With a new TransUnion survey showing how few consumers check their credit report regularly, Ally Financial is launching a new campaign since Financial Literacy Month starts this week.
According to a recent Google Consumer Survey commissioned by TransUnion, about one third (32.7 percent) of Americans surveyed said they have never checked their credit report or score.
An additional quarter of participants (24.2 percent) said they had not checked their report or score in over a year.
“It’s easy for people to become frustrated and confused with all the financial information coming at them,” said Julie Springer, vice president at TransUnion. “But instead of becoming overwhelmed by a general lack of financial awareness, consumers need to start with the basics of personal finances and understand their own current financial situation so they can identify areas to work on.”
And since April is Financial Literacy Month, Ally is challenging consumers to “Get Wise” about their finances with the start of its “Four Weeks to Get Wise” financial literacy initiative.
Launched in connection with Financial Literacy Month and Wallet Wise, Ally’s free, financial literacy curriculum, “Four Weeks to Get Wise” aims to educate consumers about the basics of financial literacy. Mastering these basics can help consumers reach their financial goals.
To help consumers “Get Wise,” Ally will provide weekly financial literacy tips and videos on Twitter and YouTube throughout the month of April, focusing on topics including credit, budgeting, banking and auto finance.
Ally tries to advance financial literacy education year-round through its Wallet Wise program, which provides free in-person and online courses for consumers, as well as an online quiz to test financial literacy knowledge.
Results from Ally’s Wallet Wise quiz have recently shown that consumers across the U.S. have an average understanding of financial literacy basics, but could use some help on certain topics, such as what factors affect credit and budgeting.
“Financial Literacy Month is the perfect time for consumers to refresh their financial literacy knowledge and learn a few new things as well,” said Gina Proia, Ally chief communications officer and head of community relations. “Our ‘Get Wise’ tips are an easy way to get consumers to start thinking about their financial goals, and our Wallet Wise curriculum provides the tools to remain on track throughout the year.”
Ally will kick-off the “Get Wise” initiative with tips about credit on Tuesday. Consumers can follow Ally on Twitter at @Ally for weekly tips and videos and use the hashtag #GetWise.
In addition, Ally will also be hosting more than 35 Wallet Wise financial literacy sessions throughout April in various markets across the country.
For more information and to take the financial literacy quiz, visit the Ally Wallet Wise website at www.allywalletwise.com.
Building upon its efforts to give consumers increased access to their FICO score and help lenders be more informative about credit scoring, FICO rolled out a new program this week called FICO Custom Credit Education.
Through this solution, officials explained that lenders can license from FICO enhanced credit education tools to include in their consumer financial education programs.
With FICO Custom Credit Education, lenders can provide their customers with a rich set of tools to improve their financial literacy. These tools include:
• Unparalleled access to the FICO Score simulator. Built by FICO data scientists leveraging the latest FICO Score algorithm, officials believe the FICO Score simulator is the most powerful, intuitive and easy-to-use score simulator available. They said it is the only simulator modeling behavioral impacts on a consumer’s FICO Score.
• Positive factors impacting the consumer’s FICO Score. The company insisted positive factors can reinforce the good credit behaviors of high achievers, and encourage those customers who may be working to manage their credit or improve their financial health.
• Personalized credit analysis and comparisons to FICO Score High Achievers. Beyond general credit information, this analysis can provide a wealth of personalized feedback for consumers trying to make sense of their credit reports and scores.
• FICO Score monitoring and alerts. Alerts of changes to the FICO Score can provide one of the best early indicators of fraud.
Other components include the FICO Score, a FICO Score meter, a 12-month FICO Score trending chart, up to four negative factors impacting the consumer’s score and FICO’s extensive collection of educational content.
For lenders wanting to offer their customers FICO Scores and additional education tools, FICO® Custom Credit Education can enable them to work with credit bureau partners to provide a powerful collection of FICO Score-based content and tools.
“Unlike educational scores, the FICO Score is the most relevant and meaningful score to consumers because of its wide use by lenders in risk management decisions,” said James Wehmann, executive vice president of scores at FICO.
“Lenders no longer have to choose between the FICO Score and enhanced credit education tools. Now they can offer both to their customers,” Wehmann continued.
