Kathleen Kraninger, nominee for director of the Consumer Financial Protection Bureau

Kathy Kraninger moved one step closer to securing a spot as the next permanent director of the Consumer Financial Protection Bureau today with the approval of the Senate Banking Committee along a party-line vote 13-12.

She still faces a vote from the full Senate body, but it’s unclear if she will be called before the chamber ahead of the midterms. Should her vote be pushed to the next Congress, President Donald Trump would have to renominate her or someone else to fill the spot.

Senator Mike Crapo, R-Idaho, in a statement noted her public service experience as an advisor to former Treasury secretaries and her current role as associate director in the Office of Management and Budget. Meanwhile, Senator Sherrod Brown, D-Ohio, finds her finance experience lacking.

“She has no relevant experience in finance or consumer protection, and has refused to answer questions about her record or intentions,” Brown wrote in a statement. “What she has told us is that she won’t be an independent advocate for American consumers — the entire job she is supposed to do.”

Still, Crapo reiterated his confidence that she will expand access to credit.

“During her nomination hearing, she committed to focusing on strong standards of conduct, increased transparency, sound risk management practices, and eliminating waste, fraud, and abuse,” he said.  

Mick Mulvaney is currently the acting director of the consumer watchdog agency and this month made the decision to stop all supervisory exams with regard to the Military Lending Act. Kraninger indicated during her hearing earlier this year that she would be in favor of more stringent financial protections for military servicemembers. However, the White House and Department of Defense have since lifted some of the restrictions designed to protect military members from predatory loan products.

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Auto lenders originated 6.79 million loans through the first quarter, which marks the first year over year increase in the number of loans since some financial institutions began pulling back in 3Q16, TransUnion reported on Wednesday in a new report analyzing the strength of consumer credit 10 years after the recession. 

The increase was driven by a 3% year-over-year increase in prime and super-prime originations as well as milder gains in nearly all other credit tiers. The boost was enough to offset a 3.3% decline in subprime loans. 

Comparing current conditions to recession levels, originations increased by 94.2% in 1Q 2018 compared with lowest origination levels of 3.5 million in 4Q 2008.

“Origination volumes are up across risk tiers, but have increased most noticeably for prime and prime plus consumers,” Matt Komos, vice president of research and consulting for TransUnion’s financial services business unit, said in the report.

As a result, prime and prime plus has taken over the majority of share from other risk tiers in terms of both accounts and balances. In fact, 53% outstandings are from prime and prime plus tiers today, compared with 41% in 2008.

The origination trend is forecasted to continue throughout the year, as TransUnion expects to report higher 2Q originations, said Brian Landau, senior vice president and automotive business leader, in the report. Though Landau said the increase in used car purchases influenced by the recent shift toward lower-risk borrowers may dampen new car sales through the rest of 2018.

Delinquencies also remain stable throughout 2Q for all risk tiers except subprime.

“Tighter underwriting over the past few quarters appears to be positively impacting the 60-plus delinquency rate,” Komos said. The delinquency rate remains flat at 1.22% in 2Q18 compared with 1.23% in 2Q17 — marking the third consecutive quarter with stable year-over-year delinquency rates.

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Carsharing app Getaround raised $300 million in series D funding today — led by investments from SoftBank and Toyota Motor Corp. — at a time when the sector could get a boost from New York City regulations. 

Getaround is the latest to join SoftBank’s contingent of mobility startups it backs, which include Uber, China’s ride-hailing service DiDi, and the Southeast Asia mobility platform Grab, Getaround announced in a press release. Toyota previously backed Getaround with a $45 million investment in a series C funding round.

“SoftBank is the premier global investor in mobility, and has tremendous experience working with transportation brands like ours,” Sam Zaid, founder and chief executive of Getaround, said in a press release. “We are confident in our product, playbook, and team — alongside the strong support from both SoftBank and previous investors, we look forward to leading the growth of next-generation carsharing.”

The investment comes at a time when carsharing could be on the up in New York City, which is one of the markets Getaround has targeted for its expansion. Earlier this month, the New York City Council passed legislation to freeze the issuance of any new rideshare licenses for a year, which has rideshare services such as Uber concerned that there won’t be enough drivers to meet the city’s demand.

In fact, Uber has been encouraging drivers already signed up for service in the city to rent their car out to others if they aren’t driving seven days a week, 24 hours a day.

In comes Getaround, which offers carsharing to Uber drivers through a partnership inked with the ride-hailing platform in April. The program is called “Uber Rent” and it allows drivers to access vehicles posted on Getaround directly from the Uber app.

While proponents on the law argue that Uber drivers are congesting the streets and are paid too little, opponents claim the policy could also reinstate a system similar to the old taxi medallion system in which rideshare licensed drivers sell their access at a premium.

