A Pennsylvania independent dealership reached a settlement agreement with the state attorney general, who alleged the store leased vehicles that needed considerable amounts of repair work and used a lease agreement that did not comply with federal law.
Attorney General Kathleen Kane said the dealership, Credit Connection Auto Sales, offers vehicles on a lease-to-own basis at its locations in the eastern Pennsylvania cities of Harrisburg, York and Carlisle. The Carlisle location also operates a repair shop.
The settlement, filed this week in the form of an assurance of voluntary compliance, requires the dealership to pay a $12,500 civil penalty for alleged violations of the Consumer Protection Law, the Pennsylvania Auto Regulations, the Truth in Lending Act and the Federal Trade Commission’s Used Car Rule.
Additionally, under the terms of the settlement, Kane indicated the dealership must begin using lease agreements that comply with federal law within 90 days and comply in the future with the consumer protection law and the auto regulations.
Officials explained that Kane’s Bureau of Consumer Protection received several consumer complaints about the dealership, which prompted an investigation. The consumer complaints claimed:
— Vehicles offered for lease were represented to be in good working condition, but were later found to have mechanical problems that required repair work.
— The repair work was, at times, of a “shoddy quality.”
— The various sales presentations and vehicle displays were not always consistent and referenced misleading information.
When the Consumer Financial Protection Bureau released its monthly consumer complaints snapshot report a little more than a week ago, one of the categories drumming up the most activity was credit reporting. Potential problems with how that metric developed is precisely what the Consumer Data Industry Association (CDIA) attempted to articulate to the CFPB in advance of that snapshot.
CDIA president and chief executive officer Stuart Pratt explained why the organization believes that the monthly complaint reports currently being published using the raw complaint data from the CFPB database “inaccurately reflects” the complaint volume and trends associated with its members, which includes Equifax, Experian and TransUnion. Pratt articulated the reasons in a letter to CFPB director Richard Corday, including:
1. Allowing complaints where no dispute was previously submitted to CDIA members
2. Complaints misattributed to CDIA members
3. Complaints submitted by credit repair services not recognized
4. The importance of context
“In many instances, consumers will often misidentify the actual party about which they are complaining due to the multiple parties involved in the ecosystem of credit reporting (and other types of consumer reporting agencies), thus wrongly submitting a complaint against one of our members,” Pratt said.
“We respectfully request that the CFPB postpone the production of additional reports which include individual company data until the CFPB has completed its work through its published request for information focused on determining … best practices for normalizing’ the raw complaint data it makes available via the database so they are easier for the public to use and understand,” he continued.
“To continue to publish raw data at the company level is unfair and does not, to quote the CFPB’s own notice, ‘… provide consumers with timely and understandable information to help enable them to make responsible financial decisions and to enhance market efficiency and transparency,’” Pratt went on to say.
The bureau said it has handled approximately 105,000 credit reporting complaints since it began accepting them in October 2012. The CFPB reported that it saw a 56-percent increase in the number of credit reporting complaints submitted by consumers between June (4,289 complaints) and July (6,969 complaints).
In analyzing the period of May through July, officials noticed complaints increased by 45 percent compared to the prior year.
The entire letter in which Pratt goes into much more details about the reasoning behind the CDIA’s four major concerns can be view here.
Unlike a college student scrambling to submit an assignment on time, there doesn’t appear to be much turbulence in the auto finance space since the larger participant rule from the Consumer Financial Protection Bureau went into practice on Monday.
Previously, the bureau supervised auto financing at the largest banks and credit unions. Now, this rule extends that supervision to any nonbank auto finance company that makes, acquires or refinances 10,000 or more loans or leases in a year.
The CFPB announced this move back in June, and National Automotive Finance Association executive director Jack Tracey indicated the agency made little changes, if any, to the protocol.
Under the rule, those companies will be considered “larger participants,” and the bureau may oversee their activity to ensure they are complying with federal consumer financial laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on unfair, deceptive or abusive acts or practices.
The CFPB estimated that it will have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing.
