New regulatory supervisory structures in China will reduce the risk of issuing auto-lease backed securities on the secondary market, and Moody’s Investor Services anticipates the change will increase volume.
Although in the short-term regulations will be more stringent on certain companies, ultimately in the long term, the changes should increase growth, according to Moody’s.
Under the new structure, leasing companies that were previously regulated by the Ministry of Commerce (MOFCOM) are now supervised by the China Banking and Insurance Regulatory Commission (CBIRC), according to the report.
Previously, non-bank institutions were regulated by the CBIRC, while corporations fell under MOFCOM. The new rules consolidate all enforcement under CBIRC.
The change will actually place higher entry thresholds and more comprehensive capital requirements on leasing companies, but more lenders will now be able to issue under the Credit Asset Securitization (CAS) scheme.
There is a higher level of standardization and transparency in the CAS issuances, Moody’s said, which will reduce the risk of issuance and allow more lease ABS volume to flow into the market despite the tighter regulatory environment.
The Consumer Financial Protection Bureau may be signaling that lenders can avoid fines if they self-report, following actions taken against Citibank last week, Richard Gottlieb, partner in the financial services group at Chicago-based Manatt, Phelps & Phillips, LLP, told Auto Finance News.
Citibank is refunding $335 million to 1.75 million accounts after allegedly violating the Truth in Lending Act by miscalculating interest rate charges over eight years. However the lender avoided having to pay any additional fines, the Consumer Financial Protection Bureau announced.
Citibank’s “self-policing or self-reporting policies warranted the CFPB decision not to impose penalties,” Gottlieb said, adding that the bureau is attempting to encourage self-reporting as a way to avoid costly penalties. “Even during the Cordray era, companies avoided substantial civil monetary penalties by self-reporting.”
In fact, acting CFPB Director Mick Mulvaney’s predecessor, Richard Cordray, published a bulletin in June 2013 taking the position that consumers would benefit if organizations self-reported violations. The bulletin claimed that organizations doing so could “favorably affect the ultimate resolution of a bureau enforcement investigation.”
Despite the 2013 bulletin, under Cordray, the bureau seemed to “rarely reward such behavior” and the “benefits were impossible to quantify,” Justin Hosie, partner at Hudson Cook LLC, told AFN. “There was never a clear quantifiable metric, and in many instances, the bureau merely announced that civil penalties were less as a result of self-reporting, but the bureau never quantified the benefit.”
That often left organizations wondering how to calculate the costs and benefits of self-reporting. However, if the bureau is willing to waive all potential civil penalties, it sends a much clearer signal to organizations to detect, remediate, and report errors promptly. Ultimately, Hosie advises that it makes more sense for lenders to self-report.
However, avoiding additional fines may not always occur in the event that a lender self-reports. Citibank’s deal contrasts with the bureau’s $1 billion fine imposed on Wells Fargo & Co. in April for allegedly forcing unneeded insurance on customers who took out car loans and already held the insurance, as well as imposing additional charges to lock in mortgage rates.
The contrasting decision did not go unnoticed on Capitol Hill as Sen. Sherrod Brown (D-Ohio), Ranking Member on the Senate Banking Committee, expressed his imposition toward the Citibank decision.
“When a bank cheats over a million customers out of more than $300 million, there should be a penalty, not an ‘attaboy’ for confessing,” Brown said in a statement. “The CFPB should be aggressively fighting for consumers, not looking the other way when banks take advantage of customers.”
Car-sharing platform HyreCar raised $12.6 million last week in an initial public offering of 2.5 million shares. The shares started trading June 27 under the ticker symbol “HYRE” on the Nasdaq Capital Market.
HyreCar is also granting underwriters a 45-day option to purchase an additional 378,000 shares at the IPO price — which could generate an additional $1.89 million before accounting for underwriting discounts and commissions. Underwriters, including managing underwriter Network 1 Financial Securities Inc., have not yet purchased any of those shares.
