© Can Stock Photo / gunnar3000

Wells Fargo & Co.’s proposal to remediate consumers impacted by its force-placed insurance scandal was rejected by regulators for not comprehensively coverings all affected borrowers, according to a report from Tuesday evening.

The lender submitted their plan to pay back consumers in June per the requirements of a $1 billion consent order issued by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency. The agreed upon consent order alleges that Wells Fargo Auto charged consumers for force-placed auto insurance they did not need, but there remains some discrepancy about how many consumers were impacted and how much they are owed.

The submitted plan included remediations to 600,000 borrowers, according to three sources who spoke to Reuters. At the end of 2017, Wells Fargo preemptively announced an $80 million remediation plan to 500,000 consumers affected by the scandal. However, an internal report was leaked to the press at the time revealing a conclusion of 800,000 consumers.

“The company currently estimates that it will provide approximately $212 million in cash remediation under the plan,” according to an August 10-Q filing. “The amount of remediation may be affected by the requirements of the consent orders entered into with the CFPB and OCC.”

The discrepancy in the number of consumers affected stems from difficulties in accessing how many consumers were impacted at the start of their loan versus those who were charged the additional insurance later on in the loan cycle. There’s an outstanding question about how many consumers had a temporary lapse in their insurance coverage and are owed partial refunds, according to the consent order.

During this time Wells Fargo also “did not refund other fees or related charges, such as repossession fees, late fees, deferral fees, and non-sufficient funds fees,” the consent order states.

Wells Fargo Auto declined to comment for this story.

Having a remediation plan rejected is not substantially different from how previous consent orders have operated under the previous administration, Chris Willis, practice leader of Ballard Spahr’s consumer financial services litigation group, told AFN.

“There were instances under the former CFPB where important details of remediation were not settled at the time the consent order was entered into,” Willis said. “It was our experience back into time that we would sometime submit these remediation plans and the bureau would require changes to them before they could be approved.”   

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Turn Your Bulk Auto Notes Into Cash

Mark Abbasi, Rodrigo de Guzman, and Mason McLead

Automotive financial companies are racing to introduce new subscription models that promise to offer an alternative to traditional loans and leasing. However, there is little consensus about how these programs should run to be viable long into the future.

Three panelists from Hyundai Capital America, Borrow, and Fair will discuss these challenges and the future of the subscription models during a session at the Auto Finance Summit Oct. 24-26.

Mark Abbasi, vice president of product development for Hyundai Capital America; Rodrigo de Guzman, chief executive of the short-term car leasing startup Borrow; and Mason McLead, vice president of engineering for Uber’s exclusive leasing partner Fair, will all speak on Thursday, Oct. 25 at the Wynn Las Vegas.

Hyundai Captial America earlier this year launched an Ohio pilot program, which allows consumers to lease a car on a three-year term but bundle in insurance and maintenance into one fixed price. By not allowing consumers to swap cars multiple times and extending the term it lowers the entry price, which starts at $279 per month.

Abbasi helped develop the program as he is responsible for relationship management, product development, and pricing for the consumer financing products across the Hyundai, Kia, and Genesis brands.

Borrow and Fair, on the other hand, offer consumers more flexibility to get out of their car before the three-year term is up. Borrow specializes in 3-, 6-, and 9-month leases for electric vehicles, while Fair offers an all-in-one monthly subscription fee that allows consumers to swap cars out to best fit their current transportation needs.

De Guzman has developed and successfully sold many companies including NetGravity (now Google), Accipiter, AdForce (both acquired by CMGI), InfoSpace, and QuinStreet.

McLead is in charge of the product engineering team at Fair, where he helps create a seamless digital experience for customers by transforming data-driven processes into accessible and user-friendly solutions. Previously, he’s built multi-national FinTech products and created high-tech solutions for national banks.

To register for the Auto Finance Summit click here, and for additional details about these speakers and the rest of the agenda, click here.

