Compliance

Early fallout of Equifax breach that might impact 143 million consumers

CARY, N.C. - 

From lawmakers to law firms, Equifax now is in the middle of a financial hurricane as the credit bureau announced late on Thursday that a cybersecurity incident potentially impacted approximately 143 million U.S. consumers.

In its announcement, Equifax said criminals exploited a U.S. website application vulnerability to gain access to certain files. Based on the company’s investigation, the unauthorized access occurred from mid-May through July. 

The company added that has found no evidence of unauthorized activity on Equifax's core consumer or commercial credit reporting databases.

Equifax said the information accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver's license numbers.  In addition, credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed, according to the company’s announcement.

As part of its investigation of this application vulnerability, Equifax also identified unauthorized access to limited personal information for certain U.K. and Canadian residents. Equifax said it will work with U.K. and Canadian regulators to determine the appropriate next steps. 

The company also noted has found no evidence that personal information of consumers in any other country has been impacted. 

Equifax indicated that it discovered the unauthorized access on July 29 of and acted “immediately to stop the intrusion.” The company said it promptly engaged a leading, independent cybersecurity firm that has been conducting a comprehensive forensic review to determine the scope of the intrusion, including the specific data impacted.

Equifax also reported the criminal access to law enforcement and continues to work with authorities.  While the company’s investigation is substantially complete, it remains ongoing and is expected to be completed in the coming weeks.   

"This is clearly a disappointing event for our company, and one that strikes at the heart of who we are and what we do. I apologize to consumers and our business customers for the concern and frustration this causes,” Equifax chairman and chief executive officer Richard Smith said.

“We pride ourselves on being a leader in managing and protecting data, and we are conducting a thorough review of our overall security operations,” Smith continued. “We also are focused on consumer protection and have developed a comprehensive portfolio of services to support all U.S. consumers, regardless of whether they were impacted by this incident.”

By lunchtime on Friday, more than a half dozen shareholder rights law firms push out announcements regarding their own investigations. Attorney John Yanchunis of ClassAction.com and Morgan & Morgan already had filed a class action lawsuit against Equifax in the Northern District of Georgia.

Part of what is intensifying plaintiff attorneys’ efforts is what San Diego-based firm Johnson Fistel highlighted. It’s what a pair of high-level Equifax executives did, according to regulatory filings.

“(These filings) show on Aug. 3, just days after the July 29 breach discovery, chief financial officer John Gamble sold shares worth $946,374 and Joseph Loughran, president of U.S. information solutions, exercised options to dispose of stock worth $584,099,” Johnson Fistel said in a news release.

On Capitol Hill, members of Congress want more answers, too. And not just from Equifax. Rep. Ted Lieu, a California Democrat, is seeking a U.S. House Judiciary Committee hearing.

“In light of recent events, I request the committee call upon representatives from the Big 3 credit reporting agencies — Experian, TransUnion and Equifax — to testify not only on the breach that occurred in May 2017, but also to identify how each company is taking proactive, defensive steps to prevent such breaches in the future,” Lieu said.

“Congress has a strong role to play in preventing such attacks on our financial and IT infrastructure, and must hold those entrusted with our most sensitive data to account,” he added.

Equifax went on to say that it has engaged a leading, independent cybersecurity firm to conduct an assessment and provide recommendations on steps that can be taken to help prevent this type of incident from happening again.

“I’ve told our entire team that our goal can’t be simply to fix the problem and move on. Confronting cybersecurity risks is a daily fight. While we’ve made significant investments in data security, we recognize we must do more. And we will," Smith said.

FCC to examine 11 recommendations for blocking phone calls

WASHINGTON, D.C. - 

How collections departments can make contact with customers via phone might be impacted by what the Federal Communications Commission is currently reviewing.

The agency’s consumer advisory committee is expected to consider a recommendation from its robocalls working group on blocking unwanted calls during its meeting set for Sept. 18.

