Best Practices

Chief fraud strategist Frank McKenna described the fourth gathering of the PointPredictive Fraud Consortium Roundtable earlier this month just ahead of the National Automotive Finance Association’s Non-Prime Auto Finance Conference as the best one yet.

Besides more than 50 attendees from 21 auto finance companies — including five of the top 10 market leaders — McKenna shared  with SubPrime Auto Finance News why the industry is uniting to combat a growing problem.

“It was so much more interactive,” McKenna said in a phone interview following the gathering in Plano, Texas. “When we started the consortium meetings, people were a little shy or maybe didn’t know a lot about fraud, but they were interested. They were less able to share best practices and experiences.

“But at this meeting, there was a lot of collaboration,” he continued. “Everyone was talking, everyone was interacting, trying to figure out what the other lenders were doing to stop fraud and what fraud trends they were seeing. It’s been remarkable to see the transformation of the industry. As soon as they start getting together, they realize the value of working together. The mood was really energetic and participatory.

McKenna and PointPredictive partners including defi SOLUTIONS and Digital Matrix Systems discussed rising fraud trends and potential collaboration on how to best address those issues from an industry perspective.

During the roundtable sessions, finance companies identified their three biggest fraud concerns for 2019. McKenna shared that attendees could use their smartphone to participate in surveys that generated immediate results.

Finance companies in attendance identified their first concern as the dramatic increase in deceptive credit washing where individuals overwhelm creditors with false claims of identity theft to remove legitimate trade lines from their credit. Their second biggest concern is the dramatic rise in synthetic identity which is largely driven by individuals using credit protection numbers (CPNs) to create new credit files under false pretenses. Their third biggest concern is the ongoing and systematic fraud by dealers that results in higher levels of first and early payment default.

The event also included guest speakers, including Sgt. Darren Schlosser from the Houston Vehicle Fraud Task Force and Matt Pannell, former special agent with the Social Security Administration, who shared insights into the growth of synthetic identity fraud and credit repair fraud that are sweeping the nation.

“Synthetic identity is being driven largely by unscrupulous credit repair companies that are convincing ordinary people to commit criminal acts,” Schlosser said. “Using so-called CPNs to apply for credit under false pretenses is a crime and I’m seeing an alarming increase in the number of vehicle financing fraud cases where this is occurring.

“I believe collaboration between lenders, law enforcement, car dealerships and others is important in preventing this type of fraud from growing,” he continued.

At the roundtable, McKenna also provided insight into fraud trends by presenting results from analysis conducted on more than 70 million historical auto loan applications.

The analysis showed that auto lending fraud risk has risen by at least 38% in the past seven years and that fraud origination risk is expected to reach $7 billion in 2019. The analysis further showed a dramatic 140% increase in synthetic identity risk patterns in auto applications since 2016.

McKenna’s research demonstrated that the drivers behind the rising levels of fraud risk were the growth in sharing of fraud methods on social media, the increase in financing to borrowers with lower credit ratings and the billions invested in fraud controls by other industries which have had the effect of pushing fraudsters toward auto finance companies and dealers.

“We appreciate the collaboration that PointPredictive enables through their consortium in addressing our key fraud pain points at these roundtables,” said Jorge Arenado, associate vice president of originations at Westlake Financial. “Their focus on both first- and third-party fraud, and not just identity theft, helps the auto lending industry target all the fraud we experience including income misrepresentation, dealer fraud, straw borrower and fraud ring activity.

“The chance to discuss all of these issues with our peers is a big benefit in helping us shape our future fraud strategies,” Arenado continued.

Mickey Watts is senior vice president at Anderson Brothers Bank and a board member of the NAF Association, which also included a special Fraud Friday segment again this year at its annual conference.

“We learn quite a bit from the PointPredictive roundtable each year,” Watts said. “As fraud continues to morph and change, we are able to meet and discuss the changing fraud patterns with other lenders and discuss best practices and how to use the PointPredictive products to our best advantage.”

During the event, PointPredictive showcased its solutions, including:

—Synthetic ID Alert, which can alert finance companies to potential synthetic identity issues.

—Auto Fraud Alert, which can provide 100 alerts and red flag indicators to finance companies based on comparing and validating information a lender receives on an application against data assets managed by PointPredictive

—Income Validation Alert, which can enable lenders to streamline their income assessment of borrowers.

“Our use of PointPredictive solutions has changed our company’s awareness around stopping fraud and misrepresentation within our portfolio,” said Eric Lin, general manager of Universal Finance Company. “The consortium roundtable event is a unique advantage to us and the industry in the fight to protect against financial losses of this kind.”

PointPredictive’s roundtable continues to grow as more finance companies collaborate to address fraud.