“Monday is sort of a non-event because I think the companies have been trying to comply and do everything the CFPB has wanted them to do much before this,” Tracey told SubPrime Auto Finance News. “I don’t think there’s any apprehension or concern on the part of the larger participants that Monday will change anything.”
David Missimer, general counsel for Automotive Compliance Consultants, took a similar stance.
“Non-bank auto finance companies falling under the umbrella of the Consumer Financial Protection Bureau's larger participant rule will, for the most part, be in position to respond to CFPB supervisory initiatives come (Monday),” Missimer said.
“The majority of auto finance companies were aware such a rule would be implemented long before the official rule was announced,” he continued. “Certainly there has been a flurry of activity, creation and refinement of compliant processes, and in consultations with law firms well versed in the examination process since the rule was announced.
“There will be a few companies unprepared, but the majority have been working hard to get their houses in order for expected CFPB examinations,” Missimer went on to say.
Both Tracey and current NAF Association president Mark Floyd acknowledged the dynamics could change if the CFPB chooses to make further regulatory modifications or more finance companies are placed under the bureau’s microscope.
When asked about how prepared finance companies are now that the “larger participant” rule is in effect, Floyd said, “That’s difficult to know until these companies actually undergo examinations by the CFPB.
“I’m confident that all of the companies take the CFPB’s oversight seriously and are doing their best to comply with the new regulatory environment we face in our industry,” continued Floyd, whose vast industry experience includes leading AmeriCredit as well as the overseeing of Exeter Finance, where he previously served as chief executive officer and currently remains a board member.
“Although the agency has recently published its examination procedures, these procedures could be subject to interpretation as they’re applied to actual situations. It’s a developing process and only time will tell how well-prepared various finance companies are,” Floyd went on to say.
A copy of the rule can be found here.
The examination procedures for auto finance can be found here.
With the proliferation of tablets and other technology that make consumers' lives easier, digitizing the F&I process can have lasting, positive impacts on customer satisfaction for dealerships, according to a new study from MakeMyDeal and F&I Express.
Titled, "The Digital F&I Experience Study," the study showed that consumers who had one or more digital elements in the F&I experience were more likely to purchase F&I products, be more satisfied with the experience and more likely to recommend the dealership.
Study orchestrators pointed out that much of the vehicle-shopping process has been digitized, either through online tools or desktop tools at the dealership. However, they acknowledged a significant portion of the process for automotive aftermarket insurance products still involves cumbersome printed documents and manually signed five-ply forms.
“As an industry, we know that the F&I experience is more difficult than it should be, but what we haven't had until now are the numbers to show how that experience could be affecting the long-term profit potential for the dealership," said Mike Burgiss, founder and vice president of MakeMyDeal.
“By digitizing the experience, dealers will not only have happier customers, but they'll also reap the benefits of more word-of-mouth recommendations and repeat business,” Burgiss continued.
The study grouped participants into two categories: those who had at least one electronic element in their F&I experience and those who had a traditional F&I experience.
Overall, the study indicated only a third — 37 percent — of people are completely satisfied with the amount of time they spend in the F&I office.
However, people who had an electronic experience reported higher satisfaction with their time spent in the F&I office than those who did not: 49 percent of people who had at least one digitized element in the process were completely satisfied, versus 34 percent of people who had no electronic elements.
Further, orchestrators mentioned stores that had an electronic element in the F&I experience reported greater purchase satisfaction and a stronger likelihood to recommend the dealer:
— Seventy-four percent of those with an electronic F&I experience were completely satisfied with their purchase experience versus 56 percent of those with a traditional F&I experience.
— Sixty percent of those with an electronic F&I experience said they were very likely to recommend the dealer versus 39 percent of those with a traditional F&I experience.
Brian Reed, chief executive officer of F&I Express, is helping lead the charge to digitize the F&I sales process.
“F&I is one of the few remaining areas of the dealership that hasn't been digitized, and this study clearly shows that there is a real need — and opportunity — for more of the process to be brought online,” Reed said
“Consumers have an expectation to have digital options for just about anything they are shopping for,” he continued. “Auto dealers have a chance to strengthen relationships with existing customers, and ultimately improve their profitability by shifting to a digital F&I strategy.”