Back in May, policymakers created 11 suggestions with the aim of dramatically reducing the flood of unwanted robocalls to consumers, improving consumer education and simplifying the complaint filing process. Those 11 points included:

1. Initiate and prosecute enforcement actions against known robocallers who are violating the law.

2. Ensure a system of effective enforcement, with appropriately escalating penalties against repeat violators.

3. Enhance its current online Unwanted Calls Consumer Guide to consolidate best practices and tips currently shared by other government agencies, and to reflect new guidance and resources emerging from industry’s work on this issue. Currently a number of links are provided to external resources. These resources should be more fully integrated into the aforementioned consumer guide.

4. Ensure that the FCC’s educational resources and complaint forms are available in accessible formats, and languages other than English where appropriate, and encourage others that provide educational resources and the ability to make complaints about robocalls to also do so.

5. Develop educational materials specific to the impact of robocalls on consumers with disabilities. One area of focus should be the use of robocalls over all types of telecommunications relay services (TRS), including video relay services, Internet Protocol Relay, and captioned telephone relay services. Consumer protection tips and resources should be highlighted as well as best practices for relay service providers. A second area to highlight is information and resources about accessible caller id services and equipment usable by people who are blind or visually impaired.

6. Simplify the consumer complaint filing process for unwanted calls. Many consumers receive multiple unwanted calls each day, and would currently have to enter each complaint separately. Developing a form that allows for information to be entered about multiple unwanted calls at once would simplify the process.

7. Create a separate intake portal for unwanted-call complaints. This portal would have a unique icon on the Consumer Complaint Center landing page. With the goal of reducing the burden for consumers of entering a complaint, this dedicated intake form would allow for multiple unwanted calls to be reported and would require the minimum amount of information needed to make the complaint actionable, while allowing other entry fields to be optional.

8. Incorporate educational information into the response sent by the FCC to consumers who submit an unwanted-call complaint. This could be a link to the FCC’s enhanced consumer guide discussed above. The response should also explain how unwanted call complaint data is used.

9. Develop an app that can be used by consumers with mobile devices to quickly file complaints for unwanted calls received on their device. The app should be accessible to and usable by people with disabilities. As allowed by the consumer’s privacy permissions, this app would automate the entry of the above-mentioned actionable information, as well as additional details if available.

10. Build upon the existing Memorandum of Understanding with the Federal Trade Commission by exploring the value and feasibility of creating a co-hosted single education and complaint portal for the issue. Currently, each agency hosts separate education content and complaint filing portals, and many consumers are unsure of where to file their complaint.

11. Explore making complaint data available to third parties on a near-real time basis in order to maximize its usefulness for companies whose robocall analytics engines use the data to identify telephone numbers that may be candidates for blocking or providing alerts to consumers.

Specific details about the FCC’s upcoming meeting on this topic can be found here.

Finance regulators, providers offering help to Harvey victims

CARY, N.C. - 

As Texas continues to contend with the ongoing torrential rain and flooding, state and federal financial regulatory agencies along with finance providers are taking steps to offer assistance to customers who have been impacted.

Officials from the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp. and state bank regulators all said they recognize the serious impact of Hurricane Harvey on the customers and operations of many financial institutions. The agencies all insisted they will provide regulatory assistance to affected institutions subject to their supervision.

The agencies added that they are encouraging institutions in the affected areas to meet the financial services needs of their communities.

“Bankers should work constructively with borrowers in communities affected by Hurricane Harvey. The agencies realize that the effects of natural disasters on local businesses and individuals are often transitory, and prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism,” officials said.

“In supervising institutions affected by the hurricane, the agencies will consider the unusual circumstances they face,” they continued. “The agencies recognize that efforts to work with borrowers in communities under stress can be consistent with safe-and-sound banking practices as well as in the public interest.”

Like the regulators, American Bankers Association president and chief executive officer Rob Nichols echoed a similar sentiment about helping consumers and providers throughout Texas.

“Our thoughts and prayers are with all those caught in the path of Hurricane Harvey, including the first responders doing their best to save lives,” Nichols said in a statement. “We are reaching out to offer our support to banks affected by Harvey, and ABA stands ready to work with the Texas Bankers Association, regulators and local officials to ensure the banking system continues to serve and support communities hit by this devastating storm.”

