a copy of the proposed contract to a consumer before a sale

Allow a “free-look” period that allows a purchaser to cancel the contract within at least 20 business days after purchasing;

Provide full refunds, minus any claims paid, for cancellation.

Do not use the word “warranty” when, in fact, such contracts are not considered “warranties” under law;

Do not represent falsely that the offered service contract is affiliated with a manufacturer

Do not represent that they have knowledge that a consumer’s warranty is expiring.




Once upon a time



was quite simple.


Thank You



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