DriveTime passed another juncture on its “longer-term corporate roadmap” on Tuesday as the company continues to pivot away from the traditional buy-here, pay-here model of selling, financing and servicing vehicle sales to subprime customers.
Tuesday marked the official launch of Bridgecrest Acceptance, a licensed third-party servicer for servicing installment contracts for DriveTime and other affiliated finance companies. DriveTime vice president Greg Sax explained to SubPrime Auto Finance News how the company arrived at this point; a journey that began nearly a decade ago.
In 2007, DriveTime started to include prices on its vehicle window stickers in an effort to have a “no-haggle” atmosphere at dealerships. Then three years later, the company removed collectors from dealerships as customers no longer had to make their installment payments at a DriveTime store. When 2013 arrived, DriveTime chose to unbundle its ancillary products and made them optional during the financing process.
Now this week, the company separated its brands with DriveTime representing the retail side and Bridgecrest Acceptance designating the servicing side.
“It’s been on our roadmap for a long time now to get to this point,” Sax said.
Sax highlighted that DriveTime formed a project team last summer and that group went to work beginning in October to get Bridgecrest Acceptance ready for business. The team had to ensure processors at retailers such as Walmart recognized the new servicing brand so customers received proper credit for payments. The group also revamped the website where customers managed their accounts.
Now, all retroactive and new installment contracts that were previously serviced by DriveTime Acceptance Corp. now will be serviced by Bridgecrest Acceptance. That portfolio currently consists of more than 220,000 accounts.
On the remarketing side, Sax also told SubPrime Auto Finance News about how much work had to be completed so dealers at auctions would recognize Bridgecrest Acceptance now represents DriveTime, “ensuring our usual buyers who come to the auctions for the DriveTime products now know that our new name is Bridgecrest for a seamless transition so we get the same participation at the auction as we always would.”
While the company has made a wide array of changes with respect to Bridgecrest Acceptance, Sax shared what parts are remaining constant.
“On the underwriting front, we aren’t making any changes on how DriveTime handles its risk management and underwriting policies and practices,” Sax said. “Our proprietary credit grading model that’s on generation eight now — that’s the backbone to all of the centralized risk management decisioning that we do — that’s staying the same.
“All of the underwriters in our dealerships and the policies and procedures they follow will be the same,” he added.
As a third-party servicer, Bridgecrest Acceptance can still keep a connection to its BHPH roots as the structure of the company can give it the option of purchasing bulk portfolios from dealers.
Might Bridgecrest Acceptance venture into the indirect space, too?
“We’re not positioning Bridgecrest that way,” Sax replied. “We will continue to service loans originated by the DriveTime dealership base. We’re not looking to get into the indirect space.
“I would view Bridgecrest simply as an end-to-end servicing company that can do everything from your customer service and early delinquency disciplines all the way to your back-end collections recovery, skip-tracing, repossession and ultimately remarketing of vehicles at auction,” he continued. “That’s really what Bridgecrest is about, that servicing operation in an end-to-end capability.
“While we’re not actively pursuing outside portfolios today, it opens up the possibility in the longer term that we could do that if we chose to,” Sax went on to say.
In order to handle the volume generated by DriveTime stores as well as the possibilities farther down its corporate road, Sax shared that the Bridgecrest Acceptance already is working on a collections systems to be rolled out later this year or early in 2017. Bridgecrest Acceptance also expects to hire more personnel for both of its operations centers in Mesa, Ariz., and Dallas; a minimum of 20 people each month through the end of the year to fulfill growing loan servicing needs.
Whether its seasoned employees or new additions, Sax emphasized another element of Bridgecrest Acceptance’s workforce.
“Obviously compliance is at the forefront today, especially when you’re looking at the servicing side of the business,” Sax said. “DriveTime and Bridgecrest have a very strong focus and commitment on compliance.
“Our view of it is that the better we get at it, the bigger of a competitive advantage it will be in the future for us,” he continued. “Companies have to have a pretty strong commitment as well as the resources and ability to invest on the compliance side to be a leader in the space.
“We feel as we continue to get out in front of it — the more that we are able to move that ball forward — the more it separates us from others in the servicing space,” Sax added.
Organizers from the American Financial Services Association indicated this week’s Vehicle Finance Conference “was once again a huge success.”