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Turn Your Bulk Auto Notes Into Cash

Steve Cochrane, Chief APAC Economist, Moody’s Analytics

SHANGHAI — China will remain the largest market for vehicle sales, but the impact of U.S. tariffs on China’s economy may accelerate the decline of an already slowing economy while adding an outsized effect on the automotive industry, Steve Cochrane, Chief APAC Economist at Moody’s Analytics, said during a session at the Auto Finance Summit Asia 2018.

Although China continues to be the fastest growing economy among the major markets, the government has tightened up access to credit to tame the country’s rising consumer debt — causing growth to diminish.

“Long term, we have to expect that the Chinese market is going to slow as it becomes a more mature economy and as it shifts from low value-added goods to high-value, and as it switches from goods to services,” Cochrane said. “General growth here is 6% to 7%, and in 10-years time you might expect the economy to settle in at a growth rate of 4%. That’s not unreasonable considering the size of the labor force in China is at its peak given the aging population.”

However, consumer spending is slowing, and that means more volatility to short-term changes — such as tariffs.

Moody’s currently predicts that “cooler heads will prevail” and that tariffs will not increase between the U.S. and China. However, if the “worst case scenario” comes to pass and the governments impose 25% tariffs on all goods then it could mean China’s GDP growth will decline by as much as 1% next year.

“That’s still growth, but a percentage point change would be significant for China and the region because of all the trade that is done between Southeast Asia and China,” he said, noting that in the long-term supply chain could shift to more local sources.

What does all of this mean for auto financing in China? Simply put, it lowers consumer spending on loans and their confidence to take out those loans in the first place.

“It would lead to higher inflation, slower job growth, weaker consumer confidence, weaker spending, and weaker demand,” he added.

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Turn Your Bulk Auto Notes Into Cash

Can Stock Photo / diego_cervo

Millennials are expected to overtake Baby Boomers in population by 2019, reaching 73 million while Baby Boomers decline to 72 million, according to the U.S. Census Bureau. Though their numbers are strong, their financial situations are not. While there are indeed exceptions, millennials are launching their lives later, often strapped with a heavy student loan or other debt, with lower or missing FICO scores, and a history of postponing large financial purchases.

This is one of the biggest reasons why millennials have put off the milestones of adulthood. They just couldn’t afford to move out of their parents’ homes, buy cars, get married, buy houses, and have children. Saddled with debt yet striving for success, millennials also face another challenge. Only 24% of millennials surveyed could demonstrate basic financial literacy, according to a PwC survey. In another survey of millennials already saving for retirement, a third said they were “not sure” how their money was invested. Not knowing the nuts and bolts of money matters can hurt millennials’ financial prospects – as well as their ability to negotiate loan terms for a car purchase successfully.

Opportunity

According to a recent report from the global tech giant FIS, only 18% of customers with community banks are millennials. Credit unions look slightly better, at 32%. However, Millennials account for 42% of customers with big banks. Localized banks and credit unions struggle to generate awareness among this rising demographic.

The good news is this generation is eager to learn and will seek help. The PwC survey found more than 70% of millennials believed personal finance was an important subject to learn. Credit unions should embrace this opportunity, but straightforwardly deliver the content and meet millennials where they are – online. Provide necessary information in blog form, on social media, and on a website. Offer an online chat feature with a knowledgeable in-house resource.

While millennials are eager to dig themselves out of debt and get on the road to financial stability, they are still financially fragile. According to a Washington Post survey, 63% of millennials would have difficulty covering an unexpected $500 expense. In the study conducted by PwC, nearly 30% of millennial respondents reported that they were regularly overdrawing their checking accounts. Because of this, more young adults are turning to payday loans to get by, a recourse that can end up putting them deeper into the hole.

Help this generation get in a better financial situation by structuring loans with complimentary F&I products, like limited powertrain or vehicle return protection that protect their budgets. These products protect consumers from unforeseen circumstances that can negatively affect their ability to make their car or house payments. For example, powertrain protection gives consumers more control over their monthly budget by taking care of some of the most significant expenses related to a vehicle breakdown, the engine, and transmission. Meanwhile, vehicle return protection offers consumers a safety net to relieve their lease or loan obligation when unforeseen life events occur, like:

• Involuntary unemployment;
• Physical or mental disability; or,
• Critical illness, etc.

