Tag Archive | "BHPH"

CFPB Takes First Action Against BHPH Dealer


WASHINGTON — Today, the Consumer Financial Protection Bureau (CFPB) took its first action against a buy-here, pay-here (BHPH) dealer. DriveTime Automotive Group was ordered to pay an $8 million civil penalty as well as end its unfair debt collection tactics, fix its credit reporting practices, and arrange for harmed consumers to obtain free credit reports.

“Consumers who purchase a car at a buy-here, pay-here dealer deserve to be treated fairly,” said CFPB Director Richard Cordray in a statement. “DriveTime harassed and harmed countless consumers, many of whom were economically vulnerable. Our action today forces DriveTime to pay the price for its illegal debt collection tactics and for neglecting the accuracy of consumers’ credit information.”

Arizona-based DriveTime and its finance company, DT Acceptance Corporation, make up the largest BHPH dealer in the nation. DriveTime’s average customer has an annual income of $37,000 to $50,000 and has a FICO score between 461 and 554. It operates 117 dealerships in 20 states and, as of Dec. 31, 2013, held more than 150,000 outstanding auto installment contracts.

According to the CFPB, at least 45% of DriveTime’s auto installment contracts were delinquent at a given time. When a consumer fell behind on his or her installment payment, one of DriveTime’s 290 collection employees in two domestic call centers and 80 contractors in Barbados would begin calling the consumer — resulting in tens of thousands of collection calls being made each weekday. At the end of 2013, DriveTime had approximately 69,000 installment contracts past due that these employees would have been calling about.

The CFPB determined that several of DriveTime’s debt collection practices were unfair to consumers and violated the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). According to the bureau, DriveTime employees harassed borrowers at work, a practice that was encouraged by DriveTime management. In one case, a consumer was called 30 times at work, even after making a do-not-call request.

DriveTime also requires consumers to provide the names and phone numbers of at least four references when they applied for financing. When consumers fell behind on their payments, DriveTime called these references excessively. The dealer group also used third-party databases to find the phone number of consumers who fell behind in payments, often resulting in frequent phone calls to wrong numbers.

The CFPB also found that DriveTime gave credit reporting agencies information that inaccurately reflected the timing of repossessions and dates of first delinquencies — a practice which is prohibited by the Fair Credit Reporting Act (FRCA). .

The bureau also said DriveTime mishandled consumers’ complaints about the inaccurate information it had provided to the credit reporting agencies. In several instances, consumers disputed the same account information several times without the inaccurate information being corrected. In other cases, DriveTime informed consumers in writing that the information had been corrected, when it had not been — a violation of the FCRA.

Additionally, the bureau charged DriveTime with failing to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies.

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The Sub-Prime Cinderella Story: Who Has The Glass Slipper?


After five years of consistent increases, used car prices are expected to collapse in 2014. According to NADA, the average price of a used car rose by 18 percent from 2007 to 2013, and is now roughly 10 percent higher than the average price of the past two decades. That bubble is expected to pop as NADA predicts 42 million units to hit showroom floors nationwide. Of that 42 million, 16 million units will be a result of lease-end models being returned to franchise dealers.

For an independent dealer selling used cars, this poses a significant obstacle. Beyond the drop in price per retail unit sold, other kinds of dealers will lay claim to 38 percent of the available used car inventory. However, there is an upside. According to a 2014 Equifax study, there is pent up demand for more than 26 million vehicles. With the labor force participation rate declining and moderate wage and employment growth, it’s a good assumption that consumers will continue the trend of preferring to buy used over new.

These recession-wary consumers are more willing to shop for the best price and financing available. This partly explains why used vehicles accounted for 62 percent of all vehicles financed for the fourth quarter of 2013, according to Experian.

While we ended the year with an almost even split between independent and franchise dealer market share in used car financing, independent dealers are well positioned to tap further into the current consumer market. For example, picture what you think a typical independent dealer customer looks like:

  • What’s their credit score?
  • Do they rent or own their home?
  • Are they employed?
  • If they have gainful employment, in what industry segment are they employed?

The reality of today might surprise you. With the impact of the recession weighing on bank accounts, even prime consumers are now browsing independent dealership lots. Once you lower your eyebrows, try this number on for size: 11.4 percent of buy-here-pay-here customers fell into the prime and super-prime category in the fourth quarter of 2013.

