Compliance

White paper tackles 8 common problems during F&I cancellation process

GRAPEVINE, Texas - 

F&I Express insisted the F&I product cancellation process currently lacks standardization, automation, transparency and efficiency.

F&I Express continued by stating these challenges not only have a negative impact on the day-to-day operations of a product provider or finance company, but also impact their ability to remain compliant with state and federal regulators.

To help the industry, F&I Express recently released a white paper aimed at solving the problems created by a “broken, inefficient system” for processing F&I product cancellations and the regulatory scrutiny it has attracted.

In the white paper titled, “2017 Guide to Operational Efficiencies & Regulatory Compliance in F&I Product Cancellations,” F&I Express said it reveals a proprietary digital solution, currently being used by some of the nation’s leading finance companies and F&I providers that can completely streamline the product cancellation process.

“Lenders use the platform to process credit product (GAP/credit life) cancellations on payoffs. In certain states they are obligated by the state to issue the refunds directly to the consumer within a stated timeframe and be able to provide documentation as proof,” F&I Express president and chief executive officer Brian Reed said.

“Sending a letter to the dealer is not considered proof that the consumer gets their refund. Our platform provides a greater degree of validation and audit trail for the lenders to mitigate some of the compliance risk,” Reed continued.

Reed went on to note that if any of the situation listed below would be valuable to your organization, this white paper could be useful.

— File product cancellation requests directly with product providers.

— Obtain exact refund amounts for products to be cancelled.

— Remediate accounts previously terminated without refunds issued.

— Implement standardized processes for all cancellation reasons.

— Eliminate product cancellation paperwork.

— Obtain correct chargeback amounts from lenders.

— Eliminate phone calls back and forth between lenders and providers

— Uphold credible business relations between lenders and providers

“At the end of the day we are all consumers,” F&I Express executive vice president Rich Apicella said. “Processing cancellations in a timely manner and issuing consumers the refunds they deserve, in a timely manner, is the right thing to do.”

To download the white paper, go to this website.

Recapping crucial debt collection case before Supreme Court

WASHINGTON, D.C. - 

Hudson Cook associate Anastasia Caton observed last week’s oral arguments during a crucial debt collection case in front of the Supreme Court that might make third-party efforts within auto finance significantly more difficult depending which way the nine justices rule.

To recap, the nation’s highest court will decide whether a company that regularly attempts to collect debts it purchased after the debts had fallen into default is a “debt collector” subject to the Fair Debt Collection Practices Act (FDCPA).

The matter involves the Supreme Court opting to hear the appeal of a debtor from a decision by the U.S. Court of Appeals for the Fourth Circuit. Caton previously explained that the case began when consumer Ricky Henson defaulted on a retail installment sale contract secured by a vehicle. After the original creditor repossessed and sold Henson's vehicle and applied the net proceeds to the balance, Caton noted a deficiency remained.

Eventually, the creditor sold Henson’s outstanding deficiency to Santander Consumer USA and Santander began collecting Henson’s deficiency

With that situation as the foundation for oral arguments, Caton described her overall assessment of how the proceedings unfolded in a message to SubPrime Auto Finance News.

“The proceeding seemed to focus heavily on the textual arguments — likely because counsel for the consumers used a creative argument for interpreting the FDCPA to apply to debt buyers,” Caton said.

“Counsel for the consumers argued that the definition of ‘debt collector’ — essentially, any person who regularly collects debts owed or due another — means that a company is a debt collector if it collects debts that were at one time owed to another person, or that are currently due to the company,” she continued.

“Several of the justices, including both (Samuel) Alito and (Elena) Kagan, seemed to agree that this interpretation of the definition of ‘debt collector’ involved an exercise in mental gymnastics,” Caton went on to say.

Caton asserted the textual arguments tend to support Santander’s claim that an entity that collects debt that it owns is not a “debt collector.”

She then added, “But, Justice (John) Roberts readily acknowledged that at the time the FDCPA was enacted, the debt buying industry as we know it did not exist.”