Getaround sets itself apart from other carshare competitors — such as Turo — by requiring car owners to use in-car key lock boxes. The system allows app users to securely access the cars they rent without the owner having to hand off the key in person.  

Toyota Financial has taken an interest in the technology and launched a pilot in 2017 to see if it could enable car lessees to use the payments generated from Getaround to help pay their monthly bill.

Getaround will use the latest investment to “develop mobility partnerships, launch new product offerings, create operational efficiencies, and continue innovating on its connected car technology,” the company noted in the release.  

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American Honda Finance Corp.’s late-stage delinquencies rose 28% year over year to 1.21% of outstandings through June 2018, including a spike in delinquencies more than 120 days past due, according to the company’s latest securitization pre-sale report prepared by Fitch Ratings Agency.

Delinquencies more than 120 days past due grew to $108,000 up from just $40,000 the same period the year prior. Likewise, delinquencies 91-120 days past due totaled $12.3 million, up from $9.6 million in 2017. That’s the highest late-stage delinquency rate the captive has recorded since the fall-out of the Great Recession in 2009, when delinquencies in this category totaled $12.5 million and no loans were kept on the books past 120 days. 

However, as a percentage of the captive’s total portfolio, delinquencies remain just above 1%. Delinquencies and repossessions totaled $344 million up from $300 million the same period the year prior. Loan balances grew to $28.4 billion through June, up 7.5% year over year.

The collateral issued in the securitization came in two pools: a $1.08 billion pool and a larger $1.35 billion pool, according to Fitch’s presale report. Honda Finance’s year-to-date issuances amount to $5.12 billion over three issuances up from $4.88 billion from four securitizations this time the year prior.

Though delinquencies are up, cumulative net losses are forecasted to reach 0.5% for the deal, which is on track with predictions from the previous securitizations.

Net losses for the captive’s overall portfolio are up slightly at 0.34% compared to 0.28% in 2017, but “far below historical crisis-era levels,” Fitch reports.

Fitch highlights key rating drivers of AHFC’s issuances are strong credit quality with weighted average FICO scores of 769 for both pools. Additionally, consistent credit enhancement structure, strong securitization performance, and historically low loss of portfolio and securitizations from 2010 to 2018.

For more content like this, check out the 18th annual Auto Finance Summit taking place on Oct. 24-26 at The Wynn, Las Vegas. To learn more about this year’s event visit www.autofinancesummit.com. To register, click here.

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Wall Street executives believe that tightening in the U.S. Treasury Department’s yield curve is a sign that a recession could hit as soon as 2020, Gunnar Blix, deputy chief economist of Equifax, told Auto Finance News.

The yield curve is a tool economists use to track the strength of the economy by following the difference between short-term and long-term interest rates on government bonds. The shrinking difference between two-year and 10-year Treasury rates indicates that investors have little confidence in the near-term economy and are demanding more yield for a short-term investment.

Hikes in the Federal Reserve Bank’s interest rates often mean consumers must pay a higher rate on their auto loan, which could dampen car finance demand, an element that could contribute to slowing economic growth. The yield curve constantly changes, but the trend over recent years has been towards a “flat” curve at 0% spread, Blix said.

At press time, the difference between two-year rates and 10-year rates is 8.7% — compared with a 50.1% spread at this time last year, according to the Treasury’s data.

The curve has not yet inverted — which occurs when short-term rates are greater than the long-term rates — but fiscal policy is tightening and closer to a possible inversion. Inversions have preceded the past five recessions since 1980, according to the Federal Reserve Bank of St. Louis. Additionally, “after the yield curve inverted, recessions happen an average 18 months after,” Blix said.

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The Federal Reserve Bank of Boston announced that it released Santander Holdings USA Inc. from regulatory restrictions imposed in a written agreement in July 2015, according to a press release by the Fed on Thursday.

The enforcement action was filed after the Reserve Bank of Boston’s inspection of Santander identified “deficiencies” in the bank’s governance, risk management, capital planning, and liquidity risk management — including at the bank’s auto lending unit Santander Consumer USA — according to the written agreement.

Under the agreement, Santander had to receive written approval before taking actions such as appointing senior executives and board members. The bank was even required to submit written progress reports every quarter detailing the form and manner of all actions taken to secure compliance with the agreement.

“A written agreement is the second most severe form of regulatory enforcement, the next one being a Cease and Desist order,” an unnamed source told Auto Finance News in a 2016 report regarding the consent order. “I think that was very thinly veiled message from the Fed, that they thought that the management team at SCUSA
was inadequate. So practically speaking, the message you’re sending to an institution in that case, is something has to change. We’re not going to tell you what it is, you tell us what you think is appropriate, and we’ll tell you if we think it’s enough.”

