ACA International elected its new 2017-2018 board of directors and officers this past week as part of the 2017 Convention & Expo in Seattle.
New members joining the board for three-year terms are:
• Albert Cadena, president and chief executive officer of USCB America in Los Angeles
• Scott Purcell, president of Professional Credit Service in Springfield, Ore.
Individuals re-elected to another term are:
• Mike Frost, chief legal officer and general counsel at The CBE Group Inc. in Cedar Falls, Iowa
• Jim Richards, chairman of Capio Partners in Lawrenceville, Ga.
• Roger Weiss, chief operating officer at CACi in St. Louis
“It’s a privilege to welcome Albert and Scott as new board members,” ACA International chief executive officer Patrick Morris said. “Each individual serving on ACA’s board of directors helps further the association’s mission, which is to contribute to the success of its members and the positive reputation of the credit and collection industry.”
The newly elected board of directors held its first meeting on Sunday, where the group elected Jack Brown III as ACA’s president-elect and Roger Weiss as the new treasurer.
As president of Gulf Coast Collection Bureau Inc. in Sarasota, Fla., Brown is a second-generation collection agency owner. A longtime ACA member, he chaired ACA’s audit and unit, and state affairs committees and has earned ACA’s fellow and scholar designations. He continuously volunteers his time to the Florida Unit and has served in several board roles, including president. He was elected to ACA’s Board of Directors in July 2015 and served as 2016/17 treasurer.
Weiss is chief operating officer of CACi in St. Louis. He has served as an ACA certified instructor for more than a decade. He was the 2014 recipient of ACA’s Charles F. Lindemann Certified Instructor of the Year award and was also honored with ACA’s Fred Kirschner Instructor Achievement Award. He has served on multiple ACA committees, including the special committee on membership and education subcommittee.
“Jack and Roger are both experienced and dynamic leaders in the credit and collection industry, and I’m excited to work with them in their new roles on the board in the coming year,” said ACA International’s incoming president Rick Perr.
Perhaps the auto loan component of the S&P/Experian Consumer Credit Default Indices is becoming a game of “how low can you go?”
A month after the rate tied a 10-year low, S&P Dow Jones Indices and Experian released data through June on Tuesday and determined auto loan defaults decreased 3 basis points from the previous month to settle at 0.82 percent. The May reading tied for the lowest mark analysts have seen during the past 10 years. In June 2015, the auto finance default rate also stood at 0.85 percent.
Along with establishing a new low point, the June auto default rate made it three consecutive months where it landed below 1 percent.
The new low record might not last, as the rate has made an upward movement from June into July during five of the past eight years. The most pronounced rise in the cyclical pattern arrived in the immediate aftermath of the Great Recession, when the rate in June 2009 of 2.18 percent jumped to 2.46 percent a month later.
Turning back to this June’s information, analysts noticed the composite rate — which represents a comprehensive measure of changes in consumer credit defaults — dropped four basis points from May to settle at 0.82 percent that also set a new 10-year low. The composite rate has been below the 1 percent threshold since March 2015.
The composite rate’s high point arrived in May 2009 at 5.51 percent.
Helping the composite rate to sink to a new low as well was a decline in the bank card default rate for the first time in nine months, dipping 4 basis points on a sequential basis to 3.49 percent.
Analysts added the June first mortgage default rate also dropped 4 basis points from May to 0.60 percent.
Three of the five major cities S&P Dow Jones Indices and Experian tracks for this update saw their default rates decrease in the month of June.
New York had the largest decrease, down 13 basis points from May to 0.88 percent.
Miami reported in at 1.17 percent for June, dropping 12 basis points from the previous month.
Chicago came in at 0.91 percent, down 6 basis points from May.
Analysts noticed that Dallas and Los Angeles both remain unchanged from last month at 0.67 percent, and 0.66 percent, respectively.
Although the national bank card default rate experienced its first drop in nine months, analysts acknowledged it is still high.
When comparing the bank card default rate among the four census divisions, the default rate in the South is considerably higher than the other three census divisions.
The East South Central Census Region — comprised of Kentucky, Tennessee, Alabama and Mississippi — has the highest bank card default rate. As per Bureau of Labor Statistics, these states have some of the lowest median household income.