But what’s even more interesting is the subprime category. This category has become the consumer segment that holds significant value to all dealers: franchise, independent and buy-here-pay-here alike. Of all buy-here-pay-here customers, 88 percent fall within the nonprime, subprime and deep subprime categories. 1 These same customers make up 37.3 percent of franchise dealership customers. 1 While franchise dealers are new to woo this category, they are aggressive, and in some cases offering more than what independents have in their quiver.

When it comes to providing value and creating lasting customer relationships, franchise dealerships have service departments and a deep bench of F&I products to protect and repair the customer’s vehicle. Providing benefits such as these, which have significant impact in preserving the customer’s bank account, has been an uphill battle for independent dealers, specifically in the F&I department.

With an inventory ranging from zero to 70,000 miles, franchise dealerships have significant options in providing consumer protection products. Beyond the manufacturer’s warranty, F&I product providers underwrite extensive vehicle service contracts, maintenance plans, appearance protection products and some forms of insurance, like GAP.

The benefit of this deep bench is they have a better opportunity to increase their value proposition with the customer. By providing extensive coverage on various aspects of their vehicles, they can give their customers significant protection for their bank accounts, while increasing dealership profit per retail unit with upgrades or extended coverage.

Independent dealers paint a different picture. Vehicles on an independent dealership lot have been through approximately three ownership cycles and typically range in mileage from between 30,000 and 150,000 miles. With this in mind, their F&I bench is significantly limited in comparison.

The majority of consumer protection products tailored for independent dealers limit coverage to mainly the powertrain of these older-model vehicles. The reasoning behind this is pretty straight-forward. Older model vehicles are expected to break down more and therefore F&I product providers are more hesitant to create extensive protection products for them as they would expect a higher number of claims submitted.

However, in this value versus cost environment, nonprime and subprime consumers have a new level of expectation in the terms of the products available to them from both franchise and independent dealerships. The recession has forced companies across all industries to re-evaluate the customer service experience, as well as their value proposition. There is no difference in the auto industry. Now, it’s not only prime and super-prime customers that demand the highest level of service, but rather all customers expect to have the same level of respect for their business. While some customers may not be able to afford a traditional vehicle service contract, they are still very interested in purchasing mechanical breakdown protection for their vehicle.

For this reason, F&I product providers are re-evaluating the products they develop for independent dealerships. For example, EFG Companies, a consumer protection product provider based in Irving, Texas, developed a vehicle service contract called Best ReGuards that extends past the powertrain specifically for independent dealerships. This product focuses on several extended coverages while maintaining a low cost price-point:

  • Engine
  • Turbocharger/Supercharger
  • Transmission
  • Transfer Case
  • Air Conditioning
  • Electrical
  • Fuel
  • Seals & Gaskets

Another trend in consumer demands goes beyond mechanical breakdown to include benefits around personal safety, such as roadside assistance. Again, the majority of roadside assistance plans available for independent dealers only provide limited services, if any. However, no matter their credit score, people from all walks of life need the ability to take care of themselves and their family in the event that they are stranded due to a breakdown. With that in mind, EFG paired the following roadside assistance benefits with the mechanical benefits of their Best ReGuards VSC for independent dealers:

  • Towing
  • Flat Tire Changes
  • Jump Starts
  • Lockout Service
  • Nationwide Coverage

Beyond the product itself, the company also backed it with the same product administration that franchise dealers receive. This further emphasizes and ensures the level of customer service on which independent dealers can rely, and that positively impacts their relationships with their customers.

You can see how growth in options such as this gives independent dealers a more valuable toolkit to address each customer’s specific need when it comes to protecting their vehicle. They also fortify independent dealership’s customer appreciation model, which increases their customer retention. With revamped F&I products that provide more comprehensive coverage and service, independent dealerships are positioned to:

  • Increase their product portfolio to generate greater profits
  • Cultivate customer relationships by providing new market opportunities
  • Match consumer buying trends to the dynamics of their dealerships

As supply is expected to outpace demand in 2014, independent dealerships need to expand their product portfolio to be more competitive in the market. Considering how few independent dealers have access to provide F&I products, you are going to see more providers recognizing this growing opportunity and focusing product development efforts on this fresh dealer segment.

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NIADA Selects Peritus Portfolio Services as a National Corporate Partner


Arlington, TX – Peritus Portfolio Services (PPS) has become the first National Corporate Partner of the National Independent Automobile Dealers Association (NIADA) to offer its members programs for a purchase of their bulk receivable auto portfolios, in addition to their open auto secured Chapter 7 & 13 bankruptcy accounts!