The termination of the 2015 written agreement marks the fourth regulatory milestone Santander has reached in the last year, the company stated in a press release. In August 2017, the Fed ended a separate 2014 enforcement action against Santander that required the bank to seek written approval prior to declaring or paying any dividends.

“Today’s announcement is our most significant step yet towards resolving our legacy issues,” said Scott Powell, chief executive of SHUSA and Santander Consumer USA. 

Santander has struggled with other regulatory compliance issues since 2015. The bank also started getting hit with consent orders from the Fed for failure to pass its stress test. Later that year, the Department of Justice sent a consent order alleging the company violated the Servicemembers Civil Relief Act. Then, the Consumer Financial Protection Bureau notified the company of potential violations of the Equal Credit Opportunity Act.

However, Santander has taken steps toward compliance revival since its troubles in 2015, including a beefed-up dealer performance management process to limit fraud, established the office of consumer practices, and a robust compliance program. Additionally, the bank passed the Fed’s stress tests for the second consecutive time in June.

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2018 Honda CR-V (via Honda Newsroom)

Dealers, particularly in the Southeast, have struggled with American Honda Finance’s rollout of electronic contracts and rep turnover, Paul Ritchie, president of Hagerstown Honda and Kia, told Auto Finance News.

“They have a lot of new reps and new buyers and they seem to be in training a lot during the day when we need to get ahold of them,” Ritchie said, noting that it could just be his region’s Charlotte, North Carolina office. “It makes it tough for our guys to get additional information.”

Overall volumes have been good Ritchie said, but there are a few areas where he’d like to see the captive improve. “Honda knows about it and they are listening to the dealers,” he added.

For example, Honda recently rolled out electronic contracting, which has been helpful to reduce funding times to just a couple of days down from a couple of weeks with manual applications, he said. However, the system hasn’t been so reliable.

“We have [electronic contracting] now, but they can’t seem to make it always work,” he said. “If our guys in the finance office sell paint protection or something like that, it might get kicked out of the system and we have to go back to doing a manual contract. It’s been frustrating with how long it takes them to correct small issues like that, and I think they’ll get it, but we were promised electronic contracts a few years ago.”

At a recent National Dealer Advisory board meeting Ritchie attended, several dealers from the Northeast also noted that leasing packages haven’t been as aggressive as years past, which has hurt their sales.

“We’re more rural so we don’t get as much of that, but anywhere you have more public transit and you just need the car for the weekend, leasing is a very popular option,” he said. “When [a dealership] doesn’t have the competitive lease special it hurts.”

Auto Count Data provided by Experian shows that Honda’s loan volumes have been down in certain key states year over year through May, including a 5% and 28% drop in California and New York, respectively. However, month-over-month volumes are up higher than nearly all other lenders across the states.

A finance manager at Checkered Flag Honda in Norfolk, Virginia who preferred to be unnamed said that incentives in his area have been strong especially for some of its best selling models like the CR-V. He added that the captive is doing a good job of promoting the deals online.

In particular, the captive launched a program targeted at recent college graduates who have found employment and are looking to build their credit. The promotion includes a $500 credit towards the vehicle, a digital ad campaign, a quick video targeted at the demographic, and even a sponsorship of the pop artist Charlie Puth’s summer tour in which his social media accounts encourage followers to sign up for the financing or lease program.  

Those new borrowers will be well taken care of if they sign up with Honda, Ritchie said.

“If Honda is looking at a previous Honda Finance customer, they go out of their way to make the deal happen with the dealer,” he said. “If that customer paid good, shown responsibility — and regardless of what they have done with other creditors — if they are a former Honda Finance customer they work with us to make that deal happen.”  

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Credit Acceptance Corp. headquarters in Southfield, Michigan.

Credit Acceptance Corp. (CAC) announced on Thursday that it extended the revolving period and the maturity date of its warehouse facility, according to a company press release.

CAC’s $100 million revolving secured warehouse facility revolving period was extended to August 2021. The last time the warehouse revolving period was extended was in August 2017 and extended the period to August 2019.

The maturity of the warehouse facility was also extended from August 2021 to August 2023. Additionally, the interest rate under the facility decreased 35 basis points to 1.9% compared with 2.25%.

The announcement of extended maturity dates follows CAC’s third issuance of auto loan asset-backed securities.

CAC issued $398 million asset-backed notes backed by $500 million of loans across three tranches. That brings CAC’s total year-to-date issuance to around $1.3 billion, according to S&P Global Ratings’ presale reports.

S&P expects losses to reach 22%. Meanwhile, Moody’s Investor Service also rated CAC’s third securitization and reported expected losses to reach 27% representing the “highest expected loss for the auto loan-backed securitizations we rate,” Moody’s presale report noted.

