The Return of the Leg

Terry O'Loughlin

The Return of the Leg

I once made a list of all the ways certain dealers — a very small percentage — fleeced consumers through the F&I process, and the list was a long one. Some of those practices should have disappeared years ago, or so I had thought, based upon litigation and regulator prosecution. But, as in popular styles returning to fashion, certain questionable dealer practices have, evidently, returned.

I suppose I shouldn't be surprised. A dealer once told me he would never hire an F&I manager who didn't have a drinking problem, a woman problem or a drug problem, since that F&I manager wouldn't be motivated to earn money. It would appear that some of these highly motivated people have returned to an unfortunate form of chicanery.

In September, I had the pleasure of attending the always-informative Industry Summit. I met with various authorities in the F&I world. One of these experts, who travels the country often, said that he was shocked to learn of the return of payment packing by various dealers. In June of this year, New York Attorney General Eric Schneiderman settled with a large dealer group for more than $13.5 million for payment packing. Approximately 15,000 consumers were affected. In some cases, consumers were packed by $2,000. This dealer group will also pay $325,000 in penalties, fees and costs to the state. Will a private class action be attempted as well?

Does anyone in the car business not know that payment packing is illegal? It is expressly prohibited in every state by either a statute, such as in California, or by the application of the unfair and deceptive acts and practices (UDAP) statute.

Angry State Attorneys General

To paraphrase a famous television line, "You wouldn't like me if you made me angry." Only when F&I managers cross the line, they create multiple Incredible Hulks. State attorneys general (yes, that's the correct plural form) coordinate many cases together. In the latter part of the 1990s, AGs from Washington to Florida prosecuted numerous cases of payment packing, and every state attorney general decried and condemned the practice in 1999. By resolution, payment packing was characterized, ipso facto, as an unfair and deceptive trade practice. In part, it reads:


Adopted Spring Meeting, March 26–26, 1999, Washington, D.C.



WHEREAS, "packing" is the deceptive practice of misrepresenting monthly payments to consumers during auto sales and lease negotiations in order to facilitate the sale of automobile related products and services; and …

WHEREAS, states continue to pursue vigorously law enforcement, business training, and consumer education to deter deceptive practices in the automobile industry …

It goes on from there. As a minor aside, I was asked to offer my opinion to Florida's attorney general about this practice and resolution before he would support it.

The Leg and Payment Packing

There are various ways in which a consumer can be "packed."

In the most typical situation, the desk or sales manager quotes a payment which may be $20 to $30 higher than the real monthly payment based upon the price of the vehicle, number of months the retail installment sale contract or lease will be paid, and an assumed interest rate or lease rate. This disparity is the "leg." The leg is then used to add aftermarket products so that the payment is fully accounted for. The F&I manager can gratuitously tell the consumer that this added product is "free," which it clearly is not.

A more sophisticated method for payment packing is rate packing. A consumer is quoted an exceptionally high interest rate by the desk, which is beyond what the consumer's creditworthiness should demand. Sometimes the rate will exceed what can be earned in the reserve. This interest rate disparity, or leg, can then be exploited by the F&I manager. He could then "negotiate" it down to the highest amount for reserve purposes but still allow enough leg to add ancillary products for "free" or for "pennies a day."

An alternative to rate packing is term packing. That's when a payment is quoted to the consumer without the term of months being specified. The additional months of payment being added surreptitiously are filled with ancillary products. For example, the actual term may be 36 months, but the final contract indicates 48 months. Those additional twelve months of payment are actually paying for the added ancillary products. Once again, the F&I manager can lie to the consumer and tell him that these added products come at "no additional charge."

Lease packing is a further derivative of this practice. The state AGs filed and settled a national case in 2003 against a major lessor regarding this practice. This fraudulent practice was applied in this manner. Lessees wished to terminate their leases early and purchase their leased vehicles. The captive lessor would not quote the payoff but would send the consumers back to their originating dealers. Instead of quoting the payoff, the originating dealer would add or "pack" the payoff by an additional amount. Consumers wouldn't know that a premium was being added to the payoff.

The word "pack" is sometimes used when padding the price of the car. For example, addendum stickers may add the word "pack" or some other term without explaining it. This particular pack may be a charge for advertising or the lot charge. The use of these terms in these cases isn't always illegal, nor is it payment packing, but it can be a deceptive practice depending on how they are explained and represented. In my own attorney general days, I recall several instances when certain acronyms would appear on the addendum sticker. I specifically recall "MVA" and "DRF" being used. The first stood for "market value adjustment" and the second for "dealer retirement fund." When I challenged the salesmen to explain these terms to me, they tried their best to change the subject.

Menu Selling

Menu selling is an excellent way to present all the products a dealer has to offer in an orderly manner. However, all menus should have an indication what the base monthly payment is without adding any ancillary products. Ideally, there should be a standalone column with this payment. If a menu doesn't have the base payment indicated somewhere, the menu presentation could be a deceptive trade practice.

UDAP Damages

As a final note, the penalties for unfair and deceptive trade practices vary by state. But each UDAP statute includes what are termed statutory damages varying from $2,500 to $25,000 per incident. This means that the actual amount of the damage to the consumer isn't the measure of how much the dealer may pay per infraction. Legal fees and costs and actual damages can be added to the list of charges the dealer must bear. It can be quite expensive to violate the UDAP statute, as one can see from what happened in New York.

Non Faciunt

Translating words into Latin makes them seem more important and compelling. Consequently, rather than admonishing dealers by saying "Don't do it," when it comes to payment packing, I will use the Latin translation: Non faciunt!

Govern yourselves accordingly.

As seen on P&A Magazine.

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