The Consumer Financial Protection Bureau just announced a consent order with a company that offers bi-weekly payment programs for dealership customers who finance their vehicle purchases. The company sold their plans through dealers with the claim that consumers would save money on their auto financing. The CFPB charged those statements were deceptive because the fees consumers incurred under the plans generally exceeded the savings.
Under the consent order, the company agreed to pay $7.5 million in “equitable monetary relief”, but the CFPB agreed to suspend full payment based on a payment of $1.5 million and a showing of the company’s inability to pay the full amount. While the CFPB case included no dealers, that was probably because the CFPB does not have jurisdiction over dealers.
Dealers were involved in a 2015 case with the Federal Trade Commission which entered a similar order involving a bi-weekly payment plan company in 2015. In that case, the FTC charged that many consumers paid more than they saved, because an enrollment fee of $399.00, a processing fee of $2.99 for each payment, and a $25.00 cancellation fee led to an average payment by consumers of $775.00 on standard five-year vehicle financing, more than those consumers saved under the bi-weekly payment plan.
Many dealers offer bi-weekly payment programs. There may be advantages to consumers – convenience, matching payments to customers’ pay periods, and early payoff of financing are examples. However, according to the feds, saving money is not one of the benefits of a bi-weekly payment program.
Train your personnel on claims that may properly be made in selling bi-weekly payment plans, if you choose to offer them. Claiming that customers will save money under a plan is a hot button. Under the 2015 settlement consent order between the FTC and the payment plan provider and dealerships, the payment plan company agreed to refund $1.5 million, and waive another $945,000 in fees, to consumers. The two dealerships involved agreed to pay $184,000 to the FTC. That is besides the continuing obligations under a consent order that affects how the dealerships can do business.
Federal government agencies have now spoken twice on prohibited sales representations on bi-weekly payment programs. Train F&I personnel that the prohibited representation that a plan can save a customer money can be very costly.