Here are more numbers showing just how much of a bite regulatory compliance is taking out of franchised dealers’ profitability apple — especially for what it takes to legally operate the F&I office.
A new report released by the Center for Automotive Research on Friday showed U.S. franchised dealers spent $3.2 billion in 2012 to comply with 61 major federal rules, resulting in higher prices for dealership customers and the loss of an estimated 10,500 dealership jobs.
According to the report titled, “The Impact of Federal Regulations on Franchised Automobile Dealerships,” the average dealership incurred $182,754 in costs to comply with federal mandates governing employment, business operations, vehicle financing, sales, marketing and vehicle repair and maintenance. These regulatory costs equated to 21.7 percent of the average dealership’s pretax net profits — or about $2,400 per dealership employee.
The National Automobile Dealers Association commissioned the report produced by CAR, which is based in Ann Arbor, Mich. Analysts indicated cost estimates are for 2012 and are based on interviews in 2013 and 2014.
“The additional cost for new-car dealerships to comply with federal regulations are passed along to our customers in the form of higher prices, which results in lower vehicle sales and reduced employment at dealerships,” said Forrest McConnell, III, NADA chairman and a Honda/Acura dealer in Montgomery, Ala.
Drilling deeper into the report uncovered just how much F&I compliance is costing dealerships. Analysis of the mean values of compliance costs revealed that the dealership financial burden is greatest for the regulations included in the vehicle financing category, which includes items such as compliance with the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Truth in Lending Act.
In fact, more than 37 percent of that average cost increase stemmed from the necessities of compliance with federal rules involving the F&I office.
Report authors noted two of the eight dealers included in this study are part of a larger dealer group. The authors said interviewees at one of these dealerships were unable to identify some, and possibly a large share, of their regulatory compliance costs.
“Possibly due to this more centralized operations, the managerial staff was less knowledgeable about regulatory compliance costs than other interviewees,” the report said. “Researchers made a good faith effort to speak with corporate level management at the group to gain further insight into the dealerships costs, though these efforts were ultimately unsuccessful.”
For the second dealer that was part of a larger group, CAR researchers disaggregated composite data for the group and brought it to a single rooftop level. In this case, CAR worked with the dealer group to assess costs at a group level for the sake of efficiency and thoroughness.
“This method allowed the researchers to account for a greater portion of actual costs than would otherwise had been possible,” the report said. “The findings were then scaled using the number of group dealerships as a divisor. Therefore, descriptive statistics for this dealer profile are the mean findings for the larger enterprise.”
No matter how report authors had to tailor their analysis, they emphasized the final findings.
“It can be challenging for dealers to identify all costs associated with federal regulatory compliance. Some activities are spread among many facets of the business and accounting conventions do not support simple cost analysis. Other cost centers represent activities the dealers themselves admit they would do even if not regulated to do so,” the report said. “However, the data are clear that federal regulatory compliance costs are present and meaningful at all levels of the dealerships’ organizations.”
The selected dealerships included in the study represented a wide range of operations, including dealerships that sell domestic, Asian, and European brands at a variety of price points. Additionally, two of the dealerships had a body shop as certain regulations pertain only to those dealerships with body shop operations.
“During the interviews, the order of topics was randomized to prevent any biases, and interviewees were encouraged to substantiate cost estimates where appropriate. Interviewees were asked to use 2012 costs in their estimates,” the report said.
CAR determined the overall impact of these costs on the 2012 U.S. economy was estimated at $10.5 billion in lost economic output and more than 75,000 fewer jobs
Every $1 increase in a dealership’s regulatory compliance costs results in $3.28 in lost output in the U.S economy and a net loss of 44 cents to the U.S. Department of the Treasury, according to the report.
“The CAR report examined the costs incurred by new-car dealerships to comply with 61 federal regulations — a mere subset of all federal regulations with which new-car dealerships must comply,” report authors said.
“The study did not analyze the costs of upstream mandates imposed on vehicle manufacturers, such as fuel economy and safety rules. State and local regulatory mandates also were not analyzed. Thus, the study significantly underestimates the total regulatory burden imposed on dealerships,” they went on to say.
To download a copy of the report, click here.
