In his latest commentary to help finance companies generate the most revenue and penetration out of the sale of add-on products, FNI Inc. president David Bafumo considered exactly what kind of consumer ends up buying these products in conjunction with their vehicle purchase.

To pinpoint who these potential buyers are, Bafumo returned to a Center for Responsible Lending (CRL) report on discrimination in auto financing to provide a cautious backdrop, wondering if there is any evidence that protected classes buy more products or products more frequently than others.

Bafumo, who called the CRL a powerful consumer rights lobbying group that may have great influence over the Consumer Financial Protection Bureau, mentioned the report alleges that dealerships regularly fail to disclose that product purchases are optional. He took exception to a number of concerns with the CRL's report when it comes to who purchases add-on products.

"First, it is clear the CRL fails to see value in most products — that bias or misunderstanding of issues and operations in the product industry can be seen in their citations to product studies focused on service contracts direct marketed to consumers rather than through dealerships, and a misconception of how legitimate vehicle service contracts, GAP and credit/life insurance products benefit consumers in the real world," Bafumo said.

"Secondly, by their own disclosure, the study failed to account for creditworthiness of those surveyed at the time of vehicle purchase," he continued. "Creditworthiness has a substantial impact on loan terms and the type of vehicle purchased – both of which greatly determine the value of the products at issue.

"Nonetheless, the CFPB's disparate impact statistical analysis appears to provide no consideration for these and other relevant issues and accordingly the CRL's suggestion that protected classes of consumers buy products at a greater rate than others, could end up being demonstrated.," Bafumo went on to say.

"Unfortunately, whether there are non-discriminatory reasons for purchase rates does not seem to be of concern to consumer advocates," he added.

On this issue, Bafumo indicated that franchise dealerships are well served by the established and prevailing F&I practice of offering, "every product to every customer, every time." He suggested the practice should be backed up and documented by F&I technology in virtually every dealership.

Bafumo also cautioned that lack of training and technology at some independent stores can create a concern for auto finance providers serving these dealers.

No matter franchised or independent, Bafumo made five recommendations to finance companies who have a broad mix of dealerships in their network that also sell add-on products:

—Finance providers with captive products must establish a compliant dealer sales process that is incorporated into and governed by the dealer agreement.

—Finance providers that directly sell products should adopt the franchise dealer model of consistent presentations to every customer.

—Independent dealerships require additional product training and guidelines from finance provider partners.

—Monitor dealer product sale/penetration rates.

—Verify product purchases were optional in funding process.

"While some consumer advocates may not agree, the fact is properly selected and presented products are a win-win-win proposition for consumers, dealers and finance companies," Bafumo said.

Bafumo closed by stating finance companies must do three things while adapting to this new regulatory environment and mitigating risks associated with new compliance obligations

—Provide greater guidance and control over discretionary dealer product selection and pricing.

—Take an active role in monitoring and verifying funded product sales.

—Design and implement processes and procedures that ensure product benefit, limitation and total cost disclosures are provided to every customer, every time.