Experian and CEB TowerGroup acknowledged how auto finance providers and other financial institutions are facing heavy business pressures to reach new demographics often riddled with thin credit files, while also improving the customer experience across all channels and processes.
According to experts from those firms, that pressure also is opening finance companies up to a complicated and growing type of fraud — synthetic identities — which appear to have been a part of $3 billion in losses in 2015 throughout all areas of credit, including auto.
“The problem in the last couple of years has really exploded because now there are mechanisms to create mass synthetic identities,” Experian senior business consultant Keir Breitenfeld told SubPrime Auto Finance News during a recent phone conversation.
“The model has exploded and growing at a rate of two and a half time years over year,” Breitenfeld continued.
So what are synthetic identities? Breitenfeld explained that fraudsters cobble together names, Social Security numbers, birth dates and addresses from a wide array of sources and create what seems like a person. At least so it would appear that way to the financial world.
“Synthetic identity passes the confidence check that identities involved in identity theft would not,” he said, while adding that various consumer database breaches during the past few years have given fraudsters plenty of raw material in which to create these identities.
“They have now established a digital footprint across various types of data houses. They may have credit history. They may have documentary evidence. They may show up in a public records database. They’ve created and cultivated it over a period of time to ultimately be used to perpetrate fraud,” Breitenfeld continued.
And as a result, Breitenfeld emphasized that finance companies are susceptible to fraud via synthetic identities during the origination process.
Before finance company leaders throw up their hands in frustration, Experian and CEB TowerGroup compiled a white paper with a quartet of recommendations that included:
1. Assess synthetic identity exposure to answer questions around current and potential losses across a portfolio or portfolios.
2. Implement specific synthetic identity decisioning strategies and workflows designed to initially segment potential synthetic identities for more targeted treatment across the customer lifecycle.
3. Capture and aggregate quality customer data across the customer lifecycle and tie in with authentication methods to mitigate risk across those transactions while adding trust.
4. Conduct data furnishing quality assurance reviews and create feedback loops to ensure your institution is not contributing to synthetic identity creation.
If left unchecked, Experian and CEB TowerGroup asserted that financial institutions will continue to see fraud losses mount as these fake identities are used to withdraw maximum amounts of credit and “bust out” their available balances — or the vehicle attached to the installment contract — before they disappear.
The firms insisted it is critical to disseminate updated information about the threat, the scope of the problem and the methods to defeat it across all markets.
“This is leading edge of what will be significant losses going forward,” Breitenfeld said. “It requires an end-to-end lifecycle program to focus on the problem.”
To download the complete analysis from Experian and CEB TowerGroup, go to this website that also has links to more resources involving e-commerce fraud and locations where it happens most often.
GWC Warranty, a provider of used vehicle service contracts and related finance and insurance products sold through dealers, recently announced the addition of Andrew Roke as its new product manager.
As a member of the marketing department, the company highlighted Roke will be responsible for managing GWC’s suite of products while evaluating new opportunities for innovative product enhancements, all in an effort to help GWC Warranty partners operate more successful businesses.
Prior to joining GWC, Roke held several positions in operations and marketing product management. Most recently, he held the position of strategic product manager for Cornell Cookson in Mountain Top, Pa. He previously spent several years with Aramark, working in the cleanroom and uniform services divisions in Scranton, Pa., and Los Angeles, respectively
Stephanie Alsbrooks, founder and chief executive officer of defi SOLUTIONS, has been selected as a Southwest region finalist for the EY Entrepreneur of the Year. This prestigious business recognition program honors the most innovative business leaders in the country, based on criteria of innovation, financial performance, risk and personal commitment to their businesses and communities.
Alsbrooks started defi SOLUTIONS in 2012. Gathering a team of technology experts, she set out to create an affordable, flexible and scalable loan origination system (LOS) and accomplished that goal, and won the first client in six months.
