Tag Archive | "Auto Finance"

NMAC President Named Infiniti Executive


NASHVILLE, Tenn. ─ Mark Kaczynski is leaving his post as president of Nissan Motor Acceptance Corp. to become vice president of administration and finance for Nissan Motor Co.’s luxury brand Infiniti, the automaker announced on Thursday.

Replacing Kaczynski as president of Nissan’s captive finance company is Kevin Cullum, who was promoted from his general manager post at Nissan Canada Finance. Both leadership changes are set to take effect on Aug. 1.

The automaker also announced that, effective July 1, Alain Ballu, current director of international projects and partnerships for RCI Bank, will replace Cullum as general manager of Nissan Canada Finance.

Kaczynski, who will be based in Hong Kong and report to Infiniti Motor Co. President Roland Krueger, was named president of NMAC in December 2011. He has also served as a board member for Nissan Global Reinsurance as well as Alliance Inspection Management since 2011. He originally joined Nissan in 2007 as director of marketing and sales.

Cullum will report to Rakesh Kochhar, senior vice president of finance and global sales finance business unit, and will be based in Franklin, Tenn.

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Pew: CFPB Small-Dollar Rule ‘Would Not Adequately Protect Borrowers’


WASHINGTON, D.C. — The Consumer Financial Protection Bureau’s proposed small-dollar lending rule would neither not adequately protect borrowers, nor address the risks created by the shift toward installment credit in the payday and auto title lending market, a new analysis concludes.

Conducted by Pew Charitable Trusts, the analysis outlines the reasons for the shift to installment lending, highlights the riskiest practices, and identifies actions the bureau can other policymakers can take to counter these harms. It also identifies four primary loan characteristics that harm consumers, including unaffordable payments, front-loaded fees, excessive durations, and unnecessary high prices.

“The CFPB proposed rule would require most small loans to be repayable in installments, which would represent a significant improvement, but that change alone is not enough to make these loans safe,” the nonprofit organization stated. “In 13 of the 39 states where they operate, payday and auto title lenders issue only high-cost, single-payment loans, but in the other 26, they are already making installment loans with annual percentage rates of 200% to 600%.

“These high-cost installment loans would still be permitted under the CFPB standards.”

The analysis identified four primary loan characteristics that harm consumers. They include unaffordable payments, front-loaded fees, excessive durations, and unnecessary high prices.

Pew’s brief, “From Payday to Small Installment Loans: Risks, Opportunities, and Policy Proposals for Successful Markets,” shows that unaffordable payments can lead to the same types of problems as convention payday loans, including frequent re-borrowing, heave use of overdrafts, and the need for a cash infusion to retire debt — issues the CFPB hoped to address when it proposed its rule this past June.

The brief also shows that large upfront origination fees “effectively penalize borrowers who repay early or refinance, while unreasonably long durations can double or triple borrowers’ costs.”

“Because payday and auto title lenders typically compete on location, customer service, and speed rather than on price, costs for these products, like conventional payday and auto title loans, are unnecessarily high, such as more than $1,000 in fees for a $500 loan,” the brief states, in part.

The brief also lists the following policy recommendations it says will address the four main challenges posed by installment loans:

  • Establish clear ability-to-repay standards, limiting loan payment to an affordable percentage of a borrower’s periodic income.
  • Allow only interest charges or monthly fees on the loan, and no other fees.
  • Require loan to have reasonable repayment durations.
  • Enact price limit and enable lower-cost providers, including banks and credit unions, to enter the small-dollar loan market.

“The payday loan market is rapidly shifting away from lump-sum lending toward installments, but 400% APR payday installment loans can be harmful, too,” said Nick Bourke, who directs Pew’s small-dollar loans project. “To protect consumers, the CFPB should add to clear product safety standards to its rule, such as limiting installment payments to 5% of a borrower’s paycheck. This safeguard would make exiting loans more affordable and enable banks to offer comparable small credit at prices six times lower than payday lenders, saving millions of borrowers billions of dollars annually.”

The CFPB’s notice of proposed rulemaking for small-dollar loans is open for public comment until Oct. 7. For more on the bureau’s proposal, click here.

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J.D. Power Appoints New Senior Director of Auto Finance


DETROIT — J.D. Power has appointed Jim Houston as senior director of its auto finance practice. In his new role, Houston will use his 30-year experience in auto finance to help guide the industry through a potentially volatile period of new-vehicle sales and declining used-car values, the company said.

“I’m very excited to be joining J.D. Power to lead the auto finance practice, especially at this critical time for the automotive market and lenders,” Houston said. “The combination of new-vehicle sales tapering off and the growing volume of off-lease vehicles driving down used-car values creates some potential business concerns for auto lenders. It’s not a doom-and-gloom scenario, but it does require banks and captive lenders to remain diligent in order to stay competitive.”

Houston most recently served as the head of major account strategy and business development at TD Auto Finance. He’s he’s also held leadership positions at both captive companies and banks.