More than 600 attendees and exhibitors gathered at Caesar's Palace in Las Vegas for three days of presentations, panel discussions and networking during AFSA’s 20th edition of the event aimed at allowing finance company executives the chance to interact with each other as well as service providers and other special guests.
According to association’s recap of the conference shared through its weekly Newsbriefs, the series of events started on Tuesday with AFSA president and chief executive officer Chris Stinebert sitting down with a panel of economists and industry leaders to talk about the state of the auto finance space.
Apple co-Founder Steve Wozniak surprised conference attendees when he arrived in Las Vegas to introduce Kevin Mitnick, who some consider to be the world’s greatest hacker.
A cautionary tale on cyber security came from Mitnick, who warned attendees that they and their companies are at risk from hackers every day. Mitnick now helps a variety of businesses and individuals ensure that they don’t fall prey to the association described as “digital mayhem.”
AFSA added, “Mitnick’s presentation and demonstration talked about technology, but also importantly, talked about the social aspect of hacking, or how hackers use non-technological means to steal the information they need from employees and other targets.”
To start off the second day, Stinebert shared updates about future AFSA initiatives. Ginger Herring, who is the AFSA Education Foundation chair and president of 1st Franklin Corp., also took the stage and reviewed important developments that the AFSAEF is undertaking.
AFSAPAC chair Martin Less, who is president and CEO of Nationwide Acceptance, informed attendees about the “great” work the PAC is doing in Washington, D.C.
Later on Wednesday morning, AFSA highlighted that keynote speaker Frank Luntz dazzled attendees with an entertaining and insightful presentation packed with statistics and best practices for word usage. Luntz highlighted critical differences between male and female audiences and the best words or phrases to use with each gender.
Luntz also gave attendees with actionable communication examples that they can implement immediately.
“If I could leave you with once phrase, it would be to ensure you tell consumers that you want to provide them options, but Washington and regulators are keeping you from providing them,” Luntz said.
The conference’s general sessions on Wednesday afternoon got underway with a look into the vehicle-sharing market and an enlightening talk on hiring and retaining millennials.
“Auto finance will be the gateway for millennials to get involved in financial services,” said Jason Dorsey, who is chief strategy officer and millennials researcher at The Center for Generational Kinetics.
Concurrent education sessions highlighted a number of issues, including profitability, compliance relationships with dealers and FIS’ Vendor Risk Management system.
When it comes to the future of payments, finance companies should “focus on satisfying consumers,” according to Michael Rogers, who is director of business development at ACI Worldwide.
AFSA wrapped up the conference on Thursday morning with AFSA Vehicle Finance Division Chair and chief operating officer of Ford Motor Credit Joy Falotico conducting a frank discussion with Jeffrey Carlson, 2016 National Automobile Dealers Association chairman and president of Glenwood Springs Ford in Colorado. The pair touched on common issues facing both dealers and finance companies.
AFSA’s CEO panel was once again moderated by Charlie Vogelheim, the host of Motor Trend Auto and a part of the executive team at TPC Management Co. The CEO panel included:
—Dawn Martin Harp, head of dealer services at Wells Fargo Dealer Services
—David Paul, senior vice president of financial services at American Honda Finance
—Ian Anderson, group president at Westlake Financial Holdings
—John Hyatt, executive vice president, dealer services at U.S. Bank
The collection of executives “shared best practices and highlighted some of the opportunities on the horizon for business leaders,” AFSA said.
ChannelNet analyzed the usage of its technology by 10 different auto finance companies to determine the six components comprising what the company describes as a best-in-class digital experience.
ChannelNet spent a year combining through the performance of these finance companies that use its omnichannel solution that combines data, content and asset management, personalization, a rules engine and analytics into one platform that clients can use across the life cycle to acquire, cross-sell and retain customers.
The ChannelNet 2016 Auto Finance Digital Experience Benchmark Study leveraged comparisons against Silverpop’s 2015 Email Marketing Metrics Benchmark Study to provide comparable data and categories. Silverpop’s survey examined messages sent by nearly 750 companies and 3,000 brands in 2014, and ChannelNet utilized Silverpop’s industry averages and top quartile percentages in the automotive and financial services verticals as our benchmarks.
