Using descriptive words such as unsubstantiated, puzzlingly and unworkable, it didn’t take long for industry associations to question again the methodology of the Consumer Financial Protection Bureau, which on Thursday finalized its policy involving its public-facing consumer complaint database.
Now that consumers have the option to share details of their complaint to the CFPB, the National Automotive Finance Association, the American Bankers Association, the Consumer Bankers Association and the American Financial Services Association each maintained reservations about the bureau making this move.
“While we can appreciate the CFPB’s desire to make consumer complaints available to the public we feel the way it is being done does not provide the public a balanced view,” NAF Association executive director Jack Tracey said in a statement sent to SubPrime Auto Finance News.
“Consumers are able to voice their complaints in their own words, but the financial institution is limited to the use of structured responses,” Tracey continued. “This approach will, in most cases, place the finance company in a poor light. A truly transparent approach would allow both sides the opportunity to articulate their position in their own words.”
ABA president and chief executive officer Frank Keating isn’t so sure the bureau accomplished what it is tasked with doing by this latest move.
“While the banking industry is committed to helping consumers make informed and responsible financial decisions, public disclosure of unverified consumer complaint narratives doesn’t advance that goal and raises significant consumer privacy issues,” Keating said. “This risks turning the CFPB database into a questionable — even misleading — resource and risks tarnishing the reputation of individual companies without substantiation.”
While the CFPB indicated finance companies can choose a response to publish as well, Keating likewise isn’t sure that’s enough of an opportunity.
“The proposal offers no meaningful options for a bank to publically dispute an erroneous complaint,” he said. “Checking a standardized box will not provide valuable information to consumers, and banks will not choose to engage in a public disagreement with their customers.
“Since the CFPB proposes to make no effort to ensure the accuracy of complaint data, the bureau becomes an official purveyor of unsubstantiated and potentially false information instead of fostering informed and responsible consumer choice,” Keating continued.
“For these reasons, Congress was wise not to authorize the bureau to publish and give its official government seal to individual consumer complaints,” he went on to say.
CBA president and CEO Richard Hunt shared a similar assessment of Thursday’s announcement, offering reaction that might trigger the common acronym in social media, SMH, for “shaking my head.”
Hunt said, “While we support the Bureau’s collection of complaint data to identify trends and understand consumer concerns, we are disappointed by (Thursday’s) decision. The CFPB has the ability to demonstrate trends, allow for an appeals process, and normalize data — much like other regulators.
“Puzzlingly, they choose not to use any of these illuminating mechanisms. (Thursday’s) action does not reflect the principles of accountability, transparency, and data-driven decision making which the Bureau professes guides its work,” Hunt continued. “This agency can do better.”
Furthermore, AFSA executive vice president Bill Himpler didn’t hesitate when sharing his reaction to this CFPB policy, either.
“The CFPB’s policy on publishing consumer narratives in its public consumer complaint database is impracticable and unworkable,” Himpler said. “AFSA remains concerned that the CFPB’s consumer complaint database does not adequately protect consumers’ privacy.
“Because consumers are likely to assume a level of accuracy and validity in the complaints posted on a government website, the CFPB’s publicizing unsubstantiated consumer narratives could mislead consumers,” he continued. “In addition, publishing unverified and unfiltered claims could pose significant brand and reputational risk to financial services companies.”
In the past, Consumer Financial Protection Bureau director Richard Cordray called complaints the agency’s compass. And earlier today, the CFPB finalized its policy about how those complaints are gathered and posted — and more importantly for finance company leaders — how institutions can respond to those complaints.
CFPB officials explained that when consumers submit a complaint to the bureau, they now have the option to share their account of what happened in the CFPB’s public-facing consumer complaint database.
The bureau is also publishing a request for information seeking public input on ways to highlight positive consumer experiences, such as by receiving consumer compliments.
“Consumer narratives shed light on the full consumer perspective behind a complaint,” Cordray said. “Narratives humanize the problems consumers face in the marketplace. Today’s policy will serve to empower consumers by helping them make informed decisions and helping track trends in the consumer financial market.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, established the handling of consumer complaints as an integral part of the CFPB’s work. The CFPB began accepting complaints as soon as it opened its doors more than three years ago in July 2011.
The bureau currently accepts complaints on many consumer financial products, including credit cards, mortgages, bank accounts, private student loans, vehicle and other consumer loans, credit reporting, money transfers, debt collection and payday loans. As of March 1, the CFPB said it has handled 558,800 complaints, with mortgages and debt collection being the most frequent topics.
In June of last year, the CFPB launched its consumer complaint database, which the agency contends is the nation’s largest public collection of consumer financial complaints. It includes basic, anonymous, individual-level information about the complaints received, including the date of submission, the consumer’s ZIP code, the relevant company, the product type, the issue the consumer is complaining about, and how the company handled the complaint.
Then two months later, the CFPB proposed a policy that would allow consumers to publicly share their stories when they submit complaints to the bureau. Today, the bureau is finalizing its consumer narrative policy after receiving and considering comments from consumer groups, trade associations, companies and individuals.
“Consumer narratives provide a first-hand account of the consumer’s experience, and adding the option to share them will greatly enhance the utility of the database,” CFPB officials said.