Finance companies, including the captive for Toyota and Lexus are joining the assistance stream, too.

Toyota Financial Services (TFS) announced it is offering payment relief options to its customers affected by Hurricane Harvey. This broad outreach includes any TFS or Lexus Financial Services (LFS) customer in the designated disaster areas.

“We at Toyota Financial Services care about the safety and well-being of our customers and want to help those impacted by the hurricane,” captive officials said. “Impacted lease and finance customers residing in the devastated areas may be eligible to take advantage of several payment relief options.”

Those options include:

—Extensions and lease deferred payments

—Redirecting billing statements

—Arranging phone or on-line payments

Toyota Financial Services insisted it will proactively attempt to contact customers in the affected areas to assess their needs and inform customers of the options available to them.

“We extend our heartfelt thoughts to those affected by the natural disaster,” captive officials added.

Meanwhile, Wells Fargo not only is looking to help its customers with payment options, but the bank also announced on Monday that it is donating $1 million to support those affected by Hurricane Harvey and the extensive flooding left in its wake.

Wells Fargo is donating $500,000 to the American Red Cross Disaster Relief Fund and an additional $500,000 to local nonprofits focused on recovery and relief efforts in Texas in the coming days and weeks.

“Wells Fargo is deeply concerned for all of those affected by the devastating flooding in Texas, and we’re committed to helping our customers, neighbors, team members and communities get through this,” said David Miree, lead region bank president. “With forecasts calling for more rain and potentially more flooding, we will continue to work with nonprofits and those focused on relief efforts, as we determine any additional assistance and support Wells Fargo may be able to provide.”

NJ Hyundai dealer agrees to 8 conditions in settlement with attorney general

NEWARK, N.J. - 

What law enforcement determined to be deceptive practices associated with dealership advertising of financing options recently surfaced again — this time in New Jersey.

Garden State attorney general Christopher Porrino and the state’s Division of Consumer Affairs announced that a Middlesex County dealership has agreed to pay $136,000 and change the way it does business in order to resolve the division’s consumer fraud investigation of the dealership’s advertising, sales and leasing practices.

Officials said Sansone Hyundai, located on U.S. 1 in Avenel, entered into the settlement to end the division’s investigation of its alleged activities, including failing to disclose the total price for certain advertised vehicles and charging consumers for aftermarket merchandise that was listed at “no charge” on certain leases and sales contracts.

In a consent order with the division, Sansone Hyundai, among other things, agreed to:

—Comply with all applicable state and/or federal laws, rules and regulations, including the Consumer Fraud Act, the Motor Vehicle Advertising Regulations, the Automotive Sales Regulations and the Consumer Leasing Act

—Not misrepresent the terms and conditions of any financing or lease plan

—Not add and charge for aftermarket merchandise, such as window etch or service contracts, without consumers’ knowledge and/or authorization

—Not represent to consumers that certain dealer-installed options and/or aftermarket merchandise are mandatory when, in fact, they are not

—Not sell consumers aftermarket merchandise that overlaps or provides similar benefits in part to merchandise the consumer has already purchased through the lease or sale transaction

—Accurately reflect in leases the “gross capitalized cost” as required by the consumer leasing act

—Provide consumers with an opportunity to review all leases and/or sales documents and/or aftermarket contracts prior to signing

—Not identify the advertised prices of a motor vehicle by reference to the MSRP sticker, when the vehicle includes an addendum to the MSRP sticker that reflects a higher total price

 “Consumers should be able to purchase a new car without having to worry about misinformation and hidden costs,” Porrino said. “This settlement ensures that consumers will receive transparency and honesty from this dealership, as required by law.”

As previously mentioned, Sansone Hyundai also agreed to make a $136,250 settlement payment to the state.

“Dealerships must fully disclose all costs and fees associated with the purchase or lease of a vehicle before consumers sign on the dotted line,” said Steve Lee, director of the Division of Consumer Affairs. “We will continue to enforce the laws and regulations in place to ensure consumers have the facts they need to make informed decisions.”

