Tag Archive | "auto lending"

NADA Files Second Request for Internal CFPB Documents


MCLEAN, Va. — The National Automobile Dealers Association (NADA) filed a Freedom of Information Act (FOIA) request today, asking the Consumer Financial Protection Bureau (CFPB) to release internal documents acknowledging that the agency intended to regulate the auto finance market through enforcement action, and eschewed evidence that its methods for estimating disparate impact were deeply flawed.

This is the second time in less than three months that the NADA has requested internal CFPB documents leaked to American Banker. A request filed in July asked that the bureau turn over documents that allegedly stated the CFPB’s “goal” in the auto lending arena was to significantly limit dealer discretion, despite the fact that the regulator is specifically prohibited from regulating auto dealers under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB denied the NADA’s request three days later.

On Sept. 17 and Sept. 24, American Banker published articles that made numerous references to internal CFPB documents. Those documents supposedly show that the CFPB based its understanding of vehicle financing on a now-discredited study conducted by the Center for Responsible Lending. The bureau also allegedly acknowledged in the documents that the proxy methodology it uses to determine the presence of discrimination in auto lending is flawed, yet it continues to use the results to reach large settlements with finance companies like Honda Finance Corporation and Fifth Third Bank.

“These documents demonstrate a lack of transparency and accountability that should be deeply troubling to anyone concerned about how significantly a regulator can influence a market that affects millions of consumers,” said NADA President Peter Welch in a statement on the NADA’s website. “Consumers benefit tremendously from the discounts they get from dealers, and they have every right to demand that their voices be included in — not willfully excluded from — the debate about how to regulate the auto finance market.”

Earlier this month, during the bureau’s semi-annual report to Congress, CFPB Director Richard Cordray was challenged by lawmakers over the methods the bureau is using to bring enforcement actions against auto lenders. The regulator noted that “‘Accurate’ is in the eye of the beholder,” and that the CFPB is working to find the most reliable method possible to determine the presence of discrimination in auto lending.

However, Cordray was not forthcoming about the internal documents cited by American Banker, telling members of Congress he was only “roughly familiar” with the memos.

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Ally Financial Named Mitsubishi’s Preferred U.S. Auto Lender


Ally Financial Inc., the former lending arm of General Motors, will become the preferred financing source for Mitsubishi Motors Corp. in the U.S, reported Bloomberg.

Ally will replace Mitsubishi’s captive finance company and provide lease and retail financing and insurance offerings at about 380 Mitsubishi dealerships, the Detroit-based bank said Monday in a statement. Terms weren’t announced.

Ally is seeking to replace business after General Motors Co. said in January it will use its own lending unit for leases on brands including Buick, Cadillac and GMC. Shares of Ally have declined 17 percent since its initial public offering last year.

Sales of new Mitsubishi vehicles in the U.S. rose 20 percent through March to 23,790, or 0.6 percent of the market, according to researcher Autodata Corp. That’s about an eighth of the 172,312 F-Series pickups sold by Ford Motor Co. dealers and less than a quarter of the 100,505 Toyota Motor Corp. Camry sedans delivered.

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DOJ, N.Y. Regulator Subpoena Capital One


By: Gregory Arroyo

MCCLEAN, Va. ─ Add Capital One to the growing list of finance sources that have received subpoenas from state and federal regulators regarding subprime auto finance originations and securitizations.

According to a Feb, 24 regulatory filing with the Securities and Exchange Commission, the finance source received subpoenas from the New York District Attorney’s Office and the U.S. Department of Justice (DOJ), requesting information related to its subprime auto finance business.

“Capital One is cooperating with both investigations,” the filing read.

In January, Consumer Portfolio Services revealed in a regulatory filing that it was also subpoenaed by the DOJ regarding its subprime auto finance practices and related securitizations. Santander Consumer USA (SCUSA), Ally Financial, GM Financial and Credit Acceptance have received similar subpoenas.

Regulators are also targeting debt-collection and repossession practices.

Last year, CPS agreed to pay more than $5.5 million to settle the Federal Trade Commission’s charges that it used illegal tactics to service and collect consumer loans. And last month, Santander USA Inc. agreed to pay at least $9.35 million to resolve a lawsuit filed by the DOJ. It claimed that the finance source’s repossession activities over a five-year period starting in January 2008 violated the Servicemembers Civil Relief Act.

A spokeswoman for Santander said the settlement, which covered 1,112 repossessions, is unrelated to the subpoena the DOJ issued to the finance source last year. The spokesperson noted that Santander neither admitted nor denied any wrongdoing in agreeing to settle the DOJ’s charges. She added that the finance source had already set aside funds to cover the cost of the settlement.