HyreCar has focused the past three years on “filling a clear gap” in the ridesharing industry, Joe Furnari, chief executive told Auto Finance News. With the mobility industry gaining traction, HyreCar has a “clear focus” on the future of transportation, Furnari said.
HyreCar had announced in May that it intended to go public, according to a filing with the Securities and Exchange Commission. At the time, the company planned to offer 2 million shares, with an additional 300,000 set aside for underwriters, at $5 to $6 a piece.
In 2017, the company posted $3.2 million in revenue, up from $515,437 in 2016, while its operating loss was $4.1 million, compared with a loss of $838,560 a year earlier, according to its filing. Additionally, HyreCar’s driver base shot up 318% last year, to 4,430 drivers from 1,060 in 2016. However, the company noted in its filing that rapid growth and limited operating history have served as a challenge for its current business.
As a peer-to-peer car-sharing marketplace, HyreCar allows car owners to rent their idle cars to drivers for rideshare companies, such as Uber and Lyft. HyreCar, formed in 2014, is based in Los Angeles, with operations in Atlanta, Chicago, Dallas, Philadelphia, San Francisco, Washington, D.C., and several other cities.
As of 12:42 p.m. Eastern Time, the stock was trading at $4.98 per share, just under its $5-per-share IPO price.
With a decade of recovery since the Great Recession, the market is starting to experience some wear and tear, Chuck Berend, director of U.S. auto loans for BBVA Bank, told Auto Finance News.
“In auto lending, loan volumes are high, unemployment is very low, consumer spending is up, and everybody wants a car,” Berend said. “These are the good times, right? But at the same time, you can already see the signs of stress.”
For instance, OEMs like Ford Motor Co. and Fiat Chrysler Automobiles have limited production on certain models, which could lead to higher sticker prices. Rising interest rates will likely spur longer loan terms, which can exacerbate/increase negative equity. Earlier this month, the Federal Reserve bumped rates up to a range of 1.75% to 2%, with plans to raise them twice more this year.
Additionally, with consumers increasingly opting for trucks and SUVs, the rising price of gas can make monthly payments less manageable.
“All of a sudden, there’s a point where [vehicles do] become less affordable,” Berend said. “Those things are all kind of out there, but nobody wants to talk about the end of party while the DJ is still playing and the drinks are still flowing. But every party ends.”
之前曾担任通用汽车公司马来西亚公司负责人及J.D. Power 中国分公司董事的Dunne说道：“自从21世纪初期，融资成为独有的行业特征以来，外国公司就一直在试图打开中国的汽车市场。”“所以即使中国要‘开放市场，欢迎’外国投资，想要取得成功所需面对的障碍仍然很严峻。作为进入这一市场的代价，外国公司可能需要面对连续五年或更长时间的亏损状况。“
Nicholas Financial attempted to expand its product offerings and provide lower interest rates, but the company’s fiscal year results released this week show that the strategy has not been working and it has decided to move back to its core subprime base.
The lenders outstandings are down 5.7% to $3.27 million for the year reflecting a 35% drop in originations. Meanwhile, delinquencies across all the company’s products rose to 10.33% of the overall portfolio, up from 9.92% the year prior.
Nicholas Financial appointed Douglas Marohn as president and chief executive in December following Ralph Finkenbrink’s retirement. Since then, he has been working to turn the results around.
“Over the course of fiscal 2016, 2017, and most of fiscal 2018, the company attempted to expand its product mix to include larger loans with lower APRs and reduced discounts,” the company said in earnings reports ended March 31. “With the recent change in management, the company rededicated itself to its core product of financing primary transportation to and from work for the subprime borrower and refocused on pricing integrity on those Contracts acquired.”
The company has had significant executive turnover beyond the CEO as well. Kelly Malson was named chief financial officer in March following the resignation of Katie MacGillivary. Additionally, the company’s controller position was replaced and Senior Vice President of Branch Operations Kevin Bates did not have his contract renewed by the company.
