As Edmunds spotted interest rates on new-vehicle financing climbing to the highest level in nearly a decade, the latest auto finance data from Equifax showed severe delinquency edged up only slightly in February.
According to information shared this week with SubPrime Auto Finance News, Equifax determined the severe delinquency rate — the share of balances 60 days or more past due — stood at 1.13 percent in February, up just 5 basis points from the year-earlier reading of 1.08 percent.
Equifax also reported that auto write-offs registered at 24.5 basis points in February, which is down from 24.9 basis points a year ago.
Equifax tabulated that finance companies originated 28.10 million vehicle installment contracts and leases — totaling $611.3 billion — in 2017, representing a 3.5-percent decrease in total new accounts and a 1.1-percent decline in balances over the prior year.
Equifax deputy chief economist Gunnar Blix pointed to the change reflecting a market shift from new to used vehicles.
Blix also mentioned that according to Equifax’s full-year data, just 9.2 percent of vehicle leases were issued to consumers with a subprime credit score, marking the smallest subprime share since 2011.
When looking at the data as a while, especially with delinquencies remaining relatively stable, Blix said, “Consumers benefit from these trends as well.
“Understanding how auto markets are shifting and learning which credit markets have favorable terms can help them make more informed personal decisions,” he went on to say.
March financing trends
Edmunds passed along information to SubPrime Auto Finance News this week, as well, indicating interest rates on new-vehicle loans will hit their highest level since 2009 in March. The projection would mark the second straight month of sharp rate increases.
According to the analysts at Edmunds, the annual percentage rate (APR) on financed new vehicles averaged 5.7 percent in March — compared to an average of 5.2 percent in February and 5 percent in January. This compares to 5 percent in March 2017 and 4.4 percent in March 2013.
Edmunds experts point to a significant decrease in zero-percent loans as a primary driver for this rise in the average. The percentage of zero-percent loans will drop to 7.4 percent in March compared to 11.4 percent in 2017, which Edmunds attributes to larger automakers shifting to different incentive structures to address slowing sales.
“Some of the largest volume brands like Chevrolet, Ford, Nissan and Toyota are demonstrating the largest drop in zero-percent loans year-over-year,” said Jessica Caldwell, executive director of industry analysis at Edmunds.
“This goes to show how the cost of lending has become increasingly more pricey, and zero-percent financing, while still a desirable incentive, no longer adds the same wow factor for consumers like it used to,” Caldwell continued.
Edmunds experts also point to a significant decrease in the number of installment in the 2- to 4-percent APR bracket and an increase in the 4- to 7-percent range as contributors to the spike in the average APR in March.
Analysts determined the number of 2- to 4-percent contracts accounted for 8.9 percent of the market, compared to 14.1 percent a year ago, and the percentage of 4 to 7 percent loans accounted for 34.5 percent of installment contracts compared to 27.6 percent last March, indicating that buyers are continuing to land in higher brackets than they previously would have.
“The high interest rates right now may catch a lot of car shoppers off guard, especially if they qualified for a lower rate the last time they visited the dealership,” Caldwell said.
New-Car Finance Data
| |
March 2018
|
March 2017
|
March 2013
|
|
Term
|
69.5
|
69.0
|
65.7
|
|
Monthly Payment
|
$527
|
$509
|
$461
|
|
Amount Financed
|
$31,020
|
$30,271
|
$26,533
|
|
APR
|
5.7
|
5.0
|
4.4
|
|
Down Payment
|
$3,962
|
$3,789
|
$3,584
|
Used-Car Finance Data
| |
March 2018
|
March 2017
|
March 2013
|
|
Term
|
67.2
|
67.0
|
63.8
|
|
Monthly Payment
|
$393
|
$382
|
$361
|
|
Amount Financed
|
$21,202
|
$20,832
|
$18,867
|
|
APR
|
8.7
|
8.3
|
8.4
|
|
Down Payment
|
$2,625
|
$2,507
|
$2,364
|
Source: Edmunds
Finding vehicles up for repossession is daunting, so service providers are continuing to merge their technologies in order for finance companies to improve recovery efforts.
