Underwriting

Fiserv and TransUnion partner to integrate alternative data into origination platform

BROOKFIELD, Wisc. - 

On Tuesday, Fiserv finalized a partnership with TransUnion to improve price, decision accuracy and expand the customer base within the automotive finance space.

Officials highlighted integrating the automotive loan origination system from Fiserv with CreditVision Link from TransUnion will help increase precision of scoring and risk modeling.

By including additional data points to evaluate credit applications, Fiserv explained that finance companies can better identify high-risk and high-opportunity consumers, including emerging credit populations often overlooked or denied by lenders due to insufficient data in traditional credit files.

“Understanding the customer is critical not only to making informed business decisions, but to also build and nurture customer relationships and loyalty over time,” said Steve Chaouki, executive vice president and head of TransUnion’s financial services business unit. “Our integration of CreditVision Link trended and alternative data sources into Automotive Loan Origination System enables lenders to score approximately 95 percent of the U.S. adult population.”

CreditVision Link leverages new alternative data sources to its risk scoring analysis, including address stability, checking account history, microloans/ alternative lending and property ownership. Fiserv has implemented a select number of trended and alternative data scores, which include up to 30 months of historical information on each contract with actual payment history and amount borrowed over time.

The companies pointed out that there are currently 60 million underserved consumers who potentially can now be scored, as well as expanding the super prime customer base by 23 million.

“The most successful auto lenders prioritize the needs of their customers while managing risk exposure,” said Shaimaa Elk, chief information officer for lending solutions at Fiserv. “The partnership between Fiserv and TransUnion enables lenders to provide borrower-focused customer service and better optimize profitability, cost reductions and efficiencies.”

More details can be found at fiserv.com.

New roles for 2 executives at Toyota’s captive

PLANO, Texas - 

Among seven executive changes made by Toyota across its North American operations, two involve top leaders at the automaker’s captive finance company.

Effective Jan. 1, the company said in a recent announcement that Scott Cooke will be group vice president and chief risk officer at Toyota Financial Services (TFS), where he will have responsibility for risk management across the Americas region, dealer credit and information security.

Furthermore, the OEM indicated Cindy Wang will be group vice president, treasury, at TFS in Plano, Texas, where she will have responsibility for leading Treasury and Vendor Management Office (VMO) business units within Toyota Motor Credit Corp. (TMCC), including responsibilities for Global and Americas Region Treasury.

The other announced changes include:

—Susan Elkington is named Toyota Motor Manufacturing, Kentucky, (TMMK) president in Georgetown, Ky., where she will have responsibility for all manufacturing and administrative operations.

—Kent Rice is named group vice president quality at headquarters in Plano, Texas, where he will have responsibility for promoting overall North America Toyota Quality direction including Product Quality and Service Support.

—Sean Suggs is named Toyota Motor Manufacturing, Mississippi, (TMMMS) president in Blue Springs, Miss., where he will have responsibility for all manufacturing and administrative operations. He also will assume the role of TMMMS Administration vice president.

The company also highlighted a pair of retiring executives, including:

—Wil James will retire in February after completing more than 30 years of service. He most recently served as TMMK president in Georgetown, Ky.

—Bob Waltz will retire on Jan. 11 after completing more than 32 years of service. He most recently served as group vice president of Product Quality and Service Support (PQSS) in Plano, Texas. He will serve as executive adviser of PQSS until his retirement.

“These appointments will bring new insights into strengthening Toyota’s ability for more collaboration enterprise-wide, helping us respond more quickly to the market and our customers’ needs,” said Jim Lentz, chief executive officer, Toyota Motor North America (TMNA).

PwC to present picture of how robotic technology could impact auto finance

PALM SPRINGS, Calif. - 

Craig Schleicher of PwC sees robotic features having a much greater presence in auto finance in the not-so-distant future. No, C-3PO and R2-D2 from Star Wars likely aren’t taking over underwriting and servicing vehicle installment contracts, but the manager of consumer finance at PwC described how robotic process automation (RPA) can be a good thing. 