Finance company compliance departments as well as legal counsel to trade and dealer associations are still sorting through the ramifications of the indirect auto lending and compliance bulletin the Consumer Financial Protection Bureau sent out more than a year ago. One of the crafters of that document who is no longer with the CFPB reiterated a succinct point when reflecting back on the time since the agency’s decree.
“The bulletin is real,” said Rick Hackett, who spent about two years at the CFPB before officially joining Hudson Cook in March. Hackett was the head of the Office of Installment and Liquidity Lending Markets in the Division of Research, Markets and Regulations at the CFPB. His responsibilities at the bureau included advising all of the regulator’s divisions with respect to market information and policy issues in the installment and specialty lending areas, including vehicle finance, student lending and payday lending.
Now back in the private sector, Hackett has the unique position of being able to share candid assessments from the viewpoint as both a regulator and compliance adviser. Hackett spoke with SubPrime Auto Finance News from his office in Portland, Maine, to discuss a wide array of issues.
Hackett will be switching roles during this week’s 18th annual Non-Prime Auto Financing Conference hosted by the National Automotive Finance Association. A year ago at this same event in Fort Worth, Texas, he represented the CFPB and answered questions submitted in advance by NAF Association members. This time, Hackett will be posing the vetted questions to a pair of CFPB representatives, including a former bureau colleague.
The NAF Association conference is one of many stops on Hackett’s new private practice agenda. He also was a part of the National Alliance of Buy-Here, Pay-Here Dealers National Conference last week in Las Vegas.
“I can’t talk about information from a supervisory or investigative proceeding. There’s a bureau rule that applies to former employees and anyone else who has confidential information that comes from those two kinds of processes,” Hackett said.
“It comes with a measly $1 million a day penalty. You can understand why I can’t talk about those things,” he added.
Bulletin Launch and Enforcement
The CFPB released the bulletin last March. Between that point and when he departed the bureau last summer, Hackett recapped highlights about the dialogue he exchanged with various segments of the industry and regulatory worlds.
“The industry reaction to the bulletin certainly got a lot of attention because it was very strong. I spent a lot of time with NADA, other dealer associations and a lot of time with the buy-here, pay-here associations,” Hackett said. “The bureau doesn’t have jurisdiction over NADA members. But when it became clear to the exempt dealers that it was going to have an impact on them, there was a great deal of desire on their part to interact. That happened at both the CFPB offices and over at NADA headquarters.
“We got a very strong set of messages that they felt this was neither good for their business nor justified,” he continued.
The intensity hit a new threshold before 2013 closed. That’s when the CFPB and the Department of Justice ordered Ally Financial to pay $80 million in damages to harmed African American, Hispanic, and Asian and Pacific Islander borrowers, along with another $18 million in penalties.
While Hackett no longer was in his CFPB role when the bureau handed out the penalty, he said, “We clearly have Ally as an example of how this bulletin might be applied. It’s an example of how a process can start in confidential supervisory treatment and morph into what’s certainly been the most public, and frankly, the strongest public supervisory remedy, which is a consent decree.
“The bureau feels that if this is something that ought to be done in public then it ought to be done in public in a fairly significant, forceful way,” Hackett went on to say.
Hackett emphasized how the bulletin was crafted with plenty of industry knowledge at the bureau’s disposal.
“I came in with 30-plus years of representing lenders of all types, including those in the auto finance business. I’ve probably written a fair number of participation agreements for lenders. I’ve written way too many more retail installment contracts than I probably want to think about,” Hackett said. “It was my job to know something about that business coming into the bureau and how to interact with the industry on a regular basis and seed that interaction into the perspective of the bureau and how they formulated their strategies and how they would spend their time.”
Six-Month Rejuvenation
After the rigors of being one of the principals in organizing the CFPB indirect auto lending bulletin, Hackett felt compelled to do something he had never undertaken since he graduated from high school — step away from professional commitments for six months.
Hackett called it “a great way to get perspective. Just play golf and read the trades and follow things from a far. Check the bureau website every day.
“Frankly, that was a great perspective provider,” he added.
Hackett then shared with SubPrime Auto Finance News why he chose to join Hudson Cook. Hackett now focuses on all aspects of state and federal regulation of retail financial products origination and marketing, e-payments, regulation of financial service entities, and lending, deposit and insurance transactions.