SubPrime Auto Finance News asked Caton if she could pinpoint what justice’s questions gave the most insight into how the high court is approaching this matter and how it might eventually rule. She circled back to the actions by Kagan and Alito, surmising that these two high court members seemed to agree that the consumers’ textual argument is weak.

“But no one mentioned that if there is a hole in the plain language of the statute as a result of changes in the industry, then Congress should amend the statute,” Caton said.

Caton also mentioned the focus both Kagan and Ruth Bader Ginsburg took regarding the consumers’ policy argument. Caton explained that under Santander’s interpretation of the FDCPA, a debt collector servicing accounts on behalf of a third party could simply buy those accounts to evade application of the FDCPA. 

“(The justices) seemed to acknowledge that this is a problem that Congress could not have foreseen or intended at the time it drafted the FDCPA,” Caton said.

Caton added one more point regarding how the justices’ behavior might give an indication of how the Supreme Court might rule before its current term culminates this summer.

“The one thing that was absolutely clear from oral argument is that it will be a high hurdle for the court to overcome the plain language of the statute — notwithstanding that the majority of circuit courts to review this issue have found that debt buyers are ‘debt collectors’ subject to the FDCPA,” she said.

Depending on the result, SubPrime Auto Finance News asked Caton to project what might the ramifications be on the auto finance industry as well as the debt collection space.

Caton began by noting many of the largest debt buyers, relying on the majority of circuit courts, which have held that the FDCPA applies to debt buyers, already comply with the FDCPA. 

Further, she added the Consumer Financial Protection Bureau has indicated in preliminary rulemaking materials promulgated under the FDCPA that it believes that debt buyers are subject to the FDCPA. 

“So, if the court does rule in favor of the consumers, we likely will not see a huge impact on the debt buying or third party collection industries,” she said.

If the court decides that the statute does not apply to debt buyers, Caton predicted shifts in the third-party collection market and the debt buying/selling market. 

“Many third party collectors will probably move to purchasing accounts outright,” she said. “More debt buyers will enter the market in the absence of the high compliance burden hurdles posed by the FDCPA.

“As a result, the debt sales market will likely become more competitive for auto finance companies trying to sell off old deficiency balances, but creditors might also have a harder time finding third parties to service delinquent accounts,” Caton continued.

Caton touched on another potential ramification if a decision goes in Santander’s favor. She sees an impact on state collection agency and debt collection laws that have adopted the FDCPA’s definitions, and, in the absence of definitive state regulator or case law guidance, rely on FDCPA jurisprudence. 

In fact, Caton pointed out attorneys general from 28 states and the District of Columbia joined in an amicus brief supporting the consumers’ argument that debt buyers are debt collectors. 

“Perhaps the most significant impact of a decision in Santander’s favor would be Congress revising the FDCPA to remove any doubt that it clearly applies to debt buyers. The court very well could signal to Congress in its opinion that it should do just that,” Caton said.

NAF Association pledges to maintain conference quality

PLANO, Texas - 

The National Automotive Finance Association is organizing the 21st annual Non-­Prime Auto Financing Conference with the same mandate organization leadership has held for more than two decades.

“This is the industry event where all the non-­prime auto financing company executives gather for information on the most relevant issues affecting non-prime financing, where vendors servicing the industry gather and where 21 years of networking continues,” NAF Association executive director Jack Tracey said in a message to SubPrime Auto Finance News.

“It’s exciting to see how this conference over the past 21 years has grown in prominence,” Tracey continued. “It’s where everyone comes. Non­prime auto financing leaders attend the conference because they know they’ll see the rest of the industry there.

“We strive each year to pull together a conference program that addresses issues facing non­prime auto industry and to provide education and solutions on the problems confronting the industry,” he went on to say. “Our objective is to have everyone go home with a least one good idea for improving their business.”

This year’s event, which carries the theme, “Optimizing Non­Prime Performance,” is scheduled to run from May 31 through June 2. The event again is to unfold in Plano, Texas, but at a new facility — the Hilton Dallas/Plano Granite Park.

Some of the conference sessions includes the release of the 2017 Non-Prime Auto Financing Survey as well as a discussion about how finance companies can raise capital. Another segment has the title, “CFPB in Their Own Words.”

