The F&I “Forbidden 20”Your Ultimate Guide to F&I Prohibited Practices

Passing down of knowledge from salesperson to salesperson on the floor, doing business

as it has “always been done,” lack of thorough onboarding and training…these are common

reasons that transgressions can be made or missed by management.

While companies place a substantial focus on EHS management (and with good reason), crossing the line

in F&I means fines starting at the $10,000 mark…and many violations also elicit criminal charges. Even if

the repercussion is lost revenue through buybacks or legal expenses, playing fast and loose with Prohibited

Practices is not a risk worth taking.

So why take chances? Here’s a refresher list of F&I Prohibited Practices your dealership should avoid.

1 Signing blank documents

2 Bundling products

3 Completing documents after the fact/

backdating

4 Credit application manipulation

5 Forging customer’s signature

6 Front end improvement

7 Handwritten entries

8 Including F&I products in the price

of the vehicle

9 Inconsistent product pricing

10 Menu manipulation

11 Missing enrollment forms

12 Payment packing

13 Power booking

14 Product stuffing

15 Scooping rebates

16 Signature on file

17 Straw purchases

18 Trading rate for product

19 Negative equity in sale price

20 Yo-yo transactions

It’s easy to assume that no up-and-up business in the automotive space would run afoul of Finance & Insurance (F&I) Prohibited Practices. But after 15 years of providing protection for auto dealers, we at KPA know the reality isn’t so cut-and-dry.

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1 Signing Blank DocumentsCustomer signatures should never be obtained

until all documents are fully complete. Incomplete

documents should never be presented to

customers or signed after delivery. This includes

both forgeries of the seller’s signature and having

them sign themselves after delivery.

2 Bundling ProductsEach product must stand alone and be sold

separately. Do not combine optional products

into one price, as is sometimes done with vehicle

service contracts and prepaid maintenance.

3 Completing Documents After the Fact/BackdatingAll forms should be complete before a customer’s

signature is obtained. Backdating of any

document is prohibited.

4 Front-End ImprovementFront-end improvement is the practice of

increasing an agreed-upon vehicle sale price

through manipulation and deception. It happens

more frequently in the sub-prime sector to

increase the gross profit or cover the acquisition

fee charged by a sub-prime lender. It is especially

prohibited to change the sales price to cover the

cost of bank or lender fees.

5 Handwritten EntriesThe only forms permissible to have handwritten

entries are the four-square, the Preliminary

Buyer’s Order, and the Credit Application. All

other documents are programmed in the Dealer

Management System (DMS) and must be printed

by the DMS. Adjustments made to a customer’s

credit application should be made prior to

submission, with one line slashing thru the error.

The customer’s initials must accompany all

corrections.

6 Including F&I Product in the Price of the VehicleSalespeople are not to include ancillary F&I

products in a vehicle’s price quote. F&I Managers

are required to price and sell ancillary F&I

products separately.

7 Inconsistent Product Pricing

The customer must sign at least three documents

acknowledging and accepting the price of the

vehicle, aftermarket items, and F&I products. The

pricing of these items must be consistent across

all forms.

8 Menu ManipulationThe menu is to be completed following

the Dealer Policy. Any manipulation of

other fees, trade allowance, cash down payment,

number of days to first payment, or purchase

price that artificially inflates the base monthly

payment is forbidden.

9 Missing Enrollment FormsCustomers must sign enrollment forms for every

product purchased. An F&I Manager will not

be paid on a deal under any circumstances if an

enrollment form is missing. Enrollment forms

obtained after the customer leaves the lot will be

scrutinized for inconsistent signatures.

10 Payment PackingPayment packing can take place in both the sales

and F&I processes. This practice occurs when

the payment amount quoted to the customer is

more than the actual payment required to buy the

vehicle.

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11 Power BookingThe practice of artificially inflating a vehicle’s

value by showing non-existent options on a used-

car or book-out sheet to lenders. Value is used

in the lender’s underwriting criteria to compute

the deal’s Loan-to-Value (LTV) ratio. A dealership

supplying false vehicle value information is

committing bank fraud.

12 Product StuffingProduct stuffing occurs when a product is

included in the amount financed or capitalized

cost without customer knowledge or consent.

13 Scooping RebatesThis occurs when a dealership doesn’t disclose

an available consumer rebate or include it in the

retail or lease agreement and instead absorbs the

rebate into profit.

14 Signature on FileA new credit application needs to be done every

time a customer comes in, regardless of how

many times the customer has made a purchase in

the past. Do not transpose new credit applications

from previous ones.

15 Straw PurchasesThis is a specified form of falsifying information to

lenders. Straw purchases occur when the person

purchasing and driving the vehicle is not a party

on the retail or lease agreement (typically because

the purchaser doesn’t have sufficient credit to

finance the vehicle).

16 Trading Rate for ProductOnce an Annual Percentage Rate (APR) is agreed

upon (usually during the sales process), it can’t

be lowered to facilitate the sale of ancillary

aftermarket or F&I products.

17 Negative Equity in Sale PriceThis occurs when a dealership increases the cash

selling price and trade-in allowance for a deal to

masque negative equity in the trade-in allowance

versus the payoff amount.

18 Yo-Yo TransactionsYo-Yo transactions include spot delivery

of a vehicle after the customer signs a Retail

Installment Sales Contract (RISC)–despite the

dealer knowing the terms of the contract will not

be acceptable to any financing source purchaser

“of the RISC.

19 Credit Application ManipulationFalse, misleading, or manufactured information

provided to lenders violates the agreement

between the dealer and the lender. Lenders

can require that the dealership repurchase the

contract once it discovers a credit application

violation–whether the lender has repossessed the

vehicle or not. If the lender is a federally insured

institution, this practice can also be prosecuted as

a criminal offense.

20 Forging Customer(s) SignatureForging a customer’s signature on any document

is a crime and engaging in it is inexcusable.

Violators should be immediately terminated and

prosecuted.

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KPA has an incredible track record of keeping dealerships out of hot water. Here’s how we help:

Inspection and Audit Services

Experts provide regular on-site and remote sales and finance

audits, including Onsite Vehicle Inventory Audits, Showroom

Licensing and GLBA Audits, and thorough review of your

deal jackets to catch errors and avoid lawsuits and inspection

penalties.

Self- Inspection Software

Our VeraF&I software is specifically designed for vehicle

dealers to help you flag issues relating to sales best practices,

inventory best practices, customer information security, and

F&I department best practices.

Online Training

Educate every individual involved with vehicle sales and

finance with award-winning training on best practices,

compliance, industry updates, and other critical topics.

Document Library

This comprehensive library includes policy templates,

written programs, guides, and forms to help your dealership

stay on track and monitor activity to improve accountability.

KPA’s F&I software and services are specifically designed for vehicle dealers, including

automotive, truck, RV, marine, and power sports…and for dealerships of all sizes, from

multi-location auto groups to single-lot businesses. Let us help ensure your dealership

has ironclad processes and policies in place to stay on the right side of regulators.

Ready to remain compliant? Visit www.kpa.io or call 866.356.1735.

Copyright 2021 KPA.