Schleicher is set to discuss RPA and other cutting-edge developments during his Used Car Week general session on Nov. 14 as the industry gathers in Palm Springs, Calif., for the annual gathering of thought leaders, operators and executives that touch all segments of the used-vehicle space.

During a phone conversation with SubPrime Auto Finance News earlier this week, Schleicher noted that two technology developments are percolating in auto finance; one within the customer-facing business segment and those connected to finance companies’ internal workings.

“On the customer side, the quality of inventory data and VIN level information has really changed the interaction model for a lot of lenders and allowed for direct to indirect conversion where lenders are presenting vehicle options and financing options on their website and becoming a lead referral source for their dealer partners, which really changes the dynamics of indirect lending,” Schleicher said.

“On the internal side, I see robotic process automation as something that has been adopted significantly in a number of other industries that auto finance is just starting to dip its toes into. To me, it has really significant potential to increase the efficiency of the back-office operations across the entire loan lifecycle,” he continued.

Before you open an online search engine to learn about RPA, check out how Schleicher succinctly explained the technology in two sentences.

“RPA you can think of as software overlay that works a lot like an Excel macro that also works across multiple different programs,” he said. “It combines an easy user interface to design programming with technology like optical character recognition to make it easy to automate repetitive tasks that are highly manual without having to go through a full system integration.”

Schleicher explained that one example where RPA could be impactful in auto financing is how the technology could produce review capabilities of contract documents against what is contained in the loan origination system. And not just a sample, but 100 percent of a portfolio.

PwC delved into the connection of RPA and auto financing through a project that’s available here. Schleicher will be elaborating on the topic more during his session at Used Car Week, and will also cover specific processes where RPA could enhance how finance companies operate.

“I’m really excited for the presentation because I think we’re going to take a strategic lens on some of the elements of auto finance that don’t get the publicity that they deserve,” Schleicher said. “We’re going to take a look at how lenders can start to think strategically about opportunities for innovation across the loan life cycle to improve their performance in the servicing and collections function specifically.

“One of the areas I’m most excited to talk about is I think there is a real opportunity for lenders to change how they think about the collections function from being just a loss-prevention tool to something that’s part of their bigger strategy and supports their overall goals of customer retention, loyalty and satisfaction,” he continued.

When finance company executives have down time, perhaps they can delve into the Star Wars series of motion pictures; maybe  robots can make their institutions more compliant or profitable.

“I also think there is a big opportunity and the need for continued evolution in the technology to improve the customer experience,” Schleicher said. “I expect that the pace of change in auto finance will be much greater over the coming years than it has been.”

2 primary reasons why social media is still not viable for underwriting

COSTA MESA, Calif. - 

No doubt, finance companies are looking for whatever reliable piece of information they can examine while they’re first deciding if they should make an auto finance offer to a potential vehicle buyer and then exploring what terms and down payment should be leveraged.

So what about using someone’s social media profile? After all, Experian cited data from Statista that indicated 81 percent of Americans have a social media profile in 2017, up from 78 percent last year and 24 percent back in 2008.

Before the underwriting department starts to tap Facebook to go along with paystubs, Experian cautioned the industry in a recent blog post about the potential pitfalls of social media profiles ever being used in a credit decision. Analysts’ reasons included:

1. Experian said, “There is that little rule called the Equal Credit Opportunity Act, which states credit must be extended to all creditworthy applicants regardless of race, religion, gender, marital status, age and other personal characteristics. A quick scan of any Facebook profile can reveal these things, and more. Credit applications do not ask for these specific details for this very reason.”

2. Experian added, “Social media data can also be manipulated. One can ‘like’ financial articles, participate in educational quizzes and represent themselves as if they are financially responsible. Social media can be gamed. On the flip side, a consumer can’t manipulate their payment history.”

While using social media information still might not be used in underwriting anytime soon, Experian reiterated that there are other compliant avenues finance companies can take to ensure the best possible paper is coming into their portfolios.