ALS Resolvion announced that it recently became the first repossession management firm to successfully integrate its in-house proprietary technology, WOMBAT, with the leading repossession agent workflow management platform, Clearplan.
Clearplan can optimize repossession efforts by speeding up communications from the field and replacing paper routes into a real time digital map at the fingertips of the recovery agents.
“The integration with Clearplan will significantly enhance compliance by reducing the possibilities of repossessions in error and will greatly streamline communications with our agent partners,” said Jose Mendiola, president of ALS Resolvion.
In an effort to reduce another pain point in the repossession process, a new feature was developed in conjunction with the integration to allow recovery agents to give “on hook” notification directly into ALSR’s platform. The “on hook” notification gives ALSR the ability to alert lenders of collateral recovery as the car is recovered.
The integration has also evolved ALS Resolvion’s agent score carding system.
“We have always given Clearplan agents additional scorecard points as we know those who use it see better recovery rates,” Mendiola said. “However, with the new integration we are increasing the scorecard weighting because of the additional communication and compliance benefits that it provides.”
Clearplan founder Justin Zane said, “We’re thrilled ALSR has recognized the value in deepening its connection to Clearplan. The reaction by our users has been very strong.”
Vehicle leasing in the subprime space is getting a boost by two service providers now collaborating.
DIMONT, a provider of insurance claims recovery and collateral loss mitigation services, finalized a partnership this week with Pennsylvania-based Auto Trakk, a leading automotive leasing company specializing in leasing vehicles to individuals with moderate to severe credit issues.
Auto Trakk currently supports a network of authorized dealers in Delaware, Florida, Indiana, Kentucky, Maryland, Michigan, New York, North Carolina, Ohio, Pennsylvania, South Carolina and Virginia.
DIMONT will apply its expertise in claims adjustment to assist Auto Trakk in recovering significant proceeds on damaged repossessed vehicles.
“Auto Trakk is pleased to partner with DIMONT, a leading provider of technology-enabled collateral loss mitigation solutions for automotive lenders and lessors,” said Auto Trakk chief executive officer Merril Davis. “DIMONT’s flexible, professional team of licensed public adjusters will assist Auto Trakk in realizing cost savings quickly and efficiently.”
DIMONT president and chief executive officer Denis Brosnan said, “We look forward to working with Auto Trakk to maximize recoveries and reduce costs. Auto Trakk is a welcome addition to DIMONT’s growing list of auto clientele.”
In its long-awaited ruling addressing the Federal Communications Commission’s 2015 Declaratory Ruling and Order, the U.S. Court of Appeals for the D.C. Circuit partially upheld and partially set aside challenges to four specific provisions that had been intended to offer clarity on the Telephone Consumer Protection Act (TCPA).
In ACA International v. FCC, the D.C. Circuit set aside and vacated the expansion of the definition of “autodialer” or “ATDS” and the treatment of reassigned cell phone numbers, while upholding the broadening of the called party’s ability to revoke consent and the exemption for certain time-sensitive health care communications. While addressing some of the concerns raised by the petitioners’ challenges to the 2015 order, the court’s ruling does not offer much clarity on the provisions it set aside, and the uptick of TCPA litigation will not likely subside.
With respect to the expanded autodialer definition, the court took issue with the 2015 order’s inclusion of a device’s “potential functionalities” or “future possibility” and found that, if a device could be modified via a software change or an app download, this would make every smartphone an ATDS under the TCPA. With this expansive impact, the court found that the attempt to construe the term “capacity” as used in the statutory definition of ATDS was untenable. It held that allowing such expansion would mean “that nearly every American is a TCPA-violator-in-waiting, if not a violator-in-fact.” The court ultimately ruled that the 2015 order’s expansion of the definition of “capacity” was an unreasonable and impermissible interpretation of the TCPA, and when considered in combination with the lack of clarity about which functions qualify a device as an autodialer, the court found that this portion of the 2015 order had to be set aside.
