So Here’s the Deal: Episode 22
Disclosing the RISC
Our question this month comes from Kevin in Ankeny, Iowa, home of the Iowa Soybean Association — where they do know beans and how to grow ‘em. Kevin asks,
When it comes time to disclose the contract, what do we need to do to protect ourselves from a legal standpoint? And what would be considered best practices when it comes to disclosing the contract so we can maximize customer satisfaction and also minimize any questions?
Kevin, I’m glad you want to make sure you properly disclose the retail installment sales contract (RISC). According to Reg. Z, a creditor must give the required Truth in Lending Act (TILA) disclosures clearly, conspicuously, and in writing. As the creditor, you must also provide the customer with the required disclosures “prior to consummation” of the credit sale in a form the buyer can keep.
The first thing every customer wants to know is, “Is the payment what you told me it would be?” So always address that up front.
This can be accomplished by handing the customer the completely filled in but unsigned RISC. That means the customer must be given sole possession of the document and permitted all the time he or she needs to read it before signing it.
As a best practice, hand it to them, and allow them all the time they want to review it. If you are e-contracting a customer and the disclosures are being provided to the customer electronically, the customer must be able to access the disclosures before the transaction can be consummated.
While it may not be required that you go through the contract line by line, customers expect, appreciate and need someone to review the figures so they feel comfortable the numbers are correct. A thorough disclosure will allow you to answer any questions or concerns your customers may have regarding the contract or products they purchased before they leave the F&I office. It also helps prevent any misunderstanding or confusion later on. Most of all, a proper disclosure makes for happier customers!
Start by handing your customers the contract. Once they’ve reviewed it and you’ve answered any questions they have, now it’s time to disclose it. The first thing every customer wants to know is, “Is the payment what you told me it would be?” So always address that up front.
Next, we want to go back to the top of the contract to confirm the customer and vehicle information. It’s critical you get your customers involved in the disclosure, as you want to keep them engaged throughout the process so they don’t have questions once they get home.
Now we’re going to skip the TILA disclosures and go straight to the “Itemization of Amount Financed.” Don’t worry, we’re going to come back to the TILA disclosures, but we don’t want to confuse the customer. Think about it: Have you ever disclosed a contract and had the customer utter the following when you got to the amount financed: “Whoa, wait a minute, that’s not right! Where did you come up with that number?”
That is what happens when we don’t disclose how we arrived at that number before we show it to the customer. So the third thing we want to disclose is the “Itemization of Amount Financed.” We have to first show the customer what is included before we get to the TILA box. It’s extremely important you review this section line by line, so they see and hear each of the items included in the amount financed.
Once you’ve gone through what’s included in the amount financed, go back to the TILA box and start with the total amount financed and end on the monthly payment. Always start and end on the payment. If the customer doesn’t have any questions, show him or her where to sign. Then give the customer a signed copy of the contract for his or her records.
The key to a professional disclosure is to be consistent, methodical and thorough. When customers feel like you’re rushing through the figures, they immediately become suspicious. While this sequence may be slightly different than what you’ve done in the past, it is much less confusing for a customer. That means fewer questions and happier customers. Why? Because they now see how you arrived at the amount financed.
Kevin, thanks for your question and as always, it’s a beautiful day to help customers understand what they’re signing!