“In the meantime, other sources of data are being evaluated. Everything from including on-time utility and rental payments, insights on smaller dollar loans and various credit attributes can help to provide a more holistic view of today’s credit consumer,” Experian said.

“There is no question social media data will continue to grow exponentially. But in the world of credit decisioning, the ‘like’ button cannot be given quite yet,” Experian went on to say.

DataLab Data Solutions enhances tool with FactorTrust information

ATLANTA - 

FactorTrust finalized a partnership this week with leading analytics-driven marketing consultancy, DataLab Data Solutions (DDS), which couples high-quality, clean data with deep analytics and model development, giving its customers the best opportunity for successful targeted marketing programs.

The addition of FactorTrust’s 275 million transaction records aids the analytics expert in executing that process to identify key prospects.

FactorTrust’s alternative credit data is designed to augment DDS’s existing, robust inventory of data records.

“By adding FactorTrust’s real-time data, we are enriching our inventory and making it even more comprehensive,” DDS chief operating officer David Flam said. “This data provides additional insight not only into consumers with strong credit profiles, but also can help identify new consumers who may not otherwise receive firm offers of credit or insurance; our assets together provide the most complete profile of consumers, enabling our customers to grow their marketable universe.”

Maryland-based DDS uses its network of data points to build response and conversion models to help guide customers in making targeted marketing selections.

“FactorTrust is pleased to side with industry innovators like DDS,” FactorTrust chief executive officer Greg Rable said. “By using FactorTrust’s alternative credit data, DDS is harnessing the unique and predictive capabilities of alternative credit data in their lending processes, and their customers are benefitting and extending proper fitting offers to consumers.”

Ford Motor Credit leverages machine learning to enhance underwriting, reduce risk

LOS ANGELES - 

Ford Motor Credit and ZestFinance recently announced the results of a study that measured the effectiveness of machine learning to better predict risk in auto financing and potentially expand auto financing for millennials and other Americans with limited credit histories.

As a result of the study’s success, Ford Credit said it is developing plans to implement machine learning credit approval models to further enhance its consistent and prudent lending practices across the credit spectrum.

“At Ford and Ford Credit, our primary goal is to serve our customers,” Ford Credit chairman and chief executive officer Joy Falotico said. “For this study, we worked with ZestFinance to harness the capability of machine learning to analyze more data and to analyze our data differently.

“The study showed improved predictive power, which holds promise for more approvals, enhanced customer experiences and even stronger business performance, including lower credit losses,” Falotico continued.

The captive explained that Ford Credit’s proprietary models have performed well for decades. The machine learning study compared results from a Ford Credit scoring model with a machine learning model developed by ZestFinance, using its underwriting platform to do deeper analysis of applicant data.

Ford Credit and ZestFinance found that machine learning-based underwriting could reduce future credit losses significantly and potentially improve approval rates for qualified consumers, while maintaining its consistent underwriting standards.

According to the Consumer Financial Protection Bureau, 26 million American adults, or about one in 10, have no credit record, making them difficult and often impossible to underwrite using traditional methods. This includes millions of millennials who are also part of the fastest-growing segment of new car buyers.

Although these consumers may have steady jobs, officials insisted their creditworthiness is heavily based on credit history. This makes it more difficult for companies to provide financing, and they could miss an opportunity for revenue growth.

Last year, the captive pointed out that new vehicles purchased by millennials represented 29 percent of all U.S. sales, and that number is expected to grow to 40 percent by 2020.

“Machine learning-based underwriting will be a game-changer for lenders, opening entirely new revenue streams. Millennials offer the perfect example. They are typically a good credit risk and are expected to command $1.4 trillion in spending by 2020, but many lack the financial history needed to pass a traditional credit check,” ZestFinance founder and CEO Douglas Merrill said.

“Applying better math and more data to traditional underwriting illuminates the true credit risk and helps forward-looking companies like Ford Credit continue to grow their businesses while predictably managing their risk,” Merrill added.