What ChannelNet found was all 10 of its auto finance clients exceeded industry benchmarks for unique open rates, click-through-rates and click-to-open rates. ChannelNet reviewed the data for 4 million email-marketing messages sent by these 10 undisclosed auto finance companies from February of last year through February of this year.
So why did those 10 auto finance companies enjoy so much success? The ChannelNet 2016 Auto Finance Digital Experience Benchmark Study pinpointed six reasons.
1. A customer-centric focus instead of a product-focused sales process increases engagement.
Across all 10 operations, ChannelNet noticed the one common factor that boosted every finance company’s click-to-open performance to the top quartile and beyond is the two-step marketing combination of an email or text message partnered with a personal microsite.
The study showed finance companies achieving the highest click-to-open rates and the longest dwell times on the site (average visit is 4 minutes, 37 seconds) are serving customers with personally relevant content about their vehicle, finances and dealer.
“They also provide educational information that relates to a customer’s final step in the vehicle lease journey,” the study said. “Their goal is to remove as much friction as possible from the lease-end process so customer has a great turn-in experience.”
2. One of the keys to increasing customer engagement is coordinating the timing of the messages across the customer life cycle — consideration, purchase, use and retention.
ChannelNet noticed the better job a finance company does with coordinating the message timing and content with the stage of the customer’s vehicle ownership, the better the open rates.
The study determined some finance companies are realizing tremendous open rates of 60 percent or higher — 50 percent higher than the top quartile in the industry benchmark groups.
3. Companies that understand that no one organization or part of the sales channel owns the customer relationship score the highest.
The study mentioned these finance companies provide customers with access to vehicle, dealer, finance and consumer education information all in one place.
4. Emails can be customized by dealer, vehicle, contract duration, location, website behavior, status and many other factors.
ChannelNet learned that sending an email with content specifically selected to meet the needs of the individual results in 29 percent higher unique open rates and 41 percent higher unique click rates.
“The more relevant a message is, the more likely it will be opened,” the study indicated. “Repeatedly sending the same content, even if it is personalized, greatly reduces the open rates.”
5. Responsive design increases clicks-to-open.
The data showed that mobile visits for auto lenders without a mobile optimized responsive design stagnates at about 30 percent.
In contrast, ChannelNet pointed out best-in-class finance companies are logging click-to-open rates of up to 55 percent.
“The data reveals that if a lender does not offer a responsive design, a high percentage of mobile users who click on a link do not read the content,” the study said in which ChannelNet mentioned 46 percent of mobile users immediately leave the website at the login screen compared to 16 percent of desktop users.
6. Finance companies that require customers to log-in to access all content reduce their click-to-open rates.
When access to content that is not personal and private is behind a firewall, ChannelNet noticed the unnecessary login requirement diminishes engagement.
“Best-in-class lenders understand that not all data needs protection,” the study said. “With one click, a customer can see relevant information such as his or her vehicle lease miles, contract end-date or educational information on how to reduce lease-end turn-in fees.”
ChannelNet chief executive officer and founder Paula Tompkins elaborated how finance companies are achieving superior customer engagement metrics,
“For automotive finance companies the delivery channels are pretty common — emails, direct mail and self-service websites,” Tompkins said. “What sets our solutions apart in the marketplace is the combination of data, analytics, content, business rules and personalization.
“This unique combination provides our brands’ customers with relevant content wrapped in a personal appeal delivered at the right moment in time. Our industry-leading approach delivers a huge competitive edge,” she went on to say.
Charts and more data from the ChannelNet 2016 Auto Finance Digital Experience Benchmark Study can be downloaded here.
In an effort to continue to advance the adoption of digital technologies among automotive finance companies and dealers, Dealertrack recently announced that Ally Financial is now broadly available for eContracting through the Dealertrack platform.
Dealers in 42 states currently have access to Ally for eContracting via Dealertrack, and officials indicated the remaining eight states are expected to have accessibility over the next several weeks.
Ally president of automotive finance Tim Russi said, “eContracting is gaining momentum and popularity — and will be a vital part of the car buying process in the years to come because of its convenience and efficiency.
“The broad availability of eContracting on the Dealertrack F&I platform gives more dealers the opportunity to evolve their contract process and receive faster funding with Ally, thus giving car buyers a better customer experience,” Russi continued.