“The narratives will provide context to complaints, spotlight specific trends and help consumers make informed decisions. The narratives may encourage companies to improve the overall quality of their products and services, and more vigorously compete over good customer service,” they went on to say.
Consumer Complaint Narrative Policy
The CFPB’s final Consumer Complaint Narrative Policy lays out the specific procedures and safeguards the bureau is putting in place to publish narratives in the database.
When consumers submit a complaint to the bureau, they fill in information such as who they are, who the complaint is against and when it occurred. They are also given a text box to describe what happened and can attach documents to the complaint. The Bureau forwards the complaint to the company for response, gives the consumer a tracking number, and keeps the consumer updated on its status.
Starting today, when consumers submit a complaint to the CFPB, they will now have the option to check a box and opt-in to sharing their narrative. In order for companies to learn about this new system, the bureau will not publish any consented-to narrative for at least 90 days after the policy’s publication in the Federal Register.
Officials explained the CFPB’s policy recognizes the importance of protecting consumers’ private information, ensuring the informed consent of any consumer who participates, and providing companies with an opportunity to respond.
The bureau believes the policy establishes a number of what it called important safeguards for a clear, fair, and transparent process, including:
• Consumers must opt-in to share their story: The CFPB will not publish the complaint narrative unless the consumer provides informed consent. This means that when consumers submit a complaint through consumerfinance.gov, they have to affirmatively check a consent box to give the Bureau permission to publish their narrative. Currently, only narratives submitted online are available for the opt-in to publish.
• Personal information will be removed from narratives: The bureau said it will take “reasonable” steps to remove personal information from the complaint to minimize the risk of re-identification. “This means the CFPB will use a thorough process to ensure complaints are scrubbed of information such as names, telephone numbers, account numbers, Social Security numbers and other direct identifiers,” officials said.
• Finance companies can choose a response to publish: The CFPB indicated finance companies will be given the option to select from a set list of structured response options as a public-facing response to address the consumer complaints. The bureau added finance companies will be under no obligation to offer a public response, and they have 180 days after the consumer complaint is routed to them to select the optional, public response. Companies will have the option to address all consumer complaints submitted after this policy announcement, not just those where a consumer consented to publication.
• Consumers can opt-out at any time: If a consumer decides at any time that he or she would like to withdraw consent to publish their narrative in the consumer complaint database, he or she has the ability to do so.
• Complaints must meet certain criteria to qualify for narrative publication: In order for the bureau to publicly share a consumer’s complaint narrative, the complaint must meet certain requirements. Such requirements include that the complaint is submitted through the CFPB website, that the complaint is not a duplicate submission, and that the consumer has a confirmed relationship with the financial institution. Complaints will not be published if they do not meet all of the publication criteria.
The CFPB went on to say its policy builds on the safeguards its database already has in place. Complaints are listed in the database only after the company responds to the complaint or after it has had the complaint for 15 days, whichever comes first. The CFPB will disclose the consumer narrative when the company provides its public-facing response, or after the company has had the complaint for 60 calendar days, whichever comes first.
The complete policy is available here.
Request for Information on Consumer Compliments
Furthermore, the bureau is also issuing a notice and request for information (RFI) seeking input from the public on the potential collection and sharing of information about consumers’ positive interactions with financial service providers.
Broadly speaking, the CFPB said it sees two options for sharing positive consumer feedback about finance companies.
One option is to provide more information about a company’s complaint handling such as highlighting the quality of responses to consumers. The second option is to collect and provide consumer compliments — independent of the complaint process.
“The RFI seeks input on these options and welcomes other ideas,” the CFPB said.
The request for information is available here.
Executives representing community banks and credit unions want federal lawmakers to study the impact financial agencies are having on them considering that these smaller operations believe they are being hit with the same regulatory zeal as what’s being unleashed on much larger institutions with more resources.
During a U.S. House Financial Services Committee focused on preserving consumer choice and financial independence, Patrick Miller indicated that credit unions have been subjected to more than 190 regulatory changes from nearly three dozen federal agencies, totaling nearly 6,000 Federal Register pages since the beginning of the financial crisis more than five years ago. Miller is president and chief executive officer of CBC Federal Credit Union, which is based in Oxnard, Calif. He was on Capitol Hill this week on behalf of the Credit Union National Association, which represents approximately 90 percent of America’s 6,500 credit unions and their 102 million memberships
“Credit unions and their members acted responsibly during the economic crisis, but they continue to be unfairly penalized for the actions of too-big-to-fail financial institutions,” Miller told House lawmakers on Wednesday. “We work every day to deliver service excellence to our members, but that cannot happen when certain statutory and regulatory barriers keep credit unions from fully serving the needs of their members.
“We want to work with Congress, and specifically the Financial Services Committee, to remove barriers and create opportunities, so credit unions can better server their members all while continuing to practice safe and sound lending practices,” he continued.
Miller went on to deliver more than 40 pages of testimony, delving into different areas of financial services that smaller credit unions are being asked to comply with regulatory burdens mandated by the Consumer Financial Protection Bureau at the same level as institutions such as J.P. Morgan, Bank of America and Citibank.