The other provision of the 2015 order that the court set aside was the treatment of circumstances in which a consenting party’s cell phone number has been reassigned to another person. Under the 2015 order, the FCC allowed a one-call safe-harbor provision to the caller, despite recognizing that a single call is often not enough to allow the caller to become informed of the number’s reassignment. The court found that this limited safe-harbor provision was arbitrary and capricious, as there was no explanation as to why the safe harbor was set at a single call. Further, because the mere setting aside of this provision would then mean that the caller is strictly liable for any call to a reassigned number, it held that the 2015 order’s entire treatment of reassigned cell phone numbers had to be vacated to protect the intent of the FCC in instituting the safe-harbor protection.
The court devoted much less discussion to the two provisions of the 2015 order it upheld in the face of the petitioners’ challenges. The court found that the expansion of a called party’s ability to revoke consent through any reasonable means and at any time, so long as the party clearly expresses a desire not to receive further messages, made the opt-out methods more clearly defined and easy to use. The Court did make an important notation that nothing in the 2015 order precludes the parties’ ability to agree on specific revocation procedures.
The last challenge — to the 2015 order’s exemption of certain time-sensitive health care-related calls from the TCPA’s prior express consent requirement to calls to cell phones — was also denied. The court rejected several arguments asserted by the Petitioners that this exemption conflicted with HIPAA, concluding that the FCC simply declined to make certain exchanges of health care information less burdensome than they would be by default under HIPAA.
This opinion is a setback for the plaintiff’s bar. The rollback of the rules concerning the definition of an autodialer are significant and may ultimately result in plaintiff’s counsel only pursuing suits involving a clear use of an autodialer. The ruling thus will also hopefully limit discovery into the issue of what is an autodialer. Conversely, the upholding of the rules regarding revocation of consent will adversely impact defendants in TCPA actions. However, as the court expressly noted that “[n]othing in the Commission’s order thus should be understood to speak to parties’ ability to agree upon revocation procedures,” the recent case law concerning contractual limitation on consent, outlined in Reyes v. Lincoln Automotive Financial Services, 861 F.3d 51 (2d Cir. 2017), remains good law.
Eve Cann is an associate in Baker Donelson’s Fort Lauderdale, Fla., office. She is an experienced litigator, who advises and defends businesses, including banks, mortgage lenders, servicers, in a broad range of business and commercial disputes in state and federal courts. She can be reached at ecann@bakerdonelson.com.
An industry executive with almost two decades of experience joined Spireon.
The company announced on Wednesday that it appointed Rashid Ismail as senior vice president of customer success, joining the Spireon’s executive leadership team. Tapping into an extensive background in operations and customer experience, Ismail will be responsible for customer lifecycle management, bringing even greater strength to Spireon’s award-winning customer service program.
“Rashid has a proven track record of aligning operations, technology, business needs and customer requirements to drive customer success, operational efficiency and revenue growth,” Spireon chief executive officer Kevin Weiss said.
“With a deep understanding of the importance of customer experience and satisfaction, he will be an integral part in making sure we deliver higher expertise that helps our clients improve how they run their businesses,” Weiss continued.
Ismail joins Spireon with nearly 20 years of experience, most recently at CoreLogic, a leading provider of property data and analytics, where he served as senior vice president of operations with a focus on improving customer retention, productivity and processes and achieved significant results.
Prior to that post, Ismail was a vice president, head of broker dealer and retail customer experience at MetLife insurance.
“I’m delighted to join Spireon, a company that already has an extraordinary commitment to customer focus, as evidenced by multiple service awards and outstanding Net Promoter Scores across the business,” Ismail said. “I look forward to expanding upon the work that has been done to successfully launch and support more than 20,000 existing customers with refined processes and approaches that will nurture customer relationships for years to come."