SubPrime Forum exhibitor BillingTree recently completed its examination in conformity with Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization for the period from May 1 of last year through April 20 of this year.
Completion of the SSAE 16 Type II examination indicates that selected BillingTree processes, procedures and controls have been formally evaluated and tested by an independent accounting and auditing firm. The examination included the company’s controls related to:
— Physical security
— Computer operations availability
— Information security
— Application development maintenance and documentation
— Data communication
— Client setup and maintenance
— Transaction processing and transaction reporting.
This is the latest compliance accreditation for BillingTree. Earlier this year the company successfully passed the PCI-DSS audit under the new PCI 3.0 standards.
BillingTree also holds an A+ rating by the highly respected Better Business Bureau (BBB) and has completed the latest HIPAA Security Assessment in line with the HIPAA security rule.
Officials explained SSAE 16 is designated by the U.S. Securities and Exchange Commission as an acceptable method for a user entity’s management to obtain assurance about service organization internal controls without conducting additional assessments.
In addition, the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 make SSAE 16 reports even more important to the process of reporting on effective internal controls by public companies.
BillingTree vice president of technology Melissa Kirk highlighted A SSAE 16 examination is widely recognized because it represents that a service organization has been through an evaluation of their control activities as they relate to an audit of the financial statements of its customers.
Kirk added a Type II report not only includes the service organization's system description, but also includes detailed testing of the design and operating effectiveness of the service organization's controls.
“Our successful SSAE 16 examination demonstrates BillingTree's commitment to ensuring our service operations are well controlled and in-line with industry best practices across accounting, audit and information security,” Kirk said. “Yet again our well governed environment has been audited by an independent third party and found to be robust, transparent and consistent.
“BillingTree’s 2015 ARM Industry Technology and Operations survey found that 84% of respondents said they rely on their payment processing partners to provide service support to their management and operations,” Kirk went on to say. “This is why BillingTree places the highest priority on tightly controlled operations across our organization.”
BillingTree will be highlighting its salutation in the exhibit hall for the SubPrime Forum, which is part of Used Car Week, the industry leading series of events that includes the CPO Forum, the Re3 Conference and the National Remarketing Conference. It all takes places at the Phoenician in Scottsdale, Ariz., on Nov. 16-20.
To join the group of exhibitors before space runs out, contact conference chairman Bill Zadeits at (800) 608-7500 or bzadeits@autoremarketing.com or go to www.usedcarweek.biz.
Reynolds Document Services, a part of Reynolds and Reynolds, joined forces with the Maryland Automobile Dealers Association (MADA) this week to establish the Reynolds LAW Maryland F&I Library.
The library is a comprehensive catalog of standardized, legally reviewed F&I documents for Maryland dealers. The documents in the LAW Maryland F&I Library are available in both paper-based and electronic formats.
“Automobile retailers are facing increasing levels of government regulation and potential litigation, as well as high expectations from consumers around the entire car-purchasing experience," said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services.
“Part of Reynolds’ response for dealers is to partner with state automobile dealers associations to develop solutions such as LAW brand F&I libraries,” Kirwan continued. “The documents in the LAW Maryland F&I Library can help dealers minimize their compliance risk and, at the same time, help them streamline processes and improve the customer experience."
Kirwan went on to highlight the Reynolds LAW Maryland F&I Library can help dealers:
— Minimize compliance risk: The documents in the LAW Maryland F&I Library are regularly reviewed for compliance with the latest automotive regulations. Reynolds forms specialists lead the review, in conjunction with Reynolds' outside legal partners and representatives from MADA.
— Streamline F&I processes: By using the standardized vehicle deal documents in the LAW Maryland F&I Library, dealers can achieve a more consistent and effective F&I process in every transaction.
— Increase customer satisfaction: The LAW Maryland F&I Library contains documents written in consumer-friendly language to help create a more transparent and understandable F&I process and improve the customer experience with the dealership.