“Since 2012, SCUSA has used systemic controls to prevent improper repossessions of vehicles, including those who were contracted with SCRA-eligible customers,” read a statement Santander issued to F&I and Showroom magazine. “The majority of accounts found objectionable by the DOJ involved repossessions prior to 2012, and approximately one-third were accounts form other financial institutions that we converted to SCUSA accounts at a later date.”

In its regulatory filing, Capital One said that the regulatory climate has been heating up over the last several years, noting that state and federal regulators have focused on compliance in a number of areas, including data security, money laundering, fair lending and consumer-protection issues. And the finance source made clear it doesn’t see the scrutiny ending anytime soon.

“We are subject to heightened regulatory oversight by the federal banking regulators to ensure we build systems and process that are commensurate with the nature of our business and that meet the heightened risk management and enhanced prudential standards issued by our regulators,” the filing read, in part. “We expect this heightened oversight will continue for the foreseeable future until we meet the expectations of our regulators and can demonstrate that our systems and process are sustainable.”

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Bill to Rescind CFPB Auto Lending ‘Guidance’ Gains Support in Congress


WASHINGTON – More than 400 new-car dealers and dealer association executives from across the country traveled to the nation’s capital last week urging lawmakers to support a new bipartisan bill that nullifies the Consumer Financial Protection Bureau’s flawed “guidance” on auto lending (NADA).

H.R. 5403 – Reforming CFPB Indirect Auto Financing Guidance Act – sponsored by Reps. Marlin Stutzman (R-Ind.) and Ed Perlmutter (D-Colo.), already has 50 cosponsors in the House since the bill was introduced on September 8. The bill is a narrower version of H.R. 4811, which was reported out of the House Financial Services Committee by a bipartisan vote of 35-24 in June.

“[Dealers] are such an important part of the economy,” Rep. Stutzman told attendees at the 2014 National Automobile Dealers Association’s (NADA) Washington Conference on September 10. “The CFPB is one of the most unaccountable agencies in the federal government,” he added.

The Stutzman-Perlmutter bill requires the CFPB to provide a public comment period before reissuing any guidance on auto finance. The bill also requires transparency and accountability from the agency by making public any studies, data and analyses used to determine future auto finance guidance.

In remarks to his fellow dealers in the audience at the two-day legislative conference, Rep. Mike Kelly (R-Pa.), who played football at the University of Notre Dame, sounded every bit like a head coach talking to his team. In a passionate tone, he urged dealers to stand together, invite Members of Congress to visit their dealerships and become more active in the political process by “getting good people elected.”

Kelly, a multifranchise dealer in Butler, Pa., added that there are a lot of marginal customers who benefit from dealer-assisted financing and that officials from the CFPB do not understand the dealership business.

“[The Stutzman-Perlmutter bill] is incredibly important to us,” Kelly said.

Sen. Jerry Moran (R-Kan.) told dealers that Democrats and Republicans should come together to oversee the CFPB.

In March 2013, the CFPB issued guidance that threatens to eliminate the flexibility of dealers to discount the interest rate offered to consumers to finance vehicle purchases. The CFPB claims that negotiated interest rates between dealers and their customers create a significant risk of unintentional “disparate impact” discrimination. However, there are a variety of legitimate business-related factors that can affect finance rates, such as beating a competing rate.

NADA Chairman Forrest McConnell in comments during the general session highlighted NADA’s recent legislative accomplishments and outlined the challenges ahead.

“In the past year, NADA helped repeal outdated bills that were time-takers and money-wasters,” said McConnell, a Honda/Acura dealer in Montgomery, Ala. “We’ve led the charge against harmful tax reform proposals, including LIFO, heavy-duty truck excise taxes and broad recall legislation on rental vehicles.”

Other speakers included House Minority Whip Steny Hoyer (D-Md.); Rep. Jamie Herrera Beutler (R-Wash.); NADA President Peter Welch; Jeff Carlson, chairman of the NADA’s Dealers Election Action Committee and a Ford and Subaru dealer in Glenwood Springs, Colo.; and political analyst Charlie Cook.

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NADA Supports Bipartisan Effort to Reform CFPB Auto Lending Guidance


WASHINGTON – America’s new-car dealers convene on Capitol Hill this week to urge Members of Congress to cosponsor H.R. 5403—the Stutzman-Perlmutter bill.