After all the data arrived, David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, offered his assessment of what’s happening.
“The economic expansion started in June 2009 and just passed its eighth anniversary. For most of those eight years, the consumers, politicians and business people expected bubbles, rampant inflation and budget crises. None of these fears were realized,” Blitzer said.
“Inflation is 1 to 2 percent, debt service levels are close to record lows. Disposable income is growing and supporting spending growth. Based on national averages, consumers are in good financial shape. Consumer credit defaults across mortgages, bank cards and auto loans are at levels similar to those before the financial crisis,” he continued.
“While nationally overall consumers’ financial condition is good, there are regional variations as shown by the charts. Regional patterns show that household income is one determinant of bank card default rates. The continuing decline in the unemployment rate and rising employment have not created any upward pressure on wages and salaries,” Blitzer added.
“Wage growth is about 2 percent to 3 percent annually, barely enough to stay ahead of inflation. Additional improvements in the economy, both nationally and regionally, are needed to push bank card default rates lower,” he went on to say.
FICO is hosting a complimentary webinar in hopes of giving finance companies guidance on streamlining their collections and recovery processes.
During the hour-long session, titled “Integrating Collections and Recovery — From Theory to Practice” that’s set for 1 p.m. ET on July 19, FICO plans to cover a trio of common challenges, including:
• Understanding the real-world benefits of a unified collections and recovery platform.
• How to overcome common challenges in integrating collections and recovery operations.
• What to look for when evaluating technology solutions and vendor partners.
The educational webinar also will feature Terry Collins, vice president of collections and recovery at Trustmark National Bank, along with Martin Germanis, vice president of the global collection and recovery practice at FICO. Attendees will hear directly how Trustmark successfully integrated its collections and recovery operations into a single receivables management platform.
“In theory, using a unified platform to manage both collections and recoveries makes complete sense. It’s operationally efficient, it simplifies critical compliance and reporting tasks, and it produces better customer outcomes,” FICO said. However, in practice, most organizations struggle to make the jump from siloed collection and recovery systems to a single, unified platform.”
To register for the webinar, go to this site.
Payment technology and merchant services provider BillingTree recently announced the appointment of Bryan Schreiber as chief financial officer, along with two other senior personnel moves involving its leadership team.
BillingTree indicated Schreiber will oversee the company’s expansion plans to spearhead growth and drive revenue in new and existing focus markets, including ARM, healthcare, financial services, property management and more.
Prior to joining BillingTree, Schreiber held financial leadership positions at FinTech providers including FundTech and BankServ, and was most recently head of finance, U.S. payments, Treasury and enterprise solutions at D+H. Schreiber. He has worked in the finance and accounting industry for more than 25 years and is a certified public accountant in the state of Arizona.
Schreiber’s appointment comes during a period of major expansion for BillingTree, which has grown its headcount by 30 percent since its recapitalization by private equity firm Parthenon during the closing quarter of last year. The company continues with plans to increase its workforce to support its rapid growth and has also announced two new senior appointments to its leadership team:
• Kathy Baker joins BillingTree as Director of Risk and Underwriting and brings more than 20 years of experience in the merchant acquiring industry. Baker was the former director of enterprise business compliance at TSYS Acquiring Solutions, where she was responsible for developing the company’s risk and security strategy, and will now lead the risk management and underwriting teams at BillingTree.
• Steve Recchia joins as director of sales and leads the BillingTree sales and account management team in alignment with the company’s business development strategy. Recchia is tasked to help accelerate growth in key markets, including accounts receivable management, financial services, healthcare, property management and student loan industries.
“The newest members to the BillingTree team reflect both the success the company is experiencing and our commitment to supporting the ongoing needs of our current and future customers” said Edgars Sturans, chief executive officer and president at BillingTree.
“Bryan, Kathy and Steve bring an invaluable set of skills to the team and will help broaden and strengthen our position as the leading payment technology provider in the markets we serve,” Sturans continued. “It is an exciting time to be part of BillingTree and all three will help continue the success we’ve had in the fast-changing payments industry.”