“This new partnership with NIADA for our portfolio purchasing programs is truly an honor and just reinforces our philosophy of “Relationships not Transactions“ as a win-win situation for NIADA’s valuable BHPH members,” said Rod Heasley, PPS’s Executive Vice-President of Sales and Marketing. “Heasley added that NIADA and its BHPH members will find Peritus’s programs of quick and quality analysis combined with responsive service as a valuable tool to allow them to concentrate more time and resources on what they do best, as well as affecting the bottom line in a most positive way.”

PPS begins with a “no charge” comprehensive analysis of its client’s portfolio in bulk receivable portfolios with a quick turnaround time and a specialty of segregating out the open bankruptcy accounts. Removing bankruptcy accounts from the portfolio has a direct, positive and immediate impact on your cash flow, your balance sheet, and your bottom line P&L statement, as well as the overall value of your operation. Without question, a sale of accounts is an important tool to use when evaluating your appetite for retaining low yield and high risk bankrupt accounts. In light of the benefits of selling these accounts, many BHPH auto dealers as well as auto finance lending institutions, choose to eliminate the risk, worry and expenses by selling off these non-performing accounts.

“My entire team at Peritus is excited about our new partnership with the most respected association in our industry and stands ready to offer NIADA and it’s BHPH members our line of services that will completely exceed their expectations“, said Gary Perdue Founder and President of PPS.

“With over 150 years of experience from PPS’s senior management team, and an excess of 123 business development managers nationwide ,current and future members of NIADA and future clients of Peritus Portfolio Services , have my assurance that “Relationships not Transactions“ is not just an advertising slogan for us but our daily operating procedure throughout all of PPS.” concluded Mr. Perdue.

“We are very pleased to have endorsed Peritus Portfolio Services as an NIADA National Corporate Partner, providing highly valuable cash flow enhancement, risk mitigation, and compliance resources to our BHPH members. As our BHPH member dealers continue to face immense new regulatory burdens Peritus provides a solid resource in ensuring their ongoing compliance in the receivables collections process, and bankruptcy actions while freeing them up to focus on their core dealership operations”, said Scott Lila, SVP Member Services, NIADA

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Inilex and AutoStar Integrate to Deliver Advanced Asset Protection to Auto Dealers


Phoenix – Inilex, a provider of telemetry solutions for vehicles, formed a product partnership with AutoStar Solutions, which provides management software to auto dealers and finance companies. As a result, buy-here pay-here (BHPH) dealerships will have access to the most advanced technology available to locate and secure their assets.

The InilexGPS system contains a comprehensive set of tools to reduce the costs associated with delinquent customer payments and repossessions. It uses vehicle telematics to locate vehicles in real time across all corners of the country, and includes features such as in-car payment reminders to assist with timely loan collections. This technology will be integrated into AutoStar’s dealer management solution, giving dealers the most powerful asset management service available today.

“A key value proposition that Inilex delivers to its customers is efficiency and reliability,” said Michael Maledon, CEO, Inilex. “Through this seamless integration, AutoStar dealers and lenders can now automate and simplify the process of securely tracking their assets.”

DriveTime, the nation’s largest dealership network for buyers with credit issues, and an existing AutoStar customer, deployed InilexGPS more than two years ago to protect its investments and help mitigate its risk. “Reliable asset protection is a necessary part of our business, and InilexGPS allows us to do that with great efficiency and confidence,” said John Gersitz, VP of Inventory, DriveTime. “Using InilexGPS has helped to substantially drive down the costs associated with delinquency and repossession.”

Via the InilexGPS Web interface, dealers can track vehicles 24/7 through their computer or mobile device. Additionally, they can access historical trip information, implement starter interruption functions, set geofences, establish speed alerts, monitor for tampering and send delinquent payment reminders – all supported through customizable reporting options.

“I have been very impressed with Inilex’s state of the art technology, and am thrilled that we have integrated our products. As such, our mutual clients will have best of breed technologies to guard their assets,” said, Antonio R. Rajan, Chief Revenue Officer, AutoStar.

Auto dealers can also use InilexGPS as an inventory management tool to track test-driven and employee loaner cars, ensuring the cars are accounted for, test drivers are abiding by safety rules and that battery levels are adequate.

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OnPoint Drops Buy-Back Requirement


Norwell, Mass. — OnPoint Financial Corp. launched “30/30,” a lending program designed to create a turnkey buy-here, pay-here (BHPH) operation for new-car dealers. The new plan does not require dealers to buy back repossessed vehicles, a feature the company said dealers and agents demanded.