The pool of loans backing the deal has a weighted average FICO score of 549, but despite the weak credit quality of the collateral, Moody’s listed CAC’s credit strengths including its risk-mitigating loan origination program, its track record of accurately forecasting collections, and its “full turbo amortization structure,” the report notes.

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Weidai Ltd., a title lender that provides small businesses with credit backed by auto loans, has filed for an initial public offering to raise $100 million, according to an SEC filing.

Weidai is a peer-to-peer lender with an early-stage personal credit system wherein users can borrow from the platform with their automobiles as collateral. The site also provides unsecured cash lending and financing for car purchases. It is the largest auto-backed financing solution provider in China in terms of loan volume from 2015 to 2017 with a market share of approximately 35% in 2017, according to the SEC filing.

The company filed confidentially on May 25, 2018 and made the filing public last week. Morgan Stanley, Credit Suisse, and Citi are the joint bookrunners on the deal, but no pricing terms have been disclosed.

“The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees, and obtain additional capital,” the company said in the filing.

Weidai grew its portfolio of loans backed by automobiles to $2.6 billion during the second quarter. The lender also grew its net revenue from auto-backed loans to $201.8 million compared with $175.9 million the same time the year prior.

Founded in 2011, Weidai has also grown its portfolio of unsecured loans, some of which are used for auto financing. The company’s balances of unsecured loans totaled $356 million at the end of the quarter, up from about $58 million the year prior.

Title lending services are especially important in China because small and micro enterprises face difficulties including “limited access to banks and other traditional financing channels, high costs of alternative lending channels, and the uncertainty of funding from families and friends,” the company said.

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Audi RS 3 Sportback (via Audi Media Center)

As interest rates rise, dealer satisfaction with their lender partners is increasingly reliant on quick and meaningful communication with credit staff, according to the 2018 J.D. Power Dealer Financing Satisfaction Survey released this week.

“Satisfaction declines by 163 points, on a 1,000-point scale, when dealers are not able to reach the credit staff,” Jim Houston, senior director of the automotive finance practice at J.D. Power, said in a press release. “Additionally, if lenders can communicate the best contact for dealers to reach out to for non-traditional questions, the resolution time decreases, which will, in turn, increase dealer satisfaction.”

Mercedes-Benz Financial Services, Volkswagen Credit, Citizens One Auto Finance, and TD Auto Finance were the highest ranked lenders in their respective categories.

For the fourth year in a row, Mercedes-Benz Financial remained atop the captive luxury segment amid some volatility among the lenders ranked below it.

“Our commitment is always to listen to feedback from our dealer partners and use it to identify where we can continue to improve in our quest to deliver exceptional experiences to them and our mutual customers every day,” Geoff Robinson, vice president of Mercedes-Benz Financial Services, said in a company press release today. “While we are proud of these results, the scores demonstrate what we already know: Our industry never stands still, and so we must seek opportunities for continuous improvement, strive to deliver the highest levels of service, and convey excellence in everything we do.”

Audi Financial Services jumped to the No. 2 spot as BMW Financial Services — last year’s No. 2 luxury captive — fell out of the top seven reported by J.D. Power and below the average score among its peers. Similarly, BMW’s subsidiary MINI Financial Services fell from the No. 1 spot it secured last year in the captive mass market category to below the average score.

Volkswagen Credit took top honors in the captive mass market segment this year inching out Subaru Motors Finance, Nissan Motor Acceptance Corp., and Mazda Capital Services. Subaru’s and Mazda’s finance programs are run by Chase Auto Finance, which took the No. 3 slot among non-captive rankings.

Citizens One Auto Finance and TD Auto Finance rounded out the No.1 and No. 2 slots, respectively, among non-captive lenders. TD Auto Finance also managed to usurp Mercedes-Benz for the top floorplan lender this year.

“We recently expanded the floor plan offering nationwide and we’re pleased our customers see value in what we are delivering,” Andrew Stuart, president and chief executive of TD Auto Finance, said in a company press release. “The Floor Plan product is a vital piece of a dealer’s business and it’s especially exciting to see high scores in the relationship components of the Study that reflect TDAF’s focus on the Dealer Experience.”

Below are the top three lenders from each category in the J.D. Power Dealer Financing Satisfaction Survey and how they compare year over year based on a 1,000-point scale. For full 2018 results click here.

Captive Luxury

Captive Mass Market

Non-Captive

Floor Plan

For further insights into the auto finance space join the Auto Finance Summit 2018, which will take place Oct. 24-26  at Wynn Las Vegas. For more information, visit www.autofinancesummit.com. To register for the event, click here. 

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Turn Your Bulk Auto Notes Into Cash