On Wednesday, Payscout — one of the fastest growing privately held global payments processing providers in the U.S. — announced the launch of Condor, a new payment portal that can facilitate frictionless payment processing transactions between a business and its debtors through a front end portal, increasing efficiency without impacting live agents.
The Condor payment portal uses Payscout’s payment processing platform, while satisfying current consumer preferences for self-serve bill payment options that can be accessed anytime, anywhere. Condor can enable verified login so that debtors can view their current account information and set up payment arrangements in real-time, while the company remains compliant with all relevant privacy regulations.
The portal is available as a mobile-enabled website, IVR, or a combination of the two, with customizable parameters to meet current business operating needs and client requirements. And, because of the flat fee pricing model, with no additional transaction charges, the company believes it is the most cost effective option for the vast majority of collection agencies.
“Condor was created to bring order and efficiency to the incredibly cumbersome collections process,” Payscout chief executive officer Cleveland Brown said. “Accounts receivable management can be a costly and time-consuming practice, involving emailing, mailing, and calling debtors.
“We saw a need in the market for an evolved, frictionless payment solution and with Condor, our customers are now freed up to focus on debtors that require more interaction,” Brown went on to say.
For more information, visit www.payscout.com.
Fitch Ratings is keeping a close watch on how subprime auto finance paper is performing in a similar fashion to Equifax and TransUnion.
Analysts indicated that loss frequency and severity ticked up slightly from historically low levels for the largest U.S. auto finance companies, according to the latest U.S. Auto Asset Quality Review from Fitch Ratings.
Excluding General Motors Financial — whose credit performance continues to benefit from a significant portfolio mix shift — Fitch highlighted the average net charge-off rate for finance companies covered in this report increased to 0.95 percent in the fourth quarter compared to 0.92 percent in the closing quarter of 2016.
Likewise, analysts noted delinquencies increased in Q4, with the 30-day delinquency rate ticking up to 3.07 percent as 2017 finished. A year earlier, Fitch pinpointed the rate at 2.86 percent.
“We continue to see a divergence in subprime credit relative to prime credit and expect performance to weaken further in 2018 due partially to the expansion in recent years of less-tenured, independent auto finance companies that have demonstrated higher-risk appetites and less underwriting discipline,” Fitch senior director Michael Taiano said.
Just like Equifax mentioned, Taiano pointed out that underwriting for vehicle installment contracts and leases continued to tighten for banks during the second half of last year — albeit at a more moderate pace — which Fitch views as a credit positive.
The Fitch expert explained the tighter standards are likely in response to deterioration in used-vehicle prices and weaker credit performance in the subprime segment. After a respite in during the second half of 2017 that was partially due to increased vehicle demand stemming from the hurricanes in Texas and Florida, Fitch expects further deterioration in used-vehicle prices in 2018 to be driven by increases in off-lease vehicles, elevated new-model incentives and tighter subprime financing.
Taiano went on to stress that lower used-vehicle prices will put downward pressure on finance companies’ recovery values and lease residuals, resulting in higher credit losses.
“The outlook in 2018 for auto asset quality is clouded to some extent by macro crosscurrents. Positive indicators including greater household net worth, low unemployment and increased wage growth are countered by rising consumer debt levels, weaker used vehicle prices and rising interest rates,” Taiano said.
The complete report, U.S. Auto Asset Quality Review: 4Q17, is available to premium subscribers at www.fitchratings.com.
AGORA recently bolstered its connections to human capital to delve into the debt space.
The Texas-based provider of technology solutions for the financial services industry formed a partnership with Nancy Hughes — a leading debt acquisitions expert — in order to expand the scope of services and solutions AGORA offers to the marketplace of auto finance loans and receivables.
Hughes brings a wealth of experience in managing, pricing, acquiring and disposing of debt and accounts receivable across a wide range of consumer asset classes. In partnering with AGORA, Hughes will lead AGORA’s initiatives to develop tools, resources and a marketplace platform for debt and accounts receivable related to the auto finance sector.