Today, defi SOLUTIONS is one of the leading LOS providers in auto finance, having grown from six individuals to a team of more than 70 with a family of lending services that includes the loan origination software with eContracting and digital loan documents, a loan management and servicing system, analytics and reporting, and the first and only integrated auto loan portfolio marketplace.
“Stephanie’s that rare individual who can drive a fast-paced, growing operation and still take time to communicate,” said Georgine Muntz, defi SOLUTIONS chief operating officer. “She has incredible ideas that she brings to the table and she’s able to listen, discuss, and gain agreement to rapidly create valuable solutions for lenders while focusing on team and culture as a competitive advantage.”
At defi SOLUTIONS, Alsbrooks and her leadership team have created an environment of collaboration, innovation and teamwork. The company strives to attract and retain the best talent and leverage new technology to ensure that defi customers get the most benefit out of their relationship with defi.
Most employees have ownership or options and all are kept in the know on company health and strategy, and they are encouraged to move the company forward through teamwork and challenging the status quo.
“What Stephanie has done is simply amazing,” said Glenn Munro, an early defi SOLUTIONS investor and current vice president of sales. “I’ve known her for a very long time, and it’s been incredible to watch her lead this company and the industry. Stephanie’s not after the spotlight, but she deserves it.”
The EY Entrepreneur of the Year regional winner will be announced at an awards gala in Dallas on Saturday. Once regional winners are announced, the national winner will be selected in November to compete for the global award in 2018.
Leaders from defi SOLUTIONS and eOriginal are looking for the auto finance industry to take another significant evolutionary step. Just like when participants moved away from using fax machines to complete applications, Georgine Muntz and Theodore Papilliou want finance companies to go completely digital to reduce paper consumption and generate other benefits.
“There are lots of obstacles for many lenders who are considering going paperless that can seem insurmountable,” said Muntz, who is the chief operating officer at defi SOLUTIONS. “But I’ve seen firsthand how technology and process can overcome even the longest list of objections, and in the long-run create more time, accuracy and customer satisfaction.”
On Wednesday at 2 p.m. ET, Georgine Muntz is joining with Papilliou, who is eOriginal’s director of value engineering, for a discussion about the benefits of digital financing. During the free webinar, titled “Decoding Digital Lending for Vehicle Finance,” topics will include:
• How post-signature technology can provide critical visibility into the dealer/finance company transaction.
• How dealers and finance companies can strengthen partnerships with digital technology.
• How to leverage the secondary markets in a fully digital contract environment.
• How to make compliance your competitive advantage.
“With less paper we’ll all take a giant leap toward a better future,” said Muntz, who elaborated more about the potential of saving costs and improving experiences when going paperless in a blog post available here.
“Whether you’ve implemented certain digital lending processes or you’re new to the concept altogether, we invite you to join the webinar,” Muntz went on to say.
Registration for the webinar can be completed here.
Westlake Financial Services now possesses a significantly larger investment footprint, as on Thursday the company announced the acquisition of Credit Union Leasing of America (CULA), headquartered in San Diego.
The company highlighted the purchase of CULA raised Westlake’s total managed assets from $4.0 billion to $5.5 billion.
Founded by Terry Bowdler nearly 30 years ago, officials highlighted CULA is a respected automobile lessor in the credit union market. Westlake’s investment will support the continued growth of CULA by providing additional resources and financial stability.
“Along with its subsidiaries, Westlake Financial offers indirect financing, dealer floorplan financing, direct-to-consumer lending and insurance products. CULA‘s lease model complements Westlake’s offerings,” said Don Hankey, chairman of Westlake Financial Services. “In addition, CULA’s current affiliations strengthen our growing relationships within the credit union industry.”
Westlake Financial appointed Ken Sopp — who was vice president of Midway Leasing, a Hankey Group subsidiary — as chairman and managing general partner of CULA. The company also noted John Thomas will remain CEO of CULA, and Bowdler will transition to a strategic advisor role.
Officials added Credit Union Leasing of America will remain headquartered in San Diego.
“Our credit union clients, my talented team and our extended family of service providers have been my life for the past 29 years,” Bowdler said.