In an effort to show its finance company clients the caliber of available service, skip-tracing provider Secure Collateral Management (SCM) recently announced the successful completion of the SOC2 Type II audit earlier this month.
The Service Organization Control (SOC) 2 Type II examination demonstrates that an independent accounting and auditing firm has reviewed and examined an organization’s control objectives and activities, and tested those controls to ensure that they are operating effectively. This year, SCM upgraded that certification to include all five disciplines, which are:
• Security: SCM's systems are protected both physically and logically from unauthorized access.
• Availability: SCM's systems are designed to be available for operation according to agreements.
• Processing integrity: System processing is accurate, complete, timely and authorized.
• Confidentiality: Information designated as “confidential” is protected according to existing agreements.
• Privacy: Personal information is collected and processed in accordance with their privacy policy and with the privacy principles put forth by the American Institute of Certified Public Accountants (AICPA).
The company highlighted that SCM and all affiliated recovery agents are fully licensed and insured as required by each state.
SCM principal Jim Farley emphasized that the company takes security seriously with controlled access buildings, fully encrypted data transfers and multiple levels of data access controls in place to protect personal data.
“Everyone in the industry talks about having compliance, but without every process, procedure and system being independently audited and certified, how can you be sure of it? That is the question we asked ourselves in 2014 prior to completing our first SOC2 Type II audit in just two of the disciplines,” Farley said in a statement sent to SubPrime Auto Finance News.
“Secure Collateral Management has constantly been an industry leader in performance and compliance. That is why in 2017, we decided to take on the monumental task of passing the SOC2 Type II in all five disciplines,” he continued.
“Talking compliance is a good start, but obtaining all five SOC2 Type II discipline certifications combined with independent vulnerability and penetration testing of our network, website and phone systems as well as having independently audited and certified financial statements is real compliance that our clients deserve,” Farley went on to say.
There are two types of SOC 2 reports: Type I and Type II.
The Type II report is issued to organizations that have audited controls in place and the effectiveness of the controls have been audited over a specified period of time. Type II Certification consists of a thorough examination by a third party firm of an organization’s internal control policies and practices over a specified period of time. The period of time is typically six months to one year. This independent review ensures that the organization meets the stringent requirements set forth by the AICPA and CICA.
“When trusting an application with highly sensitive and confidential information, such as passwords, documents and secure images, obtaining high level certification is imperative,” SCM said.
SCM also mentioned that it employs fully redundant data sources and systems to protect data and ensure the least amount of downtime in a disaster. The company added that having account information available to clients and agents 24/7 without interruption is a priority.
“Keeping our network secure is a top priority at Secure Collateral Management,” the company said. “In addition to third party annual network penetration testing and certification, Secure Collateral Management also performs quarterly in-house penetration tests to ensure local network security.”
On Tuesday, Recovery Industry Services Co. (RISC) announced that Holly Balogh, a former top executive at Recovery Database Network (RDN), has been hired as the president and chief operating officer of RISC.
The company added that Stamatis Ferarolis will remain as owner and chief executive officer.
“RISC continues to be at the forefront of the recovery industry for compliance and training,” Ferarolis said. “With the growth we have seen from our recent partnership with MBSi, we needed to bring additional leadership with deep industry experience to ensure we are positioned well to support the growth that we are seeing.
“We are thrilled to have Holly join RISC as president and bring her wealth of recovery and compliance experience to our customers.”
Balogh joins RISC with more than five years of industry experience, most recently working as the chief operating officer at RDN, a business unit of KAR Auction Services, Inc.
All told, Balogh brings more than 25 years of business experience to RISC including her experiences at RDN, formerly as the vice president of OneWest.net, a technology service company based in the Rocky Mountain region, and as an experienced manager at Accenture, an international technology and management consulting company.
“From my experiences working in the recovery industry, I am aware that RISC provides the gold standard of compliance and training through their CARS program,” Balogh said. With their recent growth, as well as lender and forwarder company adoption, they set the standard in the industry for training, lot inspections and vetting services.
“I am thrilled to join RISC and to bring my compliance and industry experience to the business,” she went on to say.