— Smooth the transition to electronic transactions: The printed documents in the LAW Maryland F&I Library are also available in a digital format, which can help facilitate the conversion to laser-printed transactions or e-contracting. Reynolds Document Services maintains licensing agreements with all major providers of electronic F&I (e-F&I) solutions.
“Our organization has served automotive retailers for more than a century, and with that history comes a deep understanding of the tools dealers need to be successful,” MADA president Peter Kitzmiller said.
“That’s why we partnered with Reynolds: To bring a more effective document solution to our members’ F&I departments,” Kitzmiller continued. “The LAW Maryland F&I Library can offer dealers tools that deliver added compliance protection, smoother processes, and increased customer satisfaction.”
Even the freshest law school graduate likely understands the concept of, “If you didn’t document it, it didn’t happen.”
In an intensifying regulatory world where compliance training is becoming more important, the National Automotive Finance Association highlighted how several major institutions already are leveraging a new education program so finance companies can have a document and more to show an agency investigator.
The NAF Association — a Used Car Week Industry Partner — highlighted how several components of its new Compliance Certificate Program are on a “fast track.” Finance company employees not only can complete the requirements in a timely manner, but the successful completion can give executives another important validation arrow in their compliance quiver if a regulatory investigation unfolds.
The new initiative, hosted by NAF Association with online curriculum segregated from the organization Consumer Credit Compliance Program, can assist finance companies in complying with federal and state regulatory requirements by providing compliance professionals the foundation they need to master federal laws and regulations that dictate consumer credit.
The Compliance Certificate Programs will cover the following roles:
— Collector
— Underwriter
— Sales/Dealer Relations
— Contract Auditing/Funding
— Customer Service
Each training module includes two case studies specific to the subject material of the course and tests the knowledge of the laws and regulations as they apply to real world situations.
Of the major finance companies participating, Westlake Financial Services will have 600 associates enroll in the certificate programs.
“Compliance is a chance for us to differentiate ourselves and gain a competitive advantage," said Ian Anderson, group president of Westlake Financial Services and recipient of the SubPrime Auto Finance Executive of the Year Award last year during the SubPrime Forum at Used Car Week.
“The very best thing we can do in this evolving compliance landscape is to invest in training, and ensure our team has the tools and knowledge to always do the right thing for the customer,” Anderson continued.
After completing the rigorous program, the participants will have gained sufficient knowledge of consumer credit laws and regulations, which will allow them to keep their departments compliant with federal and state standards.
"In today’s compliance environment it is critical to have our managers and support personnel up to date on the laws and best practices that govern the collection department,” said Micky Watts, senior vice president of indirect lending at Anderson Brothers Bank.
“I am excited to see the NAF Association provide the collection compliance certificate course that will allow us to certify our front line personnel and retrain them annually as required by government regulators,” Watts continued.
Currently, the Compliance Certificate Program is only available to employees of NAF Association member companies. But NAF Association executive director Jack Tracey is upbeat about the path companies such as Westlake are forging.
“Westlake’s participation in the program demonstrates the company's determination to ensure better business practices, which will drive better customer service,” Tracey said. “We are excited to see Westlake participate and hope this sparks other finance companies to follow in Westlake's footsteps by registering their employees to get certified.”
NAF Association president Mark Floyd — who came out of retirement in 2010 to spend four years as chief executive officer of Exeter Finance before stepping down last November — also highlighted the traction the organization is getting with this new certificate program.
“With over 645 certificate registrations in the first three weeks of introducing the collector and underwriter certificate modules, we’ve decided to fast track the remaining certificate modules for customer service, funding and dealer sales representatives,” Floyd said. “Now all five certificate programs are available to member companies.
“We’re offering these online certificate modules so that our members can use them to build compliance awareness and knowledge in their front line staff — the people who directly engage with the consumer,”
The National Automotive Finance Association is committed to bringing high quality compliance education to the auto finance industry, not just through this Certificate Program but along with the Consumer Credit Compliance Certification Program and the regional Best Compliance Practices groups.