AGORA founder and chief executive officer Steve Burke said, “I have known and worked with Nancy for years. She is a true industry leader and a dedicated professional. We are very excited to have her as part of the team.”
Since its launch last April, Burke insisted AGORA’s flagship loan exchange platform has rapidly been adopted the secondary market for auto paper, allowing buyers and sellers to publish and exchange contract data directly in an efficient and secure environment without the need of intermediaries or brokers.
And that’s part of the reason why Hughes became involved.
“Throughout my career, I have worked tirelessly to balance client and company goals resulting in truly successful partnerships,” Hughes said. “I see tremendous value in the AGORA platform and its groundbreaking technology.
“The opportunities to lead the effort to bring AGORA into the debt markets and provide access to a client community that I have served for decades is truly revolutionary,” Hughes added.
AGORA was created in response to the many friction points and inefficiencies that exist in the manner that auto loan portfolios currently trade — namely poor and inconsistent data, lack of transparency from the brokers that previously dominated the market and heightened regulatory concerns over unsecured transmission of personal consumer data.
“Partnering with experts such as Nancy further evidences AGORA’s priorities to be forward thinking and to continue our drive to provide fully integrated resources across the consumer finance sector — from performing loans through non-performing and charged-off debt,” said Burke, who was among the leaders highlighted in The CEO Issue; an annual production of SubPrime Auto Finance News that’s available here.
More collaboration developed in an effort to enhance the efficiency — and compliance — involving vehicle repossessions and recoveries.
Allied Finance Adjusters (AFA) and Vendor Transparency Solutions (VTS) recently entered into an exclusive joint venture agreement that executives say will add value to both members of AFA, subscribers of VTS and the clients utilizing the services of both groups.
Executives highlighted VTS subscribers that qualify will be given an exclusive offer from AFA to join the national trade association. They insisted this opportunity will provide those professionals who take advantage not only the benefits of being a member of AFA, but also access to the only crime policy formally known as the “bond” being offered by the national trade groups.
These professionals will also have access to an AFA’s on-staff attorney for legal consultation at no additional cost.
The organizations went on to mention this agreement will also create a new network of more than 400 professionals who are trained, vetted and carry the only crime policy offered by a national trade association. This network will also add value to the clients that utilize VTS, clients of VTS will have access to every AFA member, which will also give added exposure of AFA members to these clients.
“VTS is recognized as the most comprehensive compliance monitoring and continuing education service in the asset recovery industry,” said Max Pineiro, president of Vendor Transparency Solutions. “We currently house the largest subscription base of compliant service providers and lending institutions in the industry.
“We look forward to our partnership with Allied Finance Adjusters and providing their members with VTS’s risk management solutions,” Pineiro continued.
VTS has given AFA access to its solution that now is called Allied Compliance Powered by VTS. AFA members will have access to all employee handbooks, policy and procedures manuals and continuing education training modules.
This will be at no cost to the members of AFA in an effort to deliver “the true transparency of members of AFA” to auto finance companies who leverage these services.
“Allied has always taken education and compliance training very seriously, this is just one more of many benefits to our members” said James Osselburn, president of Allied Finance Adjusters.
“I am excited to extend this exclusive offer to the professional recovery companies subscribed to VTS so they, too, can see the benefits of belonging to our great association," Osselburn went on to say.
As consumers start to edge away slightly from new-vehicle leases toward financed installment contracts for used vehicles, Equifax Automotive deputy chief economist Gunnar Blix is encouraged by recent payment performance — no matter what type of deal is attached to the unit.
The latest Equifax data showed auto finance balances increased by $8 billion in the fourth quarter, continuing a six-year upward trend. Meanwhile, Equifax spotted that auto delinquency rates increased only slightly with 4.1 percent of auto balances registering in at 90 or more days delinquent on Dec. 31.
“We’ve seen improved payment performances in recent vintages, in particular subprime and deep subprime,” Blix said during a recent phone interview. “We’ve seen credit scores come up a little bit, too.