From generating contracts for execution to the electronic verification, signature, submission and storage of contracts, Dealertrack can deliver an end-to-end eContracting solution for dealers and finance companies. Since introducing its eContracting solution several years ago, Dealertrack has booked more than 3 million eContracts. Mobile options are also available, and contract review and signing can be performed on either an iPad or Android tablet.
“Digital technology is transforming the way dealers and car buyers interact, including the finalization of deals and contracts,” said Mark Furcolo, senior vice president of lender solutions at Dealertrack.
Furcolo continued, “eContracting is a key part of Dealertrack’s Dealflow Advantage, uniting online and in-store processes and linking the customer journey to facilitate a transparent, efficient process for car buyers, dealers and automotive finance providers, such as Ally.”
FactorTrust recently added a former top official at the Consumer Financial Protection Bureau to its board of directors
Lending her expertise to the organization’s audit and risk committee is industry veteran Marla Blow, who now is founder and chief executive officer of FS Card, a Washington D.C.-based credit card venture designed to offer underserved borrowers flexible, convenient and reasonably priced mainstream credit card products.
Blow previously served as assistant director at the CFPB where she was responsible for policy related to the credit card, prepaid card and payments industries. During her tenure at CFPB, Blow served as a lead author of the federal government’s most comprehensive analysis of the consumer credit card market to date.
Blow’s experience also includes seven years at Capital One, including senior roles in risk management, marketing, finance and business development.
Blow is a Henry Crown Fellow at the Aspen Institute in 2015 and is a member of the Aspen Global Leadership Network. She holds an MBA from Stanford University Graduate School of Business, and a bachelor’s degree from The Wharton School at the University of Pennsylvania.
“We are delighted that Marla has joined our team. Her private sector experience and industry acumen, coupled with her CFPB tenure, will prove to be a huge asset to FactorTrust as we continue to grow, expand our offerings and strategically navigate the changing landscape of our industry,” FactorTrust CEO Greg Rable said.
Blow added, “I’ve been impressed with FactorTrust’s commitment to creating solutions for the underserved market. The alternative lending market is more relevant today than perhaps ever before.
“It’s critically important to offer options to consumers who have shown the ability to be financially resilient in tough times,” she continued. “FactorTrust’s unique credit data and predictive analytics give deserving consumers more options, ultimately empowering millions of Americans and getting them the credit that they deserve and need. I am proud and excited to join their team.”
Vehicle financing continued to be one of the more bandied about topics on Capitol Hill in recent days.
First, a member of the U.S. Senate introduced legislation to bring what the National Automobile Dealers Association called “transparency and accountability” to the Consumer Financial Protection Bureau's regulation of the auto finance market.
Then during a hearing lasting more than three hours, CFPB director Richard Corday asserted that Rep. Jeb Hensarling, chairman of the U.S. House Financial Services Committee had the matter “exactly backwards” when the two individuals clashed again over the agency’s investigation and $80 million enforcement action against Ally Financial more than two years ago.
During a six-minute exchange that can be seen in the video at the top of this page, Hensarling peppered Cordray about internal CFPB documents the committee used to generate multiple reports about how the bureau handled the investigation involving Ally. The Texas Republican also tried to use a review of salary figures of various CFPB staff members to question Cordray about the validity of disparate impact, a legal theory the bureau has used not only against Ally but other large players in the auto finance market.
At the outset of the hearing, Hensarling reiterated concerns about the depth of power held by the CFPB.
“As Thomas Jefferson once warned, government agencies are sending ‘swarms of officers to harass our people, and eat out their substance,’” the chairman said in his opening statement of the hearing that can be watched in its entirety here.
“Today, the poster child of Jefferson’s lament is the CFPB,” Hensarling continued. “Its director, our witness, is neither elected nor accountable to the American people. Yet when it comes to consumer financial products, he is vested with the awesome power of the entire United States Congress. This is amazing, frightening and tragic.”
As he did throughout his testimony on Wednesday, Cordray defended the actions of the CFPB, highlighting that the bureau has announced orders through enforcement actions for approximately $5.8 billion in total relief for consumers “who fell victim to various violations of consumer financial protection laws,” along with over $153 million in civil money penalties.
Those figures do not stem solely from the auto finance market, but more than a dozen House members questioned Cordray about it during the hearing, revisiting how the financing process is completed at the dealership and how the CFPB determines whether or not discrimination is happening by finance companies.
