Tag Archive | "AFSA"

CFPB to Oversee Nonbank Auto Finance Companies


WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB)’s proposal to extend its supervision to any nonbank auto finance company that makes, acquires or refinances 10,000 or more loan or leases in a year has cleared its last hurdle, with the bureau publishing this week its finalized rule and the examination procedures it will follow to ensure finance companies are complying with consumer financial laws, reports F&I and Showroom.

The finalized rule, which officials said remained largely unchanged from the bureau’s original proposal last September, marks the first time auto finance companies will be regulated at the federal level. And under the rule, the bureau estimates it will have authority to supervise about 34 of the largest nonbank auto finance companies, including captive finance companies, and their affiliated companies that engage in auto financing. These companies, according to the CFPB, originate around 90% of nonbank auto loans and leases.

“Auto loans and leases are among the most significant and complex financial transactions in a typical consumer’s life,” said CFPB Director Richard Cordray. “Today’s rule will help ensure the largest auto finance companies treat consumers fairly.”

The American Financial Services Association, a national trade group representing the consumer credit industry, had requested in a memo submitted on Dec. 8, the last day of the rule’s public comment period, that the bureau raise its threshold to 50,000 loans and lease, noting that the 10,000-origination threshold contradicted the Small Business Administration’s small business definition. But the finalized rule didn’t reflect that recommendation.

“As anticipated, the [CFPB] only made minor changes to its original proposal to define larger participants in nonbank auto finance,” Chris Stinebert, the association’s president and CEO, said in a statement issued to F&I and Showroom. “The CFPB’s rule retained its original transaction threshold, meaning that nonbank auto finance companies that make, acquire or refinance 10,000 or more loans or leases in a year will come under CFPB supervision and enforcement.”

But not all of the association’s recommendations were ignored. “At the AFSA’s recommendation, the CFPB broadened the definition of asset-backed securities to ensure that they are excluded from the 10,000-transaction threshold,” Stinebert added. “In addition, the CFPB modified the definition of refinancing for the purpose of the threshold. Specifically, the bureau clarified that a refinancing must be secured by an automobile to be included in the definition.”

The finalized rule also defines additional automobile leasing activities for coverage by certain consumer protections afforded by the Dodd-Frank Act. The AFSA, however, had asked that the bureau refrain from overreach regarding leases.

“Basically, the final rule remains largely unchanged regarding auto leasing,” Stinebert noted.

To coincide with its new authority, the bureau updated its Supervisory and Examination Manual to provide guidance on how it will monitor the bank and nonbank auto finance companies that it supervises. Among other things, examiners will be evaluating whether auto finance companies are:

  • Fairly marketing and disclosing auto financing terms: The bureau will be examining auto finance companies that market directly to consumers to ensure they are not using deceptive tactics to market loans or leases. The bureau is also looking to ensure that consumers understand the terms they are getting.
  • Providing accurate information to credit bureaus: The bureau will assess whether information auto finance companies provide to credit bureaus is accurate. The CFPB recently took an enforcement action against an auto finance company that distorted consumer credit records by inaccurately reporting information like the consumers’ payment history and delinquency status to credit bureaus.
  • Treating consumers fairly when collecting debts: The bureau will assess whether auto finance companies are using illegal debt collection tactics. The Bureau will be looking to ensure that collectors are relying on accurate information and using legal processes when they collect on debts. The bureau also will review the repossession process, including the practices of third-party service providers that are employed to repossess autos.
  • Lending fairly: The bureau will assess whether auto finance companies’ practices comply with the ECOA and other bureau authorities protecting consumers.

A copy of the rule can be accessed by clicking here, while the Examination Procedures for Auto Finance can be accessed by clicking here.

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New AFSA Study Refutes CFPB Allegations


WASHINGTON, D.C. – The American Financial Services Association offered its latest rebuttal this morning to contentions by the Consumer Financial Protection Bureau about problems with the indirect auto financing process, reported Auto Remarketing.

A comprehensive study commissioned by AFSA of more than 8.2 million auto financing contracts found that the disparity alleged by the CFPB between the amount of dealer reserve charged to minorities and non-minorities is not supported by data.

The study titled, “Fair Lending: Implications for the Indirect Auto Finance Market,” examined the proxy methodology used by the CFPB and found significant bias and high error rates.

