Since my retirement from active skip-tracing eight years ago, I now have the opportunity to sit back and observe the industry closely. Since I’ve taken on a teaching and training role, reaching a new generation of skip-tracers with MasterFiles, I hear much talk and concern on the topic of best practices and compliance.
To the late-comers I say, “Welcome to the party!”
To those of you who have spent an entire career making sure that your company and your team are well-trained and educated in the local, state and federal regulations, this subject is nothing new. The organizations that have always advocated methods to maintain compliance typically seem to rise above the rest, survive and prosper even in the tough economic times of today.
Today I would like to shed more light on the sometimes neglected skip-tracer. In any operation, they can be one of your greatest assets: making you a profit and/or reducing your losses.
Or they can be detrimental to your bottom line.
Characteristics of Skip-Tracing
A true skip-tracer in 2014 has to be an expert on many things — human nature, interviewing skills, understanding the complex world of data and much more. Yet I believe that the most valuable asset they can bring to their profession is a working understanding of all the regulations that a skip-tracer must function within.
We all know that skip-tracers are often pushed into situations which have them sacrificing fundamental good practices in the quest for rapid results. When they’re being told to, “find that Skip by any means necessary; I don’t care what it costs,” a simple slip-up on third-party disclosure, an unconscious violation of GLB, FDCPA, FCRA, or a careless disregard for the Pre-Text Act is not unheard of.
Yet it can come with tens of thousands in fines and possible jail time. In September of last year the Telecommunications Act of 1996 had an amendment added in September of 2013, and we can’t forget about the Truth in Caller ID Act, as well.
We now live in a regulation nation — the CFPB and all the regulations and more are here to stay. I may be in the minority here, but in some ways I like the regulations and compliance. It serves as a way to elevate the industry and dispel perceptions on who and what we are. Skip-tracers have always been a highly educated creative group of men and women.
Now we have the ability to show what it takes to be a true professional in the industry — one who knows the law and is successful working within it.
Today, a skip-tracer must juggle legal compliance with the ability to locate a human being who does not want to be found. Skip-tracers often find themselves navigating mine-fields of regulations, risking lawsuits from debtors, fines from governmental regulators and the possibility of a criminal record.
Given the range of risks, and the quagmire of legalities, it is usually impossible to cover the training needed at a once-a-year conference event; and even if attempted, most of the time it is the owner or manager who attends and not the person performing the task.
Importance of Ongoing Training
I tip my hat to Ron Brown, who has started the 20 Group process within the collateral recovery industry. His Eagle Group provides monthly meetings, conference calls, sharing of information and much more. They cover everything needed to be successful in today’s environment.
The American Recovery Association, in partnership with the Recovery Industry Services Company (RISC), has started online webinars to help their members get into, and stay in compliance with all the regulations.
Leaders from both of these esteemed organizations understand the value of education and training for not just an owner or manager, but also for everyone employed within the company.
It is only with this type of forward thinking that we, as an industry, will prosper and stand head and shoulders above all others as we meet the challenges, and the rewards, to come in the months and years ahead.
For 27 some-odd years I have been a proud skip-tracer, and nothing but a skip-tracer. It is all I have done or ever wanted to do, and it has been the most rewarding experience of my life. The honor comes through knowing the men and women of the industry that have crossed my path over the years, and who have graciously mentored me from the age of 24 or 25 years old to today.
In many cases they have been the legends of the art of skip-tracing, and the auto finance, law enforcement and bail enforcement industries.
We all can agree that the days of the Wild West are far behind us and will not return. My wish is for all the associations to band together, if for nothing else, then for education and compliance.
Today’s Pitfalls
We all deal with sensitive data in our day-to-day activities — from customer applications, to internal files, to data retrieved from the net. We are all charged to be good stewards of this data, and if we aren’t, we can lose that privilege.
Being without access to data in today’s world would make our jobs nearly impossible.
The following cases are perfect examples of some horror stories I have heard during my travels of how failing to protect the data can be a costly mistake. In one case a debtor’s file was a left in a repossessed vehicle.
When the lending institution gave the car back to the debtor for payments, the car owner found the file containing her own sensitive data carelessly abandoned inside the vehicle. The car owner filed suit for invasion of privacy, and the business owner ended up having to pay off the debtor’s auto to settle.
In another case a bondsman terminated an employee who lacked morals but possessed a good memory. She remembered to take her old login and password with her to her new job at the competitor’s business. Because the previous employer had failed to terminate the ex-employee’s access, she racked up enough usage to stick her former boss for a six thousand dollar bill.
Each of these expensive mistakes could have been prevented by having some simple office security policies in place, which would not only enhance the daily functions of a business, but also allow the business owner a better night’s sleep.
An Opportunity to Gather
At the North American Repossessors Summit in Dallas beginning on March 12, I will be speaking on this subject and effective communications for the skip-tracer. I look forward to meeting you there.
Below are just some examples of the policies and procedures that are warranted by the sensitive (and costly) nature of protected data:
• Formal and documented security policies, standards, plans and procedures
• Written policy or standard regarding data privacy (signed by all staff members)
• Internet access and use policy
• Encryption policy and standards
• Security incident management policy
• Policies for managing external communication devices and removable media
• Restrict access to information and technology to your staffs job function
• Establish a process for granting and documenting system access, including but not limited to access for third parties and remote access.
• Disable user names and passwords associated with employees that are terminated or transferred.
• Prevent removing secure information or related assets (storage media, hardware) from the premises.
• Equip Security Cameras to cover inside and outside doors and areas associated with access to secured data
• Electronically alarm all doors and/or windows
Alex Price is a nationally recognized expert on the art of skip-tracing. Currently he is the executive vice president for MasterFiles and author of Skip Tracers National Certification Program, The Florida Records Guide, The Military Installations Guide and blogger with more than 25 years of experience in skip-tracing, collections and public speaking. He can be reached at alex.price@masterfiles.com (972) 735-2353.
The Consumer Financial Protection Bureau made its first enforcement action in the buy-here, pay-here space and handed out an $8 million penalty against one of the largest operations in the business — DriveTime Automotive Group.
CFPB officials said late Wednesday that DriveTime harmed consumers by making harassing debt collection calls and providing inaccurate credit information to credit reporting agencies.
The bureau said DriveTime must pay $8 million as a civil money penalty, end its unfair debt collection tactics, fix its credit reporting practices and arrange for harmed consumers to obtain free credit reports.