“As I transition to an advisory role for CULA, I am confident that the company is in great hands with Westlake Financial,” he continued. “The leadership team at Westlake has a deep comprehension of auto finance, a strong balance sheet and an entrepreneurial spirit that will enable CULA to autonomously continue growth for years to come.”
Westlake Financial Services is a member of The Hankey Group. Established by Hankey more than 45 years ago, The Hankey Group is headquartered in Los Angeles and comprised of seven operating companies with 2,500 employees specializing in automotive finance, insurance, auto rental, real estate and technology.
As of the first quarter, The Hankey Group’s total assets are $8.5 billion.
Westlake Financial Services was represented in the transaction by lead corporate counsel Richard Hong along with his team of the Los Angeles-based law firm of Greenberg Glusker. Credit Union Leasing of America was represented by Christian Salaman and Jason Stirling, partners with Pillsbury Winthrop Shaw Pittman, headquartered in New York.
As was widely anticipated, members of the Federal Open Market Committee at the Federal Reserve chose to raise the target range for the federal funds rate from 1 percent to 1.25 percent on Wednesday.
While the vote to raise the rate was nearly unanimous, one FOMC member earlier raised concerns about the economic trends that often influence the committee’s decisions — and how subprime auto financing might play a role.
Back on May 30, Lael Brainard delivered remarks to the New York Association for Business Economics in a speech titled, “Navigating the Different Signals from Inflation and Unemployment.” That’s when Brainard touched on the credit given to consumers with soft credit histories so they can secure transportation.
“One area that merits ongoing vigilance is corporate indebtedness, which remains at a high level and where investor appetite still seems strong,” Brainard said. “Another area of concern is auto lending — particularly in the subprime segment — where underwriting appears to have become quite lax last year and, consequently, delinquency rates indicate more borrowers struggling to keep up with their payments.
“Eight years into the recovery, it is important to recognize that financial conditions can change rapidly and bear special vigilance. Nonetheless, risks to the U.S. financial system do not appear to be flashing red in the way they did in the run-up to previous downturns,” she continued.
Without those flashing red risks that Brainard referenced, the FOMC voted 8-1 to proceed with the rate hike with only Neel Kashkari of the Minneapolis Fed voting for the rate to remain unchanged.
In a statement announcing the decision, the FOMC reiterated that its statutory mandate revolves around fostering maximum employment and price stability. Members are expecting that economic activity will expand at a “moderate pace,” and labor market conditions will “strengthen somewhat further.”
While making a quarter-percent increase back in March, the FOMC passed on an uptick last month. Wednesday’s move represents the second increase this year and third in the past seven months.
“In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation,” the members said in a statement. “This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
“The committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal,” they continued. “The committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.
“However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data,” they added.
Expert reaction to rate rise
The analyst team at S&P Global Ratings also began its assessment of the Fed’s actions by calling the rate hike “as broadly anticipated.”
S&P Global Ratings said the firm continues to expect one more rate rise of 25 basis points in 2017.
“The Fed also outlined details on balance sheet normalization, stating it intends to start the unwinding process this year if the economy evolves as anticipated,” S&P Global Ratings analysts said. “The Fed didn’t provide an exact start date or the optimal size of the balance sheet at the end of the normalization process, but it did provide how it would taper reinvestments.
“All indications from the FOMC statement, forecasts and chairwoman (Janet) Yellen’s press conference are that the FOMC will take a ‘gradual’ approach and will remain data-dependent,” they added.
Stifel Fixed Income chief economist Lindsey Piegza looked to explain why the FOMC made this move coming off of what she described as additional “soft” inflation data released this week.
“The Fed’s decision to move forward with a second-round increase this year appears to be motivated by both a push from the market with today’s rate hike fully priced in, according to Bloomberg, as well as a desire to rebuild the monetary policy tool kit,” Piegza said.