“I wanted to come back into this space because I felt that there are a lot of folks in the industry who had an interest in trying to do things the right way and trying to see how the business can be operated in such a way that would align with compliance issues,” Hackett said.
“Of course, Hudson Cook is a firm that focuses exclusively on trying to help people be in compliance with consumer financial laws as opposed to going out and litigating when people have already been told they’re not in compliance. That lined up with what I wanted to do,” he continued.
Like partners such as Tom Hudson, Patty Covington, Michael Benoit, Eric Johnson and Joel Winston, Hackett explained that now he can share insights and a sense of where he thinks compliance trends might be heading with clients and the industry at large without revealing confidential information.
“Things have changed for me because I don’t know exactly what’s going on inside the bureau, but I still have some fairly decent ideas, and within limitations, I can candidly share that with people in pursuit of the goal of trying to be in compliance with consumer financial laws,” Hackett said.
Bureau Replacement
Hackett is more than familiar with the individual who replaced him at the CFPB. Now holding his former bureau role is Jeffrey Langer, who most recently served as senior counsel at Macy’s in Mason, Ohio.
Langer also has served as a partner in several law firms, including Jones Day and Dreher Langer & Tomkies. He is a founding fellow and treasurer of the American College of Consumer Financial Services Lawyers and is a former chair of the Consumer Financial Services Committee of the American Bar Association Business Law Section.
“I’ve known Jeff for more than 20 years. He has more than 30 years of experience with all sorts and conditions of consumer lending. He also has a strong background in collections,” Hackett said.
“I was one of the people who suggested to him that my position would be kind of fun for him after I saw him at the place we usually meet, which is the American Bar Association meetings,” Hackett continued. “He mentioned that he was thinking of winding down his in-house position and moving to Washington where his children had moved. I said, ‘Wow, this makes sense. Have I got a job for you.’”
During the Non-Prime Auto Financing Conference featured session, Hackett will be posing questions to Langer as well as Eric Reusch, who is the program manager in the Office of Installment and Liquidity Credit Markets with the CFPB. Hackett had high praise for both CFPB representatives.
“(Jeff is) an extremely hard working guy. I worked for him when he was chair of the ABA Consumer Financial Services Committee. I could tell you how hard he works because I used to get his five-page emails timed at 1 o’clock in the morning telling me what I was supposed to do when I was a subcommittee chair running a substantive committee under his guidance. I think he’ll be great for what the bureau is looking for in a markets lead,” Hackett said.
Hackett continued about Reusch saying, “He’s a really bright guy with a lot of industry experience. When he’s working Excel, it’s like he’s flying a 747 simulator. It’s so fast and so engaging. That helped me do the quantitative side on just a ton of different issues. He interacts really well with the industry.
“I’m impressed that (NAF Association executive director Jack Tracey) has been able to get both of these guys on stage at the same time. Often the bureau will send just one person. I’m looking forward to interacting with them,” Hackett went on to say.
Future Developments
No matter what is shared during the NAF Association event, Hackett described the “long, evolving process” that’s unfolding in indirect auto lending.
“It’s the first time you’ve had a federal regulator focused on the finance space strictly in consumer and with concern only for consumer protection, not for other sometimes conflicting issues like safety and soundness,” Hackett said. “The federal financial regulators have done a lot of work on consumer protection but they also have a bunch of other hats to wear. The Federal Trade Commission has done some great work in consumer protection, but they have many markets other than consumer finance to deal with.
“I think there will be growing pains for quite some time as the industry gets used to dealing with a regulator that’s solely focused on consumer finance and no other hats to wear. That’s just what Dodd-Frank said should happen. I think that also explains why so many people would like it to go away,” he went on to say.
“But over time, I think the bureau’s focus on getting everyone to have an appropriate compliance management system, appropriate to their size and complexity, if lenders spend the resources and bandwidth on compliance, they’ll find that’s it not more complex than making sure your mechanics can deal with whatever vehicles they have to work on,” he concluded.
A finance manager at an Ohio franchised dealership set the examination bar quite high as a part of the inaugural boot camp recently orchestrated by the Association of Finance & Insurance Professionals.
Ray Miller, finance manager at Joyce Buick GMC in Avon, Ohio, posted the highest score on the AFIP Senior Certification Exam at AFIP’s first boot camp held in Cleveland in April.