Miller added the rule numbers do not even take into account regulatory changes that may emanate from state agencies.
“Every time a rule or regulation is changed or adopted, credit unions, and thereby their members, incur costs,” Miller said. “They must take time to understand the new requirement, modify their computer systems, update their internal processes and controls, train and oftentimes retrain their staff, design and print new forms and produce material to help their members understand each new requirement.
“Even simple changes in regulation cost credit unions thousands of dollars and many hours: time and resources that could be more appropriately spent on serving the needs of credit union members, not the desire of overzealous regulators,” he continued. “Congress needs to tell regulators to stop treating credit unions like we created the financial crisis or contributed to it.
“Regulations have real world consequences that prevent hardworking Americans from receiving the best financial services and products they could. That is a disservice to your constituents which we try very hard to serve,” Miller went on to say.
Community Banks Pinched, Too
Also appearing at the hearing was Tyrone Fenderson, president and chief executive officer of Commonwealth National Bank in Mobile, Ala., who spoke on behalf of American Bankers Association. Fenderson told lawmakers there are 1,200 fewer community banks today than there were five years ago. He insisted the trend will continue until some “rational changes” are made to provide relief to what he called America’s hometown banks.
“Community banks are resilient,” Fenderson said. “We have found ways to meet our customers’ needs in spite of the ups and downs of the economy. But that job has become much more difficult by the avalanche of new rules, guidances and seemingly ever-changing expectations of the regulators. This — not the local economic conditions — is often the tipping point that drives small banks to merge with banks typically many times large.”
Fenderson cheered the measure recently introduced by Rep. Randy Neugebauer, chairman of the Financial Institutions and Consumer Credit Subcommittee. Neugebauer outlined H.R. 1266 — the Financial Product Safety Commission Act of 2015 — in this previous report from SubPrime Auto Finance News.
“We urge Congress to work together — Senate and House — to pass legislation that will enhance the ability of community banks to serve our customers,” Fenderson said.
“Community banks have been the backbone of hometowns across America,” he went on to say. “Our presence in small towns and large cities everywhere means we have a personal stake in the economic growth, health, and vitality of nearly every community. A bank’s presence is a symbol of hope, a vote of confidence in a town’s future. When a bank sets down roots, communities thrive.
Like Fenderson, David Williams shared anecdotes about how community banks work closely with their customers, especially in rural areas. Williams is chairman and CEO of Centennial Bank in Lubbock, Texas. He joined the hearing on behalf of the Independent Community Bankers of America and 6,400 community banks nationwide.
“Regulatory burden reaches the level of overkill when it injures the customer it was intended to protect,” Williams said.
“The economic life of rural America depends on customized financial products and services that only community banks provide,” he continued.
Williams offered a dire prediction if institutions such as his in the Texas Panhandle are subject to the same regulator threshold as the big boys from the Big Apple.
“Community banks are disproportionately impacted by regulatory overkill because they have a much smaller asset base over which to spread regulatory costs,” Williams said. “Without dedicated legal and compliance departments, we have to divert valuable staff from other duties, including serving customers, to implement new rules and other changes, a process that can take weeks or months depending on the complexity of the change and the bank processes impacted.
“If consolidation continues apace and rural community banks disappear under the weight of regulatory overkill, millions of rural customers — including farmers, small business owners, families and individuals — will be cut off from credit,” he went on to say.
Lawmakers’ Positions
Financial Services Committee chairman Rep. Jeb Hensarling of Texas acknowledged that it’s not an exaggeration to say that every single week lawmakers hear from another financial institution that is having trouble meeting the needs of their customers because of regulatory burdens.
“We hear from these banks and credit unions every day and we understand how federal regulation can adversely impact low and moderate income Americans,” Hensarling said.
“Now some, particularly those on the other side of the Capitol, have said community financial institutions are doing just fine,” the Republican continued. “In fact they have said, ‘Regulators have done a pretty good job protecting community banks.’
“I suspect many of our witnesses will disagree with their statement,” Hensarling went on to say before Miller, Fenderson and Williams offered their testimony. “I believe that assertion is just wrong, dangerously wrong and out of touch with low and moderate income Americans.”
Meanwhile, Rep. Maxine Waters, ranking member of the Financial Services Committee, expressed skepticism of the majority’s assertions. The California Democrat maintained the creation of regulators such as the Securities and Exchange Commission also was opposed by the financial services industry but now is an important agency.
“A free market system, with ample consumer choice, only works when businesses compete on cost and quality — not on how much they can cut corners or bend the rules,” Waters said.
In the latest regulatory claim about what finance companies might be doing wrong, the Consumer Financial Protection Bureau said this week that arbitration agreements restrict consumers’ relief for disputes with financial service providers by limiting class actions.
The Consumer Bankers Association and the American Financial Services Association quickly pushed back against the CFPB’s assertions, insisting that arbitration aids consumers.
CBA president and chief executive officer Richard Hunt made his point after phase two of the CFPB’s study on the use of mandatory arbitration clauses in connection with consumer financial products and services that was released on Tuesday.