“The growth of our consortium and record attendance this year indicates that we’re on the right track in our approach to help solve auto lending fraud,” PointPredictive chief executive officer Tim Grace said. “When we launched the auto fraud consortium two years ago, our mission was to bring the industry together in the same way we did in the past at other companies to address fraud in mortgage and credit card.

“Since fraudsters and unscrupulous dealers attack lenders serially, it is only through collaboration that the industry can address the issue,” Grace continued. “Our solutions are now scoring over 1.5 million new auto applications every month using shared machine learning models. We’re very proud of our growth and the positive effect we are having in the industry.”

Glenn Munro, executive vice president of defi SOLUTIONS, a PointPredictive partner that provides turnkey access to those PointPredictive solutions through the defi SOLUTIONS Loan Origination System, also addressed the attendees.

“We partner with PointPredictive because we have a common belief that shared fraud intelligence and scoring in real-time is the best way to combat the problem. PointPredictive is doing this the right way,” Munro said.

For further information on PointPredictive solutions or to join future Auto Lending Fraud Roundtables, contact PointPredictive at info@pointpredictive.com.

The Federal Trade Commission recently offered six recommendations to dealerships and auto finance companies that might receive subpoenas and civil investigative demands (CIDs) as part of an investigation into potential law violations

Burke Kappler, an attorney in the FTC’s Office of General Counsel, explained in a recent blog post that the regular subpoenas and CIDs are critical and used deliberately and responsibly to avoid unnecessary burdens on businesses and individuals and consistent with its obligations to enforce the law.

“These requests are legally enforceable demands, and recipients of subpoenas or CIDs need to take their obligation to comply seriously,” Kappler wrote. “We expect all companies and individuals who receive compulsory process to respond completely and in a timely manner, or to disclose quickly and candidly any obstacles to full compliance.

“We routinely work with recipients to narrow or defer requests, and generally, we have found that parties cooperate. But not everyone sees the benefits of cooperation, which can often result in delay,” Kappler continued.

In an effort to make the process go as smooth as possible, Kappler offered these suggestions, including:

— Respond promptly to FTC staff upon receipt of a subpoena or CID.

— Take advantage of meet-and-confer opportunities and be forthcoming about any concerns that you have about your ability to comply on time and in full. In meetings or calls, bring people who have knowledge and information about the required documents and information and the efforts necessary to produce them. Provide specific and concrete information — not just guesses.

— If you run into problems meeting deadlines, call staff immediately. Keep them apprised so they can work with you. Stay in contact. Don’t let deadlines pass without explanation.

— Understand that the FTC and its staff need to move investigations forward expeditiously. Unsupported requests for extended delays may not be granted.

— Abide by commission orders promptly. If you have filed a petition to limit or quash a CID or subpoena and the commission has ordered some form of compliance, you must do so or risk a potential enforcement action within 30 days of the commission’s deadline.

— Bear in mind that there are many other factors that affect the timing and course of an FTC investigation. Delaying compliance with a CID or subpoena in hopes that you won’t have to comply at all rarely works, and most often results in follow up from the Office of General Counsel.

Our podcasts originating from NADA Show 2019 tackle another important topic — human resources and managing your workforce.

KPA chief executive officer Vane Clayton not only discussed the company’s acquisition of Compli earlier this year, but also shared some best practices that can help businesses of all sizes.

The full conversation with Nick can be found below.

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A way some of the best recovery industry professionals can be recognized is now available and open for submissions.

Organizers of the 11th annual North American Repossessors Summit — held by the American Recovery Association (ARA) in conjunction with headline sponsor Harding Brooks Insurance — have opened its online award submissions for the 2019 NARS Industry Awards.

The online submissions will be accepted until April 1.

Honoring exemplary repossession professionals, this year’s award categories include Agent of the Year, Service Representative of the Year, Humanitarian of the Year and Agency Owner of the Year. Winners will be announced during the summit, which will take place at the Omni Mandalay Hotel in Irving, Texas on April 18 and 19.

“Every year, we welcome the opportunity to recognize the industry professionals who best demonstrate the values of NARS in their work,” ARA President Dave Kennedy said. “This year, we wanted to create more ways we could honor repossession professionals across multiple job titles who truly embody our 2019 theme, ‘Adapt, Conquer and Overcome.’”

The Agent of the Year Award distinguishes an agent who has demonstrated outstanding professionalism, understanding of lender needs and full compliance with industry standards, as well as protection of the consumer's rights and safety.

The Service Representative of the Year Award represents someone who has shown exemplary performance and has consistently excelled in their position. This person demonstrates integrity, creates a positive atmosphere in their workplace and displays a strong commitment to the mission and values of the professional collateral recovery industry. 

Humanitarian of the Year submissions can be an industry professional of any position who contributes significantly to alleviating human suffering and improving the quality of life in their community. This person demonstrates leadership through outstanding volunteer accomplishments that bring honor to the collateral recovery profession. 