“Justification from the data, on the other hand, as the economy shows lingering signs of weakness carrying over from the first-quarter amid still-sluggish consumer activity, modest labor market gains and cooling inflation, appears to be the missing component that would normally be at the forefront of an accelerated rate path,” she continued.
“In other words, the Fed’s decision to raise rates today, while expected, appears to be little motivated by the data, leaving the future pathway for rates even more uncertain at this point,” Piegza went on to say.
Piegza also touched on what else policymakers said in connection with Wednesday’s rate action.
“Acknowledgement of the recent decline in prices within the statement as well as with a modest downward revision to the forecast, however, appears to be taking a backseat to the Fed’s general optimism for improvement in growth and inflation,” she said.
“Without sizable and clear additional weakness, the Fed appears steadfast in their commitment to one additional rate hike this year. Once again, the Fed’s credibility is on the line as the data argues for quite an opposite position,” Piegza went on to say.
Comerica Bank chief economist Robert Dye focused much of his analysis on the addendum to the Fed’s policy normalization principles that he said “gives us a little deeper view into balance sheet reduction.”
Dye continued with, “Once the program gets started, the Fed will continue to reinvest maturing assets only to the extent that the dollar total exceeds gradually rising caps. So the cap represents the amount of asset reduction per month.”
Dye explained that the Fed expects to start the cap on the reinvestment of maturing Treasury bonds at $6 billion per month and increase that in steps of $6 billion per quarter over 12 months until it reaches a final cap of $30 billion per month. He continued that the cap on the reinvestment of agency debt and mortgage-backed securities will start at $4 billion per month and increase in steps of $4 billion quarterly over 12 months until it reaches $20 billion per month.
Also referencing Yellen’s press conference, Dye recapped that Yellen said that the Fed had not yet determined the final size of the balance sheet, “but that it would be larger than the roughly $1 trillion size that it was prior to the financial crisis.”
Dye added, “(Yellen) also declined to say how long it would take to get there. She described the balance sheet reduction plan as working in the background while fed funds interest rate policy would remain the primary mechanism for monetary policy changes.
“Yellen would not say specifically when balance sheet reduction will start, but she reinforced previous Fed statements suggesting that it will start before the end of this year. She made her most forceful comment yet on the starting point for balance sheet reduction saying that it would happen ‘relatively soon,’” Dye concluded.
Coming off of a fiscal year where its net earnings dropped but still surpassed $5 million, Nicholas Financial this week announced the retirement of Ralph Finkenbrink as the subprime auto finance company’s president and chief executive officer for personal reasons.
Nicholas Financial said Finkenbrink’s decision is effective as of Sept. 30 and he will resign as a director and chairman of the board effective as of the date of the company’s 2017 annual general meeting of shareholders, which is expected to be held prior to the end of September.
The company’s board of directors expects to initiate a search for a new president and chief executive officer shortly.
“The board of directors of Nicholas Financial expresses its gratitude to Ralph for 29 years of service to the company, 25 of which have been in senior executive positions,” said Kevin Bates, senior vice president of branch operations and a member of the board of directors.
Finkenbrink’s announcement arrived about a month after the company released results of its latest fiscal year, which closed on March 31.
The company’s fourth-quarter net loss came in at $1.1 million, but net earnings for the year totaled $5.4 million. Nicholas Financial’s revenue softened by 1.3 percent in Q4 to land at $22.9 million. For the year, revenue remained relatively flat at $90.5 million.
While the revenue metric stayed nearly the same year-over-year, Nicholas Financial watched its net earnings tumble from $12.4 million in the 2016 fiscal year.
“Our net earnings … were adversely affected primarily by an increase in the provision for credit losses due to higher charge-offs and past-due accounts along with a reduction in the gross portfolio yield,” the company said. “Additionally, several negative factors, including an extremely competitive market, greater than anticipated losses, and lower auction proceeds have undermined our loss estimates and led to actual losses incurred that were greater than anticipated.
“We remain cautious with respect to near term losses as delinquency percentages remain elevated,” the company added.