One lawmaker who came to the CFPB’s defense was Rep. Maxine Waters, a California Democrat and the committee’s ranking member. Waters not only applauded Cordray’s relief and enforcement figures, she cheered the bureau’s actions in the auto finance space.
“The bureau has also led the charge against the discrimination that still exists in the auto lending industry. We should be doing all we can to prevent minority borrowers from being charged higher interest rates and from overpaying on their auto loans,” Waters said in her opening statement.
“Unfortunately, too many members of Congress have been misled by Republican arguments against the data and methodology used by the CFPB in this important work,” she continued. “While Republicans are attempting to protect lenders, the bureau has fined banks and captive lenders such as Toyota, Honda and Fifth Third Bank for discriminatory practices.”
“Despite a successful track record of helping consumers — whether looking to buy a car, own a home, or attend college — Republicans have turned the CFPB into a political punching bag, attempting to undermine its work at every turn,” Waters went on to say.
“This tactic is at odds with the public’s support for the CFPB and the bureau’s efforts to remain accountable and transparent,” she added.
Perhaps another Republican Waters referenced resides in the upper chamber of Capitol Hill.
Sen. Jerry Moran, a Kansas Republican and member of the Senate Banking, Housing and Urban Affairs Committee, introduced S. 2663, which is dubbed the “Reforming CFPB Indirect Auto Financing Guidance Act.” The measure would require the CFPB to withdraw what NADA described as the “flawed guidance” that attempts to eliminate a dealer's ability to discount auto financing for consumers.
NADA added that the legislation also requires the minimal safeguards the agency failed to follow, such as public participation and transparency. Nothing in the bill would restrict the CFPB’s ability to enforce fair credit laws in auto financing, according to the association.
The dealer group added that the bill is identical to legislation introduced by Reps. Frank Guinta, a New Hampshire Republican, and Ed Perlmutter, a Colorado Democrat, which passed in the House last November by an overwhelmingly bipartisan vote of 332-96. The Guinta-Perlmutter bill (H.R. 1737) won the support of 244 Republicans and 88 Democrats.
“Every consumer deserves access to competitive financing and great rates when they buy a new car or truck, but the CFPB’s misguided policy of eliminating consumer discounts on auto loans is making financing more expensive and harming many of the very people the agency is trying to help,” NADA president Peter Welch said.
“Fortunately for consumers, there is strong bipartisan support in Congress for protecting consumers’ rights and consumer savings by repealing the CFPB’s flawed guidance, and we commend Senator Moran for his leadership on this issue,” Welch added.
Meanwhile, NADA isn’t the only organization working with federal lawmakers to change how the CFPB operates.
Before this week’s hearing featuring Cordray, a bipartisan group of 329 House members sent a letter to the CFPB director urging the bureau to use its rulemaking exemption authority to protect credit unions and other community-based financial institutions from provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
The letter by Reps. Adam Schiff, a California Democrat and Steve Stivers, an Ohio Republican was fully supported by the Credit Union National Association (CUNA), state-based credit union association leagues and member credit unions.
“On behalf of our credit unions and the 105 million members we represent, we thank Reps. Schiff and Stivers for their leadership on this vitally important matter,” CUNA president and chief executive officer Jim Nussle said. “We are grateful that a great bipartisan majority of members of the House believe the CFPB should use the authority they granted it to exempt credit unions from the Act.”
“The letter to director Cordray and the extensive support it has attracted represents a successful deployment of CUNA's 360-degree advocacy to remove barriers and optimize the operating environment for all credit unions,” Nussle continued.
The lawmakers who authored the letter shared a similar refrain.
“Credit unions and community banks do not pose any systemic risk, yet the CFPB continues to issue rules that disproportionately hurt those community financial institutions,” Stivers said. “These unnecessary and costly regulatory burdens have limited the ability of families and job creators to get access to needed credit and caused community institutions to become too small to survive."
Schiff added, “Credit unions play an integral role in our financial system by helping everyday consumers and businesses access credit at a local level. The CFPB should study and take into account the added burdens placed on credit unions and community banks when issuing new regulations, as these organizations are often disproportionately impacted.”
With the Federal Trade Commission gearing up for a potential survey of consumers who recently bought a vehicle and financed that purchase through a dealer, the American Financial Services Association and the Consumer Bankers Association recently submitted a letter to the agency asking seven specific questions about what the regulator plans to do.