The companies also highlighted that machine learning tools can analyze data more deeply and in more detail. They also are capable of “learning” over time, for example, by proposing changes to variables as patterns evolve or emerge, or by recognizing and incorporating macroeconomic changes into their assessments.

ZestFinance is now offering the Zest Automated Machine Learning (ZAML) Platform, which it developed specifically for credit underwriting. ZAML uses complex algorithms to analyze thousands of data points to provide a richer, more accurate understanding of all potential borrowers, delivered in an easy-to-use Web interface.

The ZAML Platform consists of three components: data collection and assimilation, machine learning modeling tools and transparency tools that enable companies to explain credit decisions.

“The work with ZestFinance exemplifies the innovation efforts at Ford Credit to support Ford Motor Company and its customers,” the captive said.

“Financial technology is key to many of these efforts, as fintech can contribute to an even more seamless and better personalized vehicle financing experience for consumers,” the company went on to say.

How finance companies dabble with psychographic analysis

ATLANTA - 

Psychographic analysis involves the study of how people live, what interests them and what they like, according to the American Marketing Association.

Equifax auto lending sales leader Craig Sims acknowledged finance companies are leveraging psychographic personas in order to target specific consumers with appropriate offers to use on their next vehicle purchase. But when it comes to using psychographic information during the underwriting process, Sims explained most finance companies are stopping short of making it an integral cog of their scorecards.

At least for now.

“My understanding of psychographics is that it’s different from the traditional demographics, who you are, where you live and where you work, but instead looks to quantify why you do the things you do, your attitudes and opinions and values,” Sims said during a recent phone conversation with SubPrime Auto Finance News.

“The place we seeing it show up most of the time in auto finance is really on the marketing side of things as we look at who they’re targeting for a particular product,” he continued. “I think it’s becoming increasingly relevant in auto finance as we seek to understand who folks are and what their attitudes are about things like their car payment.”

And where that attitude could surface is through a consumer’s activity on social media sites such as Twitter or Facebook. But Sims noted a place where it might even more relevant — and verifiable — is when the applicant states income and employment information.

Whether potential deception is intentional or not, Sims mentioned that how close to accurate that income and employment information is that the consumer shares could be a predictor of repayment.

“I think auto lenders are beginning to dabble in it a little bit,” Sims said. “Where you work and how much money, you make might fall into that more demographic type that we’re used to looking at from an auto perspective. But one of the things we find out is people who overstate their income on an application turn out to be higher risk. What does that also tell you about their behavior and attitudes?

“We’ve certainly seen some anecdotal studies that people who either overstate their income or overstate their tenure are higher risk compared to people who are truthful about these pieces of information,” he continued.

Sims indicated that Equifax’s volume of business involving income and employment verification is up by 24 percent since 2015. And the 2017 pace is on track for 32 percent growth.

But while income figures might be hard data finance companies can verify and use, Twitter hashtag frequency doesn’t exactly fall into current regulatory categories established by federal agencies.

“Particularly given the regulatory era we live in, folks tend to be pretty conservative when bringing these new data elements in,” Sims said. “The jury is still out on whether it’s going to lead to fair lending concerns and things like that. Who knows what happens if you were to look at someone’s Twitter feed and considering that as a part of the underwriting decision? Folks seem to be sticking with the more traditional demographic data points. But these behavioral indicators could show if people are being truthful on the application.

“Some of these things that you might consider psychographic are details that lenders in the underwriting space have been doing for a long time,” he went on to say. “They look at someone’s bureau and the resident history and employment history and try to formulate a picture of how this person behaves and how they might continue to behave in the future.”

No matter what data and information finance companies leverage, speed to a decision is paramount, according to Sims, especially with consumers want to complete delivery as quickly as possible.

“We hear this recurring theme from lenders and dealers that decision time is a key metric for everybody because we’re trying to streamline the process, get customers in and out the door in an hour or less,” Sims said. “The more pieces of data and the less human intervention we need in underwriting, the quicker you can turn around and hopefully more painless for the consumer.”