For more details about any of these programs, visit nafassociation.com or contact Tracey at (410) 865-5431 or jtracey@nafassociation.com.
A former Senate-confirmed Treasury Department official took the reins as president and chief executive officer of the American Bankers Association on Monday.
Back in May, ABA board of directors unanimously selected Rob Nichols to succeed former Oklahoma Gov. Frank Keating, who headed the ABA since January 2011. Keating announced early this year that he would be stepping down.
Nichols came to ABA after serving as the head of the Financial Services Forum.
“Rob Nichols will be a superb leader of the ABA,” ABA board chairman John Ikard said. “The banking industry is undergoing a great deal of change. We sought a visionary, strategic leader with demonstrated public policy acumen, a keen understanding of the entirety of the banking and financial system, and a strong track record of both strategic management and bipartisan advocacy.
Rob Nichols hits the mark on all counts, and we are delighted that he will be leading our organization,” added Ikard, who is also president and CEO of the FirstBank Holding Co., in Lakewood, Colo.
Nichols joined the Financial Services Forum in June 2005 following four and a half years of service in the Treasury Department, including time as assistant secretary of the Treasury for Public Affairs in the President George W. Bush administration. Nichols oversaw all Treasury public affairs efforts and played a leading role in educating the American people about a wide range of financial issues.
As assistant secretary, Nichols established policies for administering public affairs, business affairs, consumer affairs and intergovernmental affairs programs in the Treasury Department and its bureaus. He also oversaw the Office of Public Liaison, which conducts outreach to business, advocacy and financial communities.
ABA noted Nichols gained a rich understanding of the financial markets, the financial services industry and a wide breadth of economic matters. He is a recipient of the Alexander Hamilton Award, Treasury’s highest honor.
“I am deeply honored to take on the responsibility of leading the ABA,” Nichols said. “The nation’s economic growth prospects depend on banks of all sizes and models in order to effectively serve the needs of local communities, clients and customers. Community banks, mid-size, regional, and large banks all play a critically important role as part of a diverse and interdependent financial ecosystem that both supports and depends on a thriving U.S. economy.
“The ABA is uniquely positioned to rigorously make this case to legislative, regulatory and administration audiences,” he continued. “I look forward to the opportunity of serving the ABA and will work tirelessly with members and the state bankers associations to improve the public policy environment in which all banks operate.”
Prior to his Treasury appointment, Nichols was the communications director for the Electronics Industries Alliance, a trade organization representing more than 1,300 high-tech U.S. manufacturers, and before that time was a senior aide to Sen. Slade Gorton and Rep. Jennifer Dunn.
Nichols was also an aide to the chief of staff in the President George H.W. Bush administration. Starting in 2009, Nichols has for five successive years been recognized by The Hill as one of Washington’s most effective trade association leaders. CEO UPDATE has also named him as one of the top trade association leaders.
Two members of the ABA’s succession planning committee also offered an assessment of Nichols.
“In my past roles as a community banker, in the leadership of the ABA and as a member of the board of governors of the Federal Reserve, I have repeatedly seen the power of uniting the banking industry to achieve important objectives. I was privileged to serve on the succession planning committee that selected Rob Nichols, and I am certain that he will be a superb leader of all of the financial institutions represented by the ABA — small, medium and large," former ABA chairman Betsy Duke said.
“He is a strategic leader with a strong vision of where the ABA needs to be positioned in the future, and has an impressive track record as someone who is both highly knowledgeable about the banking industry and highly effective as a Washington advocate.”
Howard Boyle, president and CEO of Hometown Bank in Kent, Ohio, added, “There were a number of excellent candidates for the position. In the interview process, Rob’s extensive knowledge of and passion for banking came through loud and clear. We were looking to take our already strong organization and build on that, enhance what we have.
“His work on Capitol Hill — both in the Senate and House — along with his key role at the Treasury Department and extensive trade association experience, really appealed to us,” Boyle went on to say. Rob has a vision for the future of the ABA, and I was particularly impressed with his keen recognition of the value of community institutions to the banking industry. It’s clear to me that he will be a superb spokesman and advocate for our industry.”