According to AFIP executive director David Robertson, “Ray is one of less than 25 candidates in 25 years to only miss one question on the entire exam. It’s quite an achievement.”
AFIP developed the boot camp concept, two days of accelerated preparation for the federal and state regulation-based AFIP certification exam, in response to dealer demand for expedited regulatory training. Candidates are expected to spend at least two weeks studying the course material on their own prior to the sessions.
The boot camps are offered regionally, sometimes in conjunction with sponsoring dealer groups or vendors.
Miller, with 20 years of experience in automotive financial services, joined Joyce Buick GMC five years ago.
By passing the Senior Certification Exam, Miller advances to the second level of AFIP’s three-tiered hierarchy and earns the Senior Professional in Financial Services (SPFS) designation.
For more information about AFIP, visit afip.com.
Last week, the Consumer Financial Protection Bureau rolled out what the agency described as an updated and improved version of its eRegulations tool, including a new, electronic, user-friendly version of the Truth in Lending Rule — the flagship federal regulation protecting consumers when it comes to credit products.
The CFPB noted that eRegulations is not an official legal edition of the Code of Federal Regulations or the Federal Register, and it does not replace the official versions of those publications.
That point was emphasized by Dan Sokolov, who is deputy associate director for CFPB’s Division of Research, Markets & Regulations, and David Cassidy, who is a business analyst in CFPB’s Technology and Innovation Division.
“We also launched a user survey to solicit user feedback from industry, advocates, and other users in order to continue to improve the tool,” Sokolov and Cassidy said in a blog post on the CFPB’s website.
Sokolov and Cassidy insisted that the public, industry, and the government all benefit from regulations that are easier to find, read and understand.
“That is why last year we launched our eRegulations tool which combines important information that can often be difficult to navigate or is spread throughout a regulation, often separated by dozens or even hundreds of pages. Ideally, using eRegulations will lead to better compliance and improved accessibility,” the CFPB officials said.
Now, as part of the eRegulations tool, the bureau is launching what it contends is an intuitive, easier-to-navigate electronic format of Regulation Z, which implements the Truth in Lending Act. Regulation Z is the flagship federal regulation protecting consumers when it comes to credit products.
“Regulation Z can be complex to understand for people who have not specialized in it. And it has changed a lot recently with the addition of new rights and disclosures for mortgages,” Sokolov and Cassidy said.
“As we continue our work to make regulations easier to use, we need to hear from you about what works best and how this tool is valuable to you,” they continued.
The CFPB mentioned the eRegulations tool is an open source application, “so we’d love for other agencies, developers or groups to use it and adapt it.”
Along with a perceived lack of transparency at the Consumer Financial Protection Bureau, rumblings about how many closed-door sessions are conducted by another regulatory body established by the Dodd-Frank Act now are percolating on Capitol Hill.
Rep. Scott Garrett, member of the House Budget Committee and chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, recently voiced his displeasure about proposed transparency measures taken by the Financial Stability Oversight Council (FSOC). Like the CFPB, the FSOC also stemmed from the major financial system reform that lawmakers passed after the most recent recession.
The New Jersey Republican took exception to the council blending both open- and closed-door session during a single gathering.
“Unfortunately, though not surprisingly, FSOC refuses to take serious steps to improve its lack of transparency — as exemplified by the fact that the meeting was prefaced with a closed-door meeting,” Garrett said about a session that took place last week.
“Instead, it continues to operate in the dark with no accountability to the American people or Congress. It appears that the window dressing adopted by the council is designed only to keep calls for real reform at bay,” Garrett continued. “I promise to continue working with my colleagues to ensure thorough Congressional oversight and reform of this body.”
FSOC officials spelled out nine reasons why a meeting or portion of one would be closed when an open segment was on the docket. That list included the possibilities the meeting could:
— Result in the disclosure of information contained in or related to investigation, examination, operating, or condition reports prepared by, on behalf of, or for the use of, an agency responsible for the regulation or supervision of financial markets or financial institutions.