SubPrime Auto Finance News reconnected with Hudson Cook associate Anastasia Caton, who has been closely watching the Supreme Court mulling over whether a finance company that regularly attempts to collect debts it purchased after the debts had fallen into default is a “debt collector” subject to the Fair Debt Collection Practices Act (FDCPA).
The newest member of the highest court, Justice Neil Gorsuch, wrote the opinion for the unanimous decision that determined Santander Consumer USA was not a “debt collector" subject to the FDCPA when it bought, held and then serviced on its own account consumer debts that were in default at the time of purchase. The Supreme Court’s actions affirmed the previous decision by the U.S. Court of Appeals for the Fourth Circuit.
Here is the segment of Gorsuch’s 13-page opinion the Hudson Cook team felt was most relevant to finance companies and other participants in auto financing and collections.
“… the Act defines debt collectors to include those who regularly seek to collect debts ‘owed … another.’ And by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner — not on a debt owner seeking to collect debts for itself,” Gorsuch wrote for the court. “Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner — whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’
“And given that, it would seem a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute, just as the Fourth Circuit explained,” Gorsuch went on to write.
The Supreme Court heard oral arguments in this case — Henson versus Santander Consumer USA — on April 19 and needed less than two months to render the decision. Caton previously explained that the case began when consumer Ricky Henson defaulted on a retail installment sale contract secured by a vehicle. After the original creditor repossessed and sold Henson's vehicle and applied the net proceeds to the balance, Caton noted a deficiency remained.
Eventually, the creditor sold Henson’s outstanding deficiency to Santander Consumer USA and Santander began collecting Henson’s deficiency.
“I was a bit surprised by how quickly the ruling came out, and also surprised by the 9-0 decision, without even a concurring opinion that addressed policy issues,” Caton told SubPrime Auto Finance News this week. “But it was clear during oral argument that all of the justices were struggling with the consumer’s textual argument.
“By limiting the question presented to only addressing the part of the definition of ‘debt collector’ that includes persons who regularly collect debt that is ‘owed or due another,’ the Court had its hands tied with respect to how far it could go in bending the language of the statute,” she continued. “Had the Court considered the other part of the definition of ‘debt collector’ — a business with the principal purpose of collecting debts — I think we would have seen more deliberation and also a split.”
Any new opportunities?
Caton also addressed another question that might be on executives’ minds. What kinds of opportunities might this ruling open up for auto finance companies to do with their negative paper? Caton began by noting how Santander is a different player in the space than some other operations that originate vehicle installment contracts.
Caton acknowledged the decision was indeed “a victory” for a company such as Santander. One of the reasons why is became its business includes not just the collection of consumer debts, but also origination and consumer banking.
“Traditional debt buyers will still be proceeding with caution, and likely will not change course with respect to FDCPA compliance in light of the decision,” she said.
Caton also explained that the Supreme Court “made clear” that there are two alternate definitions of debt collector. Those definitions are:
1. Entities collecting debts owed or due another (third party debt collectors)
2. Entities engaged in a business the principal purpose of which is the collection of debt.
“The Court consistently pointed out that it was only deciding whether Santander was collecting debts owed or due another, and was not deciding whether Santander was engaged in a business the principal purpose of which is the collection of debt,” Caton said.
“I would not be surprised if we saw litigation soon where the consumer alleges that the purchaser of a delinquent account (whether it is a traditional debt buyer or, the more difficult case, a traditional financial services firm) is a debt collector under the principal purpose prong of the definition,” she continued.
Caton reinforced her point by referencing the reaction by the Receivables Management Association (RMA), a trade group that represents debt buyers. That organization emphasized that the Supreme Court decision still leaves uncertainty about debt buying companies that purchase and actively collect on their own debt.
“While all judicial decisions are based on the facts contained in the case, it is conceivable that the Santander decision may be used by debt buying companies that operate solely as an investment vehicle and do not engage in any debt collection activity themselves (aside from acquisition) to argue they are not subject to FDCPA regulation,” the association said in a news release. “However, RMA would urge all companies that operate under either the active or passive business model to consult with legal counsel before making any operational changes.