“Consumers who purchase a car at a buy-here, pay-here dealer deserve to be treated fairly,” CFPB director Richard Cordray said. “DriveTime harassed and harmed countless consumers, many of whom were economically vulnerable.
“Our action forces DriveTime to pay the price for its illegal debt collection tactics and for neglecting the accuracy of consumers’ credit information,” Cordray continued.
In an exclusive statement to BHPH Report sent today, DriveTime executive vice president and general counsel Jon Ehlinger shared the company’s reaction to the actions handed out by the bureau.
“We are pleased to have a resolution to the Consumer Financial Protection Bureau (CFPB) investigation, and appreciate and acknowledge the professionalism shown throughout the process by the CFPB and its enforcement staff,” Ehlinger said.
“Currently, the CFPB supervises large banks that provide auto loans, but not nonbank finance companies. Under a recent proposal to oversee large nonbank lenders, it appears that DriveTime will be subject to supervision by the CFPB beginning as early as 2015,” he continued.
“DriveTime strives to comply with all applicable laws and provide exemplary service to our customers. Over the last several years, prior to the initiation of the CFPB investigation, DriveTime had taken and has continued to take steps to enhance its customer experience, and loan servicing activities, including the handling of do not call requests and credit reporting,” Ehlinger went on to say.
“We look forward to an ongoing relationship with the agency, and hope to establish a constructive dialogue designed to improve our customer service and compliance practices in the years ahead,” he added.
Ehlinger also mentioned that DriveTime is encouraging any customer with questions or concerns to contact the company by visiting a special website at https://www.drivetime.com/info/cfpb-settlement.
Breakdown of Actions
The bureau’s investigation showed DriveTime’s average customer has an annual income of $37,000 to $50,000 and has a FICO score between 461 and 554.
DriveTime operates 117 dealerships in 20 states and, as of Dec. 31 of last year, held more than 150,000 outstanding auto installment contracts.
Generally, the CFPB insisted that at least 45 percent of DriveTime’s auto installment contracts were delinquent at a given time. When DriveTime consumers fell behind on their installment payments, the bureau described DriveTime’s “extensive” collections operation began calling them.
The CFPB said DriveTime had at least 290 collection employees in two domestic call centers and 80 contractors in Barbados. These employees and contractors placed tens of thousands of collection calls each weekday.
At the end of 2013, the CFPB determined DriveTime had approximately 69,000 installment contracts past due that these employees would have been calling on.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) establishes that companies’ practices can be unfair if consumers cannot reasonably avoid being harmed. The bureau determined that several of DriveTime’s debt collection practices were unfair to consumers.
The CFPB found that DriveTime violated federal consumer financial laws and harmed consumers through illegal actions such as:
— Harassing borrowers at work: DriveTime collectors often called borrowers at work, and DriveTime management encouraged these calls. Several consumers requested that DriveTime not call them at work but the CFPB said DriveTime kept calling anyway. For example, officials indicated one consumer was unfairly called 30 times at work after her do-not-call request.
— Harassing borrowers’ references: DriveTime required consumers to provide the names and phone numbers of at least four references when they applied for financing. When consumers fell behind on their payments, the bureau indicated DriveTime called these references. Many borrowers and references requested that DriveTime no longer make these calls, but DriveTime did not stop, according to the CFPB. Officials added Some references complained that DriveTime collectors called them for months after they had requested that the company stop. The CFPB determined that this practice was unfair to consumers.
— Making excessive, repeated calls to wrong numbers: To reach consumers who fell behind, DriveTime frequently used third-party databases to find new phone numbers. The bureau determined these databases were often wrong. Upon receiving DriveTime’s calls, numerous third parties told DriveTime they had the wrong number and requested that DriveTime stop calling them, according to officials. Despite such requests, the CFPB indicated DriveTime continued to make these calls. In some cases, DriveTime called these wrong numbers for over a year before stopping.
— Providing inaccurate repossession information to credit reporting agencies: DriveTime furnishes consumer account information for approximately 350,000 accounts to all three major consumer reporting agencies. In a number of cases, the CFPB found that DriveTime gave the agencies information that inaccurately reflected the timing of repossessions and dates of first delinquency. The bureau explained this situation made it appear on consumers’ credit reports that consumers’ vehicles had been repossessed more recently than the actual date of repossession.
Officials believe this information can have a negative effect on consumers’ credit reports, which in turn can impact their ability to get credit, employment, or housing. The Fair Credit Reporting Act prohibits companies from furnishing inaccurate information when they know or have reasonable cause to believe the information is inaccurate.
— Failing to properly handle credit information furnishing disputes: The CFPB said DriveTime also mishandled consumers’ complaints about the inaccurate information it had provided to the credit reporting agencies. In several instances, officials recounted that consumers disputed the same account information several times without the inaccurate information being corrected. In other cases, the bureau noted DriveTime informed the consumers in writing that the information had been corrected, when it had not been. This was a violation of the Fair Credit Reporting Act, which requires that companies properly investigate disputes.
— Failing to implement reasonable procedures to ensure the accuracy of consumers’ credit information: The bureau determined DriveTime failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies. The policies and procedures it had in place were not appropriate to the nature, size, complexity, and scope of its furnishing activities, according to officials. The Fair Credit Reporting Act requires that companies have policies and procedures in place to ensure the accuracy and integrity of consumers’ credit information.
More Details About Enforcement Action
Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws.
The CFPB’s consent order requires DriveTime to:
— End unfair calling practices: DriveTime must not communicate with consumers at their workplaces if consumers have requested that DriveTime not call them there or if DriveTime otherwise knows that the consumers’ employers prohibit communications to their workplaces. DriveTime must not call a particular phone number related to an account if any person has requested, orally or in writing, that DriveTime stop calling such number.
— Disclose collection options to consumers: DriveTime must provide a clear and conspicuous written notice to existing customers explaining how they can limit the times of day that DriveTime will call them. For all new customers, DriveTime must provide this notice as part of a written welcome kit. DriveTime must also provide this notice on the welcome call and, if applicable, at the time of the first collection call on the account. DriveTime must accept customers’ oral or written requests to limit calls.
— Cease furnishing inaccurate repossession information: DriveTime must stop furnishing information related to the repossession of a consumer’s vehicle, unless the company has confirmed that the information is correct.
— Correct credit reporting information: If DriveTime furnished information to a credit reporting agency that was inaccurate for multiple accounts for similar reasons, the company must provide corrected information to the agency or request that the agency delete the wrong information from the consumer’s file.