Ikard also thanked Keating for his service to ABA.
“Frank Keating accepted this position during very difficult and trying economic times for our nation and for our nation’s banks. Frank stepped right up and did a superb job of rallying our members, celebrating the key role they play in the vitality of their communities and the economy as a whole. The board, the organization and the industry owe him a tremendous debt of gratitude.”
In reflecting on his time with the association, Keating noted, “It has been my honor to lead the ABA. The splendid men and women who make up America’s banking industry are some of the finest individuals it has ever been my pleasure to know.
“I took on my ABA leadership role during one of the most challenging times in banking history and I am very proud of the many accomplishments, achieved by us all working together, to help right America’s financial ship,” Keating continued.
“I wish Rob Nichols well. He will be working with a superb group of people and I am confident that, working together, they will do great things for the industry and the economy at large,” Keating went on to say.
Thanks to technology, today people look for speed and efficiency in everything they do more than ever before — and the car buying process is no exception.
Carrying the stigma of being time-consuming, even called “painful” by customers, how can dealers and lenders make the process of purchasing a car faster, more efficient and a better experience for today’s shopper? The answer could be found in the use of eContracting technology. eContracting, or electronic contracting — which can now be conveniently conducted using iPads/tablets in Wi-Fi connected showrooms — creates efficiencies in the F&I process and expands the possibilities of increased profitability, in both the short term and long term.
According J.D. Power’s 2015 U.S. Dealer Financing Satisfaction study, more than half of surveyed dealers indicate faster funding as the main reason they use eContracting. Additionally, the study found that when dealers use lender-provided eContracting, their overall satisfaction averages 913 on a 1,000-point scale, compared with 856 when lenders don’t provide eContracting. As critical aspects of the automotive retail workflow evolve with technology, dealerships and the lenders they do business with are beginning to see these efficiencies come to life.
Faster contract funding is a perfect example: Long the domain of the traditional sales and lending approach, today there's strong evidence that the shift to eContracting is accelerating, as dealers and lenders discover its effectiveness. In fact, we have seen a consistently steady increase in eContracting activity year-over-year, and nearly a 20 percent jump since 2014 alone. Dealers aren’t looking back, and neither are lenders: According to Dealertrack surveys, 98 percent of dealer personnel using electronic contracting plan to continue to use the software, and 93 percent would recommend eContracting to their peers. On the lender side, there’s been a healthy increase in electronic contracting adoption, with 20 lenders already on the program, and more planning to support the workflow in the near-term. With key findings from the J.D. Power survey that found lenders can expect on average a 39 percent increase from the dealers with whom they do business – eContracting is no longer the chicken-or-egg scenario it once was.
Not surprising, it has been reported by industry media that 80 percent of all U.S. dealerships will adopt eContracting within five years. And the reason is simple.
The benefits of eContracting are game-changing:
• It speeds up the process of contracting from days to hours. eContracting can help make funding possible within two to three hours. Dealertrack surveys also show that contract processing turnaround times ranked fourth in importance by dealers when choosing a lender partner.
• It improves accuracy. The process of eContracting includes verification engine drivers that catch errors beforehand, so contracting is fast and efficient. Often in the manual process, at best these errors slow the process down while the dealer looks to fix what’s wrong or missing, and at worst are caught too late and lead to recontracting.
• Mobile review and signing functionality takes efficiency and convenience to the next level. With an iPad or Android tablet, the Dealertrack mobile app and Wi-Fi in the showroom, dealers and customers can review and sign contracts anywhere in the showroom they are most comfortable. The contract appears in full form on the device, eliminating the need for forced print review, and signing is easy – dealers and customers sign once, then tap to apply their signatures directly in the form where required.
This movement toward a technology-enabled, mobile and flexible process brings added convenience to a dealership’s workflow. eContracting is a great example of the technology enhancements that are immensely improving the overall buyer experience, so critical to dealers’ retail process and business success. The surge in adoption of eContracting demonstrates the point of good technology: to simplify and evolve the act of buying and selling cars into an efficient, profitable and consumer-friendly experience. For Dealertrack, it’s another solution-based catalyst we offer to help transform the automotive retail experience.