“For nearly 90 years, arbitration has allowed consumers quick and easy access to an affordable option for dispute resolution,” Hunt said. “As a last resort, if legal recourse is necessary, arbitration has proven to be the best path forward because it is mutually beneficial to all parties — both consumers and lenders.
“We look forward to reviewing this study in its entirety, and we look forward to working with the CFPB to improve consumers’ understanding of the arbitration process and how it can benefit them,” Hunt continued.
The Dodd-Frank Act requires the CFPB to conduct a study of the use of pre-dispute arbitration clauses in consumer financial markets. The act also provides the CFPB with the sole authority to issue regulations on the use of these arbitration clauses if it believes doing so is in the public interest for the protection of consumers, and consistent with the results of the study.
In December of 2013, the CFPB released phase one of its study on the use of mandatory arbitration clauses in connection with consumer financial products and services.
The second segment that arrived this week didn’t bring support from AFSA president and CEO Chris Stinebert, either.
“The Consumer Financial Protection Bureau criticizes arbitration agreements because they limit class actions. Yet arbitration offers consumers a quicker resolution than class actions, which can be stuck in the court system for years,” Stinebert said.
“Many, if not most, consumer finance arbitration agreements limit a consumer’s out-of-pocket costs to initiate arbitration, making it a cost-effective solution for consumers,” he went on to say.
Despite those assertions, the CFPB said its new report found that, in the consumer finance markets studied, very few consumers individually seek relief through arbitration or the federal courts, while millions of consumers are eligible for relief each year through class action settlements.
The bureau’s report also indicated that more than 75 percent of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial service providers, and fewer than 7 percent of those covered by arbitration clauses realized that the clauses restricted their ability to sue in court.
“Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact,” CFPB director Richard Cordray said. “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year. Now that our study has been completed, we will consider what next steps are appropriate.”
The CFPB acknowledged arbitration is a way to resolve disputes outside the court system. In recent years, regulators stated many contracts for consumer financial products and services have included a “pre-dispute arbitration clause” stating that either party can require that disputes that may arise about that product or service be resolved through arbitration instead of the court system.
Where such a clause exists, either side can generally block lawsuits, including class actions, from proceeding in court, according to the CFPB.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Dodd-Frank Act specifically prohibits the use of arbitration clauses in mortgage contracts. And it gives the Bureau the power to issue regulations on the use of arbitration clauses in other consumer finance markets if the Bureau finds that doing so is in the public interest and for the protection of consumers, and if findings in such a rule are consistent with the results of the Bureau’s study.
The bureau first launched a public inquiry on arbitration clauses in April 2012 and released preliminary research in December 2013.
The CFPB studied arbitration clauses in a number of different consumer finance markets including credit cards and checking accounts, which have the largest numbers of consumers.
Other segments of the CFPB’s report included:
• Tens of millions of consumers are covered by arbitration clauses: The CFPB’s research indicates that tens of millions of consumers are covered by arbitration clauses in the consumer finance markets studied. For example, in the credit card market, card issuers representing more than half of all credit card debt have arbitration clauses — impacting as many as 80 million consumers. In the checking account market, banks representing 44 percent of insured deposits have arbitration clauses.
• Consumers filed roughly 600 arbitration cases and 1,200 individual federal lawsuits per year on average in the markets studied: The CFPB’s review of case data from the leading arbitration administrator indicates that between 2010 and 2012, across six different consumer finance markets, 1,847 arbitration disputes were filed. More than 20 percent of these cases may have been filed by companies, rather than consumers. In the 1,060 cases that were filed in 2010 and 2011, arbitrators awarded consumers a combined total of less than $175,000 in damages and less than $190,000 in debt forbearance. Arbitrators also ordered consumers to pay $2.8 million to companies, predominantly for debts that were disputed. Between 2010 and 2012, consumers filed 3,462 individual lawsuits in federal court about consumer finance disputes in five of these markets. The Bureau analyzed all individual cases filed in four of these markets and a random sample of the credit card cases and found that of the relatively few cases that were decided by a judge, consumers were awarded just under $1 million.
• Roughly 32 million consumers on average are eligible for relief through consumer finance class action settlements each year: Bureau research found that millions of consumers are eligible for financial redress through class action settlements. Across substantially all consumer finance markets, at least 160 million class members were eligible for relief over the five-year period studied. The settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses — with roughly 18 percent of that going to expenses and attorneys’ fees. Further, these figures do not include the potential value to consumers of class action settlements requiring companies to change their behavior. Based on available data, the Bureau estimates that the cash payments to class members alone were at least $1.1 billion and cover at least 34 million consumers.
• Arbitration clauses can act as a barrier to class actions: By design, arbitration clauses can be used to block class actions in court. The CFPB found that it is rare for a company to try to force an individual lawsuit into arbitration but common for arbitration clauses to be invoked to block class actions. For example, in cases where credit card issuers with an arbitration clause were sued in a class action, companies invoked the arbitration clause to block class actions 65 percent of the time.