— Provide credit reports to harmed consumers: For those consumers about whom DriveTime furnished inaccurate credit information, DriveTime must provide a notice that explains how to obtain a free credit report from each of the nationwide consumer reporting agencies. If the customer has already received a free report during the preceding 12 months, DriveTime must arrange for the customer to obtain a credit report free of charge.
— Implement an audit program: DriveTime must implement a process for auditing information it furnishes to the credit reporting agencies on a monthly basis and monitoring the disputes it receives. The audit is designed to ensure the integrity and accuracy of the information.
— Pay an $8 million penalty: DriveTime will pay an $8 million penalty to the CFPB’s Civil Penalty Fund.
In the song, “The Gambler,” Kenny Rogers sang these words:
“So if you don’t mind me sayin’ I can see you’re out of aces. For a taste of your whiskey, I’ll give you some advice.”
Now I don’t know much about gambling, and I don’t think my firm would accept payment in whiskey, so my thoughts on this ACE matter are on the house.
The key to remember is that in a compliance “card game” with the Consumer Financial Protection Bureau, don’t assume Ace High is a winning hand.
On July 8, the CFPB entered a consent order against ACE Cash Express. ACE is a publicly traded financial services company offering small dollar credit, check cashing and other financial services. The CFPB examined ACE in early 2012.
The CFPB ultimately ordered ACE to pay $5 million in restitution to consumers and $5 million in civil penalties to the CFPB. So, the question is: Was this payday lender “dealing from the bottom of the deck,” or does the house (CFPB) always win?
It appears to be more often the latter than the former. Regardless, there are lessons you can learn from this consent order.
Lesson No. 1: Collections and Urgency — A Worse Pair than A Couple of Twos
The CFPB press release on ACE refers to the problem of creating a “false sense of urgency.” But, CFPB director Richard Cordray’s prepared remarks and the consent order simply address creating a “sense of urgency,” as if that alone constitutes a deceptive and abusive act.
Federal collection laws have always prohibited deceiving debtors and communicating false information. But, the CFPB seems to be moving beyond prohibiting a “false sense of urgency” to prohibiting any sense of urgency in collections.
Obviously, collectors should never provide false information. But, the collection of money owed is an urgent matter — at least for the creditor.
The lesson here is to review collections policies and procedures and remove any language or procedures that the CFPB may deem “create a sense of urgency” in the collection process.
Lesson No. 2: The Secret to Survivin’ is Knowin What to Throw Away and Knowin’ What to Keep
ACE claims to make millions of collection calls each year, which it voluntarily records for customer service and compliance monitoring purposes. According to an independent audit report, more than 96 percent of ACE’s calls during the review period met relevant collection standards.
While voluntarily recording all collection calls and saving them for independent auditing seems to be a great compliance practice, it seems to have backfired on the company. ACE received no credit from the CFPB for saving these recordings and largely complying with federal law.
Instead, the CFPB used the existence of old recordings, which many organizations may have otherwise properly disposed of long ago, simply to find alleged compliance violations.
The lesson: Companies should evaluate their call recording and record retention policies and discuss the pros and cons of such policies with counsel.
Lesson No. 3: When It Comes to Reasonable Measures, Every Hand’s a Winner, and Every Hand’s a Loser
The consent order states that ACE must “take reasonable measures to ensure that its service providers, affiliates, and other agents cease and desist from any violations of the law.” By all accounts, ACE did monitor internal and external collection activity.
The CFPB even noted that ACE’s vendor contracts addressed collection activities. ACE recorded and monitored calls, and more than 96 percent of ACE’s calls met relevant collection standards.
In most contexts, 96 percent is a mark of success. It certainly seems to indicate that ACE may have been taking “reasonable measures.”
The consent order, the press release, and director Cordray’s prepared remarks, fail to quantify the number of collection calls the CFPB reviewed and the number of alleged violations. So, whatever you’re doing to reasonably assure collection compliance, you should “double down.”
The CFPB seems to be taking the position that if it finds any compliance violations, your “reasonable measures” were not reasonable enough. You may see your “reasonable measure” as a winner, but the CFPB may see a loser.
Lesson No. 4: Restitution — There’ll Be Time Enough for Countin’ When the Dealin’s Done
ACE was ordered to pay $5 million to give “restitution to eligible consumers,” a term broadly defined as all individuals subject to collections, who made a payment during the relevant period. Each restitution eligible consumer is entitled to the amount paid to ACE plus 1.3 percent, a seemingly random calculation with no explanation provided in the consent order.
The problem is that anyone who paid in the collections process could get a payment, even if that person was never subjected to the alleged misbehavior. Simply submitting a claim form is enough, and recorded calls demonstrating compliance with that particular consumer won’t matter.
Individuals who were never subjected to alleged bad acts will receive funds, depleting the funds available to those with legitimate claims.
While the consent order is technically a settlement, my understanding is that the CFPB offers the settlement as a “take it or leave it” deal, with pressure to agree right away. So, the lesson here is that the restitution and penalties aren’t quantifiable and aren’t tied to actual consumer harm.
If compliance issues affect even a small percentage of consumers, the CFPB may hit you with an incongruent penalty that doesn’t consider the number of consumers harmed.
Lesson No. 5: And the Best that You Can Hope For Is in your sleep
A bit over the top, perhaps. But, it reflects the histrionic tone of CFPB press releases about consent actions and enforcement activities. They read a little like the embellished tales in Old West dime novels.
And, the CFPB went “all in” with the ACE press release and director Cordray’s prepared remarks.
Both were replete with name-calling that would have ignited a gunfight across any saloon card table. The CFPB accused ACE of being a “bully” and maintaining a “culture of coercion.” The CFPB alleged “predatory behavior” and taking actions to “lure” borrowers into “traps.”
The CFPB made these statements as if they were facts, without noting the limited percentage of consumers affected, ACE’s significant compliance efforts, and the corrective actions already taken by ACE.
“The Gambler” in Kenny Rogers’s song made a living “out of reading people’s faces” and knowing what the cards were. That’s a good practice to emulate when a CFPB field examiner comes calling.
Does a poker face imply no significant compliance issues? Our experience says be wary. The tone at the end of an examination may belie the eventual press release.
Companies should anticipate similar treatment from the CFPB and consider the narrative during negotiations.
All financial services companies should heed these lessons. You may think your company is holding a solid compliance hand, but the CFPB expects a Royal Flush.