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CFPB Accuses ‘One or More’ Finance Sources of Deceptive GAP Ads, Payment Deferral Offers


WASHINGTON, D.C. — In its summer edition of Supervisory Highlights, the Consumer Financial Protection Bureau accused one or more finance sources of being deceptive in their advertisements of GAP and in the way they disclose payment deferral terms.

According to the report, the GAP advertisements gave the impression that the product fully covered the remaining balance of a consumer’s loan in the event of a total loss, when, according to the bureau, the products only covered the amounts below a certain loan-to-value ratio.

Bureau examiners also accused one or more auto finance sources of using a telephone script that “created the false overall net impression that the only effects of taking advantage of a loan deferral would be to extend the maturity of the loan and to accrue interest during the deferral. The finance sources, the bureau charged, failed to inform consumers that “the subsequent payment would be applied to the interest earned on the unpaid amount financed from the date of the last payment received from the consumer.” The result, the bureau said, is consumers are paying more finance charges than originally disclosed.

“These violations are under review by the bureau to determine what, if any, remedial and corrective actions should be undertaken by the relevant financial institutions,” the bureau added.

The bureau’s Supervisory Highlights report also noted that examiners determined that “weak [complaint management systems]” in place at one or more institutions allowed violations of federal consumer financial law during the review period. Weaknesses included:

  • Failure to raise compliance-related issues to the institution’s board of directors or other principal.
  • Failure to follow the institution’s policies and procedures in daily practice.
  • Failure to properly monitor and correct business line practices to align with federal consumer financial law.
  • Failure to adequately track training completed by employees and the board.
  • Failure to adequately follow up on consumer complaints with a corresponding failure of compliance audit to highlight deficiencies in the consumer complaint response process.

“The relevant financial institutions have undertaken remedial and corrective actions regarding these violations, which are under review by the bureau,” the report stated.

According to the bureau’s June Complaint Report, the CFPB has logged 23,000 auto finance-related complaints since July 21, 2011, representing 60% of consumer loan complaints. The Top 2 complaints were “Managing the loan, lease or line of credit” at 47%, and “Problems when you are unable to pay” at 22%.

“Taking out a loan or lease or account terms and changes” ranked third at 18%, following by “Shopping for a loan, lease or line of credit” at 11%.

According to the report, consumers complained about payment processing issues, including not having their payment applied to their accounts in a timely or correct manner. Consumers also complained of repossessions without notice or having to voluntarily surrender their vehicle because they could no longer afford their payments.

Consumers also complained that “warranties they believe … they were required to purchase” did not cover basic repairs. “In these complaints, consumers purchased older cars and they were under the impression that the warranty would cover the repairs often associated with cars that have high mileage,” the bureau stated in its report. “Since these repairs were not covered, consumers incurred high costs to fix their cars or in some instances were unable to make further use of the vehicle.”

The bureau also received complaints about misleading advertisements at buy-here, pay-here dealerships. “Consumers explained that dealerships checked their credit even though advertisements stated that their credit would not be considered,” the report stated. “Consumers also complained that although advertisements stated that making timely payments on their loans would help build their credit up, dealerships would not furnish good-standing credit information.”

Consumers also complained about having to pay what they felt were high wear-and-tear fees at the end of their lease. “These consumers explained that they disagreed with the wear-and-tear determinations and believed the process was unfair,” the report stated. “Because there is a subjective element to this determination, consumers indicated that they should be allowed to be present for the inspection.”

The bureau’s complaint report also contained a list of most-complained-about companies, which included Santander, Ally Financial, Wells Fargo, Capital One, Toyota Motor Corp., JPMorgan Chase, Westlake Financial Services, GM Financial, and Nissan Motor Acceptance Corp. The companies listed, according to the bureau, account for 50% of all auto finance-related complaints “sent to companies for response in January to March 2016.

“Of these companies, Toyota Motor Credit Corp. saw the greatest percentage increase in auto lending complaints (94%) from January – March 2015 to January – March 2016,” the report stated, adding that Nissan Motor Acceptance Corp. “saw the lease percentage increase in consumer loan complaints (3%) during the same period.

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Ford Credit Now Offering 84-Month Financing


DEARBORN, Mich. — In a dealer bulletin obtained by F&I and Showroom magazine, Ford Motor Credit announced the availability of 84-month financing on new retail and subvented rate contracts.

The 84-month program, which allows for maximum interest rate markup of 100 basis points on standard contracts, is only available to car buyers with FICO scores at and above 700. The program will require a minimum of $15,000 in financing, with advances set at a maximum 115%.

“Customer demand for 84-month financing is increasing,” the captive stated in its April 5 dealer bulletin. “In the spirit of supporting the sale of Ford and Lincoln vehicles, as well as providing you with a sustained competitive advantage, Ford Credit is offering 84-month new retail financing effective April 5.”

Terms have been stretching, according to recent auto finance data, with consumers looking for ways to keep their monthly payments affordable as vehicle prices continue to rise.

In the fourth quarter 2015, according to Experian Automotive, vehicles loans with terms longer than 60 months accounted for 71% of all new vehicles financed during the period. The firm also noted in its quarterly report that auto loans with terms in the 61- to 72-month term band accounted for 42% of new vehicles, while loans with terms between 73 and 84 months accounted for 29% of all new vehicles financed in the fourth quarter — a 12% jump from the prior-year period.