“We asked our partners what we could do to be more competitive in the subprime market, and they told us,” said Andy Regula, director of sales and marketing, OnPoint. “By dropping the buy-back requirement and increasing the advance, we’ve made our already successful loan program more attractive to dealers and agents.”

Vehicles that are sold under the 30/30 program and repossessed will be automatically sent to auction. The selling dealer can choose to reclaim the vehicle within five days. If they decline, OnPoint charges the difference between the advance plus fees — minus any payments collected — and the auction price to the dealer’s reserve account.

A second component of the new program rewards eligible dealers with a monthly distribution payment. Dealers with at least 30 vehicles in their OnPoint portfolio and at least 30% of the outstanding balance in their reserve account receive a payment equal to any amount above the minimum as their reserves earn.

OnPoint Financial Corp. has offered a turnkey BHPH operation directly to dealers since 2004. The company began marketing through a network of independent general agents this year.

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Getting Your Best BHPH Customers Back


The first half of 2013 is now in the rearview mirror for the buy here, pay here (BHPH) industry and it’s time to look back. Many operators reported lower unit sales versus the same period last year. Two important questions are, “Why?” and “What can be done to improve unit sales during the remainder of the year?” I address both in this article.

Experian Automotive provides excellent information quarterly on automotive market share. Their numbers for the first quarter of 2013 indicated that BHPH market share declined 6.4%. Although a 6% decline is not good, the real math is worse. Experian reports that BHPH market share declined from 17.1% to 10.7%. Therefore, the real decrease was actually 33% of the previous market. Correspondingly, subprime auto financing increased almost the same percentage. Second quarter numbers will be announced shortly, but don’t expect a big rebound.

OK, enough bad news: what caused the decline? A careful analysis of the first-half performance reveals that the following influences adversely impacted BHPH sales:

  1. Tax refunds were slow to arrive and somewhat smaller when they did. Some never arrived at all.
  2. Additional payroll withholding reduced low-income earners ($30,000 – $50,000 per year) take-home pay by $600 to $1,000. This really hurt their liquidity.
  3. Gas and food prices increased sharply compared with 2012, consuming more of each customer’s disposable income.
  4. The US economy has rebounded somewhat; however, overtime hours and workforces have been reduced.
  5. The subprime auto finance industry has been extremely aggressive in buying deals from deep subprime customers with bureau scores as low as 460. Worse yet, these customers are being sold new and late-model vehicles with long repayment terms and very large monthly payments, which they can’t afford.
  6. Subprime customers are encouraged to “give back” their existing vehicles by subprime finance companies, and to purchase the vehicles described above. This has resulted in more voluntary repossessions for BHPH operators.

Enough negative news; what should the BHPH industry do in response?

My suggestions start with what not to do. Operators should not change their business models by putting too little customer into too much vehicle. This is a “road map for failure” as documented by more than $11 billion in contracts I have analyzed.

However, operators must not sit back and wait for the market to return. If you do nothing, you cannot expect different results. The answer is to rebuild a stronger bond with BHPH customers. As I survey the operators who are maintaining or growing market share, I note one common trait – they are proactive.

At a recent NABD Boot Camp meeting, several of the nation’s most experienced operators offered creative ways to compete proactively. Here are some of the ideas:

  1. Place a ‘welcome’ telephone call shortly after each sale, and ask for referrals.
  2. Hold customer appreciation events.
  3. Strengthen warranty or extended service-contract programs.
  4. Offer free maintenance services to good paying customers.
  5. Maintain more-positive contact with customers during the entire term of their contracts.

Other suggestions were discussed but readers should get the message.

Successful operators today embrace technology. Payment devices, the Internet, pay portals and other technology have increased efficiency, profits and cash flow. Technology plays an important role in competing successfully, and its use is strongly encouraged.

However, operators should not replace their personal customer bond with a technological substitute. The industry needs to help customers make better longer-term decisions when purchasing their next vehicle. A short-term default created by unrealistic repayment terms does not provide the “transportation solution” they really need.

I deeply respect the creativity and innovative ideas posed by the successful operators in the BHPH industry today. They represent many of the best business people I have ever met and they are survivors.

At our upcoming NABD East Coast BHPH Conference in New Orleans on November 3-5, we will focus on how to find and keep our best customers. This is a great time to network and make each other successful. Good luck during the remainder of 2013 and let’s make 2014 our best year ever!

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