Chapter 25 — Exercises: The F&I Process, Paperwork, and Compliance

Work these after reading the chapter. They move from recall to judgment to doing. Many have no answer key here — selected answers live in Appendix I; a few calculation/identification items give the answer in a <details> block so you can self-check. The goal of this set is not just to test recall but to make the compliance process automatic — the way it has to be when you're tired at 7:40 on a Thursday and the deal looks good.

Difficulty legend: ⭐ basic · ⭐⭐ applied · ⭐⭐⭐ advanced/judgment · ⭐⭐⭐⭐ extension/research

Part A — Conceptual Understanding ⭐

Short answers. One or two sentences each. These are the facts you should be able to recall without looking.

A1. What is a deal jacket, and in one sentence, why does a clean one matter years after the sale?

A2. The dealer is a broker, not the lender (Chapter 22). Given that, what is the purpose of the credit application in the deal jacket, and whom does the dealer submit it to?

A3. Name the four numbers that appear in the TILA disclosure box on the RISC, and say in plain English what each one tells the customer.

A4. What is the difference between the buyer's order and the RISC? (Which summarizes the deal; which creates the debt?)

A5. Match each law to its one-line job: TILA · ECOA · FCRA · GLBA · Red Flags Rule · OFAC. - Protect customer financial data - Make loan cost comparable - No discrimination in credit; adverse-action notices - Prevent identity theft (written program) - Fair use of credit reports; permissible purpose - Don't transact with sanctioned parties

A6. What does "permissible purpose" under FCRA mean in plain English, and give one example of pulling credit without it.

A7. True or false, and fix if false: "Every state gives a car buyer an automatic three-day right to cancel the purchase."

A8. Define spot delivery ("delivered but not funded") in one sentence.

A9. What is the yo-yo and why is it considered predatory?

A10. Name the three kinds of buyer/applicant fraud discussed in §25.7 and give a one-word cue for each.

A11. What is the odometer disclosure, and what specific kind of fraud does it protect buyers from?

A12. Name the two halves of GLBA that touch the F&I office (one is a notice; one is a program) and say what each requires in one phrase.

A13. What is a lien / security interest on a vehicle, and when is it released?

A14. Why does the chapter say "compliance is the floor and ethics is the building"? Give the one example from the chapter (hint: it involves the dealer reserve from Chapter 22).

Part B — Applied Analysis ⭐⭐

Apply the chapter to short scenarios. A few sentences each. For each, name the document and/or the law involved.

B1. A salesperson pulls a browsing customer's credit "just to pre-qualify them" before the customer has agreed to anything or signed an authorization. Which law is implicated, and what's the violation?

B2. An F&I manager notices the income written on the credit application ($95,000) doesn't match the pay stub stapled behind it (which works out to about $58,000). Walk through what a professional does before funding — and name the law that requires having a process for this.

B3. A customer's rate comes back higher than the dealer's best-tier rate because of items in their credit report. What notice are they generally entitled to, under which law, and what is that notice for from the customer's perspective?

B4. A manager quietly quotes a higher rate markup and pushes more products to a customer based on an assumption about the customer's background, not their credit. Which law does this violate, and what is the correct standard?

B5. Using the canonical Okafor build (amount financed $41,030**, **7.9%** sell rate, **72 months**, payment **$717.39/mo from Chapter 22), fill in the four TILA-box numbers: APR, total of payments, finance charge, amount financed. Show the arithmetic for total of payments and finance charge.

B6. A deal is spot-delivered on a Friday night. What single document makes that legitimate, and what two things must it spell out for the customer?

B7. Two weeks after a spot delivery, the dealer calls the customer: "Financing fell through — come back and we'll redo it." On the rewrite, the rate is two points higher and there's a new down-payment requirement, even though the original terms could have funded. Diagnose what's happening and what the correct handling would have been.

B8. A 720-credit friend offers to "sign for" a buddy with a 540 who will actually have and pay for the car. The disengaged buddy picks the car and does all the negotiating. What is this called, what's the risk, and what is the F&I manager's duty? Then describe a legitimate version of family helping family that would be allowed.

B9. An F&I manager keeps a stack of completed credit applications face-up in an unlocked drawer overnight and forwards a customer's full credit bureau to a coworker by plain text message. Name the law and the specific part of it being violated, and list two concrete fixes.

B10. A customer who only test-drove a car and left (no agreement, no signature) later gets a hard-inquiry alert on their credit. The salesperson says, "I was just trying to help them by seeing what they'd qualify for." Why is "trying to help" not a defense here? What was missing?

B11. Trace a single F&I product — a GAP policy purchased off the menu (Chapter 24) — from the moment the customer says "yes" to its appearance in the TILA box. Which document does it get financed into, and which two of the four TILA numbers does it change?

Part C — Skills & Practice ⭐⭐–⭐⭐⭐

The doing exercises. Produce real artifacts you can keep in your portfolio.