• No evidence of arbitration clauses leading to lower prices for consumers: The CFPB looked at whether companies that include arbitration clauses in their contracts offer lower prices because they are not subject to class action lawsuits. The CFPB analyzed changes in the total cost of credit paid by consumers of some credit card companies that eliminated their arbitration clauses and of other companies that made no change in their use of arbitration provisions. The CFPB found no statistically significant evidence that the companies that eliminated their arbitration clauses increased their prices or reduced access to credit relative to those that made no change in their use of arbitration clauses.
• Three out of four consumers surveyed did not know if they were subject to an arbitration clause: The CFPB surveyed credit card consumers to analyze the extent to which they were aware of, and understood the implications of, arbitration agreements. Among those who said they understood what arbitration is, over three quarters acknowledged they did not know whether their credit card agreement contained an arbitration clause. Of those who thought they did know, more than half were incorrect about whether their agreement actually contained an arbitration clause. Among consumers whose contract included an arbitration clause, fewer than 7 percent recognized that they could not sue their credit card issuer in court.
The bureau indicated that it looked at nearly 850 consumer finance agreements to examine the prevalence of arbitration clauses and their terms. The CFPB also reviewed more than 1,800 consumer finance arbitration disputes filed over a period of three years and more than 3,400 individual federal court lawsuits. The Bureau also looked at 42,000 credit card cases filed in selected small claims court in 2012.
The CFPB went on to mention that it supplemented this research by assembling and analyzing a set of roughly 420 consumer financial class action settlements in federal courts over a period of five years and over 1,100 state and federal public enforcement actions in the consumer finance area. The CFPB also conducted a national survey of 1,000 consumers with credit cards concerning their knowledge and understanding of arbitration and other dispute resolution mechanisms.
“In our governing statute, Congress specified that the results of this arbitration study are to provide the basis for important policy decisions that the Consumer Bureau will have to make in this area. So people are right to be interested in digesting these results and considering how we intend to fulfill the objectives established by Congress,” Cordray said on Tuesday during his prepared remarks when the bureau released study results at a field hearing.
“At the Consumer Bureau, we are dedicated to a marketplace characterized by fair, transparent, and responsible business practices. We believe that strong consumer protection is an asset to honest businesses because it ensures that everyone is playing by the same rules, which supports fair competition and positive treatment of consumers,” he went on to say.
With a high level of expertise stemming from an extensive career in diverse areas of the industry, GSFSGroup recently hired Lewis Kuhl to be senior counsel and director of regulatory compliance.
The company indicated Kuhl now has responsibility for ensuring its F&I products are in compliance with the laws and regulations of each state in which GSFSGroup does business.
“It is a privilege to have Lewis join our team. His knowledge base and deep, legal understanding of the automotive industry and especially the F&I segment, is a great asset in the changing landscape of compliance,” said Diane Greene, vice president of legal affairs for GSFSGroup.
“At a time of rapid growth and expansion for GSFSGroup, Lewis’ expertise will be invaluable in maintaining the solid, credible reputation GSFSGroup and its product line have earned,” Greene continued.
Kuhl also serves as an adjunct faculty member at Northwood University in the automotive marketing and management department where he teaches dealership legal issues.
As a leading legal expert on automotive dealer issues, Kuhl is frequently invited to speak to dealer and industry related groups.
Kuhl’s career history includes both law firms and automotive companies.
While working in private practice at both Kurkin Brandes and Pathman Lewis, Kuhl focused his practice on motor vehicle dealer and automotive industry law. He also acted as legal counsel for JM Family Enterprises, a privately held automotive company, where he worked in the legal departments of World Omni Financial Corp., Southeast Toyota Distributors and JM&A Group.
In addition, Kuhl served in both legal and operational positions for a group of companies comprised of rental operations, dealerships and an automotive finance company.
Pittsburgh-based Jeram Marketing hosted a regional Association of Finance & Insurance Professionals certification boot camp for the sales and F&I personnel of its dealer clients and other interested parties last month.
AFIP highlighted the event drew 15 attendees representing nine dealer groups.
The dealer groups that participated included:
— The Billy Bender Auto Group and Hoffman Automotive from Maryland
— The Ron Marhofer Auto Family from Ohio
— The Cochran Automotive Group, Delaney Group, Laurel Auto Group and Washington Auto Mall of Pennsylvania
— The Robinson Automotive Group of West Virginia
— The Freedom Auto Group, which has stores in Pennsylvania and West Virginia.
“I earned my senior AFIP certification at a boot camp in Ohio last year and was really impressed with the expedited training Jeram Marketing director of training Nancie Pajan said. “Keeping our dealer clients compliant is a big part of what we do, so we brought the boot camp experience to Pittsburgh.”
Jeram Marketing, founded in 1991 by president Jerry O’Neill, serves more than 80 dealer clients in five states. The company offers a complete line of F&I products that are backed by A or A+ rated insurers and supported by training and in-store services.
Pajan has served as Jeram Marketing’s director of training since 2007.
“We’re always trying to bring something to the table that’s fresh, innovative and profitable, whether it’s a product, a process or a training idea. The AFIP boot camp fits that philosophy,” Pajan said.
For more details about AFIP, visit www.afip.com and for more information about Jeram Marketing, visit jerammarketing.com.