“In the end, RMA does not see the Santander decision as lessening the consumer protections required of its membership due to the rigorous requirements of RMA’s Receivables Management Certification Program (RMCP). RMA estimates that over 80 percent of consumer receivables in the United States that have been sold on the secondary market are owned by companies who are RMCP certified and thereby bound by standards that already go above and beyond the requirements of the FDCPA,” the organization went on to say.
While Caton isn’t expecting a flood of new debt buyers to appear suddenly, she considered what more traditional financial services companies like banks could do now.
“(The decision) might allow the inclusion of more negative paper from sales finance companies in portfolio purchases, heating up competition for such paper,” Caton said. “However, banks could decide that the risk of an adverse ruling on the “principal purpose” prong of the definition of “debt collector” is too high and might continue to avoid purchasing delinquent accounts.”
Furthermore, Caton raised the possibility of what could happen if lawmakers become more involved in debt-collection matters.
“Another thing to keep in mind is that states can always enter this space to regulate where Congress fails to do so. State legislatures tend to be more nimble than the federal legislature,” Caton said. “In response to the proliferation of the debt buying industry, numerous states have stepped in over the past few years to pass legislation expressly regulating debt buyers.
“If that trend continues to spread, we could see further consolidation of the debt buying industry as the cost of multi-jurisdictional compliance becomes overly burdensome for smaller players,” she continued. Further, the CFPB still has UDAAP authority and the FTC still has UDAP authority over entities that purchase defaulted debt and try to collect from consumers.”
Decision in historical context
SubPrime Auto Finance News also asked a question other industry participants might be wondering, too. Had the result gone the opposite way, what kind of additional burdens might have been placed on auto finance companies?
“Had the result gone the opposite way, and the Court ruled in favor of the consumer, I think we would have maintained the status quo,” Caton said. “I do not think the market for negative auto finance paper would have moved that much.
“Before this case, the majority of federal appellate courts to address the issue, the CFPB, and the FTC all interpreted the FDCPA to apply to purchasers of defaulted debt,” she continued. “As a result, most purchasers of defaulted debt had already been complying with the FDCPA.
Finally, Caton considered where this Supreme Court decision ranks in important court victories for the auto finance industry.
“The decision is certainly significant because it narrows the scope of the FDCPA’s coverage, and eases the FDCPA risk for a narrow sub-group of portfolio buyers that are not ‘debt buyers,’ but who also service their own accounts in their own names. But the decision in Henson is not an industry game-changer,” Caton said.
“The narrow sub-group of portfolio buyers that are not ‘debt buyers’ will likely have a modest impact on the market for negative auto finance paper, and the Court could still decide that those entities are subject to the FDPCA because they are engaged in a business the principal purpose of which is the collection of debt,” she concluded.
ACA International, the Association of Credit and Collection Professionals, recently released a white paper that examines how the Telephone Consumer Protection Act’s (TCPA) “antiquated” understanding of technology results in some consumers receiving a disproportionate number of telephone calls while others are almost entirely excluded from receiving legitimate business communications.
The paper, titled “Unintended Consequences of an Outdated Statute: How the TCPA Fails to Keep Pace with Shifting Consumer Trends,” also updates TCPA litigation statistics.
“It has long been ACA’s assessment that the TCPA has failed to adjust to modern communications technology and evolving consumer preferences,” ACA International chief executive officer Pat Morris said.
“Not only has this failure exposed legitimate businesses to an exponential growth of TCPA lawsuits, but as this white paper demonstrates, it has unintentionally resulted in certain consumers who possess wireless-only telephones from receiving important information while at the same time incentivizing more calls to those consumers who rely solely on landline telephones,” Morris continued.
Data from the National Center for Health Statistics indicated that as of December 2016 a majority of American homes (50.8 percent) were wireless-only. This means that a majority of American households now have no landline in the home and exclusively use wireless communication devices.
The paper showed there are also significant generational differences in those homes that are wireless-only relative to those that still have a landline. For example, 72.7 percent of 25-29 year-olds live in a wireless-only household. However, only 23.5 percent of consumers over the age of 65 live in a wireless-only household.