“AFSA is committed to ensuring all consumers are treated fairly. AFSA’s results are much lower than what the CFPB alleges as problematic in the marketplace, because the association’s study factored in complexities of the automotive market that the CFPB did not consider, and errors associated with the CFPB methodology,” AFSA president and chief executive officer Chris Stinebert said.

“The interplay between factors such as geography, new versus used, length of loan, down payment, trade-in vehicle, credit score and competitive factors, such as meeting or beating a competing offer, is evidence of a dynamic market,” Stinebert continued.

AFSA explained that central to the study was an examination of the Bayesian Improved Surname Geocoding (BISG) proxy methodology used by the CFPB to determine disparate impact to legally protected groups.

Officials pointed out that BISG estimates race and ethnicity based on an applicant’s name and census data. AFSA’s study calculated BISG probabilities against a test population of mortgage data, where race and ethnicity are known.

Among the findings:

  • When the proxy uses an 80 percent probability that a person belongs to an African-American group, the proxy correctly identified their race less than 25 percent of the time.
  • Applying BISG on a continuous method overestimates the disparities and the amount of alleged harm and provides no ability to identify which contracts are associated with the allegedly harmed consumers.

“Alleged pricing discrepancies between minorities and non-minorities for auto financing rates are simply not supported by data,” Stinebert said.

“We have reviewed our study results with the CFPB and look forward to continuing our work with the bureau to address the issues we raised and to ensure consumers have access to affordable credit,” he went on to say.

Conducted by consultants at Charles River Associates, the study examined 30 percent of all new and 10 percent of all used retail installment contracts financed during 2012 and 2013.

The complete study is available on the AFSA website.

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The Light at the End of the Tunnel


After spending a week in New Orleans for the American Financial Services Association (AFSA) conference and the National Automobile Dealers Association (NADA) convention, there is no doubt in my mind that the future is bright for the success of the F&I office. There was plenty of talk, recommendations and insight concerning the federal oversight looming over the finance reserve issue, and the buzz for inside the F&I office is and will continue to be technology. According to the “experts”, the industry saw changes in the market; some were good and some do raise concerns. Depending on your view of the impending changes in our industry, the light at the end of the tunnel may be one of two things – however there is a third.

If you have been in the automotive industry for any length of time, you know the one constant of our industry is change. Things change. The product, the customer, the dealerships, the owners, the laws, the credit, the finance companies – regardless of the changes, we adapt and overcome. We are now seeing the changes in real time. In the past the change would happen and it would filter down into the dealerships and then into the F&I office. Today we see it coming by reading it, hearing it and seeing on the news. Being able to see the changes in real time gives us the opportunity to make adjustments in our processes, so when we have no choice in the matter, we are already prepared.

If you have not started preparing for the loss of finance reserve as we have known it, the time is now. It is happening with some finance companies already, and soon all will be required to comply. This is not an option for the finance companies. I heard it directly from the Assistant Director of the CFPB: discretionary pricing at the dealership level should not be allowed. The good news is that dealerships will continue to be compensated fairly for the work and effort to secure a loan for the customer, as long as it is not based on a discretionary form.

There were several recommendations given to compensate the dealership:

  • A flat fee – With factory-incentivized rates, many dealerships are accustomed to this already.
  • A percentage of Line 5 (amount financed) – Many of our finance companies
    already offer this model.
  • A hybrid – This was the new one. A mix between a basic flat, a
    percentage of line 5 and compensation based off of the term of the loan.

The last day of the NADA convention, there was a workshop that handed out a Fair Credit Compliance Policy & Program. It outlined the recommendations from NADA on how dealerships may want to handle finance reserve for the time being. This is a fantastic initiative encouraging a written process at the dealership level. This sends a message the federal agencies that we, as an industry, want to do what is right to discourage any type of discrimination.

In my opinion – and I hope I am wrong on this – the federal oversight hammer will come down, and the ability to negotiate the sell rate from the buy rate will no longer be an option. My advice: take the flat and focus on your product sales. I know this is not the most popular position, however, for the dealerships that focus on reserve the light at the end of the tunnel will be a train.

