Tuesday, November 17, 2015
Monday, November 9, 2015
Lender beware of Scary Deals
Lenders Beware of ‘Scary Deals,’ Western Funding President Warns
If the auto finance industry continues to see deteriorating conditions like rising LTVs and lengthening loan terms, things could be headed for trouble, Guerin Senter, President of Western Funding said at the Auto Finance Summit 2015 last month.
“I think if the industry continues down the current trend, with these advanced rates and the advance to values, I think some people are going to look back at Q2 of 2015 and think, ‘That was probably the start of the turning of performance,’” Senter said. “I can say that because I look at a ton of deals, deals still land of my desk every day, I oversee the program design, we frequently look at competitors’ bids, and some of the stuff out there is just scary.”
Western Funding, a subprime auto lender based in Las Vegas, has done “scary deals,” too, Senter said, but he believes that now is the time for lenders to start looking at early performance indicators.
“For us, one of the first things we look at is early delinquency,” he said. “We think that the amount of days past due, when the consumer pays, has a strong correlation to the likelihood and success of that deal performing.”
Consumer credit scores have become much more meaningful than they have been in the recent past, too, and a 550 today is not what a 550 was, even just two years ago, according to Senter.
“The borrower [maybe] hit a few bumps: they lost their job — they’re great potential — but whatever the reason was, they were out of the car for a time and coming back in,” Senter said. “Those stories that make sense, everyone likes to talk about them: Give the borrower another car, they get a job again, they’re off to the races, and everything’s great.”
Today, however, a low credit score might just be a “seasoned subprime customer,” and while that static credit score might be the same over the last few years, the customer’s performance is not, he warned.
It is easier today to get an auto loan than it has ever been, Senter said, and likened the current auto finance environment to the mortgage industry about 10 years prior.
“Back in 2004 – 2006, if you met someone that couldn’t get a home mortgage, you would have thought that was crazy, and in some ways, it feel like that with an auto loan today. When someone says they can’t get an auto loan today, you think, ‘What do you mean? We’re practically giving them away, anyone can get an auto loan,’” Senter said. So I think that those are important things to be aware of as we see the market continue to shift, and how that evolves.”
If the auto finance industry continues to see deteriorating conditions like rising LTVs and lengthening loan terms, things could be headed for trouble, Guerin Senter, President of Western Funding said at the Auto Finance Summit 2015 last month.“I think if the industry continues down the current trend, with these advanced rates and the advance to values, I think some people are going to look back at Q2 of 2015 and think, ‘That was probably the start of the turning of performance,’” Senter said. “I can say that because I look at a ton of deals, deals still land of my desk every day, I oversee the program design, we frequently look at competitors’ bids, and some of the stuff out there is just scary.”
Western Funding, a subprime auto lender based in Las Vegas, has done “scary deals,” too, Senter said, but he believes that now is the time for lenders to start looking at early performance indicators.
“For us, one of the first things we look at is early delinquency,” he said. “We think that the amount of days past due, when the consumer pays, has a strong correlation to the likelihood and success of that deal performing.”
Consumer credit scores have become much more meaningful than they have been in the recent past, too, and a 550 today is not what a 550 was, even just two years ago, according to Senter.
“The borrower [maybe] hit a few bumps: they lost their job — they’re great potential — but whatever the reason was, they were out of the car for a time and coming back in,” Senter said. “Those stories that make sense, everyone likes to talk about them: Give the borrower another car, they get a job again, they’re off to the races, and everything’s great.”
Today, however, a low credit score might just be a “seasoned subprime customer,” and while that static credit score might be the same over the last few years, the customer’s performance is not, he warned.
It is easier today to get an auto loan than it has ever been, Senter said, and likened the current auto finance environment to the mortgage industry about 10 years prior.
“Back in 2004 – 2006, if you met someone that couldn’t get a home mortgage, you would have thought that was crazy, and in some ways, it feel like that with an auto loan today. When someone says they can’t get an auto loan today, you think, ‘What do you mean? We’re practically giving them away, anyone can get an auto loan,’” Senter said. So I think that those are important things to be aware of as we see the market continue to shift, and how that evolves.”
Monday, October 5, 2015
Friday, October 2, 2015
CFPB Hits Fifth Third for $18M
CFPB hits Fifth Third with Enforcement Order for Auto-lending
Discrimination
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Posted: 02 Oct 2015 01:30 AM PDT
Hi all - My name is Michael Emancipator. I am the new Senior
Regulatory Affairs Counsel, and I am thrilled to be a part of the NAFCU team!