C1. Build your Deal-Jacket Map. Write a one-page, ordered list of every document in a complete deal jacket (from §25.2–§25.3, plus the Chapter 24 menu/product contracts and, for used cars, the FTC Buyers Guide). For each, write what it does and what "missing or wrong" looks like. This is Part 1 of the chapter's Project Checkpoint. Aim for at least ten documents.

C2. Build your Compliance Checklist. Turn §25.4 into a yes/no checklist you could run on every deal — one verifiable line per law (TILA, ECOA, FCRA, GLBA, Red Flags, OFAC), plus a spot-delivery line and a state-law line. This is Part 2 of the Project Checkpoint. Make every item something you could actually check, not a vague aspiration. Then test it: run it mentally against Case Study 25-1 and confirm every box would be "yes."

C3. Write your spot-delivery word track. Draft, in your own voice, exactly what you'd say to a customer you're spot-delivering on a Friday night — keeping the warmth of a real delivery while clearly stating the honest asterisk (not final, here's the written contingency, here's what happens if it doesn't fund). Read it aloud. If it sounds like fine print, rewrite it so it sounds like a person who respects them.

C4. Write your "I can't put that number down" word track. A customer you like asks you to inflate the income on the application "a little." Draft what you say — declining the fraud without lecturing or shaming, and pivoting to the deal you can do. (Model it on the §25.7 productive-struggle resolution, but in your words.) Then write the follow-up: the two or three restructuring options (less expensive unit, larger down payment, longer term, genuine co-borrower) you'd actually offer.

C5. Role-play the red-flag verification. With a partner, run the hook scenario: the addresses don't match and the income looks off. One of you is the F&I manager, the other the customer. Practice asking to verify identity and income warmly, with no accusation, and resolving it. Then run it again where the explanation is innocent and once where it isn't — practice both endings, including the one where you have to decline a deal you can't verify.

C6. Diagnose the bad jacket. You inherit a deal jacket with: a buyer's order whose trade allowance ($16,000) doesn't match the RISC ($18,000), no signed credit-application authorization, no privacy notice, and an odometer line left blank. List every problem, name the law (if any) each implicates, and state what must be fixed before this deal can fund.

C7. Script naming every document. Write the short, friendly lines you'd say as you place each major document in front of a customer — buyer's order, privacy notice, the RISC (naming the TILA box), the odometer disclosure, and the arbitration agreement if used. The test: a nervous customer should feel informed, not rushed. (This is the everyday habit that prevents most complaints.)

Part D — Synthesis & Critical Thinking ⭐⭐⭐

Judgment, ethics, trade-offs. A paragraph each.

D1. The chapter argues that five of the six federal laws exist to protect the customer and that none limit legitimate profit. Make the case for that claim using two specific laws. Then steel-man the opposite view (that compliance is a costly burden) and rebut it with theme #3 (ethics are profitable).

D2. Compliance is the floor; ethics is the building (the buy/sell spread is legally disclosed via APR, but the markup itself isn't required to be disclosed). Argue for or against this position: "If a practice is legal, an F&I manager has done their duty." Use the dealer-reserve example and Priya's voluntary disclosure.

D3. Why is the yo-yo especially insidious compared to a simple overcharge? Analyze it in terms of when the customer's leverage disappears and why attachment makes the abuse work. Tie it to the gut-check from Chapter 3 ("would I be comfortable if this customer could hear my thoughts?").

D4. A coworker says: "The Red Flags stuff and OFAC are just box-checking — they never catch anything, they just slow deals down." Respond. What's the cost of the rare miss, and why is a process that's "almost always clean" still worth running every time?

D5. Income falsification is often the customer's idea, framed as "help me get approved." Argue why helping with this is the opposite of helping (theme #5), connecting it to what a defaulted loan does to the customer and previewing the ethical-subprime alternative for Devon Wallace in Chapter 26.

D6. The arbitration agreement is optional and a business choice, not a legal requirement. Make the ethical case for how an F&I manager should present it. Then explain why "they won't read it anyway, so why explain it?" is both bad ethics and bad risk management (think about enforceability and complaints).

D7. A deal can be 100% legally compliant and still leave a customer feeling cheated; another can technically miss a paperwork step while the customer feels well-served. Which is the bigger problem for a career in this business, and why? Use the relationship between compliance, trust, and the referral base (themes #3 and #4).

Part M — Mixed / Interleaved Practice ⭐⭐–⭐⭐⭐

Each item deliberately combines this chapter with earlier ones. Name the connection as you answer.

M1. (Ch 25 + Ch 22) The Okafor RISC shows a 7.9% APR in the TILA box. Explain to a customer (a) what the APR represents under TILA, and (b) what the 7.9% doesn't reveal about how the dealer makes money on the rate (buy rate vs. sell rate, reserve). Where does honest disclosure go beyond the legal minimum?