The Changing Face of F&I
Technology is a major focus by the factories on the sales floor; more and more factories are requiring the sales team to be equipped with a tablet to assist in the sale of the vehicle. We know many of our customers are becoming accustomed to technology in their everyday life as well, and the retail automobile industry is responding. When it comes to the F&I office, the move to more technology is not always embraced at the same level as the sales floor. Do not be afraid of the technology: it can help, and as time moves forward, it may make our lives, as F&I managers, a bit easier.

Many companies have introduced tablet-based F&I presentation tools and solutions, and these have come with mixed emotions, with good reason. One thing is clear though, the customers want to be involved, and tablet technology facilitates that involvement, but how involved is the business manager? This is where many F&I managers have a severe disconnect.

As a dealer, general manager, finance director or business manager, you may be looking at a tablet or digital piece for your F&I office and I encourage you to look; however, you need to find the right fit for situation. The wrong tablet or digital technology has proven to be as detrimental to the success of the F&I office as the right technology is helpful.

Many of the tablets are almost designed to be a digital F&I manager, reducing the amount of interaction between that person and the customer. This is the primary objection of many F&I managers. If you have an F&I office that is struggling, and the talent pool available in your dealership is shallow, this is a viable option. If you have good or even strong F&I manager, make sure you go with a tool that is more of an electronic menu. I saw a new one at NADA that will be released this month that is a great “split the difference” between something the customer can work with and something familiar enough to the F&I manager that they will be comfortable using it. Do you need a solution or a tool: there is a distinct difference between the two, and you need to find the one that will work best in your F&I office. The light at the end of this tunnel is the glow from a backlight.

The Stats Don’t Lie
There was a fair amount of statistics about the automotive industry from the finance side at NADA. Looking at the numbers, we have to be prepared for the direction the industry is moving: longer term loans, the popularity of leasing and the amount of disposable income are all factors that directly impact our industry and, more specifically, the F&I office.

All of the economic indicators show another strong year for 2014, with an increase of disposable income. What has helped this is less debt per household, less debt overall and more money, which allows for more cars sold and customers able to afford more F&I products.

A few interesting numbers: 84.8% is the finance and lease penetration on new vehicles, while that number is 54.6% on pre-owned. This shows that the finance companies have the money to lend and, more importantly, are willing to do so. This is being pushed by higher credit scores averaging 716 for new and 648 for pre-owned; the increase comes from less debt and more disposable income. This is a double bonus for our industry.

The average loan amount for 2012 was $26,685 with an average payment of $459, and an average term of 65 months. The interesting point here is that the average loan amount and payment stayed about the same for 2013 however the length of term increased, and now 72 months is normal for new car loans.

With longer-term loans more accessible, 19.3% of all new car loans exceeded 72 months last year. For the sales department, this increases the length of time to have a customer come back into the buying cycle, however for the F&I office this generates plenty of need for GAP and service contracts. From a statistical outlook, the light at the end of the tunnel is a bright and shiny opportunity for the F&I office.

2014 has all the indicators for a strong year in the automobile industry. The factories are producing fantastic products with the marketing behind them to drive customers into the dealerships. The credit scores are up, the finance companies have money to lend out and the customers have more disposable income. Drop in some technology, and the F&I office will have a strong – if not another record breaking–year.

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Industry Groups Question Study on Discrimination in Auto Lending


Durham, N.C. — The Center for Responsible Lending (CRL) released findings that show negotiation does not help African American and Latino car buyers secure better interest rates on auto loans. However, industry associations such as the American Financial Services Association (AFSA) and the National Automobile Dealers Association (NADA) discounted the study, claiming it lacks data to support its claims.

According to the study, 39% of Latinos and 32% of African Americans reported making attempts to negotiate their interest rate, compared to only 22% of white respondents — yet minority buyers received higher interest rates. The report, “Non-Negotiable: Negotiation Doesn’t Help African Americans and Latinos on Dealer-Financed Car Loans,” is based on a telephone survey of 946 consumers conducted in October 2012.

“The CRL report is based on a sample size of less than 900 borrowers self-reporting that they purchased a vehicle at a dealership in the last six years,” said Chris Stinebert, president and CEO, AFSA, in a statement, who noted that 86 of the 946 car buyers polled received loans from buy-here, pay-here dealerships. “In 2013, 15.6 million new and nearly 42 million used vehicles were sold in the United States, hardly making this a representative sample. The report author even notes that ‘using self-reported survey data has limitations compared to loan-level data derived from the records of individual transactions.’”

