Is payment packing actually illegal? Handle common dealer objections to compliance measures and create manuals that fill the gaps between state and federal law.

Is payment packing actually illegal? Handle common dealer objections to compliance measures and create manuals that fill the gaps between state and federal law. 

Occasionally, a dealer or manager will ask the magic question they believe will stump the consultant or agent: “Where is this requirement in the law?”

For example, when we share that managers may be packing payments in the sales process, the dealer may ask, “Where is payment packing prohibited in the law?” While there is an anti-payment packing statute in California, in the other states, the Dark Side relies on federal Unfair and Deceptive Acts or Practices statutes to pursue dealers. Although these UDAP statutes do not specifically address payment packing, they do lay the groundwork for a claim that packing payments is a deceptive sales practice.

With findings of payment packing and other practices not specifically outlined in a state or federal statute, the dealer must establish policies and procedures for sales and F&I, or “dealer law.” There is also a regulatory deflecting reason to have dealer laws. The Consumer Financial Protection Bureau, the Federal Trade Commission, and many state attorneys general are reportedly ramping up resources to fulfill their investigative powers.

If the CFPB, FTC, or AG comes knocking on your dealer client’s door, and they follow their compliance investigative playbook, here’s their play: They will ask about the dealership’s policy manual, how it was developed, and how it fits into the dealer’s overall compliance program. Showing the Dark Side your Dealer Law Manual can help deflect an in-depth inquiry.

With a business reason and a regulatory deflection opportunity, perhaps now is the time for your dealers to have dealer laws in place.

Definition and Policy

It’s easy enough to think and say, “Let’s put a policy manual in place.” It’s another thing altogether to actually do it. Here’s one approach.

First put together a list of the processes. Examples include:

  • Payment quoting methodologies.
  • Handling negative equity.
  • Use of a menu.
  • Accepting credit applications.
  • Employee use of social media.
  • Product pricing guidelines.

Next, list the various state and federal requirements, such as:

  • OFAC
  • Checking Red Flags on each transaction.
  • Adverse action notices.
  • Cash reporting.
  • Used Car Rule.

Now comes the fun part: research. Understand what the dealer’s requirements are in each area. Some will be federally driven, some state. Some may be best practices intended to protect against potential class-action litigation.

After you’ve completed the research, it’s time to start writing. Construct each process with two sections: definition and policy. Under definition, give the background or reason for the policy. The definition for “Truth in Lending,” for example, could read: 

The Truth in Lending Act (TILA), and its FTC Rule, Regulation Z, provides the regulatory underpinnings of the retail finance transaction between the company and the consumer.

The policy section will outline, in detail, how the employee is expected to execute the process to comply with the policy. The section for the “cash reporting rule” could read:

Any employee aware of triggering events by any customer is responsible for notifying the office manager, who will then:

  • Using the current version of the form, file form FinCEN 8300 within 15 days of the trigger event.
  • Place a copy of the FinCEN 8300 in the customer’s deal jacket(s) and keep a separate file of FinCEN 8300s filed during the calendar year.
  • Mail a letter to each customer notifying the customer of the FinCEN 8300 filing by Jan. 15 of the following year.
  • Place a copy of the customer notification in the customer’s deal jacket(s) and keep a copy with the FinCEN 8300 calendar year file.
  • Retain filed FinCEN 8300s for five years.

Next comes perhaps the most important part. A compliance program is not complete until the employees are trained on the policy manual and periodically audited on their output, to ensure they are following the rules. Our experience is that most employees will follow the rules once they understand what the rules are. The ones that don’t follow a dealer’s rules need to work for someone else.

Having a policy manual in place as part of an overall compliance program will help employees with the processes, so that deals flow smoothly. It will also demonstrate to any investigative agency that the dealer has the appropriate internal controls in place and hopefully deflect a drawn-out investigation.

Good luck and good selling.

About the author
Gil Van Over

Gil Van Over


Gil Van Over is the executive director of Automotive Compliance Education (ACE), the founder and president of gvo3 & Associates, and author of “Automotive Compliance in a Digital World.” Email him at [email protected].

View Bio