The settlement Sansone Hyundai reached included a fine only a fraction of what’s been handed out earlier this year.

For example, the Federal Trade Commission announced back in March that the Sage Automotive Group — which includes nine Los Angeles-based dealerships, its holding and management companies and two individuals — agreed to pay more than $3.6 million in order to settle charges that it used deceptive and unfair sales and financing practices, deceptive advertising and deceptive online reviews.

3 critical questions for repo agents about locksmiths

CARY, N.C. - 

The Council of Repossession Professionals (CORP) cautioned repo agencies about the potential pitfalls of using a locksmith company that might be mandated by a particular finance company client but could utilize employees who may not be aware or comply with specific state regulations.

CORP explained through a post on the news section of its website that many states have explicit regulations when it comes to locksmiths, indicating that some jurisdictions prohibit contracting work to local locksmiths who might not be employed by a national company.

“Some states even demand that these national locksmith companies have an actual physical business in the state they are doing the service in,” said CORP officials, who represent eight national organizations including:

—American Lenders Service Co. (ALSCO)
—American Recovery Association (ARA)
—California Association of Licensed Repossessors (CALR)
—Florida Alliance of Certified Asset Recovery Specialists (FLACARS)
—Illinois Association of Repossession Agencies (IARA)
—Michigan Association of Repossession Agencies (MARA)
—Rocky Mountain Repossessors Association (RMRA)
—Time Finance Adjusters (TFA)

CORP suggested that repossession agencies ask and seek the answers to three simple questions with regard to the cutting of new keys for repossessed vehicles.

—Do locksmiths have to have a license to operate?

—What type of insurance does the state require them to have?

—Does the state require all businesses to carry worker’s compensation?

“Once you have this information, now you have a chance,” CORP said in the post that’s available here.

Westlake’s latest investments in technology, training

ATLANTA and LOS ANGELES - 

As Westlake Financial Services broadened its employee training program, the finance company also recently agreed to use Equifax’s dealer intelligence platform, TradeSight, to manage and monitor its dealer relationships.

TradeSight can help finance companies analyze originations, current and future dealer partners and performance of the installment contracts booked through dealer partners. The tool works by combining Equifax consumer credit information with dealer and vehicle data from third-party data sources to enable Westlake and other auto finance companies to assess their dealer network and establish peer benchmarks to help evaluate dealers credit risk.

“We’re happy to use this new product to help us drive well-informed business decisions and develop and adjust strategies so we can more accurately understand the performance and behavior of our dealership network,” said Ian Anderson, group president of Westlake Financial.

“Since TradeSight comes with detailed loan-level data and four years of history, Westlake was able to benchmark ourselves against our various competitors and adjust our go-to-market strategy as a result,” Anderson continued.

Equifax delivers a powerful combination of data via TradeSight, including dealership names, firmagraphic information, purchased vehicle details and vehicle values and contract structure characteristics, including annual percentage rate, term, loan-to-value and loan performance metrics.

Additionally, the product provides pre-configured categories such as bank, captive, credit union, independent auto finance companies, buy-here, pay-here information and more.

Equifax also mentioned that TradeSight differs from other products in the marketplace in that it can merge all of the data into a single platform, which can be used by auto finance companies to monitor market share, contract structure, vehicles purchased, the selling dealership and how the paper performs.

“By providing comprehensive analytics from a single platform, TradeSight will help Westlake Financial continue to compete at a high level and establish even stronger relationships with dealers in order to profitably grow their portfolio,” said Lou Loquasto, vice president of auto finance and dealer vertical at Equifax.

Westlake programs for employee development

In other company news, Westlake recently launched another chapter of what it’s dubbed the Westlake Certification Program for employees interested in expanding their skill-set for potential career advancement.

Westlake’s certification curriculum consists of four levels that participants must complete in order to receive certification. Over nine months, weekly classes cover data tools, communication, culture and environment, and leadership. Each class is led by a Westlake Financial Services subject matter expert on the topic and is usually a manager, director or executive.

Also, individual participants are paired with a mentor within the organization who dedicates a minimum of four hours per month to assist the participant in completing individual and group assignments, presentations and homework throughout the program.