Chernek Consulting will conduct a one-and-a-half-day workshop titled, “Auto Dealer Subprime Sales Success,” that will feature presentations by Dealertrack Technologies, Automotive Dealership Institute (ADI), Equifax and more.
The training session is scheduled to begin on April 7 at the Marriott Hotel Perimeter Center in Atlanta.
According to Rebecca Chernek, president of Chernek Consulting, “The Corporation for Enterprise Development reported in January that the majority, or 56 percent, of consumers have subprime credit scores. This workshop is designed to help dealers navigate the growing subprime market to boost profits, build customer loyalty and limit their liability.”
Dealertrack Technologies senior director of market performance Jason Barrie — who also delivered one of the keynote sessions during the SubPrime Forum last fall at Used Car Week — will be on hand for Chernek’s event to deliver a unique perspective on how the subprime market has helped to fuel the industry’s recent success.
Barrie will discuss trends seen in both used-vehicle and subprime financing, share insights into how the in-store to online financing process has begun to transform the way consumers conduct their vehicle purchase and also review what’s in store for 2015.
Arzu Algan, chief financial officer and dean of education at ADI, will present five principles for success in “How to Establish a Successful Special Finance Department.”
Brandon Hardison, president of Champion Strategies will discuss how maintaining a certified used-vehicle inventory helps obtain bank approval in “Used Car Certification Requirements and the Subprime Market.”
In “Meeting Subprime Customers at the Door,” Chernek will provide techniques to guide dealership personnel in working with subprime customers — from landing them on the right car the first time out using credit interview techniques, to identifying and responding to credit flags and ensuring consistently seamless TOs.
“The process is designed to not only put customers at ease and limit errors,” Chernek said, “but also reduce the time the customer is in the dealership.”
Chernek also will discuss ways to develop better subprime bank relationships.
In “How to Read an Automotive Consumer’s Credit Report,” Jenn Reid, senior director of auto product marketing at Equifax, will explain what managers can learn about customers from their consumer report. Reid will discuss how to interpret the information in the file and why it’s important to move past the score to understand what the customer has to offer.
Rodney O’Rourke, director of agent development on the East Coast for LoJack, will discuss the history of LoJack, how to maximize finance compnay advances through valuable product offerings, identity theft policy and procedures and industry trends.
Kyle Walker, content product manager for Complí, will present “CFPB Enforcement — What your Dealership Needs to Know,” which will include instructions for establishing a dealership CMS.
Gregory Johnson with G Johnson Law will address the subprime compliance landscape in “Subprime F&I Compliance Issues under the TILA, ECOA, FCRA, UDTPA and CFA (Spot Deliveries, Acquisition Fees, Deferred Down Payments and More).”
To register for the workshop, call Chernek at (404) 276-4026 or go to www.ccilearningcenter.com/fi-subprime-sales-success.
When Consumer Portfolio Services reported a year-end earnings per share increase of more than 35 percent, chairman and chief executive officer Brad Bradley not only highlighted that performance, but also how the company is preparing to answer questions from the Consumer Financial Protection Bureau and the U.S. Department of Justice.
Bradley reiterated how CPS previously acknowledged that the two federal agencies are investigating the finance company in the same manner as several other operations that specialize in subprime auto financing are being reviewed. CPS already made modifications and paid a penalty after the Federal Trade Commission handed out an enforcement action last year in connection with the company’s collection practices.
“The regulatory market obviously is continuing to be more interesting by the day, and so we have spent an awful lot of time, particularly in the collection front, training everyone in terms of all the different compliance areas,” Bradley said when CPS conducted its most recent conference call with investors.
“I think we are way ahead of the curve, but nonetheless, it is the process of really making sure everything we do is compliant across the board. Because whether regulatory people look around, we want everything where it’s supposed to be,” he continued. “And so we spent a lot of time with retraining and more training and listening to calls to make sure everything is being done the right way.”
Bradley also mentioned how CPS is working to ensure the dealers in its network also are abiding by what federal regulators mandate. CPS is ramping up the effort in light of the CFPB on the lookout for disparate impact happening in auto financing.
The CPS boss explained that the finance company currently has between 8,000 and 10,000 dealers in its network for vehicle installment contract originations. Each quarter, the company calls on dealers to make sure they are compliant, and at last check, the company found less than a dozen showed any signs of disparate impact issues.
Bradley said the check-up is done to see if “there might be some disparate impact in the way they make car loans. If so, we cut them off our program and put them into a rehabilitation program at which point if they can complete that and demonstrate that there have been some changes so they can re-enter our program.
“Those kind of things I think can put us in a very strong position in terms of where we sit with all the CFPB stuff that’s coming down the pike,” Bradley continued.
Meanwhile, the Department of Justice investigation is connected more with what happens to those vehicle installment contracts after they’re originated and packed together in securitizations for the investment community, according to Bradley. Again, the top CPS executive is confident the company can navigate any questions DOJ might have, especially since CPS seems to adhere the protocol set by the industry.
“What’s a little interesting about that is as one can imagine, the investors buying those loans or the bonds, the ABS bonds, are pretty used to buying a very standardized format,” Bradley said. “And so all of the companies, including ourselves, follow those formats, and so we are all doing it basically the same.