Among some of the notable conference speakers scheduled to appear are:

■ Rep. Jeb Hensarling, a Texas Republican and chairman of U.S. House Financial Services Committee

■ Tom Webb, retiring chief economist at Cox Automotive

■ Amy Martin, senior director of the structured finance ratings group at Standard & Poor’s

Complete registration details for the 21st annual Non-­Prime Auto Financing Conference can be found at www.nafassociation.com.

Space Coast Credit Union honors 6 dealers with Watchdog Award

MELBOURNE, Fla. - 

Space Coast Credit Union recently honored six local dealers with its Watchdog Dealer of the Year Award, recognizing the superior service they provided to SCCU members in 2016.

Officials highlighted the award — which has been presented annually to local dealers since 2009 — is calculated based on both SCCU member survey ratings and total loan volume generated during the year prior.

This year’s recipients include:

— Daytona Dodge Chrysler Jeep Ram (Volusia and Flagler counties)

— Universal Nissan Hyundai (Orange, Osceola and Seminole counties)

— Rosner Chevrolet (Brevard County)

— Bev Smith Toyota (Indian River, St. Lucie, Martin and Palm Beach counties)

— AutoNation Chrysler Dodge Jeep Ram (Broward County)

— AutoNation Chevrolet Doral (Miami-Dade County)

“Local dealers are our partners in the auto business, and we work together to ensure that our members are highly satisfied — both with their experience at the dealership as well as with SCCU,” said Jodie Kinley-Smith, SCCU’s indirect lending sales manager.

“We value our members’ feedback and share their voice through uncensored ratings and reviews displayed on our website to help inform and protect other members,” Kinley-Smith continued in a news release.

“This award is a way to thank and recognize those dealers who provide exceptional service to our members,” Kinley-Smith went on to say.

In addition to a plaque commemorating their achievement, each recognized dealer also receives a special vehicle sale promoted to SCCU members at no charge to the dealership.

SCCU’s indirect lending program, the main driver behind SCCU’s Watchdog Dealer of the Year award, not only can save members’ money, but also time, by enabling members to obtain their financing when purchasing a vehicle right at the dealership.

SCCU Members' Watchdog is geared to watch out for its members' financial interests in all aspects of their lives. Beyond ratings and reviews, SCCU sad it fulfills its promise by using its experience and knowledge to assist members through the auto buying decision, and providing the most competitive auto loan rates with no hidden costs.

For more information about SCCU’s indirect lending program and a full list of participating dealers, visit SCCU.com/Dealers.

AFSA again addresses burden CFPB places on small operations

WASHINGTON, D.C. - 

While a former Department of the Treasury official insisted the Dodd-Frank Act resulted in an economy “far stronger and more resilient today than it was preceding the crisis,” American Financial Services Association executive vice president Bill Himpler addressed the Consumer Financial Protection Bureau’s regulatory overreach of the state-regulated consumer credit industry and the need for Congress to reform the bureau’s practices, approve its budget and amend its structure.

The points of view came a day after the CFPB’s semiannual visit to the U.S. House, as Himpler joined three other experts in testifying to the House Financial Services subcommittee on Financial Institutions and Consumer Credit in a session entitled, “Examination of the Federal Financial Regulatory System and Opportunities for Reform.”

In a memo leading up to hearing, the subcommittee indicated providers of financial services are generally subject to a variety of regulatory and supervisory requirements. This hearing was geared to examine the impact the rules and processes from federal financial agencies, specifically the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau and the National Credit Union Administration, have had on financial companies and their customers.

Lawmakers noted the hearing was also set to examine opportunities for reform of these federal financial agencies, with the aim of improving transparency, accountability and due process for regulated persons and entities and their customers.

The hearing took place last week, a day after CFPB director Richard Cordray delivered his semi-annual report to the full House Financial Services Committee and sparred back and forth with lawmakers, especially from the GOP. AFSA pointed out that Himpler’s testimony and responses filled in critical context about the difficulty financial services providers are facing complying with the unbalanced regulations and enforcement actions put forth by the CFPB.

Himpler noted that while many are focused on financial institutions being too big to fail, AFSA is concerned about those that are “too small to succeed” under the weight of CFPB overregulation.