Stemming from concerns that there may be an element of bias in the survey that the FTC is proposing, AFSA shared the document the organization along with the CBA delivered to the regulator in its latest edition of Newsbriefs. AFSA executive vice president Bill Himpler and CBA regulatory counsel Kate Larson authored the letter that touched on what the organizations described as “the importance of objectivity” as well as “separating research and enforcement.”
Both AFSA and the CBA are hoping the FTC can answer these questions before proceeding:
1. What is the reason for this qualitative research project at this time?
2. Are additional phases of this project contemplated, and if so, what and when?
3. What is the relationship between this presumably preliminary part of the project and future phases?
4. What specific questions or issues will be investigated at each stage of the project?
5. What is the relationship of questions asked to documents to be collected? If, somehow, consumers’ responses and documents are to be related to some sort of enforcement regime, how will there be confidence that the experiences are accurately remembered and correct?
6. What is the purpose of purported diversity in the sample? There are enough proposed different dimensions to the proposed survey of forty or eighty individuals (credit score, race, sex) that there will be very little data for comparisons among subgroups (five or 10 individuals, depending on number of interviews, in each of eight subgroups). Under the circumstances, how will the diversity be useful to the research?
7. How are results of this project to be distributed and to whom?
Himpler and Larson closed the letter by writing, “We are not concerned about estimates, or methodology in making estimates, of ‘burden hours,’ as required by the Paperwork Reduction Act since the survey is voluntary (and, presumably, paid). We are much more concerned about the real burden on honest and law-abiding automobile dealerships, financing sources, and personnel if this project is not undertaken in an objective manner.”
After spending part of this week in Phoenix at the annual conference hosted by the Consumer Bankers Association, Consumer Financial Protection Bureau director Richard Cordray will be back on Capitol Hill on Wednesday for his next appearance in front of the U.S. House Financial Services Committee.
Since Cordray’s last appearance before the committee back in September, the committee has issued two staff reports detailing what members believe is how the CFPB spent “significant” resources attempting to regulate dealers, “despite the fact that federal law explicitly prohibits the CFPB from regulating those businesses.”
The committee recapped that its two staff reports used internal CFPB documents to reveal that the bureau was able to secure its potentially “market-tipping” enforcement action against Ally Financial and its Ally Bank subsidiary because of “undue leverage” — the company needed Washington regulators’ approval for a broader restructuring of its business.
Lawmakers also mentioned the reports also exposed the bureau’s “flawed” distribution of $80 million in settlement proceeds without first verifying that recipients are eligible to receive the money. As a result, and as internal bureau documents admit, some white borrowers will receive settlement checks over alleged racial discrimination against African-Americans, Hispanics and Asians.
Following release of the two committee staff reports, an online report also indicated the former chief executive officer of Ally Financial said the Obama administration abused its power by holding the bank’s business hostage in order “to coerce” the settlement.
“The CFPB undoubtedly remains the single most powerful and least accountable federal agency in all of Washington,” said Rep. Jeb Hensarling, the committee chairman and a Republican from Texas.
“When it comes to the credit cards, auto loans and mortgages of hardworking taxpayers, the CFPB has unbridled, discretionary power not only to make those less available and more expensive, but to absolutely take them away,” Hensarling continued. “Consequently, Americans are losing both their financial independence and the protection of the rule of law.”
Cordray at CBA event
Cordray told the annual gathering of bankers about how much has changed at the CFPB since he last appeared at their event; most notably the increased examination responsibilities over bank and non-bank institutions.
“Many of your comments over the years have raised the bar for our efforts, and we have been quite open to iterating our processes accordingly,” Cordray said in prepared remarks.
“As a result, our supervision tool has now grown into a rigorous, data-driven program based on sound analytics,” he continued. “Our processes have become more thoughtful, more complete, more consistent, more transparent, and more prompt. Our dialogue with CBA and others has materially assisted these objectives.”
Cordray quickly moved on to a subject the bureau recently addressed — how the CFPB handles complaints it receives and the ways banks and finance companies can respond.
Certainly the CBA has never been a fan of our public consumer complaint database. Some of your feedback has led to adjustments, as you know. Others have not, but we are always listening,” Cordray said.