M2. (Ch 25 + Ch 24) A customer buys a service contract and GAP from the menu. Trace how those purchases flow into the RISC and change the TILA box numbers (amount financed → finance charge → total of payments). Then state the one menu practice from Chapter 24 that keeps this clean and compliant.

M3. (Ch 25 + Ch 15) Compare a clean delivery (the Nguyen family, funded) with a spot delivery of the same car. What stays the same (the experience) and what one honest thing must be added (the written contingency)? Why is it a mistake to make a spot delivery feel identical to a clean one?

M4. (Ch 25 + Ch 12) The four-square negotiation produced agreed numbers. Show how those agreed numbers must reappear, unchanged, on the buyer's order and the RISC — and explain what happens to trust (and compliance) if the RISC quietly differs from what was agreed at the desk.

M5. (Ch 25 + Ch 3 + Ch 13) A customer "needs to think about it" in the F&I office specifically because the paperwork makes them nervous (a Chapter 13 objection that's really a request for reassurance, surfacing a Chapter 3 fear). Using the compliance-as-service framing, how do you reduce that fear and stay compliant — naming each document and what it protects rather than rushing the signatures?

M6. (Ch 25 + Ch 30 preview) The yo-yo and income-padding both "make money." Using the ethics-is-the-profitable-long-game theme, explain why both lose money once you count chargebacks, lawsuits, lost referrals, and a poisoned reputation. (Preview the framework you'll meet in full in Chapter 30.)

M7. (Ch 25 + Ch 1 + Ch 5) Recall that the new-car sale is often a loss-leader and the store survives on service and F&I (Ch 1), and that your pay plan rewards back-end gross (Ch 5). Explain why this makes compliant, defensible back-end gross so valuable — and why packed or fraudulent gross that gets clawed back is worse than no gross at all.

Part E — Research & Extension ⭐⭐⭐⭐

Optional, for the motivated reader. Use Tier-1 sources (CFPB, FTC, NADA, your state's DMV/attorney general) and verify currency.

E1. Look up your own state's documentation-fee rule: is the doc fee capped, and if so at what amount? Compare it to the $599 doc fee in the Okafor build. Is that figure legal in your state? Note your source and its date. (Reminder from the chapter: this is a state question — verify, don't assume.)

E2. Find the FTC's current guidance on the CARS Rule (Combating Auto Retail Scams) and on the Used Car Rule / Buyers Guide. Summarize, in plain English, what each requires and note the current status of the CARS Rule (it has faced legal challenge). Cite where you found it.

E3. Using CFPB and FTC consumer materials, write a one-page buyer-facing explainer on yo-yo financing: how to recognize it, how a conditional delivery agreement should read, and what a buyer's options are if they get the "come back and redo it" call. Keep every claim sourced and avoid inventing specifics that vary by state.

E4. Research one of the major F&I compliance certifications (NADA, NIADA, or AFIP). What does it cover, what does it cost, and how long does it take? Write a short paragraph on whether it belongs in your career plan (Chapter 25 makes the case that "compliance is the job" — does a credential prove that to an employer?).

Part F — Quick-Fire Compliance Drills ⭐–⭐⭐

Rapid recall, the way you'll need it on the floor. The six laws have to be reflex, not a thing you look up while a customer waits. Cover the answers, run the list out loud, then check. Repeat on different days — this is spaced retrieval, and it's the single highest-value study habit for the F&I chair (theme #6).

F1. Name-the-law lightning round. For each cue, say the law in under three seconds:

1. The boxed disclosure of APR, finance charge, amount financed, total of payments → ?
2. No discrimination on race, sex, age, marital status, public assistance → ?
3. You need the customer's authorization before pulling their credit → ?
4. Lock the file cabinet; don't email SSNs in the clear → ?
5. Mismatched ID, inconsistent address history, a thin/odd credit file → ?
6. Screen the customer against the government's prohibited-parties list → ?

F2. Floor vs. building. For each pair, label which is the legal floor (required) and which is the ethical building (beyond the minimum): - (a) Disclosing the APR on the RISC / (b) telling the customer you marked the rate up from the buy rate. - (a) Giving the privacy notice / (b) walking the customer through what the notice actually means. - (a) Showing products on a priced menu with a "buy nothing" option / (b) the legal minimum of simply having the products in the contract.

F3. Stop-or-go. For each, decide instantly: GO (fund it) or STOP (resolve first)? 1. Prime customer, all documents match, OFAC clean, signed authorization present. 2. ID photo doesn't match the person in front of you. 3. Income line is $30,000 above what the pay stub supports. 4. Customer is browsing, hasn't agreed to anything, no signed authorization — coworker wants you to "just run their credit." 5. Spot delivery on Friday night with a clear written contingency the customer understood and signed. 6. OFAC screen returns a possible match.

F4. One-breath teach-back. Without looking, write each of the six laws in a single plain sentence a brand-new salesperson would understand. Then compare to the table in §25.4. Any you couldn't write cleanly is exactly where to spend your next study session.