“I think given the mortgage comparison — unfair, unkind or untrue that it may be — I think the government wants to make sure that we are not doing what the mortgage folks did, which is putting out a bunch of loans that aren’t going to be able to be paid,” he continued. “I won’t bother anyone with a long list of why the auto industry is nothing like the mortgage industry, with a small exception that all of our bonds are and as everyone else in our industry paid great to a very significant recession unlike the mortgage folks.
“And so we, I, and the rest of our industry would stand on that,” Bradley went on to say. “But even so, we will be participating in the DOJ investigation along with everyone else. And it’s very hard to say more on that subject than we already have.”
Latest Company Performance
Consumer Portfolio Services reported fourth-quarter earnings of $8.0 million, or 25 cents per diluted share. Those figures are up from $6.5 million, or 21 cents per diluted share, in the fourth quarter of last year, representing a 19-percent increase in earnings per diluted share.
The company’s full-year earnings for 2014 came in at $29.5 million, or 92 cents per diluted share, as compared to earnings of $21.0 million, or 67 cents per diluted share, for 2013. The gain represented a 37-percent spike in earnings per diluted share.
Officials indicated Q4 revenue jumped $16.9 million or 25.4 percent to $83.5 million, up from $66.6 million for the fourth quarter of 2013. They acknowledged total Q4 operating expenses rose by $14.0 million or 25.4 percent to $69.1 million, climbing from $55.1 million a year earlier.
Looking at pretax income, CPS posted a 24.4 percent increase year-over-year in the fourth quarter, generating a rise from $11.5 million to $14.3 million.
For the year, CPS’s total revenues came in at $300.3 million, up from $255.8 million in 2013. Officials pointed out that 2013 revenues included $10.9 million from a gain on cancellation of debt.
Excluding that gain, the company calculated 2014 revenues increased $55.4 million or 22.6 percent over the prior year.
CPS’ total 2014 expenses climbed from $218.6 million to $248.0 million. But the company mentioned that in 2013 its operating expenses included a provision for contingent liabilities of $7.8 million.
Excluding the provision for contingent liabilities, the company’s operating expenses for 2014 increased $37.2 million or 17.7 percent compared to the prior year period.
CPS determined its 2014 pretax income came in at $52.2 million, up from $37.2 million.
During the fourth quarter, CPS purchased $264.4 million of new contracts compared to $279.3 million during the third quarter of 2014 and $173.4 million during the fourth quarter of last year.
The company's managed receivables totaled $1.644 billion as of Dec. 31, an increase from $1.519 billion as of Sept. and $1.231 billion as of the close of 2013.
CPS reported that its annualized net charge-offs for Q4 stood at 6.44 percent of the average owned portfolio as compared to 5.57 percent a year earlier.
The company’s delinquencies greater than 30 days (including repossession inventory) were 7.18 percent of the total owned portfolio, up from 6.87 percent as of the end of 2013.
As previously reported during December, CPS closed its fourth term securitization transaction of 2014 and its 15th transaction since April 2011.
In the senior subordinate structure, a special purpose subsidiary sold five tranches of asset-backed notes totaling $267.5 million. The notes are secured by automobile receivables purchased by CPS and have a weighted average effective coupon of approximately 3.07 percent.
That transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance. The final enhancement level requires accelerated payment of principal on the notes to reach overcollateralization of 4.00 percent of the then-outstanding receivable pool balance.
Officials highlighted the transaction was CPS’ third consecutive senior subordinate securitization to receive a triple-A rating on the senior class of notes.
“We are pleased to report another successful year in 2014,” Bradley said. “In addition to record pre-tax earnings, our new contract purchases grew 24 percent compared to 2013 and our total managed portfolio grew 34 percent to over $1.6 billion.
“We recorded our third consecutive year of earnings growth and continued our strategy of deleveraging our balance sheet by repaying over $49 million in residual and corporate debt without refinancing,” he added.
Eight dealer, financial services and pro-business organizations delivered another strong message to the Consumer Financial Protection Bureau to address the bias and error found in the method the CFPB uses to determine whether unintentional disparate impact exists in an indirect auto finance company’s portfolio.
In asking for thee specific modifications in a letter to CFPB director Richard Cordray, these organizations insisted the bureau has used — and continues to use — this methodology to support allegations of discrimination, despite its flaws.
Since 2013, letter authors explained CFPB has urged financial institutions to change how they compensate dealers for arranging financing, based on the bureau’s allegation that dealer reserve poses a risk of disparate impact. However, a November study by Charles River Associates (CRA) found that the CFPB’s analysis overstates the impact on minorities, and cast doubt on many of the bureau’s findings.
In light of these findings, the coalition called on the CFPB in a letter to revisit its enforcement approach.
“The associations request that the bureau conduct a thorough review of the CRA study, provide a public response to its findings and recommendations, and correct any bias in its testing methodology, before pursuing further dealer mark-up discrimination claims through supervisory or enforcement action.”
Signatories of the letter include the American Financial Services Association, American Bankers Association, Consumer Bankers Association, Financial Services Roundtable and U.S. Chamber of Commerce.
