In my 16 years in Buy Here, Pay Here operations, we marketed the business as “in-house” or “bad credit” financing. We sold a few cars for cash, but we were predominantly a Dealer-Controller Financing business. Since the inception of the Consumer Financial Protection Bureau (CFPB) and its complaint website, consumerfinance.gov/complaint, the FTC is watching these dealers more closely than ever.
There are several resources available to assist automotive dealers avoid illegal and deceptive advertising and marketing practices. I’ve compiled a short list of links to what I consider the most pertinent, but there are other good resources available, as well:
- Guide Against Deceptive Pricing – Offers guidance on how to comply with laws regarding comparison and bargain pricing.
- Guide Against Bait Advertising – Explains how to avoid illegal bait and switch tactics when pricing products.
- Guide Concerning the Use of the Word “Free” and Similar Representations - Documents the proper ways to advertise “free” items, such as “buy one, get one free” promotions.
- Good Pricing Practices – Provides suggestions for pricing your products and services. It is against the law to charge more than the advertised shelf price for a product. Stores that do may be subject to civil and criminal fines.
As a dealer, you must be careful that your salespeople are not telling customers that due to their credit, they cannot purchase the car you advertised for the ad price. You know it happens when the customer is declined for “bank financing” but approved for special financing or second-chance financing. The special financing approval requires a large loan discount. Your salesperson goes out and tells the customer they can get the car they want, but the price will be “x” instead of the advertised price. The same happens if the only way to get a deal approved is through the store’s BHPH operation.
Some independent dealers are primarily “retail” where they offer prime and subprime indirect financing. Some of these dealers will offer a few in-house loans to the right customers. If these dealers offer low prices or payment specials in their advertising, they need to be sure how the above scenario is handled by the salesforce. Many BHPH/LHPH dealers do not advertise prices or payment deals in order to prevent false advertising issues or bait-and-switch pricing. BHPH dealers generally advertise what they do — help the consumer with bad credit. Our message is about services available, vehicle dependability and how we can help most everyone get a vehicle.
I always tell retail dealers that almost every process in their retail operation will be opposite in a BHPH operation. Your salespeople in retail generally up the customer, meet and greet, qualify, test drive, trial close if “we can get the figures right,” then go inside and negotiate. Then they try to get the deal approved. In BHPH or special financing, after a salesperson ups the customer and begins to qualify, the salesman brings the customer inside to find out if they have an approvable deal, which then determines what vehicles to show them.
If you are doing deals in secondary financing or BHPH, you might consider advertising that does not contain vehicle prices or payments. Those ads open the door for possible FTC violations. With commission salespeople and managers it is hard to resist “converting” customers from one to the other. You probably already know that if your customer has landed on a particular vehicle that is “value priced” online or in other ads, your people cannot legally add a discount fee back to the price and do the deal.
The CFPB’s hotline for consumer complaints is just beginning to be known. As dealers, there are enough headaches to go around without creating them yourself. Market into your primary business and attract the customers that fit your business model.
Gene Daughtry is a BHPH executive conference moderator, trainer and consultant for NCM Associates. He’ll be teaching “BHPH Service Management” June 5-6 in Kansas City and he’ll be a presenter at the National Alliance for Buy Here Pay Here Dealers Conference and Dealer Academy in Las Vegas next week.
If you’re a retail dealer thinking about Buy Here, Pay Here, you’ll want to read Gene’s “Straight Talk About Dealer-Controlled Financing” whitepaper. It will help you understand the differences and similarities between franchised and BHPH operations and explains the various types of BHPH business models you need to consider before getting started. Get your copy here or visit Gene at NABD in the NCM exhibit booth, or at our Open House on May 21 in room Alsace I from 2:30 to 3:30 p.m.!