If you lose the hand with the CFPB, you may face random penalties and an ugly press release.
Should you find yourself in that unenviable seat across the table from the CFPB, I hope you “found an ace” or two here to help you. If not, you might need that shot of whiskey.
H. Blake Sims is a partner in the Tennessee office of Hudson Cook. Sims can be reached at (423) 490- 7563 or by email at bsims@hudco.com.
Just before Thanksgiving arrives and the holiday season cranks up in earnest, the National Alliance of Buy-Here, Pay-Here Dealers is giving veteran operators as well as professionals who want to close 2014 by learning more about the industry the chance to see all elements of a thriving operation in action.
NABD's next BHPH Boot Camp is set for Nov. 8 and 9 in Monroe, N.C., just east of Charlotte. Attendees will have the opportunity to examine all parts of the BHPH operation of Ingram Walters, who has been associated with NABD since its inception and has been running his own dealerships for more than 20 years.
Doug Radcliff went to a previous boot camp. Radcliff has been the general manager of the Sam Swope Advantage Plan in Louisville, Ky., for more than 20 years. The Sam Swope Automotive Group is the largest franchised dealer group in Kentucky and has a thriving BHPH division.
“I told Ingram that I’ve been doing this for 22 years. I was hoping to come down and maybe get one or two little pointers here and there. Fortunately, I came back with 100 of them,” Radcliff said.
“We’re not in a 20 group for buy-here, pay-here, so their boot camp and seeing the operation from start to finish was extremely good and very helpful,” Radcliff added.
Walters, along with NABD founder Ken Shilson, intend to use the two days to outline every step that it takes to create a successful BHPH store, from establishing a related finance company, regulatory compliance, underwriting and collections, to finding inventory that will turn quickly.
Space is limited for this session. Dealers and other interested individuals can register for the boot camp by visiting bhphinfo.com.
NABD Announces Details of BHPH Best Practices Conference
While also getting ready for that boot camp, NABD also released early details of its BHPH Best Practices Conference, which will be at the Hilton DFW Lakes Executive Conference Center in Dallas on Jan 18 through Jan. 20. The conference theme will be, “Working Smarter and Avoiding Compliance Pitfalls.”
For the last four years, NABD has hosted several popular BHPH Dealer Academies prior to their annual National BHPH Conference each May in Las Vegas. Three of those focused on “best operating practices” and the fourth on regulatory compliance.
January’s dual-track conference program will include the most popular sessions from these past academies and some new ones.
The compliance track will feature several of the nation’s leading attorneys and experts including Shaun Petersen, Tom Hudson, and several others who will help attendees learn how to comply with all of the latest legal and regulatory developments.
“It is a ‘must-attend’ for owners, general managers, collectors, compliance officers and key employees,” Shilson said. “These interactive sessions are designed for both experienced operators and those just entering the industry – both independent and franchise operators
“All attendees will receive a certificate of participation evidencing the training,” Shilson continued.
The program begins at 2 p.m. on Jan 18 and concludes by 1 p.m. on Jan. 20 and is designed to minimize the time key employees are away from their operations.
“What they will learn at this conference will enable them to succeed in today’s highly competitive BHPH marketplace. Learn more, earn more,” Shilson said.
In the best practices track, some of the nation’s best operators will share their tips and techniques that will help attendees overcome the competitive market challenges from the special finance industry, credit unions and others.
The compliance track will help attendees avoid the legal and regulatory mistakes which are being carefully monitored by the Consumer Financial Protection Bureau, state attorneys general, and the Federal Trade Commission.
NABD insisted all of these sessions will be interactive so attendees can get answers to their questions. Multiple attendees are encouraged to participate in both of the educational tracks.
The exhibit hall will feature more than 70 leading service and product providers, who will help operators be more successful, including: new capital providers, new technologies, add-on products, auctions, accountants, collection and underwriting products, and much more.
Two receptions will be held in the exhibit hall to facilitate networking between attendees, sponsors and experts. The program also includes a luncheon on Monday and a breakfast with exhibitors on Tuesday morning.
Exhibit space is limited, so interested sponsors are encouraged to contact Keith Shilson at (832) 767-4759 at their earliest opportunity while space is available.
NABD highlighted the Hilton DFW Lakes Executive Conference Center is an exceptional venue located near DFW International Airport. Ground transportation is provided between the airport and the hotel for the attendees’ convenience and savings. Attendees from the Dallas area will enjoy free surface parking at the hotel.
NABD has arranged discounted room rates of only $169 per night with no resort fees, while supplies last.
In addition, significant attendee discounts are available for registrations received on or before Dec. 19. A preliminary agenda and more information is available online at www.bhphinfo.com or by calling (832) 767-4759.
A recent New York Times story painted an unflattering picture of technology so critical to buy-here, pay-here operators nowadays — GPS and starter interrupt devices. The feature also described pending litigation involving devices manufactured by one of the industry’s top providers — PassTime.
In response, PassTime officials shared a memo with BHPH Report, reinforcing the quality of its devices and the crucial role the company plays in the success of BHPH operators nationwide.
“PassTime has been recently contacted by various media outlets regarding its products as the result of pending litigation against one of PassTime’s valued customers. Our company policies prevent us from commenting on pending litigation involving our product,” the company said in its memo distributed on Tuesday.
“With that said, our device plays a vital role in allowing those who might not otherwise qualify for an auto credit to get financed. We are proud that our technology has given consumers greater access to financing and enhanced transportation options,” PassTime continued.
In the New York Times story, the newspaper recapped the testimony given to the Nevada legislature by a woman who asserted that her vehicle was shut off while she was traveling on a busy Las Vegas freeway. The vehicle reportedly had a PassTime device installed by the subprime finance company who provided the loan.
The report indicated the borrower wasn’t behind on payments, but she reached a confidential settlement with the finance company following the incident.
“Devices cannot disable a moving vehicle, and all devices capable of vehicle disablement have audible warnings reminding the consumer when payment is due,” PassTime said in its memo.
“In the event of an emergency or to avoid inconvenience, a customer who has their vehicle disabled for non-payment may contact PassTime 24/7 for a code allowing the customer another 24 hours to drive the vehicle,” the company continued.
PassTime pointed out in its memo that the company has been in business nearly two decades and has more than 1 million devices currently in use.
“During that time, thousands of car buyers have personally called the PassTime customer service line to thank us for helping them get car financing for a better vehicle at lower rates that they otherwise would have had access to without the device,” the company said.