“AFSA strongly believes that credit should be available to everyone who can manage it, not just to the wealthy or those with perfect credit scores,” Himpler said in written testimony. “It is not apparent that the CFPB shares this philosophy. The CFPB seems to believe that credit should only be extended to those borrowers who do not present any risk.”

The committee addressed a variety of issues with regard to the CFPB, including the bureau’s faulty use of disparate impact theory in vehicle finance, issues with the construction and use of the consumer complaint database and a general lack of balance between consumer protection and credit availability.

“We believe in the CFPB’s mission to protect consumers, but that has to be balanced with ensuring the availability of credit and all too often ... it seems that the bureau does not have that balance in mind,” Himpler said in response to questions from the committee.

In prepared testimony, Amias Moore Gerety, former acting assistant secretary for financial institutions at the Treasury Department, applauded the ramifications of the Dodd-Frank Act, the law that led to the creation of the CFPB.

“A broad, diverse and dynamic financial system is a benefit to the U.S. economy and to our citizens. But this strength can only be realized on the foundation of clear rules, appropriate oversight, and independent expertise. Here in Washington, the pain of the financial crisis may be receding from memory, but throughout the country the cost of lost jobs, lost homes and the immeasurable cost of lost opportunities persist. This cost, above all, to the United States, our citizens and taxpayers, must be the central consideration when evaluating changes to our regulatory system,” Gerety said in his prepared testimony.

“In writing the Dodd-Frank Act, Congress sought to make our financial regulations both more protective and more responsive to changes in our economy and in finance. Since the passage of Dodd-Frank, the regulatory agencies and their staff have demonstrated immense capacity to listen to the concerns of industry, advocates and citizens — both to design and revise regulations and guidance that increase the stability and the fairness of our economy,” he continued.

“The result is that our financial firms, our financial system, and most importantly, our economy, is far stronger and more resilient today than it was preceding the crisis. Investors and counterparties have more faith in their financial transactions and investments, and the U.S. has continued to distinguish itself as the safest and most dynamic place to invest capital in the world,” Gerety went on to say.

The entire subcommittee hearing can be viewed here or through the window at the top of this page.

Total Dealer Compliance rolls out virtual training solution

NEW YORK - 

Dealership compliance auditing firm Total Dealer Compliance (TDC) recently launched its virtual training platform: a solution aimed at helping stores mitigate risk faced by proactive regulators to create a culture of compliance at a fraction of the cost.

TDC claims to be charging roughly 80 percent less than its competitors for these virtual compliance training modules to enable dealers to be fully compliant with federal regulations across their sales, BDC, F&I, fixed ops, HR and IT departments. 

TDC president Max Zanan explained this virtual compliance program comes at an impactful time for dealerships looking to strengthen their reputation and incorporate a culture of compliance without breaking the bank. Zanan said compliance is essential in today’s dealership environment as the count grows to 17,540 franchised dealerships and independent stores composing a level triple that number.

“With both the FTC and OSHA increasing fines for compliance violations, the cost for non-compliant car dealers average $792,000 loss per year in profit,” Zanan said. “Car dealers should proactively seek a solution that provides peace of mind and promises defensible proof of compliance to both auditors and executives.”

TDC’s virtual compliance training is readily available to all dealerships and includes the following:

• Comprehensive online training modules for each department and employee of the dealership

• Cloud-based e-learning platform with analytic reporting

• End of course assessment and certification

TDC’s virtual compliance training costs are based on user/employee headcount:

• Up to 25 employees: $699 annually

• Up to 50 employees: $1,299 annually

• Up to 100 employees: $2,499 annually

“As the nation’s leader in auto dealer compliance solutions and services, we are so proud to finally be able to provide this robust compliance training online and at a much lower price point than our competitors,” Zanan said. 

“Compliance is essential to today’s dealership environment,” he continued. “With our courses updated throughout the year and both affordable and easily accessible, we are excited to help car dealers safeguard their business, mitigate risks and increase their profits.”

More details can be found by visiting www.totaldealercompliance.com or calling (888) 243-5204.