How can a credit union capture this challenging, yet potentially lucrative demographic? A consultative relationship with a knowledgeable loan officer can not only result in a mutually beneficial auto loan, but this relationship can also bear fruit in other areas including consumer protection products.

EFG Companies has been innovating consumer protection products for more than 40 years. We know how to keep you relevant with the current generation with F&I strategies that target the concerns of today’s consumers. Contact us today to find out how.

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Turn Your Bulk Auto Notes Into Cash

With just more than a week to go before the Sept. 18 deadline, now’s the time to submit nominations for the 2018 Auto Finance Excellence Awards, which have annually since 2005 recognized executives and companies that have made great contributions to auto lending and leasing in the past year.

Among other accomplishments, executives or companies may be nominated for:

• notable acquisitions that have changed the auto finance landscape;
• innovations in capital market strategy;
• company-wide efforts to encourage volunteering;
• creative enhancements to existing products or ancillary offerings;
• compelling advocacy on behalf of the industry; or
• cutting-edge technology.

Winners will be announced Oct. 25 at the Auto Finance Summit 2018 and in Auto Finance News. Submit nominations here until Sept. 18.

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Via CFPB/ Flickr

Recent auto loan servicing examinations conducted by the Consumer Financial Protection Bureau found fraudulent and unfair practices related to billing statements and wrongful repossessions, the bureau announced Thursday.

The wrongful acts were publicized in the CFPB’s  Supervisory Highlights report. While the report does not impose any new legal requirements — publishing the findings serves as a move toward the consumer watchdog’s efforts to have financial companies more compliant. The report is the first since acting Director Mick Mulvaney took over in November 2017.

Specifically, the bureau found that servicers were sending billing statements with incorrect monthly payment dates, causing consumers to miss payments and become subject to late fees, delinquency notices, or adverse credit reporting.

Also, the bureau’s examinations found that some servicers purposely failed to cancel repossession orders, incorrectly coding accounts to remain delinquent.

The bureau didn’t disclose how many or which servicers were called out for unfair practices, but stated that “the servicers are stopping the practice, reviewing the accounts of consumers affected by a wrongful repossession, and removing or remediating all repossession-related fees.”

On the heels of the CFPB report addressing these problems, the consumer watchdog was hit with a lawsuit questioning its constitutionality. This is not the first time the bureau’s structure has been questioned.

Most recently, the State National Bank of Big Spring, Texas, the Competitive Enterprise Institute (CEI), and the 60 Plus Association petitioned the U.S. Supreme Court to hear a lawsuit challenging the constitutionality of the CFPB.

“Dodd-Frank gave unelected bureaucrats czar-like power over America’s financial system, and the bureau has used that power to inflict damage on businesses and consumers alike,” said CEI General Counsel Sam Kazman in a press release. “The Supreme Court should intervene to restore the Constitution’s checks and balances on this unrestrained government power and to make it clear that Congress cannot abdicate its power of the purse.”

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© Can Stock Photo / Patrick

Nissan Motor Acceptance Corp. is leveraging its strategic partnership with the Renault-Nissan-Mitsubishi Alliance as it looks toward greater expansion in markets throughout North America, President Kevin Cullum told Auto Finance News.

“[The alliance] enables the expansion of our support responsibilities in North America for sales finance,” Cullum said. Overall, the alliance provides NMAC the opportunity utilize Renault and Mitsubishi to target specific markets where the separate brands’ presence is strong.

“Renault doesn’t have a presence in the U.S. or Canada, but they’re strong in Mexico,” Cullum said. “So our sales finance team is very involved with the Renault operations [in Mexico].”

Canada is another market in which NMAC has been able to grow, thanks to the addition of Mitsubishi to the alliance.

“[NMAC] became the captive finance arm for Mitsubishi [in Canada], and that partnership is going better than we could have hoped,” Cullum added.

As for NMAC’s role in the alliance, the captive provides dealer lending and supplemental retail support to the network, including supporting other vehicle service contracts for the insurance side of the business for Mitsubishi in the U.S.