Finally, the Agency Owner of the Year Award will go to an owner who has at least a three-year commitment of excellence within their company and the collateral recovery industry. They should also be able to document their commitment to professional education and compliance training as well as the use of innovation and creativity in enabling their company to prosper and extend its reach in the collateral recovery profession.

Nominations for the 2019 NARS Industry Awards can be submitted at www.reposummit.com/about-the-summit/about-nars-2019-awards/. Regular registration for NARS 2019 remains open through Friday to recovery agents and finance companies at www.reposummit.com.

Coming on the heels of Automotive Intelligence Council member MBSi Corp. making a move involving the firm, Recovery Industry Services Co. (RISC) announced it has joined forces with recently acquired Vendor Transparency Solutions (VTS) to unite compliance services and provide comprehensive vendor vetting, lot inspection and education services to the collateral recovery industry.

For years as independent companies, RISC and VTS stressed that they have advocated for a more professional repossession industry. By integrating the compliance solutions, RISC insisted that it now offers the best of both companies to the industry. 

“We are proud to partner with RISC to provide a repossession training and vetting solution that has been embraced by both vendors and lenders, and we thank those who have supported our efforts,” said Max Pineiro, president of Vendor Transparency Solutions.

“With the recent acquisition of the VTS software platform, we looked to partner with the industry standard CARS program to add value to the VTS training curriculum and vetting services.  Additionally, the involvement of Hudson Cook solidifies it as the industry standard,” Pineiro continue.

In the weeks and months ahead, RISC will announce new product offerings that combine the best of RISC and VTS curriculum and technology solutions.

“With this partnership, we continue to work towards improvement and unification of the industry,” RISC chief executive officer Stamatis Ferarolis said.

“It will take some time to integrate our curriculum and vetting services, but we believe together we now deliver the only comprehensive compliance and education solution to the collateral recovery industry,” Ferarolis went on to say.

Our series of episodes originating from the Vehicle Finance Conference hosted by the American Financial Services Association continues with a conversation including Craig Stokum, who is director of sales in automotive for ID Analytics.

Nick asked ID Analytics about alternative data and how it can be leveraged by auto finance companies to enhance underwriting, especially with the subprime space.

The full episode can be found below.

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According to Protective Asset Protection, experts estimated that dealerships leveraging a dealer-owned warranty company structure to sell F&I products are seeing a 20-percent lift in profits on average for F&I sales.

Protective Asset Protection has focused on this topic significantly during the past year since many dealers have offset the recent downward trend in vehicle margins through increased F&I profitability. The company explained that a way some dealers have maximized their F&I income is through participation in the underwriting profits on the F&I products sold.

A number of structures exist for the dealer to participate in these products — each with varying benefits.

Protective Asset Protection explained that typical types of F&I products available for dealer participation include extended vehicle service contracts, GAP waivers and road hazard tire coverage, among others. The profit participation programs typically include guaranteed retrospective (retro) agreements, participating retro agreements, and insurance and reinsurance programs, including dealer-owned warranty companies (DOWC), controlled foreign corporations (CFC) and noncontrolled foreign corporations (NCFC).

Protective Asset Protection vice president Matt Gibson recently offered an in-depth analysis, reviewing the process for dealers transitioning their business from NCFC to DOWC because of federal tax law changes. Gibson also discussed the topic during a recent episode of the Auto Remarketing Podcast.

The company emphasized the importance of this strategy, reiterating that dealership margins keep shrinking. Protective Asset Protection pointed out these data points:

• The average U.S. light-vehicle franchise dealership lost $2 on every used vehicle it retailed in 2017.

• NADA Data 2017 figures: The average dealership saw a net loss of $2 per used vehicle retailed, swinging from a per-unit profit of $65 in 2016 and $132 in 2015.

• NADA Data’s numbers show that domestic-brand dealerships posted a net profit of $159 per used-vehicle sale. Volume import-brand dealerships posted a net loss of $111, and the average luxury-brand dealership posted a net loss of $197 per vehicle retailed.

“Dealer-owned warranty companies enable dealers to tailor and customize their own F&I offerings. For example, an independent dealer can build a portfolio of F&I products that caters to a variety of branded vehicles, not just one. These F&I products can range from service contracts to ancillary products,” Protective Asset Protection said.

“Given the fact that most dealers are entrepreneurs, with some even owning their own dealership, a DOWC will feel natural to them since it’s their opportunity to offer an F&I product that is merely an extension of the brand they’ve worked hard to establish within their own communities,” the company went on to say.

For more details about setting up a DOWC and more, go to www.protectiveassetprotection.com.

An executive with nearly 20 years of experience with Consolidated Asset Recovery Systems and Dealertrack now is part of the leadership team at Servicing Solutions.

