SubPrime Auto Finance News March-April 2015 : Page 1
Auto Finance News March + April 2015 | Volume 10 | No. 2 The Misguided Attack on Starter Interrupt Devices 18 ▼ ▼ ▼ Taking A Stand for Subprime Industry Defends Practices & Cheers Positive Consumer Credit Outcomes By Nick Zulovich, Editor Sponsored by D A T A DRIVING INNO V A TION SM Proﬁ le Series: Jonathon Levin, President & CEO, Turner Acceptance 20 22 ▼ The Story Matters in the F&I Ofﬁ ce society, you need access to an automo-bile,” Anderson said. “For most people, they need access CARY, N.C. — Former colleagues wondered what Tom Anderson was to an automobile to function, wheth-thinking when pondering whether to er it’s for a job or taking care of family. So the question is, we’ve become the new chief ex-got a fairly large popu-ecutive o cer of Exeter lation who for whatever Finance last fall. ese in-reason their credit history dividuals questioned why isn’t great or they might Anderson — who held be lower income or had roles in a variety of nan-some life events that they cial services segments — don’t qualify for prime or would make his rst for-super-prime loans. But ay into the auto space in Tom Anderson they need access to a car,” what some skeptics con-Exeter Finance he continued. tend is a quagmire. “So if folks like us “Here’s the way I look at it. If you actually look at the U.S. to-weren’t around, the result is they day, for the vast majority of the coun-would not have a vehicle. And for the try if you want to function in our STAND continued on page 3 FICO Enhances Relationships with TransUnion & Experian 26 ▼ AFSA Joins Effort to Enhance Non-Prime Auto Finance Survey By Nick Zulovich, Editor 125 A collection of the industry’s heavy-hitters covers nearly every aspect of the ﬁ nancing business, from lenders, the repossession and recovery worlds, rapidly advancing technological ﬁ rms, dealer associations and much more. Page 7 4 Ways to Prevent Fraud Inside Finance Companies 30 WASHINGTON, D.C., and HA-NOVER, Md. — e National Auto-motive Finance Association is again enhancing its annual Non-Prime Auto Finance Survey, this time by collabo-rating with the American Financial Services Association. e NAF Association and AFSA announced in February they will be working jointly to orchestrate the only survey speci cally focused on the sub-prime auto nancing market. For the past 18 years, the results have been used by companies for benchmarking, identifying trends and supporting and guiding policy decisions. e survey is conducted by Benchmark Consulting Internation-al, which gathers and aggregates all AFSA continued on page 4 In association with the National Alliance of Buy-Here Pay-Here Dealers Learn more at bhphreport.com
Taking A Stand For Subprime
Industry Defends Practices & Cheers Positive Consumer Credit Outcomes
CARY, N.C. — Former colleagues wondered what Tom Anderson was thinking when pondering whether to become the new chief executive officer of Exeter Finance last fall. These individuals questioned why Anderson — who held roles in a variety of financial services segments — would make his first foray into the auto space in what some skeptics contend is a quagmire.
“Here’s the way I look at it. If you actually look at the U.S. today, for the vast majority of the country if you want to function in our society, you need access to an automobile,” Anderson said.
“For most people, they need access to an automobile to function, whether it’s for a job or taking care of family. So the question is, we’ve got a fairly large population who for whatever reason their credit history isn’t great or they might be lower income or had some life events that they don’t qualify for prime or super-prime loans. But they need access to a car,” he continued.
“So if folks like us weren’t around, the result is they would not have a vehicle. And for the vast majority of them, they would be much worse off,” Anderson went on to say.
Despite some detractors hell-bent on painting subprime auto financing in a negative light — comparing it to the mortgage crisis that crippled the economy as well as unscrupulous dealers and finance companies facilitating the equivalent of taking candy from a baby — the new Exeter CEO, said.
“There has to be an avenue for folks who don’t have stellar credit history to have access to a vehicle. Then the question becomes how do we do it in a way that is fair and treats them with respect and that is transparent,” Anderson said.
“I think most players out there today are trying very hard to do that. I think the industry has gotten pretty darn good. I think most dealerships are doing the right thing. If there are few bad apples out there, hopefully they get weeded out because all they do is hurt the rest of us,” he went on to say.
How the Industry Watches Itself
Consumer Portfolio Services chairman and CEO Brad Bradley explained the company is working to ensure the dealers in its network are abiding by what federal regulators mandate. CPS is ramping up the effort in light of the Consumer Financial Protection Bureau being on the lookout for disparate impact in auto financing.
The CPS boss indicated that the finance company currently has between 8,000 and 10,000 dealers in its network for vehicle installment contract originations. Each quarter, the company calls on dealers to make sure they are compliant, and at last check, the company found less than a dozen showed any signs of disparate impact issues.
Bradley said the check-up is done to see if “there might be some disparate impact in the way they make car loans. If so, we cut them off our program and put them into a rehabilitation program at which point if they can complete that and demonstrate that there have been some changes, they can re-enter our program.
“Those kind of things I think can put us in a very strong position in terms of where we sit with all the CFPB stuff that’s coming down the pike,” Bradley continued.
Q4 Subprime Delinquencies Move Up Only Marginally
And as dealers and finance companies work to maintain compliance, it appears consumers are holding up their end of the contract, too. TransUnion’s latest report showed just a marginal uptick in subprime delinquency rates.