“Despite all of that lively debate back and forth, your member institutions have very much caught the spirit of the whole enterprise,” he continued. “Companies have come to realize that if they are going to make sure they are treating their customers fairly, it is not enough to rely solely on their own subjective impressions. Instead, they have to listen closely to what consumers are telling them, think carefully about what they are hearing, and act accordingly.”
The head of the CFPB did called it a “great operational success” where finance companies and other institutions worked with the bureau to improve the automated portal system of processing complaints.
“They have responded to the complaints in a timely and consistent manner, which often leads to relief and explanations for the consumer,” Cordray said. “They have recognized our emphasis on prioritizing our complaint data in our supervision and enforcement work. They have increasingly embraced our advice to analyze and address the patterns revealed both by our consumer complaint data and by their own customer complaint data, as a guide to changing business practices that consumers find harmful.
“We even have seen them using the public database to research complaints made about others in the same markets, which is valuable information that is not available from any other sources,” he added.
During what Cordray indicated to be the remainder this year and into next year, he noted the CFPB’s rulemaking agenda will remain “quite active.” One of the areas of focus, according to Cordray, is debt collection, including the practices of third-party debt collectors, first-party creditors, debt sellers, and debt buyers.
Cordray wrapped up his comments during the CBA’s event by praising members of the association.
“In closing, let me say that consumer bankers are in a position to do much to enhance and improve life for all Americans,” Cordray said. “When you serve your customers well, and perform effectively in ensuring compliance with the law, you make a huge difference for the positive trajectory of this country.
“We all recognize that life, liberty, and the pursuit of happiness are integral elements of our national creed,” he continued. “But without a solid financial foundation, this pursuit can be frustrating and even fruitless for so many people. Knowing how to manage the ways and means of our lives instills a sense of control, ownership, and peace of mind that adds up to financial well-being.”
RSM partner Ronnie Lee and his accounting team recently conducted research among specialty finance firms regarding fraud.
After sharing some of the details of the company’s research findings, Lee also spelled out four ways finance company managers can deter and detect fraud.
“Overall, we found that roughly half of all firms we contacted had experienced fraud,” Lee said in a post on the company’s website. “While fraud losses tended to be relatively low, they are almost never recovered.
“We looked at both internal and external fraud. Interestingly, half of the companies that experienced one form of fraud also experienced the other, which seems to indicate a relatively lax internal control environment at those companies and underscores the importance of effective controls,” Lee continued.
When it comes to external fraud, companies reported their experiences to RMS that included seven general characteristics
— Fraud is discovered by internal controls or management roughly two-thirds of the time and by internal audit on most other occasions.
— Frauds are usually discovered within six months.
— In the majority of cases, fraud is not reported to an insurer, and there is no recovery.
— Losses were generally less than $25,000.
— Fraudulent loans and check fraud were the most common types of external fraud.
— Perpetrators were almost always male.
— About half of the companies revised their policies and procedures or improved their internal controls as a result of the external fraud.
When discussing internal fraud, companies told RMS about these incidents that had three general similarities, including:
— Losses were generally less than $10,000, though companies reported an increase in losses between $10,000 and $25,000 as compared to the prior year.
— Theft of cash cases decreased compared to the prior year, but fraudulent loans and vendor or billing schemes increased. This likely accounts for the increase in loss amounts in the $10,000-$25,000 range, as vendor and billing schemes tend to involve more significant amounts than theft of cash frauds, due to limited amounts of cash on hand.
— Perpetrators were predominately female, likely due to the employment demographics in the industry.
With all of those characteristics of fraud in mind, Lee delved into a quartet of suggestions to deter and detect fraud. Lee — who spent part of his professional career in law enforcement before entering the accounting world — pointed out that the overall types of internal and external frauds most commonly experienced by companies RSM contacted demonstrate a lack of controls and insufficient segregation of duties at branch locations.
“The types of fraud most commonly committed help underscore this point,” Lee said. “For example, fraudulent loan schemes often involve someone at the branch office recording a fraudulent loan on the books, using misrepresentations by a third party or collusion between internal and external perpetrators and then writing the loan off.
“By ensuring those duties are performed by separate parties and verifying the information provided during underwriting and funding, this type of fraud could be largely avoided,” he continued.
Next, Lee recommended that finance companies should ensure that branch locations have strong internal controls on-site and not rely exclusively on controls at the home office.