These executive changes come at a time when Nicholas is looking to reinsert itself into the competitive subprime space
“The non-prime consumer-finance industry is highly competitive, and the competitiveness of the market continues to increase as new competitors continue to enter the market and certain existing competitors continue to expand their operations and become more aggressive in offering competitive terms,” the company wrote in its report.
Tight lending standards, decreasing vehicles sales, and a digital-savvy market has one dealer turning to credit unions to “pick up the slack” of traditional lenders, Paul Ritchie, president of Hagerstown Honda and Kia.
“We used to do very little business with credit unions, but now we are doing a lot more than we’ve ever done,” Ritchie said. “They don’t have their hands tied as much from the Consumer Financial Protection Bureau.”
Although the CFPB has loosened up under Acting Director Mick Mulvaney’s leadership, the uncertainty with compliance under the CFPB makes traditional lenders too cautious and some lending standards too tight — credit unions are serving as a reasonable alternative.
In fact, Ritchie said that working with credit unions is where his Hagerstown, Maryland-based dealerships are making the most money during a time when front-end profit on selling a car is at an all-time low.
“Honda used to sell about 2,300 cars a year,” he said. “Now, that’s scaled back a bit to 1,800 units sold a year.”
He’s able to make up some of those lost profits with service contracts. As unit sales experience a downward trajectory of 4% year-over-year, dealers are trying to make as much as they can on service contracts.
“A lot of traditional banks put a limit on how much you can sell to a customer,” Ritchie said.
However, credit unions are more flexible. Since credit unions worry less about the CFPB, yet their lending standards are still high, credit unions serve as an “additional channel of comparative lending,” by offering more options, said Bob Child, chief operating officer of CU Direct.
Additionally, Ritchie notes a preference for the lending technology at credit unions. Dealers like his are turning to credit unions to provide expedited loans through new technology that also remains personable.
According to CU’s auto lending platform, credit unions funded 1.8 million loans year-end 2017, generating $39 billion in credit union auto loans, compared with $32 billion in loans funded the year prior.
“Credit union market growth has come, in part, from the market pullback by some banks and other lenders,” Child said.
Consumers are on track to spend $215 billion on new vehicles during the first half of this year — almost $5 billion more than the first six months of 2017 — despite a decrease in units sold, according to a new report by J.D. Power and LMC Automotive.
In fact, the first six months of 2018 is forecast to deliver the “weakest industry retail sales results since 2014,” said Thomas King, senior vice president of the Data and Analytics Division at J.D. Power.
However, the data reveals that weaker sales volumes are offset by higher prices paid, which are expected to reach a record $32,221, surpassing the previous high of $31,397 set in the first half of 2017. Additionally, consumers’ average incentive spending per unit through the first six months of the year is up at $3,892 compared with $3,774 from the prior year.
Although the data shows consumers are willing to spend more on vehicles right now, the tariff threats will send prices “skyrocketing” which is going to result in a “significant pullback” in units sold, Cody Lusk, chief executive of the American International Automobile Dealers Association, told Auto Finance News.
Tariffs are causing a high level of “uncertainty and negative effects” that are causing “profit and volume warnings,” said Jeff Schuster, LMC Automotive’s President of American Operations and Global Vehicle Forecasts. “A trade war involving vehicles would be devastating to sales volume in the U.S. and other key markets. No one wins when more than a million units annually are at risk in the U.S.”
In terms of units sold, fleet sales are expected to total 300,200 units in June, a decrease of 4% compared with June 2017. Fleet volume is down by 1% versus last year, and the number of days new vehicles sit on a dealer lot remained flat at 70 days versus last year.
Click here to view the full report by J.D. Power and LMC Automotive.
