What's the future look like for Finance Reserve?

[XDCX]

As I noted in different thread, it appears that Finance Reserve is back in the spotlight because a Federal Agency alleges the current system results in some ethnic groups paying higher interest rates.

If this sounds like a flashback to the late 90s when the issue was last in the spotlight, it is, but with one major twist.

What's the major twist? Disparate Impact

According to the Disparate Impact theory it doesn't matter if the lender or the dealer intended to discriminate, if the statistical results show that a protected class (race, gender, religion, etc.) is being charged more then lenders and dealers are subject to suit.

While I'm no expert, my bet is the concept of Disparate Impact will kill off Finance Reserve and the lenders will move to a flat fee system because it's the only way they can protect themselves from lawsuits.

What's your bet, are the days of Finance Reserve limited? Would going to a flat fee system impact your dealership's profits?

[rlnstns]

Since getting into the F&I side about 9 months ago, more and more of my lenders are going to a flat. Seems anywhere from 2 to 5%. Its cut down on backend a little, but I understand their reasoning. Why open the can of worms? The one lender I use that has a 5% flat has rates that aree definitely higher than their competitors

[XDCX]

Originally Posted by rlnstns

Since getting into the F&I side about 9 months ago, more and more of my lenders are going to a flat. Seems anywhere from 2 to 5%. Its cut down on backend a little, but I understand their reasoning. Why open the can of worms? The one lender I use that has a 5% flat has rates that aree definitely higher than their competitors

Thanks for the input.

I agree with your point and I think it's just a matter of time before rate goes away and all of the lenders go to a flat fee program. It's like predicting the end of the 8-Track tape or the cassette, it's not a question of "if" it's a question of "when."