Over the past several months, ComplyAuto has heard a common concern: dealers aren’t sure which APR to enter into their “pencil” system or desking tool when quoting a customer before running credit. Without a credit application up front, sales teams can struggle to produce an accurate monthly payment quote or deal structure, then worry that their quoted numbers won’t align with either the customer’s expectations or bank’s buy rate (and may not match what’s present on the F&I menu once credit is run). In this article, we address that challenge, share best practices for defensible quoting, and highlight three key pitfalls that can create legal or regulatory exposure.
Three Key Pitfalls in Rate Quoting
If you quote payments to consumers—either via a desking or “pencil” software tool, or verbally in response to consumer requests—before you pull credit, you need an objective and defensible method for doing so. Lack of structure or process in this area can trigger enforcement actions, customer disputes, or even potential fair-lending liability. Dealers should avoid these common errors:
- Over-Quoting and Payment Packing: Quoting an APR that exceeds your dealer’s true average buy rate inflates the customer’s monthly payment. While this is not necessarily unlawful on its own, it can be viewed dimly by regulators because sometimes this extra cushion is used—knowingly or not—to conceal add-on product costs, which regulators view as payment packing.
- Under-Quoting and Bait-and-Switch: Quoting a rate below what your average supports may be deemed as a classic “bait-and-switch” tactic by regulators if the low rate is used to lure customers in with an unrealistically low payment quote.
- Subjective Rate Selection and Discrimination Risk: Estimating a rate based on no more than a customer’s appearance, ZIP code, or the vehicle they drive can run afoul of the Equal Credit Opportunity Act. Rate decisions must rest on an objective standard—never on profiling or any protected characteristic.
Establishing an Objective Baseline: Your Average Buy Rate
When a customer’s credit tier is still unknown, your primary objective is to show that your quote (and the basis for that quote) is neither arbitrary nor discriminatory. Tying your desking sheet’s default APR to a transparent, objective benchmark reassures both regulators and buyers that you’re following a consistent, fair process. We recommend using your dealership’s average buy rate (plus your dealership’s standard participation rate—see below) as that benchmark—and recalculating it regularly (see below regarding adding in your standard markup). To refine your average buy rate:
- Segment by vehicle type. Consider calculating new and used vehicle buy rates separately, since they often diverge significantly.
- Exclude outliers. Consider removing any special buydown or manufacturer-subvented rates that could distort the average.
- Document your method. There’s no one “official” formula (ComplyAuto isn’t aware of specific regulatory agency guidance as to an acceptable measure.)1 But, whatever measure you choose, you should clearly record your approach so you can explain and defend it if challenged. In other words, create a record of the approach you have chosen, including why you believe that is an objective basis, along with how often it is updated and why. (Again, no clear guidance on how timely the measure must be, but it would seem that updating the measure at least monthly would be most defensible.)
Next, add in your standard dealer participation rate (whatever that may be—e.g., 2%2) in accordance with NADA’s Fair Credit Compliance Policy and Program.3 While outside the scope of this article, this is necessary to help defeat claims that the dealer acted discriminatorily in making reserve (i.e., adding dealer rate paid to the retail rate). The idea is that everyone gets quoted with the same amount of reserve unless a legitimate and non-discriminatory business purpose applies, such as a lender limitation/flat, subvented rate, or customer monthly payment constraint. In short, the sum of the average buy rate plus the fixed participation rate is the APR you should be quoting with. For example, if your dealership’s average buy rate is 7%, and your standard participation rate is 2%, you should start every payment quote at 9% unless one of the permissible exceptions applies. For a list of exceptions and more information on this topic, please review the NADA’s Fair Credit Compliance Policy and Program.
Remember, using the baseline average buy rate applies only before running credit—once you know the customer’s credit, you should rely on documented lender rate sheets or approved tiered rates. If, for example, a customer with an 840 credit score qualifies at 3.5%, use that rate as the basis—not the 7% store average.
Clear, Conspicuous Disclosures Are Critical
Regardless of what objective standard you use, the key to ensuring that consumers understand the basis for the quote and avoiding potential claims is to clearly and conspicuously disclose the basis for any rate quote. It should note the basis for the rate, that it is an estimate, and is provided for illustrative purposes only, and that the final rate may vary, and will be based on the consumer’s creditworthiness and qualifications.
For example, the disclosure might read:
“This quote is an estimate based on the average retail rate for a well-qualified consumer. Your final APR and monthly payment may vary based on the final term, price, and APR (which will be based on your confirmed credit tier, lender approval, and any promotional rates for which you may qualify.)
If we have already evaluated your credit, these figures may reflect an estimate based on your creditworthiness. However, all estimates are for illustration purposes only and do not constitute a binding offer. Final terms will be reflected in the retail installment sales contract.”
