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The Alpha Dawg Discusses Payment Packing


Believe it or not, I still hear a lot of managers asking me about how much “Leg” you need to leave in the payment for the F&I Manager. It came to a head last week when a manager messaged me that his General  Sales Manager’ was demanding they leave $30.00 a month “Leg” in the Payment they quoted the consumer for the F&I Department.


Regardless of how many years you’ve gotten away with it, if you get caught just once; I assure you it will ruin your life and career. The following is right out of my F&I Text book.;


Unfortunately, in most dealerships today F&I has become a catalyst creating negative feelings and poor CSI and increased government agency scrutiny. Remember, Jim Ziegler is a layman, not an attorney, and the legal landscape seems to change daily. Please check with your state dealer association legal department if you have questions.


The optional/elective nature of The Menu Presentation gives customers a better feeling about the experience…there are no surprises, everything is fully disclosed, actually the consumer chooses to buy the products and packages as opposed to “sleight of hand” disclosures associated with “payment packing.”

The Significance of Regulation Z

Payment Packing and other assorted “deceptive trade practices” in F&I that prosecutors, regulators, and consumer attack attorneys are looking for are generally are associated with the fact that the F&I Manager failed to offer the customer the option to “Buy Nothing.”


Although never actually court-tested; most settlements, attorney general, and other agency’s fines and settlements with dealerships center around the following interpretation of regulations that affect us. This is purely a laymen’s perspective. For clarification, please contact your State dealer Association for laws in your state.


Many cases have seen dealership employees fined and prosecuted for a practice known as “Payment Packing.”


You may NOT offer the customer a financial package with products included, even though you disclosed the existence of those products as being “included” in the payment UNLESS that customer has been clearly told they can buy the vehicle for the base payment at the base interest rate without these products included. Don’t waste any amount of time trying to figure out a way around this...just go with it and do a proper presentation every time and be sure to get the menu signed and properly initialed by the customer documenting they were offered a base payment at a base interest rate.


Okay, let’s put it in its most basic form...any presentation technique that does not disclose a base (“stripped out”) payment with an APR and term has been declared to be illegal...period.


Federal Regulation Z of the Federal Truth in Lending Act requires the provider of the loan (believe it or not that means you until such time as the bank assumes the contract) to make the consumer aware of exactly how much it costs to finance their purchase on credit. This allows the consumers to compare the cost of financing vs. paying cash and it also allows them to compare the cost of financing with alternative sources.


Under the provisions of the “Holder in Due Course Law” and other provisions of law, the dealership is actually the original lender. If the payment is “Packed” with products and services, then there is no way to be legally compliant with the spirit of this law therefore All States Attorney General appear to be in agreement that “Payment Packing is a violation of the law. It is liable and prosecutable.


There must be a “documented” base payment presentation. Only an “F&I Menu” can meet this requirement.


An illustration what we mean by “payment packing”...


A customer is quoted a payment by the Sales person, the Sales Manager or the F&I Manager that is intentionally inflated to leave “room” for F&I products. We used to call this practice leaving a little “leg” in the payment.



  • Amount to be financed = $20,000
  • APR is quoted at 8% for 60-months term
  • Payment is quoted at  $420.00 a month
  • The actual payment would be $405.53 per month


This is a violation of Regulation Z because the law specifically stipulates that a consumer must have full disclosure on the “actual cost” of the credit to allow them to compare different lender programs and the cost of borrowing vs. paying cash.


To add heat to an already hot issue, many states are now treating payment packing as a violation of state “deceptive business practice laws.” In addition to any state penalties, Regulation Z violations can carry a felony penalty of $5,000 and one year in prison for each violation.



Regulation Z Compliance During the Process

The easiest, safest way to comply with Regulation Z is to use the F&I menu presentation exactly the way it is laid out in this text. This means giving the customer an accurate (“stripped out”) base payment disclosing the net sales price, interest rate and loan term (in writing, signed off and initialed) before presenting your products. With the presentation of a base payment and rate, a customer signature on the menu, and a copy of the signed menu in the deal jacket, we can’t anticipate if you would ever have a problem. With Newer “Electronic Menu” disclosures be sure you have documentation anyway.


This usually raises several questions from F&I managers, particularly those who are desperately seeking a loophole in the law.


There are no loopholes. Get over it or get out of our industry. The base payment disclosure is the bottom line.


  • “But what if I change the interest rate during the product presentation?”


ü No problem—as long as the final payment (the one you contract the customer on) is fully disclosed on the menu.

ü Bear in mind may not lower or manipulate the rate as a way to get the customer to buy products. (Such as a payment with VSC included at a lower rate or without the VSC at a higher rate)


  • “But what if I just tell the customer that the payment I’m presenting includes a product?”


ü No problem—as long as you tell them (and they sign off on it) what the payment would be without any products with the rate and term they are being contracted on.


  • “So you’re telling me the sales desk can’t “range” a payment under any circumstances?”  


ü No, I’m not. What we’re saying is that if anyone “ranges” a payment they have to be prepared to disclose terms of the “range”.  If the “range” is unrealistic or excessive, that would be a “deceptive trade practice” and is prosecutable.

ü If you have pulled a credit report, hard-pull or soft-pull, then the range is unacceptable in most states.

ü Ziegler advocates a “payment range” quote during negotiation...usually $10.00. This allows margin for error and certainly is not excessive or deceptive. BUT always check with your state dealer association attorney to inquire about what is the acceptable payment range for your specific state.


ü “John (Martha) this will make your estimated monthly payment fall somewhere between $349.00 and $359.00 a month for 48 months depending on your personal credit history (credit score) and would vary further based on the amount of your down payment.”  (numbers made up for example)


ü Even though this is an estimated payment offered during the negotiation, the consumer has the right to know what interest rate that payment was figured at...the answer is... “This is based on a 48 month term at 9% up to 11% APR, which is the average range our typical customer qualifies for based on our recent experience with the lenders. If you feel you qualify for a better rate, please discuss that with our financial manager when he/she is presenting all of your financial options.” (numbers made up for example)


ü If you have pulled a “Credit Report” you must offer the customer a payment based on a rate you can reasonably expect them to get from the lender. In other words, quoting a customer with an 850 FICO Score a high payment based on 18% APR is deceptive, and it is a ‘backdoor’ way of payment packing because very few lenders even offer a rate that high for that level of credit. Remember, if it isn’t a Regulation violation; then, there is always a way for any agency to call it a “Deceptive Trade Practice”.


ü Most dealerships today quote an ‘Average’ rate based on several consistent factors.    






Views: 1018

Tags: Alpha, Dawg, Jim, Leg, SuperSystems, Ziegler, payment packing


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