Additionally, 76.5 percent of individuals aged 65 and older live in households with a landline. Because of these dramatic differences in wireless-only households across age groups, ACA International stressed that attempted compliance with the Federal Communications Commission’s broad interpretations of the TCPA will likely result in certain consumers receiving a disproportionate number of business-related phone calls while other segments of the consumer population are almost entirely excluded.
Specifically, if a company only calls consumers who possess a landline telephone in an effort to minimize potential TCPA liability, they are more likely to contact consumers 65 years of age or older, according to the organization.
As noted in an earlier white paper, “The Imperative to Modernize the TCPA: Why an Outdated Law Hurts Consumers and Encourages Abusive Lawsuits,” ACA found that TCPA litigation has become something of a cottage industry, with attorneys’ fees for a TCPA class action settlement averaging $2.4 million in 2014.
Furthermore, the organization said TCPA litigation has consistently increased year-after-year. Data from 2015 showed that TCPA lawsuits increased 948 percent between 2010 and 2015.
In ACA’s new white paper that is available here, data from 2016 shows an even more dramatic increase in TCPA litigation. Between 2010 and 2016 there was a 1,273 percent increase in litigants; between 2015 and 2016 alone, the total number of litigants increased 32 percent.
In light of these findings, ACA argued that modernization of the TCPA can accomplish several objectives, including:
—Ensure consumers are not deprived of normal, expected and desired information
—Provide clarity for businesses to engage in targeted, beneficial communication with specific consumers
—Free the courts to attend to the needs of real victims of harassment and abuse
ACA International’s research initiative aims to collect more original data about the credit and collection industry. The goal of this exclusive research and analysis is to continue to quantify the ways that debt collectors help consumers and the overall economy.
The expert who oversees the S&P/Experian Consumer Credit Default Indices explained how May’s auto default movement should put discussions about a “crisis” in subprime auto financing “behind us.”
S&P Dow Jones Indices and Experian released data through May and reported that the auto finance default rate dropped 5 basis points from the previous month to settle at 0.85 percent. The latest reading also is 7 basis points lower compared to the same month last year.
The May reading also tied for the lowest market analysts have seen during the past 10 years. In June 2015, the auto finance default rate also stood at 0.85 percent.
For even more perspective, the May rate also is a fraction of the high point going back a decade when analysts’ charts topped out at 2.75 percent in February 2009.
“Default rates for auto loans have drifted down in the last four months. At the beginning of the year there were reports of a subprime crisis in auto loans; these concerns seem to be behind us,” said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.
Also showing positive movement was the first mortgage default rate, which dropped 5 basis points from April to 0.64 percent. Blitzer pointed out that the rate remains below the pre-crisis period.
“Rising home prices and increases in the equity mortgage borrowers have in their home are helping lower default rates,” he said.
Meanwhile the composite rate — which represents a comprehensive measure of changes in consumer credit defaults — dropped 4 basis points in May compared to the previous month, coming in at 0.86 percent.
The sour spot in the latest report involved the bank card default rate, which increased 18 basis points from April to 3.53 percent.
“Easy come, easy go: Bank cards, where borrowing money requires simply swiping a credit card, are experiencing rising defaults, while defaults on other kinds of consumer credit which depend on paperwork are flat or down,” Blitzer said.
“Default rates on bank cards are at the highest level since May 2013, four years ago,” he continued. “In the past, default rates began to climb around the same time the growth of bank card credit outstanding began to slow.”
Blitzer went on to mention the year-over-year growth of bank card credit outstanding peaked at 6.8 percent last November and was at 5.7 percent in April, the latest figure available. Bank card defaults rose from 2.81 percent in November to 3.35 percent in April, and up to 3.53 percent in May.
Blitzer also explained why “the pictures of auto loans and mortgages are quite different” from what’s happening with bank cards.
“One factor in the difference between rising bank card defaults and stable defaults on mortgages and autos may be the difference in interest rates: about 4 percent on mortgages and 4.4 percent on auto loans, compared to 12 percent to 18 percent on bank card loans,” he said
Finally looking at the latest data geographically, analysts noticed four of the five major cities saw their default rates decrease in the month of May.
New York experienced the largest decrease, down 9 basis points from April to 1.01 percent.
Los Angeles reported 0.66 percent for May, dropping 3 basis points from the previous month.