8 parts of AFSA’s regulatory-reform blueprint

WASHINGTON, D.C. - 

This past Friday, the American Financial Services Association (AFSA) submitted a list of regulatory reforms to the Trump administration that the organization insisted would provide relief to its members operating in the consumer credit industry and ultimately benefit customers and communities across the United States.

At the behest of Mark Calabria, chief economist for Vice President Mike Pence, AFSA made the proposals following a White House meeting of AFSA member company executives, representatives of the administration’s Domestic Policy Council and Calabria in March. AFSA’s proposals include:

—A halt to Consumer Financial Protection Bureau examinations

—Placing moratoriums on the use of disparate impact theory and the CFPB’s complaint database

—Withdrawing compliance bulletin 2015-07 on in-person collection of consumer debt

—Terminating the arbitration and small-dollar rulemakings

—Withdrawing compliance bulletins 2012-03 and 2016-02 on service providers

—Re-designating payments from the civil penalty fund

—Ensuring the accuracy of press releases as they relate to the enforcement actions to which they pertain, and;

—A general review of CFPB procedures

Additionally, the trade association submitted letters to Defense Secretary James Mattis regarding reforms to the Military Lending Act that would help U.S. military service members access beneficial forms of credit, and to Ajit Pai, chairman of the Federal Communications Commission regarding reforms to modernize the Telephone Consumer Protection Act (TCPA).

In a public appearance last Thursday, CFPB director Richard Cordray described what he contends is the bureau’s approach to regulatory implementation, “which we believe is key to helping industry avoid unnecessary burdens while achieving compliance.” Cordray delivered remarks during the U.S. Chamber of Commerce’s 11th annual Capital Markets Summit.

“As we approach our work, we have made it very clear that we see ourselves as a 21st century agency. What does this really mean? Among other things, it means an agency built on developing our own independent sources of data and ensuring a strong democratic foundation of public engagement,” Cordray said.

“Despite our best efforts, we recognize that the outcome of any human process will be imperfect. We learn from the comments we receive and our final rules are helpfully informed by that input on a consistent basis,” he continued. “But even after we issue a final rule, if the data shows over time that any of our substantive calls need to be reconsidered, we can and will face the issue frankly and address it. We will not let pride of authorship interfere with the serious task of policymaking in the interests of consumers and the American public.

“We believe our rulemaking process does not end with finalizing a set of rules,” Cordray went on to say. “It is not good enough for us to take the view that once new rules are published, our work is done and we can say to financial institutions that ‘it is your problem now.’ If the point of our regulations is to protect consumers and to promote fair, transparent, and competitive markets, then we should care a great deal about how well the rules are implemented. We feel that way especially because we fully appreciate the difficulty of the task and the constant perils of unintended consequences, changes in circumstances, and the difficulty of predicting the future.”

4 attributes of quality compliance trainers

WILKES-BARRE, Pa. - 

GWC Warranty recently published four recommendations to help dealerships secure a high-quality compliance trainer.

The used-vehicle service contract and related finance and insurance products provider attempted to go beyond just someone who might have a deep knowledge of both federal and state regulations. Here are what GWC Warranty suggested:

1. The right training for the right people

The company highlighted a topnotch compliance training provider will be able to supply comprehensive content at a level appropriate for its audience. You’ll also want to look for a service that has training for several different types of employees to address all areas of a dealership.

2. Reporting capabilities

Without the ability to track and report results, GWC Warranty acknowledged you have no way of holding your staff accountable for the training they complete. The company recommended that managers look for compliance training that boasts an intuitive, easy-to-use reporting structure so you can stay on top of compliance training with minimal effort.

3. Extensive industry knowledge

Regulatory familiarity remains important as GWC Warranty noted that dealerships should look into who develops the content for the providers you investigate. Are they attorneys? Do they have automotive industry experience? Are they members of organizations like the National Association of Dealer Counsel? Checking off these boxes will ensure your training content puts you in the safest possible position.

4. Verification processes

GWC Warranty closed by noting that inserting important documents into your training platform that your employees must read and sign ensures buy-in across the dealership. Having a technology platform that can handle this and get confirmation from employees that they are on board with compliance is vital to your training program’s success.

