The concept of bi-weekly payment plans has been in the news lately, thanks to a recent settlement by the Federal Trade Commission in a case versus National Payment Network, Inc. However, for some consumers and dealerships, bi-weekly payment plans can be mutually beneficial. The key is crystal-clear transparency throughout the program.
Let me refresh your memory on the FTC case. In March 2015, the FTC charged National Payment Network Inc. (NPN), a San Mateo, Calif., provider of loan acceleration programs, with deceptively pitching consumers an auto payment program. The program was sold online and through a network of authorized auto dealers, claiming it would save consumers money. However, the FTC said NPN did not disclose that the fees it charged for the service often canceled out any real savings.
In a settlement, NPN agreed to refund more than $1.5 million to consumers and to waive another $949,000 in fees to current customers. Two New Jersey dealerships that allegedly had failed to disclose or adequately disclose the fees associated with NPN’s add-on service agreed to pay $184,000 to the FTC as part of the settlement.
The issue at hand is the use of fees, and how the payments are applied to the structure of the loan, as well as the marketing of the plans. Here is how a typical bi-weekly payment plan works:
A consumer paying $400 a month on a car loan will pay $4,800 each year. But that same consumer paying $200 every two weeks will make 26 payments totaling $5,200. By directing that additional $400 to paying down the principal, biweekly payment services can help consumers pay off their loan faster. Or, the additional $400 could be used to purchase a vehicle service contract – which would ensure the car remains viable and the consumer continues to pay on the loan. Besides the chance to pay off a loan faster, bi-weekly payment plans offer convenience and the opportunity for consumers to match their payments to their bi-weekly paydays.
Bi-weekly payment programs benefit dealerships as well. According to research from US Equity Advantage, dealerships offering a bi-weekly payment plan sell, on average, 57 percent more F&I products. But in promoting those plans, F&I managers must disclose all fees and accurately describe all benefits. Training materials for dealership personnel must clearly communicate the value of bi-weekly payment programs, in terms of convenience, late-fee avoidance, and faster loan payoff. And the F&I team must be able to sell the value of its F&I products as value-added – not extra cost – to the consumer.
The dealership F&I office also must have a good understanding of lenders’ practice on applying the extra payment to the principal. Each lender often has its own process for applying payments to its loans. Knowing your lenders is an important part of the F&I process. By working closely together, the dealer, lender, and consumer can result in a customer who not only gets a deal with a payment structure that works for them, as well as a safety net to protect the vehicle.