Though Renault and Nissan have been in an alliance for two decades, Mitsubishi joined in September 2017, one year after Nissan Motor Co. acquired a controlling interest in the OEM and subsequently made Mitsubishi an equal partner in the alliance.

Since joining Renault and Nissan, Mitsubishi Motors North America (MMNA) has been in a “strong” position to deliver improved profitability, Chief Operating Officer Mark Chaffin previously told AFN.

In June, the alliance reported a 14% increase in annualized “synergies” — the result of cost savings, incremental revenues, and cost avoidance. These synergies grew to $6.7 billion in 2017, compared with $5.8 billion in 2016. MMNA, for one, has benefited from its first year in the alliance, which drove total sales of more than 10.6 million vehicles.

As for NMAC, outstandings grew 4.4% year over year, to $51.9 billion at yearend 2017, according to Big Wheels data.

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Panelists discuss new technologies at the Auto Finance Summit Asia.

SHANGHAI — Unlike in other Asian markets, there’s an abundance of consumer data in China, however, lenders have difficulty tapping into it because it’s controlled by two companies — WeChat and Alipay.

Access to data is one of the major challenges panelists at Auto Finance Summit Asia identified for lenders in the Chinese market, but there are ways to overcome it.

“There is an abundance of data — the trick is not getting access to data, it’s getting access to the right data,” Wei Lin, a partner at KPMG Strategy Group, said during one of the conference sessions. “How do you then build the technology interface that can [utilize the data]?”

Chinese consumers, in particular, are guarded about their data and require express permission to hand it over, unlike in the U.S., where credit agencies work with financial institutions to aggregate spending and payment behaviors.

“There are a lot of challenges to convincing consumers to give consent to access that data,” Mark Mackenzie, managing director of the Asia Pacific region for Lenddo EFL, said during the session. “The people who own that data want to hold it tight, particularly WeChat.”

While there could be regulations to open up that data, the industry should still make new “building blocks” to diversify its dependence away from these two centralized companies that control the vast majority of consumer data, said Ali Aurangzeb, head of global marketing at NETSOL Technologies Ltd.

One way to do that is by re-signing consumers a company has financed in the past because it already has their data on file.  

“There needs to be a focus on retention because there is a high cost to pay to acquire new customers as opposed to retaining old ones,” Aurangzeb said, noting the difficulties of having the data locked up in WeChat. “There needs to be more attention toward a retention group for the customers whose data already resides in our systems.”

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Hallman Chevrolet, Erie, Pennslyvania

An Erie, Pa.-based dealership agreed to pay a penalty after getting caught in a fraud scheme in which the dealership sold vehicles at falsely inflated prices to subprime consumers who could not afford them, the U.S Attorney’s Office said Friday.

Specifically, Hallman Chevrolet and the Hallman Auto Group falsified subprime loan documents and inflated prices of cheap jewelry brought in as collateral for purported down payments for the overpriced vehicles, which were primarily used.

“Through the scheme, Hallman Chevrolet earned sales and profits that were otherwise impossible,” the U.S. Attorney’s Office noted. “For those financial institutions impacted by the loan scheme, loan default rates were over double the industry standard.”

The dealership took responsibility and has agreed to pay a $1.4 million fine and $737,347 in restitution, as part of an agreement to end a federal prosecution into bank fraud.

The case comes just a month after Ford Motor Credit Co. sued a chain of Texas dealerships for $41 million, claiming the chain and its owners defaulted on financing agreements by delaying payments on sold cars and falsifying records to obtain extra loans, according to the federal court filing.

“The most common types of dealer-related fraud are similar to what we saw at Hallman Chevrolet, and they can be more prevalent in subprime lending,” Frank McKenna, chief fraud strategist at PointPredictive, told Auto Finance News. “Boosting the value of the collateral and then falsifying a down payment and/or misrepresenting the borrowers’ income are the ways that unethical dealers help borrowers with lower credit scores and little money qualify for loans. Unfortunately, as we saw with Hallman, this ends up in unexpected high default rates since the borrower was never in the position to pay the loan in the first place.”

