© Can Stock Photo / diego_cervo

On Wednesday, April 17th, the U.S. Senate completed a 15 minute roll call vote on the motion to proceed with S.J.Res.57, a joint resolution providing for Congressional disapproval of the rule submitted by the Consumer Financial Protection Bureau (CFPB) relating to “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act”. Weeding through the challenging language, essentially this means the Senate will proceed with debate to backtrack on one of the key precepts of the CFPB – guidance restricting how auto loans can be presented to consumers.

The original intent of the CFPB’s rule was to limit racial discrimination during the auto lending process by forcing lenders to cap how much dealerships are allowed to markup interest rates on approved loans. However, many feel the rule was simply a restatement of existing laws already in force under the Equal Credit Opportunity Act (ECOA). And while new CFPB acting Director Michael Mulvaney appears to be de-fanging the organization, many are left scratching their heads on the topic of compliance in auto lending.

Regardless of how this debate ends, compliance is alive and well in the auto lending industry. There are numerous other local, state, and federal regulations which are firmly in place. For example, at the state level, each state has a comprehensive list of regulations touching on Lemon Laws, addressing misleading advertising, warranty agreements, pricing, documentation fees, and more. Minding these regulations is imperative, especially since they are carefully monitored by Motor Vehicle boards and state Attorneys General who hold the power to suspend dealership licenses and fine lenders.

At the federal level, the Federal Trade Commission serves as one of the lead regulatory entities for the auto industry. Other regulations include the Patriot Act, Equal Credit Opportunity Act, and the Fair and Accurate Credit Transactions Act.

While compliance regulations continue to place a burden on loan portfolios, lenders can take steps to off-set the repercussions by offering complimentary consumer protection products, like vehicle service contracts and vehicle return protection policies. This gives lenders the ultimate control over product compliance.

Offering complimentary consumer protection products also provides lenders the potential to protect loan portfolios from the risk of default and delinquency in the event of a vehicle breakdown or job loss by reducing the financial burden on consumers and enabling them to either keep making their loan payments, or return the vehicle with no damage to their credit.

As compliance costs and vehicle prices rise, lenders need more tools than APR and loan terms to manage look-to-book goals and loss ratios. Adding complimentary consumer protection products to their tool belt opens the door to increased non-interest-bearing income and enhanced compliance control.

Administrators such as EFG Companies can bring you up to date on how to achieve compliant profitability in the auto lending space. Fortify your business with EFG and contact us today.

Source link

Turn Your Bulk Auto Notes Into Cash

© Can Stock Photo / smitea

PNC Bank reported a 120% year-over-year increase in auto delinquencies in first-quarter earnings this week.

Delinquencies 30 to 59 days past due increased to $77 million in the quarter compared with $35 million during the same period the year prior. Late-stage delinquencies 60 to 89 days past due were also on the rise climbing by 80% year over year to $18 million during the quarter.  

On the call, PNC noted an increase in delinquencies across its loan products due to effects from last year’s hurricanes.

PNC did see some improvement in the delinquency rate quarter over quarter. Early-stage delinquencies dropped to $77 million compared with $79 million in the prior quarter ended Dec. 31, 2017.

Meanwhile, PNC saw an increase in auto originations. The bank reported a 2.65% increase to $13.1 billion in the 1Q compared with $12.1 billion the comparable period the year prior.  

Source link

Turn Your Bulk Auto Notes Into Cash

Wells Fargo & Co. was officially fined $1 billion by federal regulators today in part for mischarging consumers for insurance they didn’t need, following weeks of reporting the charge would be coming.

The consent order does not detail how much the bank will be required to pay back to consumers and instead instructs the bank to submit a “comprehensive remediation plan” within 60 days. The number of total affected consumers and how much it will cost the bank to make them whole has not yet been fully determined by the lender nor the regulators.

“Because of the ongoing nature of the remediation, we won’t know the answer to that question until the remediation is substantially complete,” a spokeswoman told Auto Finance News.

The Consumer Financial Protection Bureau and Office of the Comptroller of the Currency jointly issued the fine against the bank for mischarging mortgage interest rate-lock extensions and misplaced forced collateral protection insurance (CPI) policies on auto borrowers.

Wells Fargo Auto’s retail installment contracts required that borrowers acquire additional insurance products for their vehicle, and if they didn’t, the bank would automatically charge for the policy. However, consumers who independently bought the insurance were often charged for the CPI policy anyway.

Between 2005 and 2016 — when Wells Fargo ended the policy — it’s estimated that 28% of CPI placements were “duplicative” of policies borrowers already held for the entire length of the term, according to the vendor handling the policies. Wells Fargo force placed some 2 million policies in that time, which means 560,000 consumers were impacted.