With more than 10 billion FICO Scores sold to lenders in 2013, the FICO Score is the credit score used in the overwhelming majority of lending decisions in the U.S. The company has been educating consumers about the FICO Score for more than 10 years at www.myfico.com and www.scoreinfo.org.
The FICO Custom Credit Education solution is available today to U.S. lenders.
Experian Automotive’s most recent data showed how much more risk captive lenders are taking in regard to loan-to-value (LTV) levels when booking contracts for used models.
Experian indicated LTVs for captives that financed used vehicles in Q4 jumped by 306 basis points to an average of 128.6 percent. That year-over-year increase was far more than what Experian noticed for credit unions (up 136 basis points to 135.8 percent) and finance companies (up 115 basis points to 152.4 percent).
Overall, analysts found that LTVs for used-vehicle financing rose 113 points to 133.8 percent.
On the new-car side, Experian determined credit unions pushed their LTVs up the most during the fourth quarter, increasing them by 212 basis points to 115.3 percent. That basis-point amount recorded by credit unions nearly quadrupled the market average, which moved up 56 basis points year-over-year to 110.4 percent.
Looking at the LTV data by consumer credit category, Experian’s data showed the overall aggression in the market to make deals with buyers with damaged credit histories and more negative equity.
For deep subprime — consumers who Experian said have credit scores below 550 — LTVs soared the most year-over-year for both new- and used-vehicle financing. For new, the increase came in at 301 basis points to 126.0 percent, and for used, the jump registered at 220 basis points to 149.2 percent.
The other credit categories outside of prime posted similar increases during the fourth quarter according to Experian, including:
—Subprime new: up 234 basis points to 125.5 percent
—Subprime used: up 164 basis points to 142.3 percent
—Non-prime new: 143 basis points to 122.2 percent
—Non-prime used: up 110 basis points to 136.8 percent
The LTV data dissected by Experian conveyed a similar trend shared in the most recent dealer survey conducted by KeyBanc Capital Markets.
KeyBanc reported that financing availability remains strong as majority of the dealer respondents — 56 percent to be exact — indicated banks and finance companies were becoming more aggressive in January and the remaining 44 percent indicated no change from a year earlier.
The survey results also showed financing for subprime borrowers continued on a positive trend as 60 percent of the dealer respondents indicated favorable conditions remained unchanged and the remaining 40 percent indicated subprime financing continued to loosen in the month of January.
Younger buyers might not be the only age demographic that could use some assistance in explaining how the vehicle financing process works.
To help baby boomers as well as consumers of all ages easily research vehicle financing in one place, Americans Well-informed on Automobile Retailing Economics (AWARE) offers multiple, easy-to-use tools on its website.
AWARE members include American Financial Services Association, National Automobile Dealers Association, National Association of Minority Automobile Dealers and American International Automobile Dealers Association, as well as members of these organizations.
“Consumers may get overwhelmed when researching vehicle financing online,” AWARE spokeswoman Susie Irvine said. “Autofinancing101.org contains free, relevant information in one place to help consumers understand the entire vehicle financing process.”
AWARE provides the following tips and resources:
• Set a budget and determine a price range based upon your needs and financial situation, and stick to it. Use the Auto Finance Calculator at www.autofinancing101.org and the AFSA Education Foundation’s Monthly Spending Plan at www.afsaef.org/monthly_spending_plan.cfm.
• Obtain a copy of your credit report and check it for errors. You can obtain a free credit report once every 12 months from each of the three nationwide credit bureaus at www.annualcreditreport.com. The information in your credit report can impact your ability to get credit and your interest rate.
• Become familiar with common vehicle finance terms, such as APR or Annual Percentage Rate, collateral, down payment, and lien. Many of these terms can be found at www.autofinancing101.org/resources/glossary.cfm.
• Understand the difference between buying and leasing a vehicle. Learn more at http://www.federalreserve.gov/pubs/leasing.
• Understand the value and price of optional products such as extended service contracts, credit insurance, or guaranteed auto protection. If you do not want these products, do not sign up for them.
• Compare annual percentage rates and other financing terms from multiple finance sources. www.afsaef.org/apply_for_financing.cfm
• Negotiate your finance arrangements and terms.
• Read the contract carefully before signing it.
Additional information in English and Spanish can be found at www.autofinancing101.org.
From captive finance companies to one-lot buy-here, pay-here dealers, the entire industry is seeing a shift to a ‘new normal,’ which includes smaller down payments, longer terms and negative equity being rolled into a larger financed amount.