— Result in the disclosure of information which would lead to significant financial speculation, significantly endanger the stability of any financial market or financial institution, or significantly frustrate implementation of a proposed agency action;
— Result in the disclosure of information exempted from disclosure by statute or by regulation, or authorized under criteria established by an executive order to be kept secret;
— Result in the disclosure of trade secrets and commercial or financial information obtained from a person and privileged or confidential
— Result in the disclosure of information of a personal nature that would constitute an unwarranted invasion of personal privacy or be inconsistent with federal privacy laws, or of information that relates solely to internal personnel rules or practices.
— Result in the disclosure of investigatory records compiled for law enforcement or supervisory purposes.
— Result in the disclosure of inter-agency or intra-agency memoranda or letters which would not otherwise be available by law.
— Involve the conduct solely of administrative business of the council
— Necessarily and significantly compromise the mission or purposes of the council, as determined by the chairperson with the concurrence.
“The council is committed to conducting its business in an open and transparent manner. The council will open its meetings to the public whenever possible,” FSOC officials said.
“At the same time, the central mission of the council is to monitor systemic and emerging threats. This will require discussion of supervisory and other market-sensitive data, including information about individual firms, transactions, and markets that may only be obtained if maintained on a confidential basis,” they continued. “Protection of this information will be necessary in order to prevent destabilizing market speculation that could occur if that information were to be disclosed.”
Fifth Third Bank acknowledged in its most recent filing with the Securities and Exchange Commission that it’s being investigated by the Department of Justice about its indirect auto loan business.
According to the company’s Form 10-Q, officials said they are “cooperating with an investigation by the Department of Justice to determine whether the bank engaged in any discriminatory practices in connection with the bank’s indirect automobile loan portfolio.
“Any claim resulting from this investigation could include direct and indirect damages and civil money penalties,” they continued.
The last time DOJ handed out a penalty in connection with discriminatory practices associated with vehicle financing, the department joined the Consumer Financial Protection Bureau for an enforcement action against Ally Financial that included a $98 million penalty.
Fifth Third shared in its filing that it has resources to handle such an enforcement, should one arrive. Along with the vehicle financing investigation, the bank said it is has been cooperating with the Department of Justice and the Office of the Inspector General for the Department of Housing and Urban Development in a civil investigation regarding compliance with requirements relating to certain Federal Housing Agency-insured loans originated by affiliates of the Bancorp.
Officials estimated that it is “reasonably possible” that they could incur losses related to legal proceedings up to approximately $117 million in excess of amounts reserved, with it also “being reasonably possible” that no losses will be incurred in these matters.
“The Bancorp is party to numerous claims and lawsuits as well as threatened or potential actions or claims concerning matters arising from the conduct of its business activities,” officials said. “The outcome of claims or litigation and the timing of ultimate resolution are inherently difficult to predict. The following factors, among others, contribute to this lack of predictability: plaintiff claims often include significant legal uncertainties, damages alleged by plaintiffs are often unspecified or overstated, discovery may not have started or may not be complete and material facts may be disputed or unsubstantiated.
“As a result of these factors, the Bancorp is not always able to provide an estimate of the range of reasonably possible outcomes for each claim. A reserve for a potential litigation loss is established when information related to the loss contingency indicates both that a loss is probable and that the amount of loss can be reasonably estimated,” they continued. “Any such reserve is adjusted from time to time thereafter as appropriate to reflect changes in circumstances.”
Along with giving executives another opportunity to complete the first module of its compliance certification program, the National Automotive Finance Association is rolling out one of its best lineups ever for its annual conference later this month.
The NAF Association acquired 25 percent more conference space to accommodate more programs, sessions and expansion of the exhibit hall for the 18th annual Non-Prime Auto Financing Conference, which begins on May 28 at the Omni Fort Worth Hotel in Fort Worth Texas.
“In keeping the primary focus on member needs, the 2014 annual conference will provide an excellent forum for education and networking for those within the non-prime auto finance sector. This highly regarded conference will cover the hot topics pertinent to the industry along with results from the newly formatted NAF Association Survey,” NAF Association executive director Jack Tracey said.
Among some of the conference agenda highlights:
—Consumer Financial Protection Bureau Q&A: This session is built on questions submitted in advance by NAF Association members. Members’ questions will be compiled, and Rick Hackett, partner with Hudson Cook and former CFPB assistant director will pose the questions to CFPB executives Jeffrey Langer, assistant director, office of installment and liquidity lending markets, and Eric Reusch, office of installment and liquidity lending markets.