“While the reported fraud losses were relatively small and generally caught quickly, stronger controls at the branch locations could help prevent or deter many of these instances from occurring in the first place,” Lee said.
“Improved systems that would allow real-time reporting between branches and the home office could play a key role in improving controls and providing real-time oversight of operations,” he continued. “Even if real-time reporting is not possible, more comprehensive and timely reporting will help deter and detect fraud.”
Lee also mentioned “weak or poorly documented” operating policies and procedures, including formal fraud policies, play a role in increasing the likelihood of fraud.
“By making it clear to all employees exactly what your operating procedures are, deviations from those procedures are more immediately obvious to everyone,” he said.
Finally, Lee noted that finance company can consider educating their employees on common types of fraud.
“This would help honest employees spot malfeasance by co-workers,” Lee said. “In addition, it would also underscore to employees who might be considering fraudulent behavior how small the gains from those frauds generally are, how quickly they are usually discovered, the company’s zero tolerance policy and the consequences they could face.”
Lee closed the series of recommendations with one last thought.
“Many specialty lenders are relatively small compared to more traditional lenders, especially at the branch level,” Lee said. “They often have less formal policies and, in some instances, closer personal ties to their employees.
“But it is a mistake to rely on this more familial atmosphere as an effective control,” he went on to say. “Improved segregation of duties, real-time oversight, stronger, more formal operating and fraud policies and effective employee education can go a long way to deterring fraud at your organization.”
While President Obama is convening a meeting on Monday with financial regulators to receive an update on the progress in “implementing Wall Street reform,” both the American Financial Services Association and the Consumer Bankers Association offered updates on the revision to the company portal manual associated with consumer complaints sent to Consumer Financial Protection Bureau.
Containing within that “Wall Street reform” touted by the White House, AFSA explained through its weekly NewsBriefs offering that the CFPB’s consumer response team routes complaints to companies through the portal where companies can view and respond to complaints. Recent changes to the consumer complaint portal process include:
• Updated the text that will display in the consumer complaint database for any “no public response” optional company public response submitted after March 2. The description displayed in the consumer complaint database will now be “company has responded to the consumer and the CFPB and chooses not to provide a public response.” The original response simply stated, “company chooses not to provide a public response.”
• The CFPB expanded its definition of a “duplicate complaint,” defined by the bureau as a complaint submitted by or on behalf of the same consumer that does not describe or include any new issue, instance, or information. Previously, the CFPB defined duplicate complaints as a verbatim copy of a prior complaint.
• The CFPB’s revised company portal manual now identifies “administrative response” options, used by the company when further review by the CFPB is needed. An example might be when a company cannot validate a commercial relationship with the consumer. Administrative responses are not published in the CFPB’s complaint database.
Over at the CBA, the association believes the revised definition of a “duplicate” complaint will help to give a more accurate overall complaint number. Additionally, CBA insisted the re-categorization and additional “administrative response” options will better capture the institution’s commitment to their customer relationships.
Furthermore, CBA president and chief executive officer Richard Hunt added that he thinks the updated disclosure for companies that do not publically respond to complaint narratives exhibit member banks’ commitment to their customer’s privacy.
“We are pleased the CFPB heard our requests to improve the portal. Though the portal still needs improvement, the release of revisions to the manual today signals our member banks’ feedback is not falling on deaf ears,” Hunt said.
Perhaps many of the regulators both AFSA and the CBA often try to reach will be at the White House on Monday. Press Secretary Josh Earnest indicated during a briefing last Friday that participants will discuss efforts “to continue to implement the strongest consumer financial protections in history that have afforded millions of hardworking Americans new protections from the kinds of abusive practices that predated the crisis.”
Earnest added the regulators will also update Obama on their work to make financial systems “safer and stronger.”
Obama’s primary spokesperson went on to say, “One of the key legacy achievements of this presidency will be the important reforms of Wall Street. And those reforms have led to a financial system that is more stable and ensures that taxpayers are not on the hook for bailing out financial institutions that make risky bets.
“And I’ve said it so many times now over the last few years that it sort of sounds like a really easy thing, but the truth is, in implementing that law, administration regulators have had to fight tooth and nail with Wall Street institutions and their highly paid lobbyists to ensure that that law is effectively implemented,” Earnest added.