This material originally appeared on GWC Warranty’s website here. More recommendations from the company can be found at gwcwarranty.com/dealers/accelerate-blog.

3 suggestions for spotting & preventing fraud

ATLANTA - 

Equifax auto finance leader Lou Loquasto insisted every credit provider and buyer of vehicle installment contracts has a story about how deliveries might have been completed because of some kind of fraud. Loquasto pointed out that sometimes it’s a “rogue” F&I manager or another unscrupulous member of a dealership’s staff.

“I’ve got my story. My guy is in jail currently,” said Loquasto, who spent a major portion of his professional career at Wells Fargo.

While malfeasance at the dealership level might not be as prevalent, consumers trying to deceive their way to approvals certainly is a growing problem. Loquasto shared, “You could Google the term ‘fake pay stubs’ and you get 370,000 results. For $5 and you invest five minutes, you can make $800,000 a year on paper. Some of these fakes are really good.”

In fact, PointPredictive, a provider of fraud solutions to banks and finance companies, generated a white paper at the beginning of the year detailing new analysis confirming that auto financing fraud risk has been rising for several years, but remains hidden in credit losses. PointPredictive estimates the annual value of auto finance originations that contain some element of misrepresentation may be as high as $6 billion in 2017, which is twice as much as 2016 estimates.

“I think the biggest problem when I was a lender and now talking to people in the business is there’s never been a good way to understand which portion of your loss comes from fraud,” Loquasto said. “You may forecast a 2 percent loss on your portfolio, but you’re not sure exactly what portion of that might have come from fraud.

“You know when that one situation comes up that it’s verified fraud, everyone gets really angry,” he continued. “The thing about fraud is a lot of times you just lose the whole deal. It’s not like a regular repossession where a customer goes bad and you lose half of it. In these situations, you’re losing the whole loan.”

The issue of fraud arrived again this week. Santander Consumer USA announced that it reached settlements totaling $25.9 million with the attorneys general of Delaware and Massachusetts in part because law enforcement said that SCUSA allegedly knew that the reported incomes, which were used to support the applications submitted to the company by dealers, were incorrect and often inflated.

Officials went on to state the investigation by Delaware and Massachusetts also revealed that SCUSA was allegedly aware that certain dealerships had high default rates due in part to the regular submission of inaccurate data on financing applications — most often involving inflated income. A company spokesperson said Santander neither admitted nor denied the allegations made by the attorneys general about contracts facilitated through certain dealers between 2009 and 2014.

Before this SCUSA settlement became public, Loquasto described what sometimes happens when a finance company learns that a dealership in its origination network fudges the numbers, so to speak, in order for the contract to be purchased and delivery completed.

“As a lender, this is crushing to your relationship with the dealer,” Loquasto said. “You’ve got a dealer you’re working with for a long time and maybe they’ve got a rogue employee. Maybe it’s just rogue people going to the dealership. If you’re asking the dealer to buy back $50,000 in losses from you or if you found out they had an employee that is doing bad things, that’s really bad for the relationship with the dealer.

“As a lender, it’s something on the radar, but I just don’t think there has ever been a real good mechanism to figure out that fraud has occurred and figure out how to share that information with others in the industry so lenders can help each other,” he continued.

In an effort to enhance possible collaboration, Equifax shared a trio of suggestions that could help finance company’s fraud prevention efforts. The recommendations included:

—A shared environment: Rather than relying on their own data, finance companies should be leveraging intelligence from data consortiums that span multiple businesses across multiple industries to stay ahead of the curve.

—Customizable platforms: Systems such as Equifax’s FraudIQ Manager can leverage customizable rules and models, providing lenders the ability to adapt to their unique needs, industry changes or new types of fraud.

—Real-time Intelligence: Fraudsters work fast, so finance companies need to act faster. The best fraud review processes can provide finance companies real-time intelligence for more efficient and confident identification of potential fraud.

Mike Urban, who is vice president of fraud consulting at Equifax, described how these recommendations are even more crucial in light of how online paths to auto financing are become more widespread.