However, that only accounts for consumers who were wrongly charged for the entire length of the placement. There’s an outstanding question about how many consumers had a temporary lapse in their insurance coverage and are owed partial refunds.

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.

Office of Management and Budget Director Mick Mulvaney speaking at the 2018 Conservative Political Action Conference (CPAC) in National Harbor, Maryland.
(Photo Credit: Gage Skidmore)

A previously leaked report from consulting firm Oliver Wyman identified 800,000 consumers affected including 274,000 borrowers sent into delinquency and 25,000 wrongful repossessions. The bank claims it identified 500,000 consumers and 20,000 wrongful repossessions.

In July 2017, Wells Fargo proactively agreed to pay $80 million in remediation costs to consumers. However those efforts have been fraught as the OCC claimed in a leaked report that the amount was insufficient, and reports showed that Wells Fargo had sent letters to borrowers who were not affected by the policy.

“For more than a year and a half, we have made progress on strengthening operational processes, internal controls, compliance and oversight, and delivering on our promise to review all of our practices and make things right for our customers,” Timothy J. Sloan, president and chief executive officer of Wells Fargo, said in a press release. “While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency.”

The consent order requires the bank “appoint and maintain an active Compliance Committee of at least three members, of which a majority shall be directors who are not employees or officers of Respondent or any of its subsidiaries or affiliates.”

The CFPB and OCC do not touch Wells Fargo’s outstanding issues with guaranteed asset protection (GAP) policy refunds. The bank is accused of improperly refunding consumers for these GAP policies when borrowers paid off their loans early. The spokeswoman declined to comment on the investigation.

Source link

Turn Your Bulk Auto Notes Into Cash

Via media.ally.com

Tim Russi, president of Auto Finance at Ally Financial Inc., will leave the company October 1 and until then serve as vice chairman of auto finance advising his successor through the transition, the lender announced today.

Russi will be replaced by Doug Timmerman who has been president of Ally’s insurance business since 2014, and prior to that was vice president of auto finance. Russi joined Ally in 2008 and has been president since 2012; under his tenure, the auto finance business had $328 billion in originations and added 8,000 dealer relationships, according to a press release.

Ally auto finance brought in net loan and lease revenue of $1.3 billion in 4Q17 compared with $834 million during the same period in 2012 when Russi first took reigns at the company, according to company earnings reports. Additionally, Ally originated $9.1 billion in the fourth quarter 2017 up from $8.9 billion from the comparable period in 2012.

Mark Manzo will succeed Timmerman as president of Ally’s insurance business. Manzo will lead key business development and diversification initiatives for Ally’s insurance business, with a focus on creating new relationships with dealers and digital marketplaces, per the release.

Ally Financial announced several leadership changes to its automotive, insurance, and risk management units including the creation of a chief operations officer position. David Shevsky has been named chief operating officer of auto finance at Ally. Shevsky will oversee consumer risk and operations, commercial risk and credit administration, collections and loss mitigation activities, and business systems. Shevsky joined Ally in 1986 and has been chief risk officer for Ally since 2015. Succeeding Shevsky, Jason Schugel has been named chief risk officer of Ally. Schugel was previously deputy chief risk officer for the company since 2017.

Ally declined to provide additional comment.

Source link

Turn Your Bulk Auto Notes Into Cash

© Can Stock Photo / ufabizphoto

The U.S. Senate on Tuesday passed a resolution (50-47) that would repeal an Obama-era rule that limits racial bias at dealerships amid further evidence that a significant amount of discrimination still takes place at dealerships.

The legislation would overturn the Consumer Financial Protection Bureau’s 2013 bulletin, which caps how much lenders can allow their dealer partners to increase interest rates after the consumer has been approved for a loan. The bill is headed to the House where it is expected to receive a vote today.

A February study found that 62% of the time more creditworthy non-white borrowers received more costly pricing options over their less-qualified white counterparts, according to the National Fair Housing Alliance. For those non-white consumers, they would have paid an average of $2,662 more than the white borrowers.

The study paired eight white consumers with eight non-white borrowers with higher credit scores each seeking financing at various Virginia dealerships for the same car — all the way down to the VIN number. In a number of cases, the non-white testers were presumed to be less creditworthy when they walked into the dealership and never had their credit scores pulled to prove otherwise, even when it was requested by the borrower.

“If they had taken the step to pull the credit, they would have seen the extent to which the non-white tester was a credible buyer, but they didn’t even in some instances take that step,” Morgan Williams, general counsel for the Fair Housing Alliance, told Auto Finance News. “There was a great lack of transparency that occurred in our tests with our testers across the board, regardless of race. But, when that content was analyzed in the context of race, we found the non-white testers were treated even worst.”

