Access to consumer financing is critical to many water treatment dealers’ success. The ability to use promotional offers and sell on monthly payments helps close sales and makes purchases affordable for customers. If access to consumer financing options is limited—as it was in 2008 and 2009 during the financial downturn, when many consumer finance companies limited or eliminated programs—the industry suffers.
As the economy has recovered and money has started flowing into the market again from a variety of lenders, water treatment dealers are finding that they have access to a number of competitive financing programs. This is good for the industry; however, a changing regulatory landscape may impact those financing offers in the future. It is important for water treatment dealers to understand their role in the process and the challenges lenders may face, so that dealers and lenders can work together to ensure continued access to credit in the marketplace.
Consumer Finance Protection Bureau
In response to the financial crisis that started in 2008, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (known as the Dodd-Frank Act), which established the Consumer Finance Protection Bureau (CFPB). According to the CFPB website, www.consumerfinance.gov, its mission is to “make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards or using any number of other consumer financial products. Above all, this means ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families—that prices are clear up front, that risks are visible and that nothing is buried in fine print.”
CFPB already has taken aim at a number of financial products and services to ensure that lenders or service providers are not using unfair, abusive or deceptive practices against consumers. In December 2013, CFPB ordered GE Capital Retail Bank’s subsidiary CareCredit—a provider of medical credit card financing, including promotional financing offers—to refund $34.1 million to consumers it described as “victims of deceptive credit card enrollment tactics.”
The CareCredit program operates similarly to the way many financing programs work in the water treatment industry: Medical providers offer promotional financing to patients and act as the “service provider” for the finance company, submitting credit applications and completing financing paperwork, just as water treatment salespeople may offer financing from a third-party finance company in the sale of a water treatment system.
In its investigation of CareCredit, CFPB noted that medical service providers were poorly trained and often did not understand the financing offers themselves, that they provided inadequate explanation of the promotional offers, including the fact that deferred interest was accruing from the date of sale, and that they were not giving borrowers copies of loan disclosures. CFPB deemed these to be unfair or abusive practices. In its October 2013 follow-up report on the implications of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (known as the CARD Act), CFPB noted deferred interest promotional offers as an area of future research to determine whether “additional action is necessary to promote a more fair and transparent market.”
The Water Treatment Market
So what does this mean for the water treatment industry? Water treatment salespeople are typically the “face” of the bank or finance company to the consumer in the sales transaction. Although it may ultimately be the bank or finance company that falls under CFPB’s authority to monitor, much of the risk to the market comes from the sales process itself.
For water treatment dealers to have continued access to credit to close sales, it is important that dealers and lenders work together to ensure compliance with all applicable or possible future regulations and to ensure that consumers are making informed choices about their financing options. There are several things that dealers can do to help ensure that financing options remain available to them to help close sales.
- Training. Dealers should work with their finance partners to make sure they understand the offers they will be using. Terms like “same-as-cash,” “deferred payments” or “introductory rates” may mean different things with different lenders. Dealers must understand the terms and conditions of each offer and should require their salespeople to undergo training as well.
- Transparency. The terms of each financing offer should be clearly explained to the borrower, and copies of all applicable disclosures must be provided. Customers need to understand what the annual percentage rate of charge is, if the payment or interest rate will change during the loan term, when interest starts accruing, and when and how they can pay to avoid finance charges. The consumer is already sold on the value of the product or service, so clear financing disclosures should not be a threat to the sales process.
- Verifications. Many lenders, prior to funding a loan, will make a verification or confirmation call to the customer to ensure he or she understands the terms of the loan. The lender will be clear in its description of how the financing works; if the salesperson was unclear or misleading to the customer during the sales process, this can lead to a cancelled transaction. It is better for all parties to be up front about financing offers to avoid any confusion or dissatisfaction down the road.
No one yet knows how CFPB’s regulatory authority will affect the industry, but it does seem clear that the focus will be on providing transparency in the finance products offered to consumers, regardless of the sale type. For water treatment dealers to have continued access to consumer financing, which is necessary to future growth in the market, dealers must be prepared to act as partners with their lenders, working to ensure that consumers are armed with the knowledge needed to make informed financial decisions in the sales process.
Andrea McCullion is senior vice president, sales and marketing for Foundation Finance Co. McCullion can be reached at [email protected] or 855.241.0243.