While metal is being moved now, trends and buying patterns that might appear three years or more down the road are what industry observers are currently pondering.
“As we shift over to the ‘new normal,’ which is a little bit concerning, right now the belief is the typical consumer goes $400 to $500 on a new car and $300 to $400 on a used car as the monthly payment,” Experian Automotive president John Gray said.
“So how do you get them the most car in that payment structure? As the interest rates have come down, the prices have gone up so you move out the financing,” Gray continued. “The question is still going to come in as interest rates go up in the future, can you put still put a rate out there that puts them in that payment structure? Also, you’re in the car longer so how can you get equity in the car? Is this going to cause the auto industry to think about when people are going to come back into the market?”
Gray’s Experian colleague is considering the same kinds of questions.
Senior director of automotive credit Melinda Zabritski said, “You’ve got extended (loan to value) and loans. Will consumers change their owning patterns?
“For years, consumers would take their car and trade it back in every 36 to 38 months,” Zabritski continued. “It cut back during the recession. But if the consumer still expects to return to market in 3½ years and they’re on a 72- or 84-month loan with a high origination LTV, are they in a position to come back into the market unless LTVs also continue to expand out?”
The latest data from Experian as well as J.D. Power showed these questions aren’t going away any time soon.
According to its latest State of the Automotive Finance Market report, Experian indicated the average amount financed for a new vehicle was $27,430 in Q4 2013, up from $26,691 in Q4 2012. This marked the highest average loan amount for a new vehicle since 2008 and the first time the amount has exceeded $27,000.
Additionally, the average loan amount for a used vehicle during the quarter was $17,974, up $345 from the previous year, which was also a record-high since 2008.
Furthermore, Experian determined new-vehicle interest rates were up to 4.37 percent in Q4 2013 from 4.36 percent in Q4 2012, while used-vehicle interest rates were up to 8.71 percent in Q4 2013 from 8.48 percent in Q4 2012
And the latest analysis from J.D. Power showed long-term loans — classified as loans that are 72 months and longer — accounted for 33.1 percent of new-vehicle retail sales in February, according to data gathered by the Power Information Network (PIN) from J.D. Power.
That pace surpassed the previous record set in September 2012, when 30.6 percent of new-vehicle sales were loans of 72 months or longer.
“Longer loan terms, coupled with the current low interest rate environment, increases the affordability of new vehicles for consumers,” said Thomas King, senior director of PIN at J.D. Power. “This is resulting in strong demand for new vehicles and also record transaction prices.”
King noted that while the increased use of long-term loans has caused concern in the automotive industry about the risks associated with extended purchase cycles, those risks are mitigated by a couple of factors.
First, while 72-month loans are becoming increasingly popular, loans for 24 to 60 months are keeping the average term for new-vehicle loans at 66 months, an increase of only three months since 2009. Second, increased leasing, with typical contract lengths of just 36 months, ensures a healthy supply of future vehicle buyers with shorter purchase cycles.
“Unlike buyers who finance their vehicle and have considerable discretion regarding when to return to market, consumers who lease their vehicle must come back into the market when their lease terminates,” said King. “The current level of leasing means there will be a steady and significant stream of lessees returning to market three years from now.”
J.D. Power also pointed out that while loans of 84 and 96 months are available to consumers, analysts contend such loans have yet to compose any meaningful portion of the auto financing market, with 84-month and longer loans comprising only 3 percent of all sales in February.
If the Consumer Financial Protection Bureau gets it way, potential buyers who have a credit card account will already know their credit score before they walk on the lot or enter the F&I office looking to complete vehicle financing.
On Thursday, the CFPB called on the nation's top credit card companies to make credit scores and related content freely available to their customers. Before this week's announcement, bureau director Richard Cordray sent letters to this institutions, beginning with some language that triggered a pointed retort.
"I am writing to bring a matter to your attention and strongly urge action on your part," Cordray said. "We need to get more Americans to pay closer attention to their credit standing, which would benefit lenders, consumers and the national economy. You can now, relatively easily, help us achieve this goal."
Richard Hunt, president and chief executive officer of the Consumer Bankers Association, doesn't think the call for banks to "strongly consider" providing customers with FICO scores on a monthly basis is quite so simple.
"CBA supports relevant efforts to expand consumer financial awareness and understanding, but it must be both understandable and useful for the consumer," Hunt said.
