How to Prosper With Flat Fees

While the CFPB threatens sweeping changes, dealers are thinking ahead and reducing F&I pain points by moving financing and loan decisions to the start of the sales process.

October 2014, Auto Dealer Today - Feature

by Pete MacInnis

There has been a lot of talk recently about how new rules proposed by the CFPB might negatively impact your bottom line, reducing or even eliminating dealer participation in the financing process. Aimed at curbing discriminatory lending practices, these potential regulations have become a hot topic among dealers and industry pundits alike, prompting debates over the function and dysfunction of the current F&I process.

Understandably, the initial reaction from most of the industry was annoyance. However, a new refrain has now entered the discussion. Many of the dealers I work with recognize that, regardless of what happens with the CFPB, the process could certainly be improved for you and your customers.

Waiting Rooms

This year, Mark Rikess of the Los Angeles-based Rikess Group studied the sales and finance process at 200 dealerships. He found the average transaction takes up to an exhausting four hours. Car buyers bear the brunt of this pain, but no one is really winning. Because they know what they will face the next time they walk into a dealership to test drive and negotiate the price and terms of a new car, many customers are trying to skip the showroom visit altogether. Clearly, this is a losing scenario for dealers.

If you put yourself in the position of a car buyer — or better yet, imagine your mother, father, sister or brother spending that amount of time at the dealership — it becomes clear why they are turned off by a process that seems designed to keep them sitting in the dealership for as long as possible. Then, after the test drive and negotiation, just when they think it’s all over, another process begins at the F&I manager’s desk.

Now, we all know this isn’t exactly what it appears to be. Dealers and F&I professionals would prefer to wrap up the deal, but the current process necessitates that dealers use educated guesswork to set the financing rate, a rate that is then “sprayed and prayed” to multiple lenders. Once the lenders get into the action (often the next day), the real pricing and credit terms are locked up. And, then, of course, when the finance terms come back, it often turns out that the loan deal unwinds or has to be completely rewritten. This is a costly, time-consuming headache for all parties: consumers, dealers and lenders.

If the CFPB regulations come into play, the negotiation of finance terms, monthly payments and interest rates without lender involvement would be impossible. The lender interest “buy rate” would necessarily become one and the same with the consumer contract interest rate/APR. Sure, this means that dealer participation as we know it goes away, but your profits shouldn’t go with it.

Moving to Flats

As you likely already know, the CFPB is looking to replace the current process with a flat-fee model. The upside of this change is that if a positive consumer experience is created, logically, there should be more deals to write. So how will dealers manage this change?

Your first step will be to move the financing “piece” of the sales process to the front end, right up to the point of the sales negotiation. Regulations will necessitate that dealers determine the lender and final loan approval terms before contracting with the consumer.

The old system of interest-rate guesswork and shotgunning loan applications would not be sustainable. Managers can’t be writing contracts at 7.5% when the best-priced lender comes back with a 6.5% rate. In a CFPB-regulated world, lender approval terms must be known, done, locked up and transparent at the point of sale, whether online or in-dealership.

Whether or not the CFPB regulations come into play, this could rationalize the whole process. It would certainly make consumers much happier, and may even start to change their perception of dealer-arranged financing. But the best news of all is that dealers will still have the opportunity to control the entire process.

Reducing Pain Points

Forward-thinking dealers are already figuring out ways to take the consumer pain points out of the vehicle purchase process by moving financing upfront in the sales process and implementing pre-approval online. And it’s clear consumers are embracing starting their purchase process with financing through the simple, fast, online credit application process. They get instant online approval gratification and assurance that their information is kept secure. recently took a look at consumer engagement in online credit apps and found that dealers whose websites offered instant, online-approval credit apps versus old-school static applications see a huge uplift in credit application submissions. A full 50% of those who start the process actually go all the way through to submit applications versus the 4% that complete a standard, long-form credit application. And there’s also a whopping 2,000% uplift in the number of applications that get submitted per month, up from an average of two applications per month for dealers still using static credit applications to 40 for the dealers using the fast, pre-approval applications.

Online pre-approval is a great way to start facing the changes CFPB regulations promise to bring. In a post-CFPB world, real loan terms will need to be on the table at the very front of the sales process, whether via the Web or in-person. Putting the process online means a large amount of your customers will walk into the store with financing already secured through your dealership. And if you choose the right online platform, the process will meet any new CFPB regulations because the next generation of online credit apps promise to have lender terms baked in.

They will do this by using technology that marries online credit applications with an industry-neutral loan decision engine that matches lender data to the consumer’s credit file, the vehicle and the price. They will generate real, final terms of approval, displayed to the dealer or consumer instantly. This means dealers and lenders are automatically transparent in each funding decision, getting the compliance and discrimination-charge monkey off their backs for good.

In addition, this type of digital platform — one with lender integration at its core — could transform auto financing by taking the whole sales/financing process to under an hour and eliminating costly loan rewrites and unwinds.

If you’re considering adopting a new technology platform for your store, it is important to be aware of pending CFPB rules. Starting early, as many dealers have, can only benefit your store. Consumers are ready to adopt technology-based solutions that minimize the real and perceived hassles that come with buying a car. In real terms, that means delivering far more ready-to-buy customers to your sales team today. These are committed buyers who have already been pre-approved for credit. What could be better?
Ultimately, if the CFPB discussions help raise the awareness of the improvements needed in the sales process, I think we’re looking at a win-win-win for car buyers, dealers and lenders.

Pete MacInnis is the founder and CEO of eLEND Solutions. Contact him at


  1. 1. Alex Robinson [ November 06, 2014 @ 09:22AM ]

    Who works the way? "Sprayed and prayed?" You can't be serious. "Often come back?" Sorry to whoever has to deal with this dealership model. Also, you have to be careful with online credit applications, though that is never mentioned.
    Mr. MacInnis, if you are a consultant, maybe you can educate the sales and finance managers you are working with on how to read credit and land the deal in the right places, instead of spraying and praying. Let's leave that to people painting tree houses. Best of Luck!


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