“This program was designed to provide employees opportunities for growth, one of Westlake’s core values. An on-site learning opportunity to help employees advance their skills is just one of the many advantages of working at Westlake,” said Erika Angel, Westlake’s associate vice president of human resources.

“The curriculum will enhance and build skills while at the same time providing a launching ground for future Westlake leaders to learn the arts of business decision-making, communication, team building and implementation planning,” added Robert Engilman, Westlake’s senior vice president and chief compliance officer.

Westlake’s Certification Program is designed and overseen by Westlake’s corporate training and development department, as well as a council of five leaders in the organization.

“One of the company goals for 2017 was to offer employees a program emphasizing leadership development, so we revamped the existing Westlake University Program to include elements of culture, environment, and effective communication,” corporate trainer Dennise Carrera said.

“It then evolved into its own certification program promoting ethical behavior, organizational change management, leadership development, and self-improvement,” added Claudia Corleto, manager of corporate training.

This year’s program commenced in March with the first group of 19 participants on track to receive certification in December of this year.

“We recognize the high level of effort required to complete this program. Dedication to professional growth, as well as juggling responsibilities of full-time positions and life outside of work are paramount to successful completion. We have a congratulatory luncheon when participants complete each level, and we reward top performers in the program,” said Bret Hankey, executive chairman of Westlake Financial.

The council will begin accepting internal employee applications via Westlake Intranet for the 2018 Certification Program in the first quarter of 2018.

As a separate program, the company provides Westlake University to all Westlake employees as another opportunity for learning. In the Westlake University program, employees can advance their skills in public speaking, Excel and SQL.

Employees are encouraged to sign up for these classes via an email sent by corporate training each month.

New York AG returns to making dealer settlements over F&I misdeeds

NEW YORK - 

After taking a trio of actions involving more than two dozen dealerships in the span of about a year, New York attorney general Eric Schneiderman wielded his enforcement powers again this week in association with F&I activities.

Schneiderman announced a $298,000 settlement with Nissan of New Rochelle for what the Empire State’s top law enforcement agent said was deceptively charging hundreds of consumers for an “unwanted and bogus anti-theft product that cost up to thousands of dollars per consumer.”

The New York AG asserted this after-sale product often was added onto the final cost of the vehicle without the consumer’s knowledge or consent, after the customer had agreed upon the purchase price of a vehicle but before the installment contract was finalized.

Following a consumer complaint in August 2015 that Nissan of New Rochelle had fraudulently sold an after-sale product, the office commenced an investigation into the dealership’s practices. The investigation found that Nissan of New Rochelle sold hundreds of consumers a product called Total Loss Protection, which was meant to serve as a theft deterrent. 

The investigation noted that consumers were charged amounts ranging from $215 to over $5,000. In many instances, Nissan of New Rochelle added this fee onto the final sales price without the knowledge or consent of the consumers. As a result, the final price paid by the consumers was inflated by the amount charged for the after-sale product.

Furthermore, officials determined Nissan of New Rochelle failed to clearly disclose the nature of the after-sale product to its customers. The “Total Loss Protection” or “Total Loss Protection Guarantee” product was advertised as a permanent etch or engraving of the vehicle’s VIN, or a registered serial number, on the windows of the vehicle — supposedly to deter theft. However, officials indicated Nissan of New Rochelle did not actually etch the VIN onto the windows of the vehicles.

Instead, for some vehicles, the attorney general’s office found the dealership placed sticker decals with assigned registration numbers on the inside of the door or door-jamb where no one could see them, thus having no deterrent effect. For other vehicles, the dealership did not even provide stickers or decals, according to the investigation.

New York officials went on to mention consumers were also led to believe that there would be a guaranteed credit up to either $3,000 or $5,000 toward the purchase of a new vehicle should their car be stolen. However, there were numerous conditions and limitations — such as that the credit would not be applied if it eliminated the dealership’s profit on the sale — which rendered the “credit” illusory, according to officials.

The AG’s office added that only one consumer ever received a credit through the Total Loss Protection program.