On occasion, I will write for this blog to help credit unions interpret
regulations and compliance issues that come out of DC. Though I already met
some of you at NAFCU’s Congressional Caucus, I look forward to hearing from
each of you on these issues. I know many are working on last minute
preparations relating to tomorrow's TILA/RESPA Integrated Disclosures
deadline, but I thought you may want to take a break and look at the CFPB's
continued focus on indirect lending.
On September 28, the CFPB and Department of Justice announced an
auto-lending enforcement action against Fifth Third, charging $18M in
restitution to affected consumers. The action also required Fifth Third to
change their pricing and compensation system for its indirect auto-lending
program. The joint action alleged that Fifth Third’s program did not contain
enough safe-guards to prevent auto dealers from illegally charging a higher
rate to minority borrowers.
In an indirect auto-lending program, the auto dealer sends a
loan application for a car to the bank or credit union, which underwrites the
application and sets a loan rate based on the creditworthiness of the
applicant. The problem comes during the next step. After the dealer receives
the buy rate, some indirect programs give the auto dealer the discretion to
increase the rate when they finalize the deal with the customer, regardless
of the borrower’s creditworthiness - this is called the “dealer markup.”
With the enforcement action, the CFPB argued that Fifth Third’s
indirect auto-lending program allowed auto dealers to establish a pattern and
practice of discrimination by charging African-American and Hispanic
borrowers higher dealer markups than for non-Hispanic white borrowers - a
violation of the Equal Credit Opportunity Act.
The CFPB’s evidence of a pattern and practice of discriminating
against minorities was not direct. When Fifth Third provided its auto loan
information to the CFPB, it did not contain any information about race or
national origin (since federal law prohibits such disclosures in auto
lending). Instead, to evaluate any differences in dealer markup, the CFPB
used proxy data that looks to determine race by looking at surnames,
geographic location or a combination of both. While this proxy method has
been called into question by many industry stakeholders, the CFPB continues
to use this in its enforcement actions relating to indirect lending. In this
particular action, the hook that the CFPB hung its hat on was the
auto-dealer’s complete discretion for dealer markups, and Fifth Third’s
insufficient monitoring of the program.
The CFPB noted the following practices as key to overseeing indirect
auto lending relationships:
§ Imposing controls on
dealer markup, or otherwise revising dealer markup policies
§ Monitoring and
addressing the effects of markup policies as part of a robust fair lending
compliance program;
§ Eliminating dealer
discretion to markup buy rates, and fairly compensating dealers using a
different mechanism that does not result in discrimination, such as flat fees
per transaction
Also, following is a list of other useful sources:
§ NCUA Fair Lending Guide: NCUA’s
Office of Consumer Protection issued a Fair Lending Guide in
March of 2013. The guide gives a great overview of fair lending.
***
ESIGN: Electronic Records and
Signatures for Risk Management
Please join us for a webcast on
Wednesday, October 7 from 2:00 until 3:30 p.m. EST on ESIGN and risk management.
Online and mobile access to accounts, as well as other electronic
communications, have become a key driver for customer acquisition and
retention. Ensure your credit union is up-to-date with the laws governing the
use of electronic records and signatures by attending this webcast. You’ll
learn how the laws governing the use of electronic records and signatures
work, as well as insight into the latest regulatory and judicial
developments, and more.
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Friday, June 19, 2015
Tuesday, June 16, 2015
CFPB to Supervise Nonbank Auto Finance Companies
CFPB to
Supervise Nonbank Auto Finance Companies
Today, the Consumer Financial Protection Bureau published its
nonbank auto finance company "larger participant" rule and related examination
procedures. The final rule allows the CFPB to supervise larger nonbank auto
finance companies for the first time. The final rule, largely unchanged from
the proposed rule, will take effect 60 days after it is published in the Federal
Register.
The
final rule extends the CFPB's supervision jurisdiction to any nonbank auto
finance company that makes, acquires, or refinances 10,000 or more loans or
leases in a year. These companies will be considered "larger
participants" and the Bureau may oversee their activity to ensure they
comply with federal consumer financial laws, including the Equal Credit
Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the
Dodd-Frank Act's prohibition on unfair, deceptive, or abusive acts or practices.The Bureau estimates that it will now have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliates that engage in auto financing. The companies together originate around 90 percent of nonbank auto loans and leases. The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act.
The CFPB's release suggests that the Bureau's examiners will be
looking hard at marketing, credit bureau reporting, debt collection, and fair
lending.
Saturday, May 30, 2015
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