“Further, independent studies have demonstrated that, with the use of devices like PassTime, payment default rates at dealerships using the devices fall from as high as 40 percent to below 5 percent, while repossession rates as high as 25 percent to 30 percent fall to below 3 percent,” the company continued.
“In simple terms, the devices let people buy cars, and let them keep cars,” PassTime went on to say. “Nearly all car buyers with these devices installed also consistently see their credit scores improve — and access to credit builds personal wealth.”
The company also mentioned the lengths it goes to keep itself and its clients compliant. During the most recent national conference orchestrated by the National Alliance of Buy-Here, Pay-Here Dealers, PassTime joined with Hudson Cook to host a nearly two-hour seminar on now to use GPS and starter interrupt devices properly. Part of that education material was reviewed during the BHPH Webinar Training Series session hosted by BHPH Report.
“PassTime actively works with dealers and finance sources to ensure compliance with applicable local and federal laws. This includes providing regular workshops on the issues of legal compliance,” the company said. We have engaged national compliance counsel for over 15 years to monitor and advise us of changes in federal and state laws that impact the use of devices as those changes occur.
“PassTime also works with state regulators to ensure the regulators understand the use and safety of the devices and that PassTime complies with applicable state law. Passtime has also consulted on state legislation ensuring that enacted laws provide proper consumer protection and guidance for dealers and finance companies using the devices,” the company continued.
The company also refuted an insinuation made in the New York Times report regarding how borrowers have to pay extra to have these devices installed on vehicles.
“PassTime prohibits its dealers and finance sources from charging car buyers for the devices. PassTime provides its dealers a comprehensive disclosure statement detailing the purpose and functions of the devices — including, where applicable, a device’s ability to render a vehicle unable to start,” the company said.
“Dealers agree to use the PassTime disclosure or adopt a similar comprehensive disclosure that a car buyer must read and sign before buying the car,” the company went on to say.
PassTime closed its memo by reiterating its entire position on all of the matters raised in the newspaper report.
“PassTime is proud of its products, committed to compliance, and respectful of consumers,” the company said. “Again, PassTime will not comment on the merit or lack of merit of any lawsuit. PassTime will conduct an internal, thorough investigation of the matter, and will continue to ensure its compliance with the law.”
Compliance technology provider SecureClose wrapped up AutoStar Solutions’ seventh annual Innovate conference on Wednesday with a list of 10 recommendations for how to significantly decrease risk from lawsuits and government actions pertaining to the F&I closing process.
Brent Chavez and Joe Perkins of SecureClose first cited the latest move by the Consumer Financial Protection Bureau to expand its supervision to large non-bank auto finance companies. Chavez said dealers and finance companies have experienced more expansion of government regulation in the last several years than at any other time in his career.
As a result, Chavez urged dealers to:
1. Record your sale closings.
2. Script your disclosures.
3. Document your training.
4. Establish clear processes and procedures.
5. Get an outside compliance review.
6. Appoint a compliance manager.
7. Develop a customer complaint procedure and log.
8. Manage your vendor compliance.
9. Automate processes for improved accuracy and consistency.
10. Implement a proactive review process to catch violations before it’s too late.
“As a car dealer myself for more than 20 years, I understand the pressures dealers face on a daily basis,” SecureClose founder Ace Christian said. “To be quite honest, the last five years have been the toughest for me due to changes in the market, increased competition, hard-to-find inventory and the biggest one — government regulation.”
Christian said the F&I office is one of the most heavily regulated areas of a dealership. With so many constantly changing checklists and disclosures — combined with the element of human error and fatigue at the end of a long day — Christian acknowledged violations are bound to happen.
Christian said dealers need a way to automate the closing process to ensure consistency, along with a reliable method to record closings and store them for easy access.
“Video recordings by themselves are not a complete solution,” he said. “I can’t tell you how many times I’ve seen dealers videotape closings that — when watched back later — clearly show violations. Not to mention the technical difficulties inherent with quality video coverage and storage.
“Training also doesn’t fix the fact that your F&I guy is a human being,” Christian said. “After a 12-hour day, he’s tired. He wants to go home. The customer wants to go home. So maybe he forgets a point or two. What’s the big deal? Well, when that forgetfulness comes back to bite you in a year after the customer has sued and that F&I guy no longer works for you, it is a huge deal.”
Christian demonstrated for attendees how SecureClose can help dealers ensure every closing is fully compliant by utilizing computer screens that verbally walk customers through each closing document. He explained all information used adheres to the latest national and state-specific regulations. Buyers can pause or rewind as many times as they wish to make sure they understand the contract terms — but no fast-forwarding or skipping any steps.
An electronic signature tablet captures signatures and places them in the appropriate spots in the document. A front-facing camera records audio and video of the entire process, including everything shown and done on the system screen.
Once the presentation is complete and all documents signed, audio and video of the customer plus the recording of the on-screen activity can be combined in a comprehensive ClosingRecord, which is stored on a secure online server for future retrieval. The dealer or customer can view this complete record at any time.
“SecureClose protects the customer and the dealer from being taken advantage of,” Christian said. “It’s the answer to most of the regulations coming out of Washington, D.C., right now. And it’s certainly a vital component of any dealership that wants to stop lawsuits before they start.”
Christian has used various versions of SecureClose at his dealership in Arizona for the past year.
“I received several attorney demand letters during that time. I just sent them the ClosingRecord for those deals, and I never heard from them again,” Christian said.
Steve Levine is chief legal officer for AutoStar Solutions, which acquired a 50-percent stake in SecureClose earlier this year. Levine is expecting finance companies will champion SecureClose to their dealers.
“It’s not just a buy-here, pay-here solution,” Levine said. “When retail dealers use this product, finance companies can have confidence their dealers conducted a fully compliant closing. That means no complaints from the consumer six months down the road, after the lender has already acquired the contract.”
SecureClose is available nationwide. Levine said the company is following an aggressive installation schedule to make SecureClose available to dealers of all sizes.
Collecting More During Payment Proccess
Elsewhere at the Innovate conference, Susan Perlmutter, chief revenue officer for Sigma Payment Solutions, shared with BHPH dealers several strategies for lowering the costs of payment acceptance.
“Once you combine a collector’s hourly pay, overhead and the cost of the credit card payment, you’re looking at more than $6 per payment,” Perlmutter said. “You can offset that amount by allowing a provider such as Sigma to pass a convenience fee to the consumer.