Under the agreement, Nissan of New Rochelle will refund $276,127 to 298 consumers who were charged an add-on fee for the Total Loss Protection product. In addition to restitution, the dealership will also pay $22,084 in penalties, fees, and costs to the State. The dealership has also agreed to certain reforms to its sales practices, including:

—Fully disclosing that any and all after-sale services or products are optional and that the price is negotiable

—Clearly explaining to each consumer any and all after-sale services or products being offered by the dealership

—Only adding an after-sale service or product to the final bill with the knowledge and full consent of the consumer

“Consumers should not have to worry that they are being scammed into adding on bogus products and services when they purchase a car,” Schneiderman said.

“Buying a car is already a major investment for many families, and tacking on thousands of dollars extra can become a significant financial burden,” he continued. I am pleased that we are able to return hundreds of thousands of dollars in restitution to the nearly 300 consumers who were scammed and defrauded.”

Last summer, a stretch of actions by Schneiderman concluded with a settlement involving another Nissan store. Lia Nissan of Saratoga was required to pay $101,986 in restitution to 119 consumers who were charged illegal fees and/or subjected to a variety of deceptive sales and advertising practices

Pennsylvania creates CFPB-like unit within AG’s office

CARY, N.C. - 

While some lawmakers on Capitol Hill continue to work toward a major restructuring or perhaps even a complete dismantling of the Consumer Financial Protection Bureau, one of the leaders of the American Recovery Association cautioned the industry about developments this summer in Pennsylvania by the attorney general to establish a division similar to this federal agency.

In fact, the individual appointed to lead this unit within the Keystone State’s attorney general’s office actually was the fourth employee ever to come aboard at the CFPB.

To recap, back in July, Pennsylvania attorney general Josh Shapiro created what he called a consumer financial protection unit. Leading this operation is Nicholas Smyth, who before joining the CFPB was part of a team at the U.S. Treasury Department that drafted and revised the CFPB’s enabling act, the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act).

Smyth brings significant expertise in auto finance to this post in Pennsylvania. At the CFPB, Smyth led the investigation of Drivetime Automotive Group, which resulted in an $8 million settlement related to allegations associated with what the bureau deemed to be harassing debt collection calls and providing inaccurate credit information to credit reporting agencies.

“Protecting the public from financial scams is a key priority of mine, and Nick Smyth will help us expand our capacity to bring complex cases against financial companies that try to rip off Pennsylvanians,” Shapiro said.

“I am honored to join the attorney general’s terrific consumer protection team,” Smyth added. “The Consumer Protection Bureau saves Pennsylvania families millions of dollars each year, and I am excited to contribute to this great work.”

All of the developments caught the attention of David Kennedy, who is vice president and director of compliance at the American Recovery Association. Kennedy, who also is the chief executive officer of First Credit Resources, cautioned how this new enforcement unit could impact repossession agencies and other third-party providers that participate in recoveries.

“A lot of you thought you would never see an agent from the CFPB or a CFPB-type agency because of your size. Well, I can assure you now, if you are located in Pennsylvania, your chances just went from zero to ‘see you next year,’ maybe even late this year,” Kennedy said in a message distributed by ARA and obtained by SubPrime Auto Finance News.

“We all know how this is going to go,” he continued. “When one state does it, the other states will watch to gauge the success and then jump on the band wagon. All your small clients who have not placed the same importance on compliance as ARA has done and have continued to use off-duty police, constables, sheriffs, or just unlicensed repossessors, have much to fear.

“Our loyal members who have taken advantage of the ARA webinars and compliance testing, have instituted the policies and procedures we have been going over for at least three years, have taught their street-level employees the information, and have created the culture of compliance that we as an association have been constantly and consistently talking about, have nothing to fear,” Kennedy went on to say.

For more details about compliance and other operational resources at ARA, go to www.repo.org.

KPA buys Automotive Compliance Consultants

LAFAYETTE, Colo. - 

Automotive Compliance Consultants — listed among the SubPrime 175 published by SubPrime Auto Finance News as well as the Power 300 published in Auto Remarketing — has a new owner, according to a news release distributed on Tuesday.

