The debate on whether to post prices on vehicles has raged almost since Buy Here – Pay Here was invented. The number of dealers who actually post prices seems to ebb and flow like the tide based on the current status of that debate. In today’s business climate of increased transparency and ever-increasing regulatory scrutiny, the debate is again in full swing.
Most dealers who argue against posting prices on vehicles base their line of reasoning on the ability to make more gross profit by adjusting the price based on each individual situation. While their point is generally true, I believe that practice can cause way more problems than any extra profit it can create is worth. Let’s look at a few:
Compliance Issues
Regulation Z requires the disclosure of most elements of a finance transaction if any one of a number of “triggering terms” is disclosed. I have seen dealers who disclose a weekly payment amount and then adjust the term to meet whatever price they decide to set for each particular customer. That is a violation of the Truth in Lending Act.
The Risk Based Pricing Rule of the Fair & Accurate Credit Transactions Act requires dealers to provide a disclosure stating the reason a customer received less than the most favorable terms due to their credit if a credit bureau report was pulled. Price is certainly one of those terms but many BHPH dealers do not comply.
The FTC and the CFPB continue to look at issues in automotive finance where customers are discriminated against. Current CFPB methods consider it to be discrimination when any protected group is shown to have paid higher prices or rates regardless of whether any discrimination was intended. Charging different prices to different customers could easily violate these rules.
Unhappy Customers
Imagine going over to your neighbor’s house to see his new 70” flat screen. You like it so much you decide you need to buy one. You ask him where he bought it and how much he paid. It seems like a great deal so you head on down to the store. Once you get there, you notice there are no prices posted anywhere on any of the TVs. This seems a little odd to you like someone is trying to hide something. The salesperson approaches you and you tell them the exact model that you want to buy. They ask a few questions about your job and finances and then quote you a price several hundred dollars higher than your neighbor paid. How do you feel? Now imagine how you would feel if you were shopping for a car.
Dealership Reputation
This one relates directly to the one above. Those unhappy prospects are going to tell all their friends who are going to tell all their friends and anyone else they know any time your dealership’s name comes up. In addition, just not having prices posted creates doubt about the stability or reliability of your dealership for anyone and everyone that drives onto your lot. New cars have the price posted on the car by law. Most reputable used car dealers post prices. People will wonder why you don’t.
The next point of discussion, then, is exactly how much information to post. I would argue for disclosing as much as possible. People shopping your lot when you are closed should be able to determine whether they can afford your vehicles. We have urged BHPH dealers in our consulting programs to post window stickers on every vehicle available for financing disclosing the terms of that financing in a consistent and professional manner.
As I mentioned above, the Truth in Lending Act requires the disclosure of most terms of the financing if certain “triggering Terms” are disclosed. Those “triggering terms” are a) the amount or percent of down payment; b) the number of payments or period of repayment; c) the amount of any payment; or d) the amount of any finance charge; it must display all of the following:
1) the amount or percent of the down payment;
2) the terms of repayment, including balloon payments; and
3) the annual percentage rate (using that term) and if the rate is subject to increase.
A properly designed window sticker should, therefore, disclose
- the price
- the amount of suggested down payment
- the amount financed
- the interest rate (APR)
- the amount and period of each payment
- the total of payments
- the amount of the finance charge, and
- the term of the loan
If you follow this formula, you will disclose all of the information a potential customer needs to make an informed buying decision, be in compliance with existing regulations and will be well-prepared for future financing regulations and rules.
With today’s movements to increased transparency and increased scrutiny by federal and state regulators, I think the debate is actually over. Legislation in California now requires all dealers, including BHPH, to post prices on their cars. Expect other states to follow suit. Potential customers are demanding more information be available in all facets of the car business and be available quickly. Regulators cast suspicious eyes at every practice that make purchases more difficult or less clear to consumers. Preparing proper disclosures and posting finance terms has become almost a necessity.