Offering their full support of what was shared in the letter were the National Automobile Dealers Association, the American International Automobile Dealers Association and the National Association of Minority Automobile Dealers.
In the letter to Cordray, officials recapped that CRA found the bureau’s application of the Bayesian Improved Surname Geocoding (BISG) proxy methodology creates significant measurement error, which results in overestimations of minorities in the population by as much as 41 percent.
In its own white paper on the method it uses to proxy for race — published prior to the CRA study — the CFPB acknowledged the overestimation (which it found to be 21 percent), but never indicated how, if at all, it has corrected for this discrepancy.
“Given such high error rates, proxy analysis has limited application to compliance monitoring and is unjustifiable for use when asserting legal violations or liabilities,” officials said in the letter to Cordray.
In light of the situation, AFSA, ABA, CBA, FSR, the U.S. Chamber as well as the dealer associations asked the CFPB to make a public response, addressing:
1. Portfolio level analysis of aggregated contracts sourced from dealers with different operating models, cost structures, pricing policies, locations and competitive landscapes. These factors, along with the seasonality of auto sales and financing, are major factors that must be corrected for in an analysis at the portfolio level.
2. Implementation of economic controls to adjust for legitimate business factors such as new, used, trade-in, options, insurance and warranties. Failure to consider business factors for observed disparities increases the potential of reaching erroneous conclusions.
3. The bureau must address and adjust for the bias within the BISG methodology and its overestimation of individuals within protected classes.
By law, auto finance companies are prohibited from inquiring into or considering a consumer’s race or ethnicity. In order to estimate the background of consumers for pricing comparison purposes, the CFPB uses a proxy that is based on a statistical analysis of the consumer’s last name and residence.
“The CFPB’s own study of its proxy methodology revealed that it is subject to significant error,” officials said in their letter.
The CRA study, based on 8.2 million vehicle contracts originated in 2012 and 2013, showed that the CFPB’s method overestimates minorities by as much as 41 percent – further calling into question the reliability of the CFPB’s testing method. The CFPB has not indicated that it has made any corrections for these error rates.
“We share the bureau’s commitment to combating illegal discriminatory treatment in the vehicle finance market,” the letter said. “This common goal is best achieved when fair lending standards are evidence-based, applied using analytically sound and transparent methods and predicated on accepted legal foundations.”
The dealer associations pointed out what they called the “flaws” in the CFPB’s methodology have not stopped dealers from developing procedures to address the CFPB’s concerns about the risk of discrimination in auto financing.
Last year, NADA, AIADA, and NAMAD jointly released the NADA Fair Credit Compliance Policy & Program, which provides a dealer with an optional mechanism for ensuring that its credit pricing is established in a consistent manner and is based exclusively on legitimate business considerations.
NADA president Peter Welch noted the program is modeled on — and fully adopts — a Department of Justice fair credit compliance program that the agency required dealers to implement in prior enforcement actions.
With that plan available, Welch spoke for the dealer associations in backing up the latest message the financial services organizations delivered.
“Discrimination in the market simply cannot be tolerated,” Welch said. “However, in light of the rigorous peer-review that has cast significant doubt on the CFPB’s findings, the bureau should change course — or at least hit the pause button — and address these new concerns. We applaud the courage of these organizations for speaking up.”
Chernek Consulting president Rebecca Chernek and SubPrime Auto Finance News contributor recently launched her consulting firm’s interactive online F&I training program, Chernek Consulting Virtual Pro.
Chernek highlighted the program’s three modules — F&I Basics, Off-Prime Customers & Financing and How to Present a Million Dollar Menu — provide 25 chapters of targeted training, supported by courseware.
An industry tips and breaking news section rounds out the offering.
Chernek added all content adheres to compliant and ethical business practices.
Chernek Consulting Virtual Pro is available as a standalone subscription for individuals or in a multi-user dealership package. The individual subscription is priced at $695 a year. “For dealership personnel not familiar with my training,” Chernek said, “the website offers an opportunity to ‘test drive’ the program before purchasing it.”
The dealership package accommodates up to seven managers and includes administrative privileges to track employee progress. It is priced at $495 a month per rooftop with a $1,295 initiation fee. Dealer accounts also receive a complimentary one-day onsite F&I audit conducted by Chernek, with dealers paying travel expenses, and discounts on all Chernek products and services.
“The current auto sales environment poses challenges for sales and F&I personnel at all levels of experience,” Chernek said. “Virtual Pro provides fundamentals for F&I novices and cutting-edge tools to recharge even the most savvy seasoned veterans. I’m also hoping dealers will use it to bridge the knowledge gap between their sales and F&I personnel.”
Chernek, a nationally recognized F&I trainer for franchise and independent automotive, RV and marine dealerships, can provide customized onsite training, regional F&I workshops and interactive webinars. She also serves as an NCM 20 Group F&I Expert and has written numerous articles for industry trade publications and blogs.
Chernek gained extensive experience in sales and F&I before being hired by JM Family Enterprises in 1995 and promoted to district manager for AutoNation to hire, train, boost profits and implement menu selling. She founded Chernek Consulting in 2001.
For more information, visit chernekconsultingvirtualpro.com or contact Chernek at (404) 276-4026.