With dealer-related fraud on the horizon, it’s vital that lenders keep an eye on their dealerships, the impact of dealer fraud can hit a lender for millions in losses in a matter of months if lenders do not have proactive ways of detecting that fraud before loans start to default.

However, it could just be a case of a “few bad apples,” McKenna said. “Only a fraction of the dealerships out their behave unethically to consumers or lenders, most really do try to protect their business and the consumers from fraud.  As few as 3% of dealers that lenders work with might have excessive issues with fraud such as the ones we saw at Hallman Chevrolet.”

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© Can Stock Photo / GunterNezhoda

The used car market is feeling the squeeze. Last year’s significant hurricanes, coupled with two years of wildfires, have put a severe crimp on the used car inventory across the United States. Used vehicle sales volume increased by 3% year-over-year in July, according to Cox Automotive. The annualized pace of used vehicle sales was up 1% over last year led by franchised used vehicle sales (up 2% in July on an annualized basis) and private party used vehicle sales (up 4% in July on an annualized basis). The estimated July used SAAR should be 39.2 million, the strongest July reading in six years.

Even the often-ignored used compact and subcompact vehicles have seen a surge in demand. Early this year, dealers and industry analysts started to see a change, with sales and prices for used compact and subcompact cars increasing after declining every year since 2013. The automotive analytics company Black Book reported that sales of used compact and subcompact cars each are up 5% in the first quarter, averaging $13,464.

Traditionally popular trucks and SUVs are still in demand. Cox Automotive predicts that approximately 300,000 more off-lease SUVs and trucks will enter the market in 2018, bringing the total inventory to 3.9 million. Even with this influx of inventory, pricing for these vehicles is expected to remain strong. Edmunds analysts believe that gas prices in the second half of 2018 have the potential to sway market demand. By the end of March, the national average price per gallon of regular rose to $2.61, 33 cents higher than the same time the year prior. It continued to jump during the second half of the year, with prices now hovering around $2.85, 58 cents more than a year ago, according to AAA. As gas prices climb, consumers shift towards buying more economical compact and subcompact models.

Constricting the Flow

On-lot pricing is only part of the equation for the used car market. Dealers purchase the bulk of their inventory at wholesale values from used vehicle auctions. According to the Manheim Used Vehicle Value Index, wholesale used vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased 1.51% month-over-month in July. This was a 5.1% increase from a year ago and the highest level ever recorded.

Manheim analysts attribute the increase to an abnormal summer bounce that started in June and strengthened in July. The unusual summer price appreciation is partly a function of a healthy economy, coupled with rising new car prices that constrict affordability for many consumers. These conditions have supported strong used-vehicle prices for over a year. The catalyst for even stronger price movement this summer is the fear of import tariffs’ leading to higher prices in the future. Higher prices and the related declining level of supply create a psychological feedback loop for consumers, encouraging them to buy now with the expectation that prices may be higher later.

Working the Pressure Points

As used vehicles continue to hold their value, and more consumers shop pre-owned, lenders are finding themselves in the dark when it comes to vehicle reliability. That’s why most lenders protect themselves with higher APRs in the pre-owned space. However, it’s also necessary to be competitive, and competing on APR is not a sure bet.

So, how can lenders address this pressure to reduce their average APR for pre-owned vehicles while also protecting their loan portfolios as a whole?

The answer lies in thinking outside of the traditional lending box.

Market-savvy lenders are now contemplating the benefits of offering complimentary consumer protection products on their loans to make their loan offering more competitive with both dealers and consumers, while at the same time protecting their loan portfolio.

Complimentary consumer protection products, such as a vehicle service contract or vehicle return protection, better enable dealers to increase their profit per unit with product upgrades. Offering products as part of the loan gives lenders the ultimate control for compliance measures while increasing the consumer’s perception of the higher value provided by the loan.

With more than 40 years of consumer protection product insights, EFG Companies works side-by-side with lenders to administer the right mix of F&I products, providing the greatest return to it and its dealership partners. Contact us today to find out how.

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Turn Your Bulk Auto Notes Into Cash