Tag Archive | "F&I Office"

Credit Tightening at Wells Fargo to Continue Into 2018


SAN FRANCISCO — In 2009, the year before Wachovia Dealer Services officially became Wells Fargo Dealer Services, the finance source was listed as the No. 1 subprime auto lender by market share. It also held the largest share in the used-vehicle financing segment. Times have changed.

During the bank’s second-quarter earnings call on July 14, Wells Fargo executives reported auto originations of $4.5 billion. That’s down $2.5 billion from the first quarter and $4 billion from the year-ago quarter. The reason: tighter underwriting standards.

“As we’ve discussed previously, we’ve tightened credit underwriting standards in auto, which has our origination volume down 17% from the first quarter (45% from a year ago),” said CFO John Shrewsberry, noting that the average FICO for auto loans originated during the period rose from 696 in the year-ago period to 719. “As we focus on improving execution and efficiency through increased standardization and centralization, we expect auto loans to continue to decline in the second half of this year.”

Reflecting this tightening was an $82 million decline in consumer credit losses, with net charge-offs down $41 million from the previous quarter. The improvement in overall consumer credit allowed the bank to releases $100 million in reserves for credit losses, officials said.

Additionally, the bank’s total outstanding loan balance declined 4% from the first quarter and 6% from a year ago to $58 billion. Loans 30 days past due increased by $225 million from a year ago on weaker market conditions.

As for the bank’s commercial portfolio, loans increased 7% from a year ago to $11.5 billion on higher dealer floorplan utilization.

In 2015, Wells Fargo reported record originations of $31 billion. A year later, the bank originated more loans than any other finance source, according to Experian Automotive. In the first quarter of this year, however, Wells Fargo Dealer Services fell to No. 4 on Experian’s market share list, with originations falling 29% on a year-over-year basis.

Several members of the executive team that led the transition from Wachovia Dealer Services to Wells Fargo Dealer Services in March 2010 have also left the company. Tom Wolfe, who headed up the business during its transition to Wells Fargo Dealer Services as president, was named vice president of the bank’s consumer credit solutions in 2012 before retiring in October 2014.

Wolfe’s successor as head of Wells Fargo Dealer Services, Dawn Martin Harp, retired this past April, and Bill Katafias, another Wachovia holdover who served as Wells Fargo Dealer Services’ national product retail credit executive, left the company this past February. In May, he joined Irvine, Calif.-based CRB Auto, a division of Mechanics Bank.

Wells Fargo’s dealer services business unit is now led by 20-year company veteran Laura Schupbach, who was appointed to the post this past March. She officially assumed her new role in April. Shrewsberry mentioned Schupbach’s hiring during the bank’s recent earnings call, noting that consumer loan growth will continue to be impacted by the actions “we’re taking in our auto portfolio and expected runoff of legacy junior lien mortgage loans.”

Shrewsberry added that the bank is making “modest changes” to generate loan originations for its consumer loan segment, including offering interest-only jumbo mortgage loans to high-quality borrowers and testing credit card offerings through the company’s digital channels.

When asked during last Friday’s earnings call how far the bank’s tightening on auto loans will go, Wells Fargo President and CEO Timothy Sloan responded, in part, “My bet is it will probably stabilize sometime in the first half of next year. I think during that entire time, it’s reasonable to assume that’s the quality of the underlying customer … measured by FICO score will continue to improve.

“I don’t know if it will continue to improve at the levels we’ve seen, but it will continue to be very strong,” he added. “And then my guess is that’s where the business will stabilize sometime in the first half of next year.”

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Innovative Lending Releases Loan Management Tool for F&I Offices


CHICAGO — Innovative Lending Solutions LLC announced the release of Stip Trac, an automotive loan management system designed to help dealers track cash flow, collecting necessary loan documents, or stips, and keeping an open communication line with car buyers before and after their purchase.

Stip Trac features a dashboard that allows users to track cash owed by a bank, set “contact-in-transit” limits, and track money in transit by salesman. It also provides status updates on any deal in transit, held at dealership, funded, etc. Users can also look up the age of a deal and missing stips, as well as add internal notes that can be viewed by all parties involved with the loan.

Stip Trac also allows dealers to add additional stips to a loan at any time, push welcome calls to the bank, and gain real references and referrals from customers. It also provides users with a “contact list” on their cell phone, and the ability to approve or deny stips as they are received.

The new tool also features a custom messaging so users can send an urgent message to the car buyer. It also offers automatic push notifications and a dealer-branded app that allow users to monitor a loan’s progress on their smartphones.

For the consumer, Stip Trac helps protect them from identity theft. It can also eliminate additional trips to the dealership to drop off loan-related documents, speeding up the finance process at the dealership.

“Stip Trac is a needed tool to improve the automotive loan process for car dealerships and consumers. Using Stip Trac removes a lot of the stress that today’s finance managers are facing today,” said Ed Maisonneuve, president and CEO of Innovative Lending Solutions LLC. “We truly built this so the delivery process is a smooth one. As a finance manager, I can’t tell you how many times a deal came into my office with missing documents, bad references, missing signatures. StipTrac 100% eliminates that.”

For more, visit www.StipTrac.com.

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South Dakota Voters Approve 36% APR Cap on Short-Term Loans


SIOUX FALL, S.D. — Voters there approved an initiated measure aimed at capping interest rates on short-term loans in the state. Included in the cap are all charges for ancillary products and any other fees included in the extension of credit.

Initiated Measure 21, which was passed last Tuesday by 75.6% of voters, places a 36% APR all-in cap on loans from all state-licensed money lenders. Covered loans include commercial and personal loans, including installment, auto, payday, and title loans.