The AFSA will be conducting its own study over the next several months, examining loan-level data of millions of loans, Stinebert noted. The intent of the study is to evaluate the indirect lending model and analyze the costs and benefits of alternatives.

The CRL study was discussed at the Consumer Financial Protection Bureau (CFPB)’s first public forum on auto lending. It was held in November at the bureau’s headquarters in Washington, D.C. Chris Kukla, senior counsel for government affairs at the CRL, said the study would show that disparities do exist in the auto lending market, and that those disparities are not mitigated by shopping around or negotiation, something CFPB officials have been claiming since the bureau issued a fair lending bulletin in March.

However, CFPB officials have also stated that the bureau is relying on data collection techniques employed by its sister agencies like the Department of Justice, an approach designed to allow finance sources to replicate it on their own.

“The CFPB repeatedly stated — even as recently as our Vehicle Finance Conference last week — that the bureau is only interested in data-driven studies,” Stinebert said. “The CRL study certainly does not fall into that category.”

The NADA also issued a statement that questions the results of the CRL study. “The phone survey responses are consumer opinions, not statistically valid data,” read the statement. “For example, the report relies on participants to recall details such as ‘trade-in allowance’ and ‘down payment’ for transactions that occurred as long ago as ‘six years.’ If the survey participant didn’t recall the answer, the survey accepted ‘their best guess.’”

“If anything, CRL’s report shows that if all consumers lose their right to negotiate for lower monthly payments, minorities would disproportionally pay the price.”

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Compliance, Technology to Headline Vehicle Finance Conference


Washington — Thought leaders from across the vehicle finance industry will share their expertise at the American Financial Services Association (AFSA)’s 18th Annual Vehicle Finance Conference and Exposition, scheduled for Jan. 22-24, 2014, at the Sheraton in New Orleans. This year’s theme is “Navigating the New Normal.”

The conference will kick off with a macro-level examination of industry trends by John Gray, president, of Experian Automotive, Michael Buckingham, senior director of automotive finance for J.D. Power & Associates and Sarah Watt House, economist for Wells Fargo Securities LLC. Experts from research, strategy and vehicle finance firms will also delve into technology innovations, how to connect with younger generations, relationship management and risk management.

Bob Lutz, retired vice chairman of General Motors, will be at the conference to share key lessons he learned over his 47-year career. He will also identify best practices during his keynote address.

The conference will feature Patrice Ficklin, assistant director for the Consumer Financial Protection Bureau (CFPB)’s Office of Fair Lending. She will discuss the bureau’s approach to regulation and compliance based on the fair lending bulletin it issued in March 2013.

The conference will also feature a candid panel discussion among vehicle finance CEOs. Feature participants will include Daniel Berce, president and CEO of GM Financial, Thasunda Brown Duckett, CEO of Chase Auto Finance and Mike Groff, president and CEO of Toyota Financial Services. In addition, four leaders from the National Automobile Dealers Association (NADA) will share the dealer perspective in the “Top Issues for Dealers in 2014” session.

The conference will close with a look forward from Sheryl Connelly, Global Consumer Trends and Futuring Manager for Ford Motor Co. She will discuss probable shifts in consumer values, attitudes and behaviors.

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AFSA Launches New Compliance Committee


Washington — The American Financial Services Association (AFSA) has dedicated a new committee, called the Operations and Regulatory Compliance Committee, to address compliance concerns in the wake of new rules and regulations implemented by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The committee will address the policies, guidance, enforcement actions and regulations issued by federal government and agencies that impact the association’s auto finance members.

“Complying with the volume of new regulations coming out of Washington is a time consuming and labor intensive process,” said Chris Stinebert, AFSA president and CEO. “Companies are looking for answers, and the ORCC aims to provide them. This new committee assists our member companies deal with many of the compliance issues they face by developing industry resources and educational materials.”

The committee is chaired by John Noone, retired president of Ford Motor Credit and principal of Noone Consulting Group LLC. Noone served as the 2011-2012 AFSA chairman.

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