Jack Tracey, executive director of the National Automotive Finance Association, described the relationship between member finance companies and the Consumer Financial Protection Bureau as not exactly deteriorating but not necessarily improving significantly, either. He explained to SubPrime Auto Finance News the reason why.

“The industry would like to feel like it’s working cooperatively with the CFPB to improve situations and conditions in the marketplace now,” Tracey said. “But pretty much as it’s been from the beginning, everyone is continually concerned as to when the next shoe is going to drop or what is going to be the next thing the CFPB is going to focus on.

“In many cases, the CFPB’s approach to regulation is punitive rather than working with the industry,” he continued.

The CFPB certainly remains active, and it’s one of the major discussion points the NAF Association has in store for its 20th annual Non-Prime Auto Financing Conference. For the second year in a row, the organization is welcoming more than 350 finance company executives, service providers, legal experts and regulators to the Dallas/Plano Marriott Legacy Town Center in Plano, Texas, for the event that runs Wednesday through Friday.

Along with what might be percolating within the walls of the CFPB in Washington, D.C., Tracey also mentioned that another element to how the bureau is wielding its influence is coming to light for NAF Association members.

“I would also say there’s becoming an increased awareness of the CFPB working with various states so that a state will approach an issue rather than the CFPB,” Tracey said. “Attorneys general and regulators at the state level we believe are working in tandem with the CFPB, so there are multiple agencies and regulatory bodies that are approaching the industry with concerns.

“The industry is becoming increasingly aware of it and concerned about it,” he added.

What NAF Association members are also aware of is the steady rise of delinquencies. But finance companies and industry watchers do not appear to be sounding alarms.

As fourth quarter outstanding auto loan balances reached the highest level on record since Experian Automotive began publicly tracking the data in 2006, Melinda Zabritski reminded the industry how to view a slight uptick in 60-day delinquencies.

According to its most recent State of the Automotive Finance Market report, Experian determined that 30-day delinquencies dropped across the board during the fourth quarter, pushing the overall rate to 2.57 percent from 2.62 percent a year ago. Conversely, 60-day delinquencies rose from 0.72 percent to 0.77 percent over the same time period.

Experian mentioned that all lender types saw increases in the percentage of loans that were 60 days delinquent with the exception of credit unions, which remained flat year-over-year. But Zabritski — the senior director of automotive finance for Experian — pointed out that the percentage of loans that were 60 days delinquent is still below the percentage in Q4 2007, when it was 0.8 percent.

The report found that finance companies make up the largest portion of the $6.8 billion in loan balances that were 60 days delinquent. Finance companies — the category of originators that Experian said book vehicle installment contracts but do not generate commercial deposits — hold nearly 45 percent of these balances with a total dollar volume of $3.04 billion. They are followed by banks ($1.8 billion), captive finance companies ($1.2 billion) and credit unions ($737 million).

“While rates in the more severe delinquency category are up, it’s important to note that the increases are modest and relatively low from a historical perspective,” Zabritski said.

“Also, given that we’ve seen an increase in loans to subprime and deep-subprime consumers, it’s natural to see a slight uptick,” she continued. “Although not yet a cause for concern, the industry should keep an eye on this metric to see how it trends in the quarters to come.”

As Zabritski referenced, Experian reported that subprime and deep subprime contracts accounted for 20.3 percent of all open automotive loans, compared with 20.8 percent in Q4 of 2014.

After conferring with NAF Association members, Tracey offered a similar assessment.

“I would say there’s a focus on delinquency. I wouldn’t say it’s a huge level of concern, but there’s increased focus on it,” he said. “In my opinion, part of the concern is that it’s not the number of delinquent accounts, it’s the amount. Terms were extended so amortization is slower.

“Overriding that concern on anything that’s delinquent now is vehicle values,” Tracey continued. “They’re trending down because of the influx of leased vehicles into the market and other conditions in the remarketing area that cause the collateral values to be down.

“People are watching it because if vehicles are repossessed, there’s going to be an increased loss because of used-car values being down,” Tracey went on to say.

If account holders manage to maintain their payments, Tracey is confident the auto financing market will continue to hold its important place in the turning of both new and used vehicles at the paces the industry has seen during the past couple of years.

“I would say the principle reason car sales are exceeding or at least meeting the high expectations is because of financing,” Tracey said. “With lower rates available and a competitive marketplace, people are able and willing get into new and used cars.

“There’s a lot of competition in the non-prime area,” he continued. “Even in the higher rates that need to be charged with non-prime, it’s competitive, so to a certain extent there’s downward pressure on those rates, too. The competitive environment and the availability of financing at lower rates is driving the auto industry. If the auto financing industry pulls back it will have a pull-back effect on car sales as well.”

Conference highlights

Wednesday
3:45 – 4:30 p.m.
NAF/AFSA Non-Prime Auto Financing Survey
Dwayne Furmidge, Director Americas, Benchmark Consulting International will share an overview of the NAF Association’s 20th Annual Non-Prime Automotive Financing Survey. This session will provide insights that are not available anywhere else.

Thursday
3:45 – 4:30 p.m.
Economic Forecast – Used Car Market
Tom Webb, chief economist at Cox Automotive, will discuss auctions’ trends in pricing, volume, and buyer and seller behavior indicate about the overall automotive marketplace — from manufacturers, to dealers, to lenders, and to retail customers. This session will translate market data on used vehicles into information executives can use.

11:15 a.m. – 12 p.m.
ABS Markets
Amy Martin, team leader and senior director in the Structured Finance Ratings Group at Standard & Poors will recap current market trends in non-prime financing. Information will be provided on issuance volume, collateral and ratings performance and Standard and Poors’ outlook for the auto loan ABS market.

Friday
8:30 – 9:30 a.m.
Update from Committee on Financial Services
Rep. Jeb Hensarling is set to address the conference on House Financial Services Committee activity including committee interaction with the CFPB, pending last-minute demands on Capitol Hill.

9:30 – 10:15 a.m.
Owe Canada: How to take Advantage of the Growing Non-prime Market in Canada

Neil Abbott, partner at Gowling WLG in Canada, will highlight how below-prime lending is much more common today in the Canadian economy and it may be an opportune time for U.S. lenders to consider buying a Canadian loan portfolio or investing in Canada. This session will cover the similarities and differences between Canada and U.S. non-prime lending markets.