"There are numerous factors considered in weighing a consumer's credit portfolio — not just a credit score," he continued. "The CFPB rightly points to the value of credit information and appears to be approaching this issue informally in order to allow each financial institution to create a workable solution. However, no institution that receives a letter from its regulatory agency ‘strongly encouraging' an action views the request benignly."
The new developments stem from a report released by the CFPB that found accuracy issues top the list of credit reporting complaints the bureau received from consumers.
The CFPB also warned companies that provide information to credit reporting agencies not to avoid investigating consumer disputes.
"Credit reports and scores can determine the terms of people's mortgages, whether they qualify for auto loans, or if they are eligible for different credit cards," Cordray said. "Making consumers' credit scores freely available on their monthly statement or online makes it easier for them to spot problems with their credit report. We will continue to work to ensure that credit report disputes are fully investigated, errors are fixed, and consumers are treated fairly."
Cordray contends a regularly available credit score may prompt more Americans to review their credit standing and pull their free annual credit report.
The bureau believes fewer than one in five Americans check their credit report in any given year.
Cordray's letter also articulates a potential reward for companies that provide credit scores regularly.
"We will consider this to be a ‘best practice' in the industry," Cordray said. "Doing so through existing channels, such as including credit scores with other online account information and on monthly statements, is likely to yield positive returns that outweigh the limited effort involved.
"Customers who monitor and manage their credit standing may be less likely to become delinquent or to default," he continued.
The bureau insisted most Americans have a credit file. Because of the significance of these reports, consumer reporting agencies have been a major focus for the CFPB.
Regulators acknowledge the three biggest credit reporting companies — Equifax, Experian and TransUnion — each maintain files on more than 200 million consumers. These files are based on information supplied by thousands of providers also known as data furnishers.
"This financial score keeping exerts a tremendous and growing influence over consumers' lives," Cordray said in remarks to the CFPB's Consumer Advisory Board. "The amount of data collected and exchanged in the credit reporting industry is astounding. Each year, approximately 36 billion updates are made to consumer credit files at the three largest credit reporting companies alone. Assuring that such personal financial information is updated timely and accurately, and that it is maintained securely, is a critical responsibility."
Cordray closed his commentary by reiterating how regular access to credit scores will make the situation better for consumers and finance companies.
"At the bureau, we are dedicated to fostering a marketplace for financial products and services where sensible practices benefit both industry and consumers alike," Cordray said. "As the American economy continues on its path to recovery, we need to have confidence that consumers enjoy the full benefits of credit reports that are accurate and reliable. Consumers bear their own share of responsibility to monitor and manage their credit standing. As we have discussed, however, there are some steps that can be taken to put them in a better position to succeed in protecting themselves."
Accuracy Issues Top Credit Reporting Complaints
Between October 22, 2012 and Feb. 1, the bureau handled roughly 31,000 complaints from consumers frustrated with credit reporting companies. The majority of those complaints have been about the accuracy and completeness of credit reports.
The top three concerns include:
• Incorrect information on a credit report: Almost three-quarters of the credit reporting complaints the bureau received related to consumers believing that their credit reports contained incorrect information. Over one-third of these complaints were about incorrect account statuses — such as a debt being reported as delinquent when it was already paid. Other consumers reported having information in their credit report that did not belong to them. One consumer reported having a mortgage placed in his credit report when he was only a sophomore in high school. Other consumers found that their date of birth was listed incorrectly or a bankruptcy filing was misreported.
• Frustration with the credit reporting company's investigation: When consumers find this incorrect information, they can file a dispute directly with the credit reporting company. About 11 percent of complainants were frustrated with how the company handled a dispute they filed. Consumers expressed concern about the depth and validity of dispute investigations. Other consumers felt that the documentation they provided to dispute an item was not used in the company's investigation. The CFPB said it heard from consumers who were reported as deceased by a credit reporting company, and even after they filed a dispute, the company did not fix the report.
• Difficulty obtaining a credit report or score: About 9 percent of credit reporting complaints were about consumers who said that they were unable to obtain their free annual credit report or another copy of their credit report or score. Consumers say they feel as if they have reached "dead ends" when trying to obtain their credit reports. For example, one consumer claimed that she twice tried and failed to obtain her credit report from the three nationwide credit reporting companies.