“The other option is self-service consumer payment channels,” she continued. “This empowers your customer to pay with no staff interaction. No human error, no vacation or sick days. You can accept payments 24 hours a day, seven days a week, 365 days a year. Your collectors can then focus their attention on delinquent customers.”
Sigma Payment Solutions’ automated options include pay-by-text, kiosks and Interactive Voice Response (IVR). Perlmutter pointed out each of these choices can help dealers bring costs down to 55 cents per payment — a savings of about $5.75.
Strategy for Small Dealers
David Brotherton, consultant and 20 Group leader at Leedom & Associates, led a class teaching smaller BHPH dealers and focused on ways they can “level the playing field” against larger competitors. Brotherton offered three tips:
1. Learn as much as you can about the customer. The more you know about your potential buyer, the greater your chance to get them sold. Once they visit your dealership and hear your program details, you have a tremendous advantage over the dealer down the street — so don’t waste the opportunity.
2. Measure activity levels before results, at least initially. Activity will ultimately yield results, so pay more attention to follow-ups, phone calls, emails and in-person visits. Get those numbers as high as you can, execute well, and results will follow.
3. Invest in a comprehensive Customer Relationship Management (CRM) system. Whether you sell 10 vehicles or 200 vehicles per month, you must use a CRM to legally and effectively communicate with your customer base. For example, using a fully compliant CRM with a texting feature will protect you from a devastating lawsuit settlement because you didn’t strictly adhere to the CAN-SPAM Act.
Full-length video of all the Innovate general sessions will be available soon on AutoStar Solutions’ YouTube channel.
Rick Hackett, former assistant director at the Consumer Financial Protection Bureau and current partner at Hudson Cook, told the crowd of more than 600 attendees at AutoStar Solutions’ seventh annual Innovate conference the four areas of auto lending he believes the CFPB will focus on next year.
As an established expert in auto compliance, Hackett first addressed the fact that the CFPB is indeed interested in buy-here, pay-here dealers in the same way bureau officials are interested in large finance companies.
“Up until now, the CFPB’s only way to investigate a non-bank auto finance source — including buy-here, pay-here dealers and independent lenders — has been civil investigative demands, which are narrow in scope,” Hackett said. “Last week, the CFPB announced plans to extend their oversight by supervising non-bank auto finance sources that make, acquire or refinance 10,000 or more loans or leases per year. That equates to around 38 additional companies. And some of those companies are likely represented here today.”
Hackett then shared where the bureau might turn its attention during the next 12 months, including:
1. Discrimination
2. Credit reporting
3. Ancillary products
4. Compliance management system examinations
Expounding on this list, Hackett said credit reporting accuracy is the responsibility of the furnisher (that is, auto dealers or finance companies), no matter who provides the technology interface.
“You must exercise extreme caution when selecting vendors for credit reporting. Insist they fix known errors,” Hackett said. “If you know of bad service from a vendor, complaining is not enough. It’s all about results.”
Hackett recommended the following steps for selling ancillary products with 100 percent compliance:
1. Make sure your technical disclosures house is in order. This includes truth-in-lending compliance and your state’s disclosure rules.
2. Ensure that voluntary products are truly voluntary and that the consumer understands their cost. Menu selling can help with this.
3. Train and monitor your sales personnel around what “voluntary” really means. If you have one F&I manager with 90 percent penetration on GAP insurance, but your average among other employees is 40 percent, take a closer look at the sales tactics your high performer is using.
4. Use common sense regarding the suitability of each product for each customer. For example, you should not sell GAP insurance to a customer with a 50 percent down payment.
5. Stay consistent with pricing. If you normally charge 100 percent markup, but it can vary up to 500 percent, those variable pricing outcomes look a lot like disguised finance charges to the CFPB.
When asked about complaint management systems, Hackett said it can be hard to distinguish a complaint from a mere inquiry.
“When my clients are developing a complaint management system, I advise that it’s better to be over-inclusive both in establishing categories and in training personnel to identify ‘complaints,’” Hackett said. “The data will later show that many ‘complaints’ are actually questions that are resolved with an explanation and no need for an adjustment.”
Hackett also shared that CFPB enforcement strategy attorneys talk frequently with the industry-specific committees of the National Association of Attorneys General. He said one of their goals is to find cases where the CFPB and attorneys general can tag-team or allocate resources, depending on who possesses the most effective regulatory tools.
In addition to Hackett’s keynote, attendees chose from 87 different classes, including 11 hours of legal and compliance content over the three-day event.
Eric Johnson and Nikki Munro, two of Hackett’s fellow partners at Hudson Cook, led a session outlining how to create a compliance management system. Johnson and Munro cited four interdependent components of a compliance management system:
1. Board and management oversight
2. A compliance program
3. A consumer complaint response program
4. A compliance audit
Johnson and Munro emphasized that dealers and finance companies should pay special attention to fair lending and UDAAP (Unfair, Deceptive or Abusive Acts or Practices in the collection of consumer debts).
Aimee Szygenda of law firm McGlinchey Stafford hosted a class on credit reporting, where she shared what to report and what to do if it’s questioned. Szygenda reminded attendees that the CFPB expects furnishers of credit reporting to review “all relevant information” in connection with disputes. This means documents sent to them by the credit reporting agencies as well as the furnisher’s own information, including the original application in some cases.
In a class led by Dennis LeVine of law firm Dennis LeVine & Associates, attendees got answers to 20 common questions about how to operate when a customer files bankruptcy, as well as strategies for protecting the creditor’s interest in the vehicle.
LeVine explained that, in most states, if a creditor repossesses the debtor’s car before he files bankruptcy, the creditor must return the vehicle promptly after learning of the bankruptcy filing. However, if a debtor sends a payment after filing bankruptcy, the creditor can keep it.
Steve Levine, chief legal officer of AutoStar Solutions, and Bill Denius of law firm Killgore Pearlman presented a class on why dealers get sued and how to avoid legal troubles.
During the session, they cited their self-proclaimed “first law of litigation,” which states that if you sue enough customers, one is bound to sue back. “One counterclaim can wipe all victories,” Levine said. “So make sure your file is in order, and conduct a thorough cost-benefit analysis before suing a delinquent borrower.”
Levine also listed several ways to avoid lawsuits, including embracing transparency, tracking and learning from complaints, and investing in customer service.
“It all boils down to the culture of a dealership or finance company,” Levine said. “Culture is the rudder that steers the ship, and you want your business headed in the right direction.”