Under current state laws, there is no limit on how much interest lenders can charge on these loans. Excluded from the new cap are national banks or other federally insured financial institutions.

More than 60% of South Dakota voters rejected a competing measure, Constitutional Amendment U, that would have placed an 18% APR cap for verbal short-term loans. The only way state-licensed lenders could exceed the cap is if the borrower agrees to a higher rate in writing.

Amendment U was proposed by the payday lending industry to head off the rate cap proposed in Measure 21. It had warned voters that IM 21 could put an end to the payday loan industry in South Dakota if passed. With its passage, the measure will go into effect upon certification of the results by the state.

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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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The Consumer Financial Protection Bureau’s Encroachment Into the F&I World


When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, both the auto dealer and insurance industries were at the table to be sure they were carved out from the jurisdiction of the now powerful Consumer Financial Protection Bureau, better known as the CFPB. As is frequently the case, however, legislative exemptions are usually not wholesale in nature, and later interpretations of law can whittle them back from their ostensibly intended purposes. This may indeed be the fate for some insurance and insurance-like products sold to consumers who purchase and finance such products in connection with the purchase or lease of an automobile.

Auto dealers have a broad exemption from the CFPB’s purview but with a limited cut-back. Specifically, the CFPB “…may not exercise any rulemaking, supervisory, enforcement or any other authority, including any authority to order assessments, over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both. This exemption does not apply to an auto dealer to the extent it (1) provides services related to residential or commercial mortgage loans, (2) engages in a “line of business” involving the extension of retail credit for purchasing or leasing autos in which the financing agreement is not regularly sold to an unaffiliated lender, a consumer financial product or (3) renders a service not involving the “sale, financing, leasing, rental, repair, refurbishment, maintenance or other servicing of motor vehicle.”

Also excluded from the CFPB’s jurisdiction are the “business of insurance,” which means the writing of insurance or reinsuring of risks by an insurer and a “person regulated by a state insurance regulator.” This means any person engaged in the business of insurance and subject to regulation by any state insurance regulator but only to the extent that such person acts in such capacity.

Before delving deeper into the question of the limits of these two exemptions, let’s take a step back and ask whether they are relevant to auto F&I products, specifically GAP waivers, vehicle service contracts and so called “ancillary products,” because, if these types of products are none of the consumer financial products or services over which the CFPB has oversight, then perhaps that ends the inquiry. The CFPB has authority over ten types of consumer financial products or services:

  1. Extending credit
  2. Extending leases with purchase financing functional equivalency
  3. Real estate settlement services
  4. Receiving deposits and transmitting funds
  5. Issuing stored-value payment instruments
  6. Check cashing services
  7. Certain payment and financial data processing services
  8. Financial advisory services not regulated by the Securities Exchange Commission
  9. Certain activities of consumer reporting agencies
  10. Consumer debt collection

The CFPB also has the power to add additional consumer financial products and services to this list, if a product’s or service’s purpose is to evade a federal consumer financial law or if it can be offered by a bank or financial holding company and is likely to have a material impact on consumers. GAP waivers, at least those entered into by national banks and credit unions, are likely to be considered part and parcel of an extension of credit since the lender is waiving its right to collect a portion of its debt and thus is subject to the CFPB’s authority. GAP waivers issued by other types of persons may be regulated under state insurance codes, either as insurance or specifically as a GAP waiver that is regulated but not as insurance. This is where things get murky and the question of whether the business of insurance exception applies comes full circle. Vehicle service contracts present a slightly different issue. While they are likely not within any of the ten enumerated consumer financial products and services listed above, the CFPB could, through its rule making authority, attempt to add them to the list but that begs the question of the business of insurance exemption. Here it gets awkward as most vehicle service contract acts expressly state that vehicle service contracts are not insurance. The business of insurance exemption will likely be interpreted based on the long line of McCarran-Ferguson Act’s judicial decisions, and it is possible that vehicle service contracts could constitute insurance for purposes of the Consumer Financial Protection Act, regardless of the fact that they are not insurance under most states’ insurance codes.

Notwithstanding these exemptions, the CFPB has tools to exercise enforcement authority for preventing and redressing unfair, deceptive or abusive acts or practices (“UDAAP”) involving consumer financial products or services involving auto customers. First, if a lender, lessor or one of its affiliates is the seller of a GAP waiver, vehicle service contract or ancillary product, the CFPB may have direct regulatory oversight of such sales. Second, the CFPB has enforcement powers over a service provider of a person that offers a consumer financial product or service that is directly regulated by the CFPB, a covered person. A “service provider” means any person who provides a material service to a covered person in connection with its offering or providing a consumer financial product or service, including (1) participating in designing, operating or maintaining the consumer financial product or service or (2) processing transactions relating to the consumer financial product or service but does not include services of a type provided to businesses generally, a ministerial service or media advertising services. Therefore, to the extent that the purchase of an auto F&I product is being financed through a loan or lease, the provider of that product may be a service provider to the lender or lessor and thus subject to the CFPB’s UDAAP enforcement powers. Indeed, in a 2013 consent order entered into with the CFPB, a provider of auto GAP waivers and vehicle service contracts financed by a national bank, the CFPB imposed a $3.3 million restitution penalty on the provider for alleged misrepresentations about the products made to certain consumer purchasers.

As sales of service contracts continue to rise (including for products outside the auto industry, such as cellphones and computer tablets), the CFPB is likely to focus on marketing and sales practices for these products at some point. Where the rubber hits the road as to whether the CFPB has authority to regulate their sales has yet to be determined and is an important area of uncertainty for which regulatory counsel to lenders, lessors, auto dealers and service contract providers need to plan accordingly.

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