“There are two factors going there,” Blix continued. “Consumers as a whole, their credit scores are being lifted by the longer time since the Great Recession as well as the good economy that keeps them employed. Also, the more aggressive lenders have pulled back a little bit especially in the deep subprime to adjust their risk appetite.”
Sparked by off-lease units, Equifax is seeing a healthy situation for used-vehicle sales. The credit bureau’s data indicated sales of new vehicles fell 1.9 percent in 2017 while used-vehicle deliveries climbed 1.5 percent.
Blix insisted much of this movement was the result of a continuation of off-lease activity, which are attractive to buyers looking for still-new vehicles at a good value. He added this trend of shrinking new sales and increasing used sales is expected to continue throughout 2018.
“The mix of off-lease vehicles has been changing,” Blix said. “That’s driven down the prices for used cars a bit that have made banks adjust their residuals. Those leases have become a little less attractive than they used to be. The loan on a used car is starting to look more attractive in terms of payment to the consumer.
“It’s payments that are driving it more than the overall value,” he continued. In many ways, consumers are still very payment centered when it comes to loans and lease. They’re looking at what the payment is going to be and how is that going to work with their finances. In general, because there are so many used vehicle coming off lease of very good quality, that’s making for a better value proposition.”
Equifax Automotive also highlighted six other points associated with changes coming to lease share and activity, including:
• Because of the falling volume of new-vehicle sales, lease activity is also expected to dip slightly.
• A larger share of used transactions are financed, therefore leasing will pull back slightly.
• Between 2010 and 2014, the share of accounts for captives written as leases increased steadily from 28 percent of accounts in 2010 to nearly 40 percent in 2017.
• As vehicle prices have risen, more captives are packaging together deals with incentives, helping them grow their share of lease portfolios.
• 70.8 percent of vehicle leases were in the three-year range (between 26 and 37 months) in 2017.
• Two-year leases have become somewhat less common (6.3 percent of accounts in 2017), but similarly leases longer than three years have become less frequent (22.9 percent of accounts in 2017).
Meanwhile, Equifax Automotive mentioned that commercial banks are reducing their exposure to auto financing. Blix shared three specific points, including:
• Banks have pulled back their market share of auto originations from 39.2 percent in the fourth quarter of 2016 to 33.9 percent share in the fourth quarter of 2017.
• Credit unions had a 27.9 percent share of originations in the last quarter of 2017, while captives represented a 32.6 percent share.
• Independents, monolines and dealer financing made up the remaining 5.6 percent share, down just 0.1 percentage points (10 bps) from the previous year.
“With the market looking relatively flat, many (commercial banks) have chosen to pull out of a lot of lending and auto lending in particular,” Blix said.
“In terms of where they’re choosing to deploy capital, I think that’s very individual to the bank,” he continued. “It’s an internal decision on their part and not something we can speak to in general.”
Blix also mentioned during the phone conversation about how student loans aren’t necessarily a headwind to dealerships and finance companies retailing vehicles.
Equifax data showed outstanding student loan debt grew and stood at $1.38 trillion as of Dec. 31. The credit bureau noted 11.0 percent of aggregate student loan debt was 90-days delinquent or in default in Q4, a small decline from the previous quarter.
“The overall size of the student loan is obviously a bit concerning. It’s grown a lot taking up about 36 percent of the outstanding non-mortgage debt. That is effecting how consumers are acting,” Blix acknowledged.
“It’s very individual, though,” he continued. “The largest student debt is typically associated with professionals with law degrees or medical degrees, MBAs with great income potential. It may effect what vehicle they buy, but it’s not presenting a huge drag. If you’ve got student debt and you didn’t get a degree, that’s where the biggest drag is happening.
“I think it’s a bigger drag on mortgages because that’s a bigger investment,” Blix went on to say.
The latest report from Equifax containing the latest data from through the credit market can be found here.