—Auto Industry Lending Through the Eyes of a Leading Industry Expert: Attendees of this session will hear observations on auto industry financing from leading industry professional, Sandy Schwartz, president of Manheim and the Auto Trader Group. His views will provide a perspective on how the cyclical swings in financing affect the auto industry at large.
—Subprime Forecast: Revving Up Your Approach to Auto Loan Portfolio Evaluation: Presented by Steve Chaouki, executive vice president of strategy and planning at TransUnion, this session cover how the sector has experienced significant growth since 2010, with strong demand pushing manufacturers to production capacity limits. One of the consequences of this dynamic has been the appreciation of used vehicle values, which in turn has led to a positive equity position on many auto loans. TransUnion’s study quantifies the impact of positive equity on the risk propensities of auto loans, controlling for a series of risk factors related to both the borrower and the loan collateral. Through analysis, Chaouki will show how the presence of positive equity leads to a meaningful reduction of credit risk under certain conditions, and how lenders can leverage this insight to optimize their portfolio management, collections and capital reserve policies.
— Asset Backed Securitization: An Update on Recent Developments and Trends: Presented by Amy Martin, senior director at Standard and Poors this session will focus on the current market trends in non-prime financing. This session will provide information on issuance volume and pricing spread; collateral and ratings performance and Standard and Poor’s outlook for the auto loan ABS market.
Before the conference begins, the NAF Association is repeating the opening segment of its compliance certification program due to strong demand. The association had an overflow crowd when it conducted the training back in January so Tracey decided to hold another session in Fort Worth this month.
The NAF Association offers an exceptional certification program including:
—35 hours in-classroom and online self-paced courses
—In-depth coverage of federal laws and regulations
—Thorough analysis of state laws and regulations
—Complete module devoted to CFPB
“A critical part of a compliance management system is staffing it with qualified compliance personnel. A company having their compliance officers certified through a comprehensive educational program is a clear demonstration of the importance the organization places on compliance,” Tracey said.
Certification participants will be eligible to attend the remaining sessions of the Non-Prime Auto Finance Conference for $195.
For complete details of the conference and the compliance certification program, visit www.nafassociation.com.
Following public comment periods, the Federal Trade Commission approved final consent orders this week involving 10 dealers’ deceptive advertising charges.
Under the settlement orders, FTC officials said the dealerships are prohibited from misrepresenting in any advertisement for the purchase, financing or leasing of vehicles the cost of leasing a vehicle, the cost of purchasing a vehicle with financing, or any other material fact about the price, sale, financing or leasing of a vehicle.
When relevant, the FTC indicated consent orders also address the alleged Truth in Lending Act and Consumer Leasing Act violations by requiring the dealerships to clearly and conspicuously disclose terms required by these credit and lease laws.
In the case where the dealership misrepresented that consumers had won a prize, officials added the consent order also prohibits misrepresenting material terms of any prize, sweepstakes, giveaway, or other incentive.
The 10 dealerships are:
—Casino Auto Sales
—Courtesy Auto Group
—Honda of Hollywood
—Fowlerville Ford
—Infiniti of Clarendon Hills
—Nissan of South Atlanta
—Norm Reeves Honda Superstore
—Paramount Kia
—Rainbow Auto Sales
—Southwest Kia
The cases were part of Operation Steer Clear, a nationwide sweep focusing on misleading advertising associated with the selling, financing, and leasing of vehicles.
“Auto-related complaints remain one of the top 10 complaints to the Commission, and the sweep was part of the agency’s ongoing efforts to protect consumers in the auto marketplace,” FTC officials said.
Demands by the Securities and Exchange Commission are placing a hurdle in Nicholas Financial — an indirect special finance company that originates subprime loans with more than 1,600 dealers — becoming an indirect wholly owned subsidiary of Prospect Capital Corp.
According to Prospect Capital’s latest quarterly filing with the SEC, agency officials asserted that certain unconsolidated holding company subsidiaries through which Prospect holds an investment in operating subsidiaries should be consolidated. Consequently, Prospect said the requirement is delaying the effectiveness of its registration statement on Form N-14 related to transaction involving Nicholas Financial.