While the industry might not be there yet, more frequent use psychographic analysis beyond marketing campaigns could land in underwriting and originations.

“Lenders are looking for how to paint this whole picture of this consumer,” Sims said. “How can I get past just the credit bureau to really understand how someone will behave if you were to extend that auto loan? It’s just a question of how confident are they that the things they’re looking at aren’t going to run afoul with the regulators.”

Lobel Financial boosts underwriting with FactorTrust data

ATLANTA - 

On Friday, FactorTrust announced the addition of Lobel Financial to its growing list of financial service companies implementing its alternative credit data into their credit decisioning process.

Lobel Financial, a finance company specializing in purchasing and servicing vehicle installment contracts from independent and franchised dealers, is using FactorTrust data in a custom scorecard to augment other in-house credit strategies.

The company selected FactorTrust to implement its alternative credit data to help them achieve more lift and better separation of good and poor credit performers.

“We looked closely at what FactorTrust could offer, and decided that its many attributes, delivered in real-time, would help us best reach our goal of establishing enhanced segmentation for the development of our new internal scorecard,” Lobel Financial president Harvey Lobel said.

Lobel Financial joined finance companies such as National Auto Lenders leveraging FactorTrust’s information.

“Using alternative credit data is a proactive choice for industry leaders like Lobel Financial, who are faced with the challenge of effectively and intelligently managing risk on the underbanked market,” FactorTrust chief executive officer Greg Rable said.

“The addition of FactorTrust’s proprietary data opens up their options in determining the best credit performers for their business. It allows a complete picture of consumers, who are often considered credit invisible, but are really just credit inaccurate due to lack of data,” Rable added.

Why CPS is going through a ‘painful process’

LAS VEGAS - 

Consumer Portfolio Services chairman and chief executive officer Brad Bradley described how the subprime finance company is going through what he called a “painful process.” While the company’s originations are down from last year, its delinquencies didn’t spike to alarming levels.

Rather, Bradley is leading CPS with patience even though Q2 originations edged up slightly on a sequential comparison but softened by nearly $100 million compared to a year earlier.

During the second quarter, CPS reported that it purchased $233.9 million of new contracts compared to $229.6 million during Q1 and $319.1 million during the second quarter of last year. The company's managed receivables totaled $2.343 billion as of June 30, an increase from $2.323 billion as of March 31 and $2.254 billion as of the end of last June 30.

“I think people probably at this point understand what we’re trying to do,” Bradley said during closing comments of CPS’ latest conference call. “I mean people who know the company and certainly know me know that we would rather be aggressive. We would rather be actively growing the company and moving forward in the world. So this is a bit of a painful process for us right now.

“But to the extent you go back to 2007 when we had a huge problem, these times that are being a little more conservative might give you a huge home run later,” he continued. “And so what we don't want to do is stick our neck out with the rest of the folks and have a problem. So we've been pretty good at avoiding them. We think we've done a lot of things right now. As we mentioned in the call, it may take a few minutes or little while to prove that out. But we have some time to do it.

“And with any luck, we’ll position ourselves very well for the next couple of years, if we just staying in there patiently for the next few quarters. And that’s what we’ve been trying to do, and certainly we are achieving that goal today. Painful hurt, maybe for some of us, who like to see the company moving surging forward rather sitting in idle. But that’s the course we’ve chosen, and we think it’s a life course, and we’ll see what happens in the next few quarters,” Bradley went on to say.

CPS generated nearly a 5 percent year-over-year increase in revenue as it rose by $5.1 million to $110.1 million. However, the company’s total operating expenses jumped 10.3 percent or $9.5 million to $102.1 million. As a result, CPS watched its Q2 earnings drop to $4.6 million, or $0.17 per diluted share, down from $7.3 million, or $0.25 per diluted share a year earlier.

While all of those metrics shifted, CPS still managed to posts its 24th consecutive quarter of positive earnings.