The largest contingent ever attended the most recent BHPH Boot Camp hosted by the National Alliance of Buy-Here, Pay-Here Dealers at the site of iCars, Ingram Walters’ dealership in Monroe, N.C.
A total of 27 attendees from 15 different dealerships from throughout the U.S. took the opportunity to examine all parts of the BHPH operation owned by Walters, who has been associated with NABD since its inception and has been running his own dealerships for more than 20 years near Charlotte.
Walters along with NABD founder Ken Shilson used the Boot Camp on Aug. 2 and 3 to outline every step that it takes to create a successful BHPH store, from establishing a related finance company, regulatory compliance, underwriting and collections to finding inventory that will turn quickly.
“This allowed attendees to attend classroom training and to receive in-the-field training at one of the nation’s best operations,” Shilson said.
The boot camp training covered all areas of BHPH operations including building a successful business model, acquiring and reconditioning vehicles, best underwriting and collection practices, financial management and monitoring, compliance, technology solutions, and maximizing recoveries.
All attendees received projection modeling software, a complete policies and procedures and human resources manual, and other resource materials including legal and compliance materials supplied by Hudson Cook, sample pay plans, a reconditioning plan and much more.
“For a very modest investment, attendees received invaluable training and resource materials which can help make them millions,” Shilson said. “The opportunity to see iCars, receive individual instruction and learn best practices provided a unique experience.
“It takes capital, technology and knowledge to prosper in BHPH today,” he continued. “The old ways of doing things don’t work like they used to because of increased competition and different industry economics. Operators must develop new ways to prosper, and incorporate capital and technology, along with sound operating practices, to remain competitive.
“This boot camp included participation from three leading technology providers: Auto Master Systems, PassTime and Spireon. In addition, Flock Specialty Finance helped attendees understand innovative new ways to capitalize their operations. The sessions ended with one-on-one meetings with attendees to develop a strategic action plan,” Shilson went on to say.
For operators who were unable to participate in the August session, the next boot camp is planned for Nov. 8 and 9 also at iCars.
NABD’s next major event will take place just after 2015 begins. Walters and Shilson will host a new gathering — the Best Operating Practices and Compliance Conference. It’s set to start just as tax season intensifies — Jan. 18 through 20 at the Hilton DFW Lakes Executive Conference Center in Dallas.
“We have moved our next event to January 2015 rather than holding it just prior to our National Conference (in May at Las Vegas) as we have in the past,” Shilson said. “This will minimize the length of time attendees must be away from their respective operations to gain this important training.”
NABD also announced it will hold its 17th annual National Conference at the Wynn Las Vegas on May 19 through 21.
Operators can gather more information and registration details by going to bhphinfo.com or calling NABD at (832) 767-4759.
Along with the move to begin printing the magazine, BHPH Report is also rolling out free online training for buy-here, pay-here dealers.
The first installment in the publication’s Buy-Here, Pay-Here Webinar Series is set to include experts from FEX DMS, PassTime USA and NCM Associates.
The free webinar is scheduled for Tuesday beginning at 2 p.m. ET.
The Buy-Here, Pay-Here Webinar Series offers a unique, fresh approach and information provided in the BHPH marketplace today. BHPH Webinars feature three non-competing, best-in-class companies providing brief (15-25 minutes) presentations and training to the audience.
“The goal is to provide a valuable selection of content that will be attractive to a significant dealer audience and connecting those operators with the participating experts to help to keep sales and collections flowing,” said BHPH Report editor Nick Zulovich, who will be the moderator for the event.
The first session is scheduled to feature:
— Tara Bauman of FEX DMS
— Brent Carmichael of NCM Associates
— Corinne Kirkendall of PassTime USA
BHPH operators can complete the registration for this free session here.
The numbers point to just how rough the retail sales seas got for some buy-here, pay-here dealers in 2013.
According to the BHPH Industry Benchmarks prepared by the National Alliance of Buy-Here, Pay-Here dealers in association with SGC Certified Public Accountants and NCM Associates, sales volume softened by nearly 7 percent last year, coming on the heels of a 5-percent annual dip a year earlier. Experts point to the significant rise in special financing by a wide array of lenders that took away customers who normally would have had no choice but to seek a vehicle purchase from a BHPH operator.
“I think the big thing is they took a number of our customers. They reduced the sales volume for a lot of operators by taking that business and putting them into vehicles so we had to give up market share,” NABD founder Ken Shilson said.
“Based on Experian’s numbers, we lost over 20 percent of the market share during 2013, and the special finance industry in the short term grew by a corresponding amount,” he continued. “I won’t blame it all on the special finance industry because some of that market share was lost to credit unions, some of which are being very aggressive right now. And also some was lost to new-car franchise dealers who on their used-car operations are being very aggressive themselves.
“The combination took those customers out of play,” Shilson added.
Why did all of a sudden these special finance companies start booking contracts with deep subprime customers? During the worst of the recent recession, reportedly consumers with credit scores approaching 700 had difficulty in securing financing. Now in the past 12 to 18 months, Shilson recollected conversations with BHPH operators who heard about consumers who had credit scores in the low-500 range being able to secure a late-model or even a new car.
“All of the special finance activity was driven by a search for higher yield investments. They were borrowing the money at 2 percent and loaning it out to subprime customers at over 19 percent. The spread there was the attractive part for investors to pour money in, and they securitized a lot of these loans,” Shilson said.
How Successful Operators Managed
Brent Carmichael is the BHPH specialist for NCM and helps to construct the benchmarks. Throughout the year, he moderates 20 Groups that collect stores of similar size for semiannual gatherings of brainstorming and more. Carmichael shared with BHPH Report what successful operators did to stay in business.
“Subprime was back and very aggressive,” Carmichael said. “We’ve also had dealers manage their growth for a cash flow and capital standpoint. We have some dealers who are intentionally selling three less cars a month because they’re focused more on the quality of the portfolio, not necessarily the quantity. Some dealers just wanted to maintain their portfolios, bringing in enough cash to do what they wanted to do. Some aren’t out to be DriveTime or Car-Mart, just wanting the business to pay them back a little bit.”
Carmichael pointed to the benchmarks, numbers to support why some operators chose that path. He mentioned profitability on a per-vehicle sold basis softened to nearly $2,100, representing about a $100 decline per unit.
“A $100 per car doesn’t sound like much, but when you’re talking 600 units per year, now we’re talking about a $60,000 loss in profitability year-over-year,” Carmichael said.