KPA Services, a provider of environmental health and safety (EHS), HR management, and F&I technology-enabled services and software as a service (SaaS) solutions, announced the acquisition of Automotive Compliance Consultants (ACC), which provides a comprehensive dealership compliance program combining software and in-person consulting, with an emphasis on F&I, privacy, fair lending, and EHS compliance.

KPA has more than 30 years of experience working with multiple industries, including dealerships, collision/repair, manufacturing, insurance brokers, distribution, food and beverage, and transportation to provide EHS, HR management and F&I solutions. KPA provides clients with online, onsite and on-call resources to effectively train staff; protect assets, reduce losses and avoid penalties; enhance HR workflow; and achieve environmental, safety and HR compliance.

The companies highlighted ACC’s extensive dealership F&I expertise and client base coupled with KPA’s 6,000 dealership clients, creates an organization with compliance and workflow solutions for the dealership market. 

Officials explained the combined company can provide clients with the benefits of an expanded team of over 100 EHS, F&I and HR field experts located throughout the U.S., who bring an average of more than 15 years of regulatory experience. This knowledge base is designed to complement the combined company’s online dashboards, SaaS-based data analytics solutions and closed-loop audit processes.

“ACC and KPA share the vision and expertise to deliver effective dealership compliance solutions,” KPA chief executive officer Vane Clayton said. “We focus on a variety of industries but we built our business on the automotive dealership market and feel we now have a national F&I compliance team and enhanced solution to increase the value we bring to our large dealer client base, with a comprehensive compliance solution.”

Automotive Compliance Consultants president and CEO Terry Dortch added, “Joining forces with the KPA team is a great move forward for ACC.

“Our vision has always been to provide a turnkey compliance solution for dealerships. The additional expertise, content and development resources that KPA brings will result in an unmatched compliance program for the dealership client,” Dortch went on to say.

Credit Acceptance has long-range hopes for sales force

SOUTHFIELD, Mich. - 

As the company acknowledged an inquiry from the Consumer Financial Protection Bureau, Credit Acceptance leadership discussed its sales force during a good portion of its latest conference call with investment analysts.

Credit Acceptance shared as a part of its second-quarter finance report that the company expanded its sales team by “roughly” 20 percent year-over-year in an effort to broaden its active dealer network, which stood at 7,635 as of June 30. On the same date a year earlier, the figure stood at 7,181.

The company classifies active dealers as ones who have received funding for at least one contract during the quarter.

Chief executive officer Brett Roberts described the volume of active dealers joining the company’s network as “OK,” acknowledging the 910 stores to sign up during the second quarter marked a 13.9-percent improvement versus the same quarter a year ago.

“But sequentially we had a decline in active dealers,” Roberts said. “So I guess the goal, obviously, is to sign up more dealers than we’re losing. We didn’t do that in Q2, but we hope to do that in the future.”

The company also noted its dealer attrition rate deteriorated slightly in Q2, rising to 21.5 percent. A year earlier, the rate stood at 17.5 percent.

Credit Acceptance defines attrition according to the following formula: Decrease in consumer loan unit volume from dealers who have received funding for at least one dealer loan or purchased loan during the comparable period of the prior year but did not receive funding for any dealer loans or purchased loans during the current period divided by prior year comparable period consumer loan unit volume.

Roberts pointed out that Credit Acceptance’s current sales team is double the size of what it had been a few years ago, and the company is expecting to “increase it a little bit more.”

Roberts told conference call participants, “I think if you look at the last time we increased the sales force, it took us about two years to roughly double the sales force, and really, almost three years before productivity got to where it was before we started the expansion. So it was overall about a five-year process to double the sales force.

“We’re not trying to double it this time, and hopefully, we’ve learned a little bit from the first time. But it’s still more of a long-term driver than a short-term driver,” he continued.