TransUnion pegged the year-over-year subprime delinquency movement in the fourth quarter going from 5.72 percent to 5.92 percent.
“Access to credit is expanding for American consumers, especially in the non-prime and subprime risk tiers,” said TransUnion senior vice president and automotive business leader Jason Laky. “Lenders are apparently taking advantage of a strong economy and robust auto market to find profitable lending opportunities beyond the limits of traditionally low-risk credit tiers. And given the fact that delinquency levels remain near historic lows, that strategy appears well justified.”
Overall delinquency rates didn’t jump much, either.
In fact at the end of 2014, TransUnion noticed auto loan delinquency rates remained relatively flat, with the 60-day auto loan delinquency rate moving from 1.14 percent in Q4 2013 to 1.16 percent in Q4 2014. Laky pointed out the account-level and consumer-level delinquency rates were unchanged from the prior quarter.
Auto loan delinquency rates increased in 27 states on a year-over-year basis, with the largest moves coming in Arkansas (up 15.7 percent) and Nebraska (up 10.5 percent). The largest declines occurred in Oklahoma (down 18.6 percent) and Alaska (down 16.1 percent).
How Subprime Consumers Rebuild Credit
The latest Equifax analysis of the subprime auto finance industry triggered memories of when auto finance leader Lou Loquasto first began his professional career. Not only did Equifax call the subprime auto space “sound,” but analysts also found data that clearly backed up the claim, which they shared in a report titled, Subprime Auto Loans: A Second Chance at Economic Opportunity.
Equifax determined that over a three-year time period, those consumers with deep subprime credit scores that originated a subprime auto loan showed, in aggregate, a significant increase in their credit score.
In fact, analysts highlighted those consumers improved their credit score by a median of 52 points, which is a 62.5-percent improvement over the median score change of the group that did not take out a loan.
Even more telling, Equifax noticed those consumers who took out a subprime auto loan were four times more likely than those who did not to have improved their score to a level above 640, moving them out of the subprime segment.
The data trends prompted Loquasto to say, “I started my career sitting across the loan desk from thousands of nonprime families in need of a vehicle — each of them having a story about circumstances that resulted in their less than perfect credit score.
“It was rewarding to watch these customers diligently make the most of these second chances and see a high percentage graduate to a prime credit standing — empowering them to take full advantage of their newfound financial well-being,” he added.
With only a few short years separating today from the depths of the Great Recession, report authors — Equifax chief economist Amy Crews Cutts and deputy chief economist Dennis Carlson — acknowledged it is natural and prudent to be skeptical of the recent increase in subprime auto lending.
“Nevertheless, it is imperative that this curiosity be answered with data and not anecdotes, particularly given the benefit our analysis shows that subprime auto lending brings to those consumers who exited the recession with blemishes on their credit,” Crews Cutts and Carlson wrote. “And when the data available today is examined, it becomes clear that there is no definitive evidence that suggests an auto subprime loan bubble similar to the housing bubble is forming.
“This does not mean that we have eliminated all risk from consumer auto lending, but the new tools and technology available today, along with heightened awareness of what contributed to the housing bubble formation, enable lenders to better manage risk, and contribute to a very different subprime auto lending market today,” they continued.
Read the full article at http://browndigital.bpc.com/article/Taking+A+Stand+For+Subprime/1953264/249685/article.html.
AFSA Joins Effort To Enhance Non-Prime Auto Finance Survey
WASHINGTON, D.C., and HANOVER, Md. — The National Automotive Finance Association is again enhancing its annual Non-Prime Auto Finance Survey, this time by collaborating with the American Financial Services Association.
The NAF Association and AFSA announced in February they will be working jointly to orchestrate the only survey specifically focused on the subprime auto financing market. For the past 18 years, the results have been used by companies for benchmarking, identifying trends and supporting and guiding policy decisions.
The survey is conducted by Benchmark Consulting International, which gathers and aggregates all the survey data confidentially. The data is gathered via a Web survey and incorporates Experian and Factor Trust data extracted from their traditional and alternative data credit reporting databases.
The two companies stratify and analyze the data according to their non-prime market segments specifically for the survey. This combination of information provided by AFSA and NAF Association members along with Experian and Factor Trust data will provide a comprehensive overview of the industry.
Participating companies will be given a free copy of the final report.
“The NAF Association has always been motivated to get the highest level of non-prime auto finance company participation in the survey,” NAF Association executive director Jack Tracey told SubPrime Auto Finance News. “We reached out to AFSA with the thought that with the two organizations behind the campaign we could increase participation.
“Historically we’ve gotten around 25 companies submitting data, but we felt that if we could increase the number of companies submitting information that the survey results would more accurately reflect industry trends,” Tracey continued. “The NAF Association enjoys the opportunity to work with AFSA when the combination of our efforts benefit the auto financing industry.”
When contacted by SubPrime Auto Finance News, AFSA shared a similar sentiment.
“We believe the Non-Prime Auto Finance Survey is an excellent resource, and we hope that making it a joint effort between AFSA and NAF will prompt the participation of more auto finance companies,” AFSA president and chief executive officer Chris Stinebert said. “Increased participation will enhance the value of the survey and the aggregated data it provides the industry.”
For more information or how to participate, contact Tracey at (410) 865-5431 or firstname.lastname@example.org.