In one of the paired tests, a non-white borrower tried to explain that her credit score was in the 800s and thought the 6% interest rate offered was too high, but the dealership opted to base the rate off of a national average and refused to pull her score to get a lower rate. On the other hand, the white tester seeking financing for the same car got a lower interest rate, shorter term, and a lower monthly payment. The non-white tester would pay a total of $2,277 more than the white tester over the life of the loan.

“There’s no basis for that difference in price other than incentives that lenders are being driven by to increase the cost of these loans,” Williams said. “That [effect] is being experienced most unfavorably by non-white testers.”

Via the National Fair Housing Alliance

While this recent study was limited in scope, Williams said the organization has extensive experience performing similarly constructed tests in the mortgage space and that these results are “probative and can provide some valuable information.” The CFPB and National Consumer Law Center have also found evidence discrimination in the dealer markup process.

“The Bureau has urged all auto financers to move to a method of compensating auto dealers that does not result in disparate impacts on minority borrowers,” Stuart Rossman, staff attorney and director of litigation at the National Consumer Law Center, wrote in a column for The Hill. “Now, some in Congress are calling for the repeal of the auto loan guidance. Congress should be standing with Americans subjected to the injustice of discrimination, not interfering with efforts to enforce fair lending laws.”

On top of advocating for the continuation of the CFPB’s rules, the Fair Housing Alliance goes a step further to say no incentives should exist for this to happen at the dealerships.

“Dealer compensation should not be permitted to vary based on the loan terms, other than the principal balance,” the report states. “Mortgage broker markups were addressed similarly In response to abuses in the subprime mortgage market that led to our most recent housing crash.”

Source link

Turn Your Bulk Auto Notes Into Cash

© Can Stock Photo / microolga

China announced the phaseout of a two-decades-old policy that requires foreign manufacturers share their factory ownership and profits with Chinese companies, the government announced Tuesday. However, financial arms still remain beholden to the joint venture rules.

The National Development and Reform Commission announced that ownership caps will be dropped for companies making fully electric and plug-in hybrid vehicles this year, with commercial vehicle manufacturer caps being lifted in 2020, and the broader consumer combustion engine OEMs following in 2022.

China has limited foreign ownership to 50% since 1994, and last week, the Peoples Bank of China began lifting those restrictions for certain financial institutions. While the government said it’s encouraging foreign investment in auto finance, the caps for the financial arms remain at 50%.

U.S. EV manufacturers such as Tesla could stand to benefit the most in the short term, while other manufacturers will have to wait longer to get the benefits and may find it difficult to get out of existing joint venture agreements, analysts said.

A number of manufacturers including Volkswagen, Daimler, Nissan Motor Co, and Honda Motor Co. signaled they value their current arrangements with Chinese OEMs but will be watching the changes as they progress.

Although the OEMs signaled their commitment to the joint ventures, Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight, told The Wall Street Journal he expects car-making joint ventures would be gone by 2030. Under the new timeline, car manufacturers “have four years to arrange the divorce,” he said.     

However, it may prove difficult to accurately assess the value of the Chinese OEMs, and foreign car companies would have to buy them out to effectuate the separation — a price tag many may not be able to afford, Janet Lewis, managing director of equity research at Macquarie Capital Research, told WSJ.

Source link

Turn Your Bulk Auto Notes Into Cash

Jerry Moran, Republican Senator from Kansas (via Wikimedia Commons)

A Senate vote to dismantle the Consumer Financial Protection Bureau’s 2013 bulletin governing interest rate caps on indirect auto transactions could be up for a committee vote as early as this week, the office of the bill’s lead sponsor told Auto Finance News.

Jerry Moran (R-KS) introduced the bill (S.J.Res.57) in March and late last week Senate leader Mitch McConnell’s (R-KY) office informed Moran that the bill is on its way to a vote.

The original intent of the CFPB’s rule was to limit racial discrimination during the car buying process by forcing lenders to cap how much dealerships are allowed to markup interest rates on approved loans. The CFPB introduced the provision as a bulletin — meaning it’s just a restatement of laws already at play in the Equal Credit Opportunity Act (ECOA) — however in December the Government Accountability Office (GAO) determined the bulletin an official rule that’s subject to Congressional Approval.  

“This resolution of disapproval is an opportunity to reverse an inappropriate and ill-advised auto-lending guidance document issued by the CFPB in 2013,” Moran’s office said in a statement to AFN. “The non-partisan GAO made clear the CFPB erred in its issuance of this guidance and now Congress has an opportunity to correct this mistake. I encourage my colleagues on both sides of the aisle to support this resolution to provide greater stability in the automobile marketplace.”

