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.
     |
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
Saturday, May 16, 2015
Wednesday, April 15, 2015
Wednesday, December 3, 2014
Auto Loan Pricing Could Lead to Enforcement
Auto Loan Pricing Could Lead to Enforcement
by
DEC 1, 2014 1:24pm ET
The pricing of auto loans through dealerships by Toyota Motor Credit Corp., the lending arm of Toyota Motors Corp., could lead to an enforcement action from U.S. authorities, the company said.
The possible action could force the company to reimburse borrowers or lead to a fine.
Ally Financial Inc. last December was forced to pay $98 million to resolve similar discriminatory loan pricing charges from the U.S. Department of Justice and the Consumer Financial Protection Bureau.
The Justice Department and CFPB last week sent a letter to Toyota Motor Credit, stating that its auto lending practices "resulted in discriminatory pricing of loans to certain borrowers in contravention of applicable laws," the company said in a filing with the U.S. Securities and Exchange Commission.
The Justice Department and the CFPB are prepared to bring an enforcement action, the filing said, unless Toyota Motor Credit agrees to a resolution with the agencies voluntarily, including possibly changing its loan pricing policies.
Toyota Motor Credit officials said the company would work with the agencies to reach a resolution.
In April, BMO Harris announced that it was switching to a flat-fee pricing structure, in a move that drew praise from the CFPB.
Discretionary markups are just one area in which auto lenders are facing scrutiny from regulators. The Justice Department, the SEC and the New York District Attorney's Office have all opened inquiries related to subprime auto lending.
Fifth Third Bancorp and Honda's finance arm have also disclosed receiving similar requests for information.
The possible action could force the company to reimburse borrowers or lead to a fine.
Ally Financial Inc. last December was forced to pay $98 million to resolve similar discriminatory loan pricing charges from the U.S. Department of Justice and the Consumer Financial Protection Bureau.
The Justice Department and CFPB last week sent a letter to Toyota Motor Credit, stating that its auto lending practices "resulted in discriminatory pricing of loans to certain borrowers in contravention of applicable laws," the company said in a filing with the U.S. Securities and Exchange Commission.
The Justice Department and the CFPB are prepared to bring an enforcement action, the filing said, unless Toyota Motor Credit agrees to a resolution with the agencies voluntarily, including possibly changing its loan pricing policies.
Toyota Motor Credit officials said the company would work with the agencies to reach a resolution.
In April, BMO Harris announced that it was switching to a flat-fee pricing structure, in a move that drew praise from the CFPB.
Discretionary markups are just one area in which auto lenders are facing scrutiny from regulators. The Justice Department, the SEC and the New York District Attorney's Office have all opened inquiries related to subprime auto lending.
Fifth Third Bancorp and Honda's finance arm have also disclosed receiving similar requests for information.
Tuesday, November 4, 2014
Monday, November 3, 2014
Fitch Expects Subprime ABS Performance to Soften
Subprime auto ABS losses reached the highest level in four years last month, according to the latest quarterly auto ABS index from Fitch Ratings. The report also said used vehicle values have fallen for five straight months.
Despite the jump over the past quarter, asset performance remains on track within Fitch’s initial forecasts to date. That said, subprime ABS performance will likely be softer moving into late 2014 and early 2015, according to the company.
The report also indicated used vehicle values have fallen for five straight months.
“While still healthy, the wholesale auto market will be pressured from rising volumes into 2015,”said Senior Director Hylton Heard in an email statement.
Recent vintages continued to see YOY increases in losses. Losses on the 2010–2011 vintages are tracking at approximately 9.5% while the 2012–2013 vintages have projections of 10.0%–10.5% to date.
Fitch said recovery rates on subprime securitizations have been softer because of the softening wholesale vehicle market. The ratings agency said it will continue to closely watch collateral trends and wholesale vehicle market conditions in late 2014.
Meanwhile, Fitch noted that Federal bureaus have begun investigations into subprime lenders over concerns over the lending practices of subprime originators. Santander Consumer USA and General Motors Financial received such subpoenas. Nonetheless, Fitch so far believes the regulatory investigations will not negatively impact those company’s outstanding transactions.
Primed and Ready
On the prime side, losses and delinquencies rose in 3Q14, driven by seasonal pressures and shifting collateral trends. But levels observed have been within expectations and remained low relative to historical experience.
On the prime side, losses and delinquencies rose in 3Q14, driven by seasonal pressures and shifting collateral trends. But levels observed have been within expectations and remained low relative to historical experience.
The overall climb in delinquencies and losses for U.S. auto ABS during third-quarter 2014 followed the typical fall season patterns, Fitch said, indicating the slowdown will likely to continue this quarter and into next year. Although delinquency and loss levels were higher than a year ago, losses were still well within historical levels and in line with the solid 2005–2006 period.
Lease residuals are also seeing some pressure. Auto lease ABS residual values losses rose in 3Q’14, with some platforms now seeing losses for the first time in several years. Fitch’s RV Index declined to a 2.1% gain through 3Q2014, down from 8.4% through Q2.
Auto lenders are all competing for marketshare as car sales hovered at 16.5 million units. Not surprisingly, that increased market competition is contributing to the recent market volatility.
“With auto lenders jostling for market share, both underwriting and credit quality will suffer if lenders look to expand share and grow their portfolios aggressively,” said Heard.
SEC Requests Subprime ABS Documents From Ally
Ally Financial Inc. recently received a document request from the U.S. Securities and Exchange Commission in connection with an investigation related to subprime automotive finance and related securitization activities, the company said in 10-Q filing today.
An Ally spokeswoman wouldn’t comment much beyond what was revealed in the filing. “Ally has been requested to provide data and records relating to our auto finance activities and will respond accordingly to the SEC,” Ally spokeswoman Gina Proia wrote in an email to Auto Finance News.
Since 2013, Ally Financial has issued $6.7 billion in asset-backed securities, according to data from Deutsche Bank Securities Inc.
All SEC investigations are conducted privately, according to the SEC website. Typically, the SEC’s Enforcement Division obtains evidence of possible violations of securities laws from sources including market surveillance activities, investor tips and complaints, other divisions and offices of the SEC, the self-regulatory organizations, and other securities industry sources and media reports.
This latest move by a regulatory agency comes on the heels of last week’s revelation by General Motors Financial Co. in a 10-Q that it had been served with “additional investigative subpoenas to produce documents from state attorneys general and other governmental offices relating to our subprime auto finance business and securitization of subprime auto loans.”
Thursday, October 2, 2014
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