Volkswagen’s U.S. captive finance arm, Volkswagen Credit Inc., is reentering the prime ABS space with a $1 billion issuance thanks to stronger collateral and credit enhancements, according to presale reports from S&P Global Ratings and Fitch Ratings.
Volkswagen Auto Loan Enhanced Trust (VALET) 2018-1’s issuance is VW Credit’s first auto loan securitization since 2014. The pool is secured by $1.1 billion of loans from the lender’s $8.3 billion managed portfolio.
“The series 2018-1 collateral pool exhibits better credit characteristics than the VALET 2014-2 pool,” S&P Global Ratings noted in its report.
The rating agencies both note better credit characteristics including VW Credit’s highest ever weighted average FICO in an issuance at 774 up from 762 in the 2014 issuance.
Additional collateral changes include an increase in weighted average seasoning to 11.8 months compared with 8.5 months; a decrease in the percentage of loans with original terms greater than 60 months to 46.7% compared with 57.5%; used vehicles increased to 28.2% compared with 27.7%; and Audi vehicles increased to 38.9% of the pool compared with 29.4%.
However, S&P Global Ratings expects cumulative net losses will range from 0.80% to 0.90% for series 2018-1 — higher than the lifetime losses incurred for series 2014-2 pool. S&P noted an “expectation of lower future recoveries, which may result in higher loss severity, all else being equal, and our forward-looking view of the macroeconomic and industry-specific conditions.”
All term notes have preliminary triple-A ratings from both rating agencies. The capital stack of VALET 2018-1 offering is made up of a $236 million class A-1 tranche; $400 million class A-2 tranche; $284 million in four-year in class A-3 notes; and an $80 million class A-4 tranche due 2024.
To view S&P Ratings’ full presale report, click here. To view Fitch Ratings’ full presale report, click here.
A New York federal judge ruled on Thursday that the structure of the Consumer Financial Protection Bureau is unconstitutional. The rationale: it’s an “independent agency with a director that can only be dismissed for wrongdoing,” Justin Hosie, an attorney with Hudson Cook LLP, told Auto Finance News.
The ruling is a part of a decision to dismiss the CFPB from a previous lawsuit that Cresskill, N.J.-based lender RD Legal Funding LLC and founder Roni Dersovitz of scamming 9/11 first respondents and NFL retirees with high-cost loans.
“Because the CFPB’s structure is unconstitutional, it lacks the authority to bring claims under the Consumer Financial Protection Act and is hereby terminated as a party to this action,” Judge Loretta Preska of the U.S. District Court for the Southern District of New York wrote in her case filing.
While the judge ruled in RD Legal’s favor on the CFPB’s constitutionality issue, she did not dismiss the suit altogether. “Accordingly, the defendants’ motion to dismiss the complaint is denied,” she wrote.
As such, the state will continue to pursue its case against RD Legal for “as many victims as possible,” Amy Spitalnick, press secretary for the N.Y. attorney general’s office, said in a statement to Law360.
Still, RD Legal’s counsel, David Willingham of Boies Schiller Flexner LLP, viewed Thursday’s outcome as a win, stating that the CFPB never should have brought this action in the first place. Willingham noted that the defendants are pleased with the ruling, as it limits the ability of the government to overreach this suit.
Meanwhile, at least one trade group agreed with the decision.
“The court’s ruling further proves one person should not have the sole authority over the financial lives of every American consumer,” Consumer Bankers Association told AFN in a statement. “It creates uncertainty, limits opinions, and turns the bureau into a political pendulum, swinging with each new Administration.”
However, if the U.S. Supreme Court ultimately shuts down the CFPB — rather than reform Dodd-Frank to impose a constitutional structure as a lower court had proposed — Hosie said the “big question” that needs an answer — is whether civil penalties imposed by the agency on the industry would need to be returned to the organizations that were fined.
CBA proposes creation of a bipartisan commission to lead the bureau and “ensure a diverse set of views have a seat at the table when important consumer financial policies are being crafted.”