Lenders are the ones who enforce the caps on their dealer partners and the CFPB has fined lenders in the past for going beyond 150 basis points. However, it’s unclear how many lenders have switched to that standard. Lenders across the industry feel the rule is “offensive” because it puts lenders on the hook for a process that’s ultimately done at the dealerships, said John Redding, partner at Buckley Sandler LLP. 

“It’s a bit counter-intuitive because this is not the broad view held, but I don’t know that elimination of this bulletin is really going to change much,” Redding told AFN. “If [the bulletin] really is just a restatement of the requirements under ECOA — and the bureau is inclined to pursue it that way — then removal of the bulletin doesn’t seem to change a whole lot.”  

Source link

Turn Your Bulk Auto Notes Into Cash

Near-prime lender Roadrunner Financial is seeking to double the total originations earned year over year, Mark Davidson, head of sales, told Powersports Finance.

Roadrunner is already on pace to complete this goal, which has been caused in part by new data that has been collected over the last several years, validating their credit models and allowing the company to “see what’s really happening,” Davidson explained.

“What this is allowing us to do is identify the customers who are trying to build credit that we are lending responsibly to because we don’t want to lend to just anyone,” he said. “And it’s allowing us to do that likes this [snaps fingers] when, historically, it would have taken several highly trained underwriters trying to figure out if this is a good responsible loan.”

While he did not disclose the originations total from 2017, the company was “pretty happy” with how it performed last year, he said.

“Granted, we had a lot of controls on keeping originations suppressed,” Davidson explained. “We’re a credit-first organization. What we don’t want to do is run out and drive a billion dollars in originations and then go ‘Oh my god, I didn’t see this blind spot’ and all of a sudden our entire world blows up.”

Source link

Turn Your Bulk Auto Notes Into Cash

Chase Auto Finance drove revenue higher for the company by growing its lease book, reflecting the company’s optimism in the strength of consumer lending, Chief Financial Officer Marianne Lake said on the earnings call.

Chase reported higher revenue that was in part driven by an increase in auto lease volume, the company reported. The bank’s lease portfolio grew to $17.6 billion during the quarter compared with $13.8 billion the same period the year prior. Chase originates leases for Mazda and Subaru brands.

The lender originated $8.4 billion in 1Q18, up 5% year over year. That pushed the portfolio to $83.4 billion, up from $79.1 billion during the same period the year prior.

Net charge-offs totaled $76 million during the quarter, down 6% YoY from $81 million. As a percentage of its portfolio, that decline brought net charge-offs to just 0.47% of its portfolio compared with 0.5% the same period the year prior.

Likewise, delinquencies in the portfolio were down. Delinquencies 30 days or more past due made up 0.71% of the portfolio, a 23 basis improvement YoY.

Additionally, expenses for JP Morgan Chase rose to $6.9B, up 8% YoY, “driven by investments in technology and marketing, higher auto lease depreciation and business growth” the earnings report said.

Source link

Turn Your Bulk Auto Notes Into Cash

© Can Stock Photo / image191

Wells Fargo & Co.’s first-quarter earnings were largely overshadowed by the bank’s confirmation that two regulators have offered to settle investigations into the lender’s auto insurance and mortgage practices for $1 billion.

The $1 billion figure reported last week by Reuters has been offered by the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau but has not yet been accepted by Wells Fargo.

“At this time, we are unable to predict final resolution of the CFPB/OCC matter and cannot reasonably estimate our related loss contingency,” the bank said in a public statement. “Accordingly, the preliminary financial results we report today may need to be revised to reflect additional accruals for the CFPB/OCC matter when we file our final financial statements.”

The statement only mentions the company’s issues with automotive force-placed insurance products called collateral protection insurance and mortgage interest rate lock extensions. It does not cite previously reported issues of improper refunds to customers who bought guaranteed asset protection policies.

Separately, the company reported that Wells Fargo Auto’s portfolio continues to decline in-line with its strategy. Total auto outstandings fell 18% to $49.6 billion compared with $60.4 billion the same period the year prior. Similarly, originations for the quarter were down 20% year over year to $4.4 billion.

The declines in the portfolio are less about “de-risking” the portfolio as they have been in previous quarters and have more to do with the competitive landscape of the auto finance industry more generally, executives said on the earnings call today. The company continues to project that the auto portfolio will begin to turn around in 2019.

Delinquencies 30 days or more past due grew to $1.45 billion — 12.4% higher than the same period the year prior. Likewise, charge-offs grew 24.5% year over year to $208 million during the quarter largely due to “increased severity,” the company reported.

Executives on the call noted that delinquency and loss rates are no longer driven by the effects of last year’s hurricanes, which caused the bank to issue 90-day payment delays on auto loans as consumers in Florida, Puerto Rico, and Texas recovered from the flooding. The loss rates are more reflective of the quality of the loan book now, the company said.  

Source link

Turn Your Bulk Auto Notes Into Cash