“By moving to more digital access to funds and applications, it’s easier to take that paystub I downloaded off of the Internet, take a picture of it, copy it or scan it, and all of that information is going into the approval process so these criminals can launch broader attacks to see which one is going to come back with an approval. Then once they get that approval, they can walk into the dealer say ‘I’m preapproved. I’ve got my ID, and I’m driving off with the car,’” Urban said.

“Criminals will routinely take advantage of a lenders’ lack of sharing of information to execute large frauds. The more intelligence, the more experience that one lender has with verifying identity, that can be shared so when it hits again they’ll know right away and be able to sidetrack that application and manage it without allowing the credit to go out. Criminals have been sharing data over the Internet for years, and legally, the good guys should be doing it as well,” he continued.

Both Loquasto and Urban mentioned that Equifax has been part of consortiums in both the United Kingdom and Canada for quite some time to combat fraud, and the company recently launched a similar effort in the United States.

“If you think about it, a fraudster or some consumer will fraud on a cell phone and then maybe on a pay TV account. And then maybe they’ll fraud a credit card. These aren’t guys who do it once and are done,” Loquasto said.

“If you can bring in other companies from other verticals to share fraud experience, that’s where our consortiums have found a lot of value,” he continued.

And possibly through that sharing of ideas and information, Urban contends that auto finance companies could arrive at a place where fraud can be mitigated perhaps more than it is now.

“Every lender has different needs and they require solutions that are customized or configured to meet their needs and dynamic business requirements,” Urban said.

“It’s not enough to say I’ve got this big data. They really need a system to implement fraud strategies, looking at different data elements that are coming in through applications, tying together additional data elements into those decisions using analytic models so they can score what their risk is,” he went on to say.

Loquasto closed by saying he has a long-term goal of leading an industry-wide charge of reducing fraud by at least $1 billion.

“Lenders are spending a ton of money on data, credit data, income and employment data, alternative data, but they’re just not spending very much money on fraud. I think people are becoming awakened to the problem and the tools,” Loquasto said.

“We’re a very collaborate industry,” he continued. “You go to conferences and our industry is one of the most collaborative out there. We’re perfect for this type of solution. I think if we work together as lenders and vendors, we can really cut deep into the profits of these fraudsters.”

SCUSA settlements with Delaware and Massachusetts total $25.9M

CARY, N.C. - 

For the second time in roughly a week, details became public involving Santander Consumer USA and regulatory enforcers.

On Wednesday, SCUSA reached settlements totaling $25.9 million with the attorneys general of Delaware and Massachusetts for what state officials said was the finance company’s role in “facilitating unfair, high-rate” vehicle installment contracts.

The developments with the two states come on the heels of Santander Consumer USA and its parent’s subsidiaries entering into a written agreement with the Federal Reserve Bank of Boston.

When SubPrime Auto Finance News reached out to SCUSA regarding the Wednesday’s settlement, a company spokesperson said Santander neither admitted nor denied the allegations made by the attorneys general about contracts facilitated through certain dealers between 2009 and 2014.

“We are pleased to put this matter behind us so we can move forward and continue to focus on serving our customers,” the spokesperson began.

“Santander Consumer is totally committed to treating customers fairly,” the spokesperson continued. “In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls. Today’s voluntary agreement with the attorneys general of Delaware and Massachusetts, which resolves an investigation dating back several years, is another important step forward in that process.

“We will continue to strengthen our business controls and dealer management program while ensuring that we are focusing on best-in-class consumer practices,” the spokesperson went on to say. “We negotiated in good faith with the attorneys general with respect to past underwriting and origination practices, but would note this settlement is not about securitizations and, in fact, our settlement releases us from any such claims.”

Here are the details that led to the settlement, according to news releases shared by Delaware and Massachusetts officials.

The investigation, conducted by the fraud division of Delaware attorney general Matt Denn’s office in partnership with the Massachusetts attorney general’s office, revealed that Santander allegedly bought auto financing contracts without having a reasonable basis to believe that the borrowers could afford them. In fact, investigators said Santander predicted that a large portion of the contracts would default, and allegedly knew that the reported incomes, which were used to support the applications submitted to the company by dealers, were incorrect and often inflated.

