CPT sells and leases new and used vehicles. CPT routinely preys upon unsuspecting customers in systematic ways. CPT trains its finance and insurance ("F&I") managers in a series of deceptive practices, all of which are designed to artificially inflate CPT's "back end" profit in the transaction by misleading the customer and inducing the customer to acquire an extended protection plan (also referred to herein as a "warranty"); and/or agree to an artificially high rate of interest; or, in lease transactions, double pay the first month's lease payment and/or agree to a rental payment calculated using an artificially high financing factor.
One of the more common stratagems that the F&I managers are trained to use in conventional financing transactions is known as the "tax bump". This deceptive practice is so integral to CPT's method of operation that Richard Speros, CPT's Director of Finance and Insurance, in charge of the F&I department has prepared training tapes to illustrate how to successfully implement the "tax bump." He distributes these tapes to each new F&I manager and works which each new manager to teach him the strategy.
In the first phase of the "tax bump" the salesperson in conjunction with the sales desk persuades the customer to purchase the vehicle on the basis of an agreed monthly payment. Unknown to the customer, the monthly payment has been calculated using an inflated rate of interest and on the assumption that the customer will finance the taxes, tags, and fees. After the customer has agreed to purchase the vehicle on the basis of a specified monthly payment amount, this agreement is reduced to writing on a document known as the "Best Deal" sheet on which, the customer places her initials in order to signify agreement.
The customer is then introduced to an F&I manager. CPT trains their F & I managers to have as their goal, the objective of increasing by approximately $50, the monthly payment amount to which the customer had agreed in her discussions with the salesperson. In fact, unknown to the customer, the F&I manager has already set up his computer to reflect the final payment to which he would like to lead the customer through adding into the sale an extended warranty plan, a high rate of interest as well as other add-ons. (This is sometimes referred to as "packing" the payment.)
Generally speaking, the next step in implementing a "tax bump" strategy occurs when an F&I manager advises the customer that her taxes, tags, and fees will be "x" amount of dollars. The F&I manager then asks whether the customer would like to pay the taxes, tags and fees in cash or would prefer to have the F&I manager try to get the lender to finance the payment. In most instances, the customer agrees to finance the payment of the taxes, tags and fees, under the impression that doing so will raise the monthly payment amount above that to which she had previously agreed. However, since taxes, tags, and fees have already been taken into account in the monthly payment amount to which the customer previously agreed, the F&I manager has now through the "tax bump," successfully created a pool of additional dollars that the manager can use to deceive the customer into agreeing to acquire an extended protection plan.
CPT trains its F&I managers to then address the warranty. The F&I manager explains the factory warranty first. Then, he is trained to tell the customer that he will try to see if he can get the bank to "carry" an extended warranty and, if he can, it will not change her payments.
Typically speaking, the F&I manager has also built into the transaction as large a spread as possible between the rate at which the finance company will actually acquire the "paper" (the "Buy Rate") and the interest rate used to calculate the monthly payment. The F&I manager uses the tax bump in combination with the artificial interest rate spread to fund the acquisition of an extended protection plan while telling the customer that she is able to get the warranty a $1995.00 "value" --- at no cost or for no increase in her monthly payment.
Also, integral to this scheme is the manner in which CPT trains the F&I managers to use their computers. CPT trains its F&I managers to give "all power" to the computer by pretending that they are using their computers to communicate on-line with their sources of financing. The F&I managers are taught to pretend that the banks are making "on-line," all of the decisions about how to structure the financing when, in fact, the computers have no modems and are not linked to anything. Using this ruse, the F&I managers are trained to convince customers to buy superfluous and over-priced warranty plans under the belief that the bank requires the purchase of the warranty and/or will finance the purchase of the warranty at no additional cost to the customer.
CPT's compensation system for F&I managers encourages these managers to cheat customers, particularly through the sale of extended protection plans. The F&I managers are paid on a commission basis that is tied directly to the "back end" items that they are able to "sell" to the customer. These "back end" items include the "spread" on the financing charge between the financing source's Buy Rate and the rate that CPT actually charges the customer, credit life and disability insurance and extended protection plans. CPT has contests and awards F&I managers, bonuses and enhanced payouts based upon the number of warranties they are able to sell. CPT emphasizes the sale of warranties because there is a substantial profit margin in the extended warranty plans that are offered by CPT's parent, United Auto Group ("UAG"). Depending upon the nature of the coverage, the cost of the UAG warranty to CPT typically ranges from a couple of hundred dollars to slightly in excess of $400. CPT insists that the F&I managers attempt to sell these plans for $1,995, regardless of coverage.
CPT also systematically trains its F&I managers to defraud customers in leasing transactions. Typically, in a leasing transaction the deception takes two forms. First, CPT's F&I managers are trained to use a variation of the tax bump by quoting a monthly tax payment to a customer after telling the customer what the monthly lease payment will be. In fact, the monthly lease payment quoted to the customer already includes an amount for taxes. Thus, by adding taxes into the transaction again, the finance manager is able to use a higher money/finance factor, which results in greater profit to CPT when the lease is discounted and sold to the financing source. Second, CPT's F&I managers are trained to collect the first month's lease payment twice. The amount that the customer is required to pay upon signing necessarily includes a payment for the first month's rent. Nonetheless, the F&I managers routinely collect an additional monthly payment. The second "first month's" rental payment is pure "back-end" profit to CPT.