Pre-Menu Deal Structure Disclosure (Best Practice)
While not required by law, dealers concerned about quote-to-menu alignment (i.e., the concern that that payment quote initially generated from the desking tool won’t match the rate and terms presented on the F&I Menu and ultimately the final contract) should consider providing a Pre-Menu Deal Structure Disclosure—a sort of “final desking sheet” generated after credit has been run and deal structure agreed but before any add-ons. This best practice creates a clear, more accurate payment quote (with more accurate taxes and fees) and leaves a documented audit trail of the core deal terms. When used correctly, this form requires the customer to confirm both the base payment (excluding any optional add-ons) and the total payment with those add-ons before entering the F&I office, helping to guard against payment packing allegations.
F&I Menu Alignment
By the time you present the F&I menu, you will likely have run credit and submitted the customer’s application to one or more lenders. You might even have an approval or conditional approval. At this stage:
- Use the actual approved APR or the rate the customer will likely qualify for based on their creditworthiness.
- Ensure the APR, term, price, and base payment on the menu mirror the Pre-Menu Deal Structure Disclosure (if used).
This approach ensures accuracy and consistency, reducing discrepancies between payment quotes and final contracts.
The Payment Quote Audit Trail Dilemma
Multiple offers—with co-buyers added, options toggled, down payments scribbled, and notes everywhere—can create a tangled audit trail. In a dealership audit or regulatory review, conflicting drafts may be mistaken for missing, altered, or deceptive behavior. On the other hand, an FTC action last year cited a dealer for “spoliation” (intentional destruction of evidence) when staff discarded draft worksheets rather than preserving them as working papers to disguise payment packing. So, should payment quotes be kept or removed from deal jackets?
That is an important question that should be considered by your counsel. However, to balance both concerns:
- Consider excluding pencils and payment quotes from the customer’s deal jacket. Retaining every version can clutter the file and obscure the final agreed terms, particularly when the drafts contain estimated terms that don’t match the final contract.
- Avoid payment-packing risks. Never use or exclude offers (or worksheets) to conceal add-ons or inflate payments. Payment packing is obviously fraud, but as demonstrated by a recent FTC action, you could also be accused of evidence destruction if you’re intentionally not including payment quotes in deals that were used to facilitate a packing scheme.
- Consider including only the final Pre-Menu Deal Structure Disclosure. This “final desking sheet” generated post-credit and pre-add-ons matches the APR, taxes, and fees in the menu and signed contract.
By excluding quotes/worksheets, but keeping that one definitive pre-menu quote that is aligned with the F&I menu and retail installment contract, you satisfy audit requirements, minimize confusion, and demonstrate you never acted arbitrarily or deceptively.
Summary & Conclusion
Dealers can sometimes walk a fine line between providing information to consumers and being accused of misleading consumers with that same information. The two critical concepts that dealers must remember in this context are objectivity and disclosure.
By anchoring every initial rate quote to your objectively calculated average buy rate (plus uniform dealer participation), you eliminate arbitrariness, discrimination, and deception before credit is run. Avoid the three common pitfalls: over-quoting (payment packing), under-quoting (bait-and-switch), and subjective rate selection (discrimination) to reduce legal and regulatory risk. Fully and clearly disclosing the basis for all quotes is also critical.
As a best practice, provide a single Pre-Menu Deal Structure Disclosure to document the core deal terms, then align your F&I menu to that exact APR and payment. Manage your payment quote audit trail by excluding payment quotes/worksheets from the customer file, yet retaining the final pencil or Pre-Menu Deal Structure Disclosure. Together, these steps build transparent, defensible processes that protect your dealership, satisfy auditors, and build customer trust.
- Anecdotally, some dealers may use for example: (a) the most “common” rate, or the “average” rate from a bank rate sheet – either a captive, or a larger lender (e.g.); (b) the average rate charged at that store (or among all the stores in a group) for that month across all tiers, or for the most commonly contracted tier, or (c) some other industry standard rate obtained from a lender or third party organization or governmental agency. ↩︎
- Most lenders cap (by contract) the amount of dealer participation (e.g., to 2 or 2.5%), but within those contractual confines, it is critical that dealers make their own independent decisions about the level of their standard participation rate. ↩︎
- The basic theory of the NADA program is that a dealer sets a “standard” dealer participation rate that is added to any buy rate. By setting an objective standard, and only deviating downward (discounting) for certain enumerated reasons – and documenting those exceptions, dealers can document the valid, business reasons for differing rates to consumers. See here for more about the NADA program and policy https://www.nada.org/regulatory-compliance/nada-fair-credit-guidance. ↩︎