With a larger team comes more expenses. Credit Acceptance reported for Q2 that its 11.9 percent or $6.5 million increase in operating expenses stemmed from an increase in salaries and wages expense of $2.6 million, or 8.6 percent. This was primarily related to our servicing function as a result of an increase in the number of team members along with an increase in sales and marketing expense of $2.5 million, or 21.0 percent, due to an increase in the size of its sales force.

Roberts explained that having a robust sales force can help Credit Acceptance navigate the challenges of a competitive auto-finance landscape.

“Our outlook is that we're planning on the current difficult environment lasting for the foreseeable future,” Roberts said. “And if that turns out to be too pessimistic, then that’s great. But that’s what we’re planning for. And so I guess we look at the numbers. We feel like our chances of growing are a lot better if we have a little bit larger sales force, so that's what we're working toward.

“We had two quarters of negative unit volume change. And this quarter was up, but it was only up 1 percent,” he continued. “I don’t think that the additions to the sales force really added much to that at this point. They’re very new. They’re still getting up to speed. And I think, again, the increase in the sales force is something that will pay off next year or the year after. Probably not this year.”

Overall performance

As Roberts mentioned, Credit Acceptance generated a 1-percent year-over-year lift in origination volume during the second quarter. The amount financed grew by a larger amount, 7.1 percent year-over-year.

“Dollar volume grew faster than unit volume during the second quarter of 2017 due to an increase in the average advance paid per unit,” the company said. “This increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume, partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned.

“While we were able to grow unit volume modestly during the most recent quarter after two quarters of declines, our overall progress in growing unit volumes has slowed considerably over the last six quarters,” Credit Acceptance officials continued. “This trend reflects the difficulty of growing the number of active dealers fast enough to offset the impact of the competitive environment on attrition and per dealer volumes.

“In addition, in response to the decline in forecasted collection rates experienced in 2016, we adjusted our initial collection forecasts downward during 2016. While the adjustments have been modest, we believe these adjustments have had an adverse impact on unit volumes,” the company went on to say.

All told, Credit Acceptance reported that its Q2 consolidated net income came in at $99.1 million, or $5.09 per diluted share, up from $84.9 million, or $4.17 per diluted share, for the same period in 2016.

After seeing the top-line metrics, the investment community pushed Roberts for some clarity on how Credit Acceptance portfolio vintages are performing in an effort to spot future trends.

I think that the clearest number to start with if you're trying to understand loan performance is the net cash flow change for the quarter that’s disclosed,” said Roberts, who noted that the company’s Q2 total net cash flow change was $8.8 million. “It’s a positive number, but it’s obviously a very small one.

“The total undiscounted cash flows that we’re attempting to forecast are somewhere around $5.8 billion,” Roberts continued. “So when you have an $8.8 million move, that’s basically flat.”

After the analyst rephrased the question, Roberts added, “Again, I think the main takeaway is if you’re looking at $5.8 billion in cash flows we’re trying to forecast, if you look at the results for this quarter or really over the last six quarters or even longer than that, the cash flows have been remarkably stable. So I think that's a good thing, and that’s really the main takeaway

CFPB matters

Credit Acceptance stated its quarterly filing with the Securities and Exchange Commission that the company now is contending with an inquiry from the CFPB along with ongoing actions involving the Federal Trade Commission and Maryland’s attorney general.

“As of June 2017, we were informed that the Consumer Financial Protection Bureau’s Office of Fair Lending and Equal Opportunity is investigating whether the company may have violated the Equal Credit Opportunity Act and Regulation B,” Credit Acceptance said in its SEC filing.

“We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this inquiry,” the company continued.

During the conference call, Wall Street observers asked Roberts to elaborate about what the CFPB inquiry is entailing.

“We don’t have a lot to add to what's in the (filing),” Roberts said. “The CFPB is fairly sensitive regarding disclosures of ongoing matters, so we try carefully to walk the line between our obligations to the SEC and to shareholders and the sensitivities of the CFPB. So I won’t try improve upon what we put in the (filing).”

The filing indicated that the inquiry from the FTC stems from Credit Acceptance allowing dealers to use GPS and starter interrupt devices while Maryland’s attorney general is looking into the company’s repossession and sale policies and procedures within the state.