Dallas came in at 0.67 percent, down 2 basis points from April.
Miami was down 1 basis point from April to 1.29 percent.
At 0.97 percent, Chicago was the only city reporting a default rate increase of three basis points from the previous month.
As previously mentioned, the national bank card default rate of 3.53 percent in May set a 48-month high. When comparing the bank card default rate among the four census divisions, analysts found the default rate in the South is considerably higher than the other three census divisions.
The East South Central Census Region — comprised of Kentucky, Tennessee, Alabama and Mississippi — has the highest bank card default rate. According to the Bureau of Labor Statistics, these states have some of the lowest median household income.
Jointly developed by S&P Indices and Experian, analysts noted the S&P/Experian Consumer Credit Default Indices are published monthly with the intent to accurately track the default experience of consumer balances in four key loan categories: auto, bankcard, first mortgage lien and second mortgage lien.
The indices are calculated based on data extracted from Experian’s consumer credit database. This database is populated with individual consumer loan and payment data submitted by lenders to Experian every month.
Experian’s base of data contributors includes leading banks and mortgage companies and covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.
Experian Automotive tried again this week to pop the talk about a “subprime auto loan bubble.”
Analysts said, “There’s always someone who claims that the bubble is bursting. But a level-headed look at the data shows otherwise.”
According to Experian’s State of the Automotive Finance Market report, 30-day delinquencies dropped and subprime auto financing reached a 10-year record low for the first quarter. Analysts indicated the 30-day delinquency rate dropped from 2.1 percent in Q1 2016 to 1.96 percent in Q1 2017, while the total share of subprime and deep-subprime installment contracts dropped from 26.48 percent in Q1 2016 to 24.1 percent in Q1 2017.
“The truth is, lenders are making rational decisions based on shifts in the market. When delinquencies started to go up, the lending industry shifted to more creditworthy customers. This is borne out in the rise in customers’ average credit scores for both new and used vehicle loans,” analysts said.
Experian noted that the average customer credit score for a new-vehicle contract rose from 712 in Q1 2016 to 717 in Q1 2017.
The company added the average customer credit score for a used-vehicle loan rose from 645 in Q1 2016 to 652 in Q1 2017.
In what Experian called “a clear indication” that finance companies have shifted focus to more creditworthy customers, super prime was the only risk tier to grow for new-vehicle financing from Q1 2016 to Q1 2017. Super-prime share moved from 27.4 percent in Q1 2016 to 29.12 percent in Q1 2017.
All other risk tiers lost share in the new-vehicle financing category:
• Prime: 43.36 percent in Q1 2016 to 43.04 percent in Q1 2017.
• Nonprime: 17.83 percent in Q1 2016 to 16.96 percent in Q1 2017.
• Subprime: 10.64 percent in Q1 2016 to 10.1 percent in Q1 2017.
For used-vehicle financing, Experian spotted a similar upward shift in creditworthiness.
Prime and super-prime risk tiers combined for 47.4 percent market share in Q1 2017, up from 43.99 percent in Q1 2017.
At the low end of the credit spectrum, subprime and deep-subprime shares fell from 34.31 percent in Q1 2016 to 31.27 percent in Q1 2017.
“The upward shift in used vehicle loan creditworthiness is likely caused by an ample supply of late model used vehicles,” Experian analysts said. “Leasing has been on the rise for the past several years (and is at 31.06 percent of all new vehicle financing today).
“Many of these leased vehicles have come back to the market as low-mileage used vehicles, perfect for CPO programs,” they went on to say.
Experian also mentioned another key indicator of the lease-to-certified pre-owned impact is the rise in used-vehicle financing share for captives. In Q1 2017, captives had 8.3 percent used-vehicle share, compared with 7.2 percent in Q1 2016.
In other findings:
• Captives continued to dominate new-vehicle financing share, moving from 49.4 percent in Q1 2016 to 53.9 percent in Q1 2017.
• 60-day delinquencies showed a slight rise, going from 0.61 percent in Q1 2016 to 0.67 percent in Q1 2017.
• The average new vehicle contract reached a record high of $30,534.
• The average monthly payment for a new vehicle installment contract reached a record high of $509.