The National Automobile Dealers Association is urging Congress to pass a new bipartisan bill (H.R. 5403) that nullifies the Consumer Financial Protection Bureau’s flawed guidance on auto lending and requires more transparency and accountability from the agency on future guidance.

“The CFPB’s actions will likely raise the cost of credit for car buyers,” said NADA Chairman Forrest McConnell. “The CFPB is attempting to change the $905 billion auto loan market and limit market competition without prior public comment and without analyzing the impact of its guidance on consumers.”

The new bill, “Reforming CFPB Indirect Auto Financing Guidance Act,” would allow the agency to reissue its guidance under a more transparent process. The measure is sponsored by Reps. Marlin Stutzman (R-Ind.) and Ed Perlmutter (D-Colo.), and was introduced Sept. 8. The bill is a narrower version of H.R. 4811, which was reported out of the House Financial Services Committee by a bipartisan vote of 35-24 in June.

“A majority of car buyers choose to finance their purchases through indirect financing at dealerships, which is always optional,” added McConnell, a Honda/Acura dealer from Montgomery, Ala. “Dealers often discount these interest rates to earn their customers’ business.”

In March 2013, the CFPB issued guidance that threatens to eliminate the flexibility of new-car dealerships to discount the interest rate offered to consumers to finance vehicle purchases. The CFPB claims that negotiated interest rates between dealers and their customers create a significant risk of unintentional “disparate impact” discrimination. However, there are a variety of legitimate business-related factors that can affect finance rates, such as beating a competing rate.

“H.R. 5403 is needed because it requires the CFPB to follow a transparent process when issuing auto finance guidance,” McConnell said. “The bill would rescind the 2013 auto finance guidance and require public participation for future guidance before it is issued.”

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Industry Responds to New York Times Op-Ed on Subprime Auto Loans


Recent reports that the Department of Justice (DOJ) is looking into the subprime auto finance market have spurred a discussion about whether such loans will go the way of subprime mortgages. According to a New York Times op-ed piece published Friday, predatory auto loans have been a growing problem — but industry associations have stepped in to dispute this claim.

“The mortgage industry set the stage for the recession by luring people into ruinously priced loans they could never hope to repay, then selling those loans to Wall Street in mortgage-backed securities that went bad,” the New York Times’ 18-member editorial board claimed in an Aug. 8 opinion piece. “The federal government has since tamed that industry, outlawing most of the risky and deceptive practices that led to that crisis. It must now do the same with the auto lending industry, where the practice of roping people into loans that damage them financially is all too common.”

This month, both GM Financial and Santander Consumer USA reported in regulatory filings that they had received subpoenas from the DOJ, requesting documents related to the origination and securitization of subprime auto finance contracts dating back to 2007. The regulator is said to be investigating potential violations of Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

In July, Citigroup was ordered by the regulator to pay the largest civil penalty under FIRREA in history — $4 billion — for its conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities.

“Dealers who can offload loans to banks before the loans fail take the same rapacious approach that mortgage lenders took in the run-up to the recession,” said The Times. “They prey on less sophisticated borrowers, falsifying the borrower’s income information and writing loans with astronomical interest rates and hidden fees that deliver a quick profit to the dealers.”

But the National Automobile Dealers Association (NADA)’s President Peter Welch, in a rebuttal to the editorial, noted that during the Great Recession, auto loans were one of the best performing asset classes. In fact, “Auto loan default rates never went higher than 2.74%, versus first mortgage default rates that hit 5.67%,” he noted.

“The Times’ editorial … is an unfair and unfounded attempt to portray the auto lending industry as a hotbed of deceptive practices and a harbinger of insolvency that could lead to another recession,” Welch said. “Nothing could be further from the truth. Auto loan defaults are at historic lows (less than 1% in June).”

In an op-ed piece submitted to F&I and Showroom this week, the American Financial Services Association (AFSA)’s Executive Vice President Bill Himpler similarly denounced the comparisons between mortgages and auto lending made by The Times.

“Unlike a house, a vehicle is a depreciating asset, and lenders calculate this loss of value into their financing. No one — from consumers to dealers to manufacturers to finance companies — believes that a car or truck will be worth more in the future,” Himpler explained. “Thus, the talk of a bubble — which occurs when assets become overpriced based on a belief that they will continue to appreciate — in subprime auto is misguided. The mortgage bubble grew from this very premise, but the underlying fundamentals of automobile values mitigate a bubble.

“Drawing parallels between subprime auto finance and mortgages does nothing to help an economic recovery, as the auto sector exhibits resilience and consumers continue to repay their loans.”

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