Auto: Fixed Pricing in F&I? A Turkey of An Idea


Should car dealers be required to set fixed prices to end discriminatory  pricing?

The National Consumer Law center issued a report a few weeks ago that claims car dealers discriminatorily price F&I products. According to NCLC’s report, F&I offices do this through ad hoc pricing: setting prices for their products depending on what they think they can get away with. NCLC’s solution: that the CFPB regulators require dealers to charge a fixed price for these product.  (Read Automotive News’ excellent article on the report, here:

It would be easy for people in the car business to dismiss NCLC’s report. The group is not exactly friendly to business. They are especially unfriendly to the idea that prices in a free market are negotiated. So, the group definitely isn’t a neutral party when they recommend that CFPB hamstring dealers. And with recent turmoil at the top of the CFPB, dealers might be inclined to think that CFPB has been beheaded, if not neutered.

But this would be a profound misreading of the way consumer protection works.

First, even if CFPB were to disappear–unlikely in the extreme–FTC is not going anywhere. It is FTC, not CFPB, that ramped up regulation of the marketing and sales in the automobile marketplace a few years ago.

Second, in nearly 20 years of work for the government, what I learned was that consumer protection continues to be a priority no matter who’s in the White House or heading Consumer Protection Agencies. That means that while political leadership might be a revolving door, ideas for protecting consumers seldom disappear forever. So, as long as the car business functions the way the car business does, and as long as consumers complain that they were taken advantage of by auto dealers, there will always be justifications for regulators to act. And what’s particularly galling to consumer protection groups about ad hoc pricing is not just that prices charged seem to be without any relationship to the actual value of the goods sold, but the persistent appearance of ad hoc pricing actually masking illegal racial and gender discrimination.

Let’s be honest. It’s undoubtedly true that NCLC is likely overstating the problem, and misunderstanding the functioning of a free market, and even misreading data. But anyone in the car business who’s being honest with themselves knows that ad hoc pricing does exist. And that sometimes it’s unfair, deceptive and even discriminatory.

Is the solution the kind of legislation NCLC proposes? Certainly not. The NCLC’s proposal is economically absurd. But if the industry doesn’t address the problem, then legislation or regulation will inevitably follow.

The solution is in auto dealers’ hands. Dealers should push industry groups to find self-regulatory solutions that preempt the need for regulation. That’s a better solution than denying the problem exists or presenting flimsy denials. Denying that there’s a problem won’t slow down the consumer protection groups, or regulators. (For an example of this kind of unhelpful approach, read the remarks by the spokesman for an industry lobbying group as reported by Automotive News’ article.)

A change of approach that will avoid government regulation can happen within dealerships and dealership groups themselves. A representative of one forward-thinking dealer group notes that “more and more of the dealer groups we work with are implementing standardized product pricing policies.” His recap of the results of that strategy should make dealers sit up and take notice: the article reports that this dealer group found that “sticking to set prices doesn’t seem to hurt income for F&I managers.”

As a compliance lawyer, I can attest that there’s only one way to protect yourself from regulators. That is to keep them from finding reasons to target you. Creating reasonable policies that prevent consumer complaints, increase consumer goodwill, and prevent rogue employees from taking advantage of consumers: these are the primary lines of defense against the regulators overreaching.

If that forward-thinking dealer quoted above is right, and setting fixed F&I prices doesn’t hurt income but avoids regulators, this dumb compliance lawyer thinks that sounds like  pretty good idea.


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