Officials went on to state the investigation by Delaware and Massachusetts also revealed that SCUSA was allegedly aware that certain dealerships had high default rates due in part to the regular submission of inaccurate data on financing applications — most often involving inflated income. But law enforcement said Santander continued to purchase contracts from those dealers anyway and, in some cases, sell them to third parties.

“Protecting consumers from unfair lending practices is extremely important and has been a priority for our office,” Denn said. “We are pleased that this settlement results in significant consumer relief and provisions that will prevent similar misconduct in the future. We will continue to pursue investigations in this area to ensure that Delaware consumers receive a fair deal when they are extended credit to finance a purchase. I am proud of the work of our fraud division and also thank the Massachusetts attorney general’s office for being a valued partner in this investigation.”

Massachusetts attorney general Maura Healey also interjected that many of contracts involved in the investigation fell into the subprime portion Santander’s outstanding portfolio, which were leveraged as part of the funding process with many investment banks and other financial entities to resell or securitize the paper. Healey asserted that SCUSA dropped the contracts into large asset pools and selling bonds or notes backed by the assets in the pools.

Money obtained from the securitization process was then used to fund more subprime contracts — like many other finance companies do — but it drew the ire of the Massachusetts attorney general.

“After years of combatting abuses from subprime mortgage lenders, these practices are unfortunately familiar,” Healey said. “We found that Santander, a leading player in the business of packaging and reselling subprime auto loans, funded unfair and unaffordable auto loans for more than 2,000 Massachusetts residents. This first-in-the-nation settlement relating to subprime auto loan funding will provide relief to thousands of car buyers in Massachusetts and prevent these practices from being used against our residents.”

The settlement in Massachusetts, filed in Suffolk Superior Court, includes $16 million in relief to more than 2,000 affected consumers and a $6 million payment to Massachusetts. Santander has also agreed to implement new oversight policies regarding subprime auto funding and securitization practices.

Santander also will provide significant consumer relief by paying $2.875 million into a trust for the benefit of impacted Delaware consumers. A trustee will be appointed to locate and pay restitution to hundreds of eligible harmed Delawareans who financed vehicle purchases through Santander. Eligible consumers will be contacted by the trustee and the AG’s office regarding the claims process for restitution.

Santander will also pay just over $1 million to the Delaware Consumer Protection Fund, which pays for work on consumer fraud and deceptive trade practice matters and other consumer-oriented investigations and legal actions.

In an effort to keep its commitment to treat customers fairly, Santander reiterated in its message to SubPrime Auto Finance News that management actions during the past 18 months include:

— Improving policies and procedures to identify and prevent dealer misconduct.

— Putting in place a stronger management team and board of directors and improved board and management oversight.

— Reinforcing a culture of compliance throughout the company and investing in highly experienced compliance professionals who have a track record of compliance excellence in financial services.

— Establishing an Office of Consumer Practices to serve as an internal voice of the consumer and to examine, track and improve the customer experience.

— Creating a dealer council to increase focus and formalize decision making on dealer oversight issues.

— Creating a dealer services group to enhance the efficiency of dealer monitoring and management processes.

— Increasing the number of requirements a consumer must meet before the company funds a loan (e.g., providing paystubs or tax returns, making higher down payments, etc.).

Santander Consumer USA chief operating officer Rich Morrin directly addressed how the finance company now is watching its relationships with dealers during its “Investor Day” back on Feb. 23.

“Regulatory expectations of lender oversight of dealerships has increased pretty dramatically. So while SC has always held dealers accountable, it’s not a change,” Morrin said. “What we have done is we take this seriously and so what we have done is we’ve evolved our approach accordingly.”

The COO went on to say, “ … holding dealers accountable ultimately is a positive thing for a number of reasons. One is because we get the right kind of relationships from which to try to grow our volume, but secondly, the application population we get is a lot more positive and high quality, which we view is very positive.”

As a part of Wednesday’s announcement, SCUSA also mentioned the company is fully reserved for this matter with Delaware and Massachusetts and no additional charge will be taken in connection with the settlement.

“This settlement will not impose any new restrictions on SC’s ability to make capital distributions,” the company said.