Last December, Prospect entered into a definitive agreement to acquire 100 percent of the common stock of Nicholas Financial for $16 per share, pushing the total transaction figure to $340 million.
Prospect indicated the purchase agreement provides for this transaction to close by June 12, subject to certain terms, or on such other date as the parties to the arrangement may agree in writing.
“We are currently in discussions to extend the closing deadline to allow us time to appeal the SEC staff’s position. Based on the foregoing, we do not currently anticipate that the transaction will close by June 12,” said Prospect, which is a closed-end investment company that lends to and invests in private and public middle market businesses. Prospect’s investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.
Founded in 1986, Nicholas Financial is a specialty finance company headquartered in Clearwater, Fla. Nicholas is engaged primarily as an indirect lender in the consumer vehicle lending business, where Nicholas purchases loans originated by more than 1,600 dealerships.
Nicholas operates in 15 states through 65 branch offices, which manage the origination and collection of loans.
In the past year, Nicholas Financial financed the purchase of nearly 15,000 previously owned vehicles. The company currently employs more than 320 people and has an aggregate loan portfolio in excess of $290 million.
Nicholas Financial purchased more contracts during the third quarter of its current fiscal year as compared to a year earlier. The company brought in 3,426 contracts into its portfolio during Q3 that totaled up to be $36.24 million. Those figures are up from 3,004 contracts totaling more than $31.41 million a year ago.
The finance company wrapped up its fiscal year on March 31, but hasn’t released any updated financial performance information.
Nicholas Financial did disclose in its latest SEC filing that it received a notice on April 3 that Nasdaq decided to initiate proceedings to delist the company’s securities from the Nasdaq Stock Market, citing a rule that requires a listed company to hold an annual meeting of shareholders no later than one year after the end of its fiscal year. Officials also mentioned that another Nasdaq rule requires a listed company to solicit proxies and provide proxy statements for all meetings of shareholders and to provide copies of such proxy solicitations to Nasdaq.
“Nasdaq’s delisting determination will not immediately result in the delisting of the company’s securities,” Nicholas Financial officials said. “Under Nasdaq rules, the suspension of trading and delisting of the company’s securities will be stayed during the pendency of an appeal by the company of the delisting determination. The company intends to commence such an appeal within the required appeal period under Nasdaq rules.
“Accordingly, the company’s common shares will continue to trade on the Nasdaq Global Select Market while such appeal is pending. There can be no assurances whether the company will be successful in its appeal of the delisting determination,” they continued.
“The company entered into an arrangement agreement whereby the company has agreed to sell all of its issued and outstanding common shares to an indirect wholly-owned subsidiary of Prospect Capital Corp. The company has delayed the holding of its annual meeting of shareholders due to the pendency of this transaction,” Nicholas Financial officials went on to say.
US Equity Advantage, a provider of bi-weekly and early loan payoff services to the automotive industry, announced that veteran F&I expert Karena Raino-Nevratakis joined the company as regional account manager for the western United States.
The company highlighted Raino-Nevratakis’ primary responsibility will be to provide training and sales support to dealerships in Washington, Oregon, California, Nevada, Arizona, Utah, Idaho, Montana, Wyoming, Hawaii and Alaska. She will report directly to USEA chief marketing officer William Lathrop.
Raino-Nevratakis began working in the automotive industry 20 years ago at a dealership in western Washington. Her career advanced to working in the F&I department in 1996 and she was later promoted to finance director in 1998, a position she successfully held for 15 years.
According to Raino-Nevratakis, a focus on leadership, F&I training and product knowledge, and the utilization of the ADP Menu and USEA’s bi-weekly service, are contributing factors to her successful career.
“I believe in AutoPayPlus and the benefits it provides to both the dealership and customers buying vehicles,” Raino-Nevratakis said. “USEA provides excellent customer service and support for dealerships and consumers. While serving in a dealership as a finance manager, I was able to experience firsthand the professionalism and integrity of the company and staff through our working relationship.”
Commenting on Raino-Nevratakis’ new position, Lathrop added, “We are very excited to add such an accomplished F&I expert as Karena to our team. Her hands on in-dealership experience along with the results she has personally produced using our service make her a perfect fit to provide training and sales support in the western U.S. market.”