The loan servicing organization specializing in primary and back up servicing announced on Wednesday that its new vice president of sales is Garrett Cline.

“I’ve known Garrett for years, and I can think of no one better suited to carry the Servicing Solutions message forward to companies looking to significantly improve their loan servicing function,” Servicing Solutions executive vice president of sales and marketing Jeff Swisher said.

“He is an accomplished sales and training leader with the ability to consult with companies to solve their most pressing business challenges. I’m excited to have him on board,” Swisher continued.

Prior to joining Servicing Solutions, Cline spent six years with Consolidated Asset Recovery Systems (CARS), a technology and services company focused on the repossession and remarketing of assets.  He was responsible for new business development in the eastern United States within the automotive finance space. 

Earlier in his career, Cline spent 12 years with Dealertrack Registration and Titling Services in various sales and training roles.

And in other company news, Servicing Solutions also is preparing to host a free educational webinar to help finance companies.

Servicing Solutions pointed out that a continued explosion in disruptive technologies has led to Internet and mobile-technology being used more than ever with financial transactions. However, along with this explosion comes an increased level of compliance and operational risk, corporate responsibility, as well as government regulation and oversight for companies attempting to keep up with the times and their customers’ ever-increasing set of demands.

This webinar will address the need to have a compliance readiness program in place within your business.  Furthermore, it will cover best practices communications should an organization run afoul of a regulatory authority.

The training event set to include Robert Caracciola of Servicing Solutions along with Michael Thurman of Thurman Legal is scheduled for 2 p.m. ET on Tuesday. Attendees can register for this free webinar by going to this website.

The Hudson Cook team has been in writing mode, and the results are its latest resource to help dealerships and finance office professionals.

CounselorLibrary.com, the publisher of multiple products and resources for the consumer financial services and privacy industries, on Thursday announced that it has updated its popular CARLAW F&I Legal Desk Book. Winner of the Axiom Business Book Award, the book gives readers 363 things to know about auto, boat and RV dealer finance laws and regulations. 

This is the brand-new eighth edition of this compliance resource.

The book presents a law-by-law, regulation-by-regulation guide through the legal maze that dealers face every day. Authored by Thomas Hudson, Michael Benoit, Ralph Rohner and the attorneys at Hudson Cook, this new edition reflects the latest updates to the federal laws and regulations affecting F&I practices. 

Formatted in a straightforward Q&A design, the book is crafted to address many of the everyday compliance issues dealers face and includes links to the actual laws and regulations discussed in each chapter.

The 390-page book is designated as the official textbook for the Association of Finance and Insurance Professionals’ Certified F&I Professional Program, and is available for $49.95 (plus shipping and handling) by going to this website. 

Reynolds and Reynolds has featured earlier editions of the book, and is pleased to announce that once again it will be hosting a book signing of the latest edition at its booth at the NADA 2019 Convention in San Francisco beginning on Jan. 24. Both Hudson and Benoit will be signing these books at the convention. Attendees of the book signing will receive a complimentary copy.

Black Book responded to auto finance companies and buy-here, pay-here dealers still looking for help on how to comply with upcoming accounting changes in connection with reserving for losses.

On Wednesday, Black Book released a new educational white paper titled, “Analytic-Driven Data Helps Auto Finance Lenders Mitigate Risk & Become CECL Compliant.”

To recap, the Financial Accounting Standards Board (FASB) is looking to ensure that financial institutions have solid measures in place to ensure they have appropriate reserves for any future losses based on the life of each auto loan. As a result, the board has instituted its new Current Expected Credit Loss model (CECL).

The new model will require higher levels of loan loss reserves and lead to changes in lending practices and portfolio management. It will also require a significant amount of data capture, analysis and modeling to meet the implementation deadline of Dec. 15.

With CECL’s requirement that finance companies perform life-of-loan loss forecasting, as soon as the provider says yes to a contract, Black Book explained the company must begin reserving for potential losses on that loan. Black Book emphasized this requirement means each finance company must have a much better understanding of the borrower’s financial condition, as well as accurate historical and residual collateral insight, when they make the loan.

The Black Book white paper discusses how auto finance companies have the opportunity to rely even more on having the most accurate and up-to-date credit and collateral data on their portfolios in order to meet these new requirements.

“Auto finance companies can leverage this opportunity to convert this compliance need into a competitive advantage,” said Anil Goyal, executive vice president of operations for Black Book.

“By leveraging granular data and building loan-level analytic models, auto lenders will have a better understanding of risks and improve return on capital,” Goyal continued.

 The white paper also addresses the following topics:

• Probability of default methodology

• Estimations of probability of default and loss given default with model samples

• CECL modeling and data readiness

• CECL’s effect on loan strategies

• How varying economic scenarios can impact lender strategies for CECL

To download the new white paper, go to this website.