Michael Collins is senior vice president, lender and F&I solutions for Dealertrack Technologies. In this role, Collins has executive responsibility and oversight for the strategic planning & execution of software and transaction channel services to automotive dealers across the U.S. in the area of finance and insurance as well as a variety of showroom and sales software solutions. This includes Dealertrack’s credit application and aftermarket networks, which are the largest in the industry, connecting franchised and independent automotive dealers to more than 1,500 finance and other strategic partners. Collins is on tap to be one of the keynote speakers during the SubPrime Forum at Used Car Week, which runs on Nov.16-20 at the Phoenician in Scottsdale, Ariz.
Santander Consumer USA Holdings evidently isn’t rattled by the Consumer Financial Protection Bureau turning over allegations to the Department of Justice about how the finance company conducts its business.
SCUSA shared details about the pair of allegations the CFPB made as part its regulatory filing with the Securities and Exchange Commission posted earlier this week. SCUSA said that on July 31 the CFPB notified the finance company that specializes in subprime originations while also being the backbone for Chrysler Capital that the bureau referred certain alleged violations of the Equal Credit Opportunity Act to the Justice Department. The alleged infractions stemmed from:
— Statistical disparities in markups charged by dealers to protected groups on loans originated by those dealers and purchased by SCUSA
— Treatment of certain types of income in the company's underwriting process
The notification about the CFPB moves arrived a day after the company reported its second-quarter performance, which included total originations of more than $7.6 billion.
In its SEC filing, SCUSA said, “The company does not believe that there are any proceedings, threatened or pending, that, if determined adversely, would have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the company.”
Since the CFPB allegations officially hadn’t come to light when SCUSA, investment analysts didn’t probe the company about them. However, when asked about the company’s strategy, new chief executive officer Jason Kulas reiterated much of the same tenor he used when he ascended into his current role at the beginning of July, replacing co-founder Thomas Dundon.
“We are having a lot of discussions about strategy and not just among our management team but also with our board,” Kulas said when the company hosted its second-quarter conference call.
"The level of dialogue we are having is real positive,” he continued, according to a transcript posted by SeekingAlpha.com. “I think one thing that is important to talk about in answering that question is the connection between our former CEO and me and the ongoing dialogue we have been having about this business for over 20 years. Many aspects of the strategy of this business were developed together with Tom and I discussing the business literally every day for a long period of time.
“So for that reason, I don't expect a lot of big changes in strategy,” Kulas went on to say. “We saw the business eye to eye. We developed and grew the business together, and I believe in the strategy that we have, which is at its core, what we always talk about. That's just making sure that every single loan we originate has the right price and the right structure so the company continues to be positioned to perform through cycles.”
Perhaps SCUSA’s strategy is working nicely since the company’s total originations came in at more than $7.6 billion during the second quarter, up from $7.4 billion a year earlier. The most recent figure includes $2.7 billion in Chrysler Capital retail installment contracts, $1.4 billion in Chrysler leases originated for its own portfolio and $229 million in Chrysler lease originations facilitated for an affiliate.
The company also highlighted that other originations, including other auto and personal loans, totaled $3.3 billion for the second quarter. Kulas pointed out that Q2 auto originations continued to see a seasonal benefit due to the tax refund season.
The activity propelled SCUSA to a Q2 net income figure of $285.5 million, or $0.79 per diluted common share.
“Our company achieved strong results this quarter, producing a 16 percent year-over-year growth in net income,” Kulas said in a company statement. “This evidences our robust business model and our team’s ability to produce results.
We continued to execute against our stated strategy of optimizing the mix of retained assets versus assets sold and serviced for others by originating more than $7.6 billion and selling more than $2.8 billion in assets, further strengthening our balance sheet while growing our consumer finance marketplace,” he continued.
“We are confident the effective execution of this strategy will lead to continued growth in the serviced for others portfolio while generating attractive balance sheet returns as well as capital-light fee income,” Kulas went on to say.