Overall industry view

As he often does, Bradley shared his candid assessment of how the market is behaving. His view of competition focused a bit on the strides credit unions have made in gaining market share, especially as some finance companies are backing off their origination aggression.

According to the latest information from Experian Automotive, credit unions held 20 percent of the total auto finance market after the first quarter, up from 18 percent a year earlier.

“Credit unions have done a big job of moving into the spaces in the bottom of the spectrum, and been relatively competitive in growing in this sector in the last year or two,” Bradley said. “Some of the companies are pulling back,. Some of the companies are slowing down, and a lot of that gap is being filled by some of these credit unions.”

Another topic Bradley touched on was income verification. He emphasized that CPS’ underwriting department checks consumers’ income sources before finalizing the contract.

“We do verify income in every single deal,” Bradley said. “Job verification or income verification obviously was a hot topic in the news last few quarters. It’s ironic that that isn’t more the norm in the industry, but for us it is. It’s not bad when people ask questions, and we have a really good answer.”

Other company metrics

In other parts of CPS’ latest financial statement, the company reported annualized net charge-offs for the second quarter were 7.62 percent of the average owned portfolio as compared to 6.94 percent a year earlier.

CPS also reported delinquencies greater than 30 days (including repossession inventory) stood at 9.64 percent of the total owned portfolio as of June 30, up from 8.58 percent on the same date in 2016.

And if contracts do not mature, Bradley mentioned the loan-to-value ratios CPS is pushing into its portfolio are improving. After hitting a high of 115 percent, Bradley mentioned the stat dipped to 112.74 percent in Q2.

CPS chief financial officer Jeffrey Fritz also mentioned the company enjoyed a slight year-over-year improvement in its recovery rate through its wholesale endeavors after repossession, watching the rate tick up to 35.6 percent from 35.2 percent.

In the second quarter, the company’s board of directors approved an increase to the aggregate authorization to repurchase outstanding securities by $10 million. In Q2, CPS purchased 540,793 shares of stock in the open market at an average price of $4.54. Through the first six months of the year, CPS purchased 1,102,410 shares at an average price of $4.74.

New credit tool from CoreLogic & Equifax aims to enhance dealers’ leads

IRVINE, Calif. - 

Both consumers and dealers likely want to know potential buyers’ credit standing in order to facilitate delivery, and a new product fueled by CoreLogic and Equifax rolled out on Wednesday aims to accomplish that objective.

Analytics and data-enabled solutions provider CoreLogic launched BuyerConnect; a solution powered by Equifax that can be posted on a dealer’s website to help convert anonymous web traffic into qualified leads.

BuyerConnect can allow consumers to receive a free Equifax Risk Score directly from a dealer’s website and instantly see if they likely meet minimum credit requirements for auto financing.

To start the credit scoring process, the consumer only enters their name, address, email and phone number — no social security number. This basic information is sent to the dealer as a lead generation tool, whether or not the consumer completes the process.

Once the consumer receives their score, they can decide if they want to send their credit score range to the dealer to facilitate the shopping and financing processes by simply consenting to share the information. This process posts a soft inquiry to the consumer’s credit report so there is no impact to the consumer’s credit score, according to the companies.

In addition, the dealer’s website administrator can attach information regarding the page where the customer engaged with BuyerConnect. This information can include what vehicle the consumer is interested in, what advertisement the consumer responded to, or information about trade-ins.

“As more and more consumers do their research online, automotive dealers need a tool that gives them a competitive advantage by helping them convert website traffic into showroom floor traffic,” said Andrew Price, vice president of transportation services at CoreLogic.

“BuyerConnect helps dealers not only better engage with these potential customers, but also verify the identity and credit range of prospects that visit their website, so they know they are contacting leads that are interested and super-qualified.”

Equifax vice president dealer services John Giamalvo, “With auto finance incentives at all-time highs, driving new-car sales and continuing to accelerate in used and CPO programs, CoreLogic’s BuyerConnect gives dealerships the ability to engage customers by offering them an Equifax Risk Score, which provides an early gauge of meeting those credit requirements.”