In its bulletin, the captive urged dealers to consider the impacts of longer term loans, noting that “the longer the contract term, the longer it takes the customer to be in an equity position, and the longer it takes for the customer to return to your showroom to trade.”

The bulletin also urged dealers to educate customers about the high interest costs associated with longer term loans, noting that “shorter term financing and leasing are likely better options” for most customers.

“Terms of more than 72 months have increased to 23% of all new retail financed vehicles in the U.S.,” the bulletin stated. “While extended-term financing is appealing and allows the customer to purchase more vehicle at a lesser payment, it is important to consider the impact on trade-cycle management and customer loyalty.

“Ford and Lincoln are refreshing their vehicles more frequently with improvements to technology, safety features and fuel efficiency,” the bulletin continued. “Longer term financing may also delay a customer’s ability to upgrade to the latest and greatest.”

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House Committee, CFPB Director to Face Off Next Week


WASHINGTON – Richard Cordray and Republican members of the House Financial Services Committee are set to square off next Wednesday, March 16. It will be the first time the director of the Consumer Financial Protection Bureau (CFPB) will appear before the committee since Republican members issued two staff reports criticizing the bureau’s activities in the auto finance arena.

The last time Cordray appeared before the committee was this past September, according to F&I and Showroom magazine. Since then, Republican committee members published a report on Nov. 24, titled “Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending,” and a second report on Jan. 20, titled “How the Bureau of Consumer Financial Protection Removed Anti-Fraud Safeguards to Achieve Political Goals.”

“The CFPB undoubtedly remains the single most powerful and least accountable federal agency in all of Washington. When it comes to the credit cards, auto loans and mortgages of hardworking taxpayers, the CFPB has unbridled, discretionary power not only to make those less available and more expensive, but to absolutely take them away,” said Chairman Jeb Hensarling (R-TX). “Consequently, Americans are losing both their financial independence and the protection of the rule of law.”

The November report revealed, among other things, that the bureau pursued its potentially “market-tipping” enforcement action against Ally Financial and Ally Bank even though internal bureau documents showed the statistical method used in its case against the finance source was “prone to significant error.” It also revealed that the bureau was able to secure its settlement with Ally because of “undue leverage” – Ally needed Washington regulators’ approval for a broader restructuring of its business.

Republican committee members again hammered the CFPB in their second report, which showed that some settlement checks being dispersed as part of the bureau’s $98 million settlement with Ally Financial and Ally bank had gone to white borrowers. It also charged that the bureau declined to employ a distribution method proposed by the U.S. Department of Justice (DOJ) – one that would provide “strong protection from criticism that we are giving damages to non-Hispanic white borrowers” – because it would limit the number of recipients to between 36,000 and 143,000 instead of the 235,000 consumers the CFPB alleged were harmed by Ally’s dealer markup policy.

“Political exigency required the bureau to design a process that would ensure that a sufficient number of alleged victims would be identified as eligible claimants; after all, if fewer claimants received checks than Director Cordray initially announced, the validity of the bureau’s disparate impact methodology would be called into question,” the report charged.

The reports haven’t slowed the CFPB’s activities, however. On Feb. 3, Toyota Motor Credit Corp. ended its three-year standoff with the CFPB and the DOJ regarding its dealer compensation policies by voluntarily agreeing to lower its markup caps and pay up to $21.9 million in restitution to minority borrowers the two regulators allege paid higher interest rates than white borrowers.

And as noted in the press release announcing Cordray’s appearance next week, the bureau recently announced it plans to propose regulations regarding small-dollar, short-term loans. That release also noted the bureau’s decision followed its regulation of the mortgage market by way of its Qualified Mortgage rule, which the committee charged “harmed consumer access and choice when it comes to mortgage by forcing many community financial institutions to downsize or shut down their mortgage operations.”

Speaking yesterday, March 9, at the Consumer Bankers Association’s annual conference in Phoenix, Cordray responded to criticism of its regulation of credit markets by enforcement, saying the criticism is “badly misplaced.”

“Certainly any responsible official or agency charged with enforcing the law is bound to recognize that they should develop a thoughtful strategy for how to deploy their limited resources most efficiently to protect the public,” he said. “That means working toward a pattern of actions that conveys an intelligible direction to the marketplace, so to create deterrence that can be readily understood and implemented.

“Others have framed this criticism as a suggestion that law enforcement officials should think through and explicitly articulate rules for every eventuality before taking any enforcement actions at all,” Cordray added. “But that aspiration would lead to paralysis because it simply sets the bar too high. Particularly in an area like consumer financial protection, the vast majority of our enforcement actions involve some sort of deception or fraud. And courts have long noted that trying to craft specific rules to root out fraud or untruth is a hopeless endeavor, as they would likely fail to cabin ‘ingenuity of the dishonest schemer.'”

Next Wednesday’s hearing begins at 10 a.m. ET at the Rayburn House Office Building. A live stream of the hearing can be found at www.financialservices.house.gov.

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