While operators tried to tighten their budgets in many areas, Shilson mentioned how BHPH stores looked to overcome a dwindling customer base by advertising more. The benchmarks showed the average operating expense for advertising ticked up to 3.8 percent in 2013, up from 2.8 percent a year earlier.
“They definitely tried to advertise more as they started to lose market share,” Shilson said. “The only thing that seemed to work successfully was online marketing. Online marketing seemed to be giving them the most bang for their buck. If they just did more radio or television, we didn’t see as much traction there.
“The online marketing in terms of a website and in term of other online marketing is more focused on reconnecting with particular customers or prospective customers,” he continued. “I think that’s where they had the great success. The competitive environment, like we’re seeing with special finance, is every man for himself out there. If you just advertise on TV, so is everyone else. But if you do a more focused thing with your website and your online marketing, maybe you’ll have a better chance of attracting that particular customer.”
Cautionary Signs
Beyond the raw sales numbers, both Shilson and Carmichael spotted trends that caught their attention and reflected just how challenging the BHPH business can be.
“The continuing increase in cash in deal is really one the most telling things,” Shilson said. “For the time since we’ve been doing the benchmarks, the cash in deal averaged more than $5,000.”
To be exact, the average cash in deal at BHPH stores last year climbed to $5,294. A year earlier, the figure stood at $4,672. Back in 2009, it was just below $4,000 at $3,990.
“That’s very significant. Our down payments and our repayments are not moving commiserate with the cost in the industry, so that’s a real challenge for us. We’re spending more, but we’re not taking in more,” Shilson said.
And just one area where BHPH operators are spending more money is on reconditioning. For the fifth year in a row, reconditioning spend increased by at least $100. The 2013 amount broke the $1,000 threshold, settling at $1,026, up from $962 back in 2011.
“That’s one area that concerns me because of what inventory is. I don’t think dealers are doing more to the cars. It’s just costing more to fix the cars,” Carmichael said. “That’s one thing many dealers haven’t thought about. BHPH dealers often look at cars that are about 6 or 7 years old. They’re decent enough with some reconditioning that they can sell, and they are affordable to the customer from a down payment and sale price standpoint.
“There were little to no cars made in 2007 and 2008. That 7-year-old car just isn’t out there. It’s either a 2009 or it’s a 2006. Obviously, 2009 is more expensive, maybe with an (actual cash value) of $7,000 to $8,000. A 2006 is a cheaper car, but they’re also higher mileage and have a little bit more worn off, so to speak. They need a little bit more love to get them ready to make them sellable and safe for a customer,” he continued.
Shilson also shared a theory about why reconditioning costs jumped so much last year.
“What I think is happening in the reconditioning cost area as you recycle more repossessions, your cost to make them ready and to recondition them increases. I think that’s part of what’s happening,” he said.
How Dealers Can Leverage Benchmark Data
Both Carmichael and Shilson explained that operators should use the benchmark data as a reference point, not necessarily as the objectives for how their particular store should be.
“I never want a dealer to set up his business according to a benchmark. Our benchmarks are compiled from hundreds of dealers,” Carmichael said. “You’ve got guys out there who are single-point owner operators who are very involved in the business and run very lean. So there are some areas of the benchmarks that the average dealer selling 50 cars a month and 600 cars a year cannot get to some of the benchmarks.
“I think they’re a great goal to take a look at to see if I can get close as you can to some measure. Some have to be taken with a grain of salt. Some are very attainable for the average dealer. Some aren’t,” he continued.
Shilson emphasized that working each day is crucial, no matter when the benchmarks indicated.
“The big thing to say is a very challenging year in 2013, but are you going to make 2014 better? It’s not going to happen by itself. You can’t sit back and hope that it’s going to get better. You have to get out there and see what’s going to make it better,” Shilson said.
2013 YEAR IN REVIEW
The financial benchmarks for 2013 reflect a higher level of competition within the deep subprime marketplace. The more significant factors that impacted profitability were:
1 Unit sales for most operators were fat or declined (some by up to 25 percent) from 2012, due primarily to increased market competition from special finance sources that extended credit to BHPH customers. Individual operators were affected by varying levels of special finance competition in their local markets. Some operators expanded their facilities (added lots) to increase market share. Market data indicated that the BHPH deep subprime financing market share declined by more than 20 percent in 2013, while the market share for subprime finance companies grew by a corresponding percentage.
2 Subprime finance lenders (including franchise operators) were particularly aggressive in financing deep subprime customers (with credit scores below 550) who purchased new and late-model vehicles (less than three years old) with low down payments, high repayments and terms of more than 60 months. Finance companies originated these “silly loans” in an attempt to “buy” market share quickly.
3 Capital poured into the subprime auto markets making special finance lenders overly aggressive in their underwriting policies and practices in search of high yields.
4 History indicates that higher default rates occur on deals with “too much vehicle and too little customer”. Recent Experian Automotive Data shows that quarterly repossession rates for the second half of 2013 increased dramatically over the corresponding period in 2012 for special finance lenders. Charge-offs for special finance lenders in the fourth quarter were the highest since 2006 and averaged $8,772.
5 BHPH operators again found inventory acquisition to be challenging. Lower new-car sales from 2008-2012 provided a limited supply of BHPH vehicles (usually more than 4 years old), which kept auction prices high. Operators reduced inventory levels commensurate with a limited supply and reduced customer demand.
6 Technology played an important role in 2013 BHPH operating efficiency. Most customers now have smartphones. This cellular link has become an important way for BHPH operators to “connect and collect” with their customers and prospects. In addition, the integration of Internet-based marketing tools, payment device technology, electronic pay portals and other technology into BHPH operations continued. Operators who proactively utilized online marketing fared better than those who did not.
7 New regulatory challenges surfaced in 2013 when the FTC, Consumer Financial Protection Bureau, and various state attorney generals’ offces monitored compliance and investigated alleged deceptive practices. The IRS increased tax audits of used-car operations, focusing on compliance issues. Even the Department of Justice joined in by policing discriminatory lending practices using their “disparate impact theory”. We should expect more compliance scrutiny in 2014 and beyond.
8 Operators with greater financial flexibility (more equity and/or available lines of credit) fared best. Increased competition, the limited liquidity of their customers and a higher cost environment were the major reasons why.
9 Given this overall environment, operators who managed risk successfully and opted to pass on making “silly loans” to maintain market share will beneft by avoiding defaults when these customers don’t perform.
