Fairness and Transparency in Financial Services

Fairness and Transparency in Financial Services Informed

The opinions in this blog are the author’s only and do not represent a company view or legal advice.

Fairness is in the eye of the beholder. Transparency, less so. Here’s an example. The “standard” checking account overdraft fee in the US is $35. That might sound like a lot, especially for a careless mistake or a low dollar amount check. 

But imagine that you cannot pay your rent or auto loan on time while you wait for your next paycheck. A payday loan would be much more costly, not to mention the risk of eviction or repossession. Suddenly that $35 doesn’t look so bad. So is this a regressive fee? Predatory? Depends who you ask.

Transparency is another issue altogether, and is less subjective. After all, if you finance a car or rent an apartment, you need to understand the condition of what you are getting (especially in the case of a used car). You’d want to know if the car had been in an accident, if it was under warranty, what a GAP contract cost and what it covered. 

After sitting in the F&I office for hours, how carefully are you paying attention to what you are signing. Is the dealer disclosing what you are actually signing and paying for? Do you “need” it all? Is everything you agreed to in the stack of paperwork you’re bringing home?

So I would contend there are important distinctions between fairness and transparency. Transparency is much less subjective – has what you have signed for been made clear to you. Fairness depends much more on your point of view and circumstance.

This discussion is timely as it relates to a number of recent regulatory issues. For example, the Combating Auto Retail Scams (CARS) Rule. The CARS Rule was recently announced by the FTC to “combat auto retail scams and targets bait-and-switch tactics, junk fees, and includes clear protections for military members.” 

The CARS Rule is about transparency, and to an extent, keeping people honest. The new rule is expected to save consumers nationwide more than $3.4 billion and an estimated 72 million hours each year shopping for vehicles. According to the FTC, “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.”

Auto dealers have mixed opinions about the rule. Many believe for example, that Vehicle Service Contracts (VSCs) are good for consumers (in addition to making money for the dealer). The argument in favor of VSCs is that they are a type of insurance – you truly appreciate them when you need them and that’s when you can see their value. Given that many household finances cannot support an “emergency” of $1,000 and with inflation and supply chain issues, parts and repair costs are rising, a consumer may appreciate the peace of mind that comes with a VSC. So while some may feel consumers are blindly purchasing them, others appreciate the benefits. Again – the eye of the beholder. And just because a dealer is selling these products, it does not mean they are being deceptive. With all things, there are “bad apples” and perhaps some predatory practices, but let’s not paint an entire industry with a broad brush.

The CARS Rule will take effect on July 30, 2024. It remains to see what the costs are and who will be the winners and losers.

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Adine Deford VP of Marketing
Adine Deford is the VP of Marketing at Informed.IQ. She has more than 25 years of technology marketing experience serving industry leaders, world class marketing agencies and technology start-ups.

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