For the year, Nicholas Financial reported that it purchased 14,619 contracts, 1,884 less than the previous fiscal year. The weighted APR on those contracts stood at 22.37 percent as terms averaged 56 months on opening balances that averaged $11,593.
The company closed its fiscal year with 37,453 active contracts.
As that new paper entered the portfolio, Nicholas Financial also explained the actions it’s taking to mitigate future risk and potential losses. The moves started with new static pools beginning with the fourth quarter collection of contracts purchased, which included 3,677 contracts.
“We have created a centralized funding department whose primary function is to review approved applications prior to funding the contract to the dealer,” the company said. “Stipulations that are embedded in our approvals of applications are verified by the centralized department to eliminate funding acquired contracts to dealers that had inaccurate job information, income proofs or certain other items that would have led us to turn down the application.”
Nicholas Financial also touched on another change it made as of March 1.
“We have also changed our underwriting guidelines to incorporate the results of a retroactive study of our actual contracts measured by a third-party provider of alternative data,” the company said. “The results of this analysis have assisted us in identifying areas where our underwriting guidelines did not price the risk appropriately.
“We continue to evaluate our operating structure and will attempt to make further improvements that can be implemented. The market for contract acquisition remains challenging and we do not expect any material improvements in the near-term,” the company went on to say.
Change seems to be always in the air in the auto finance space. Finance companies are adjusting underwriting to mitigate risk, maintain origination growth and watch for delinquency rises. Service providers are looking to improve their solutions while sustaining high levels of performance and compliance.
And the professionals who lead the way in these endeavors are the primary topic for the next print edition of SubPrime Auto Finance News, our annual look at Movers & Shakers.
To make sure we highlight some of the best of the best who keep finance companies and service providers successful, we’re seeking nominations from you — the industry leaders and individuals in the trenches who are helping consumers secure the transportation they need to maintain their quality of life.
“We want this collection of Movers & Shakers to represent why auto financing plays such a critical role not only in the automotive industry, but our entire economy,” said Bill Zadeits, publisher of SubPrime Auto Finance News. “We asking for your help to make sure we capture the professionals most deserving of recognition for the crucial part they play in keeping auto financing vibrant.”
Along with a high-resolution photograph of the professional, SubPrime Auto Finance News is asking nominators to answer these two questions about why this individual is among the top Movers & Shakers in auto financing. The questions are:
—How has this professional improved his/her skills and performance during their time with the company?
—How does this individual not only make the company better, but also his/her colleagues?
To submit your nomination, please send materials to SubPrime Auto Finance News senior editor Nick Zulovich at [email protected]. Nominations will be accepted through June 27.
And if you don’t already receive your free copy of SubPrime Auto Finance News, please go to www.autoremarketing.com/subprime/subscribe to submit your information.
This week, RouteOne highlighted that its eContracting platform reached a new milestone with 7.5 million booked eContracts. The threshold resulted in more than $200 billion in funded deals.
RouteOne indicated the growth can be attributed to the rising adoption by:
• More than 6,000 active eContracting Dealers
• 36 live and in-pilot eContracting finance sources
• 12 eContracting integrated dealer management systems
RouteOne said today’s digital retail environment is driven by evolving consumer expectations and demands the delivery of a better experience, convenience, and transparency. The company noted eContracting plays an integral part of this rapidly evolving landscape. It can provide consumers the convenience of faster funding, which saves dealers money on floor plan and courier fees. It increases efficiencies between dealers and finance sources by automating critical checkpoints and validating data upon entry.
This process can result in reduced bounced or held contracts. The digital workflow and benefits eContracting can provide to all parties is becoming a standard, and is more and more how business is done.
To support growth and further streamline dealer processes, RouteOne emphasized that it is continually enhancing the features offered to dealers who utilize eContracting, including:
• Remote document delivery, which can give consumers secure electronic access to their eContracted documents. At the same time, it can reduce printing costs and paper shuffling for dealers.
• Aftermarket rating and contracting, which can provide direct integration for dealers to their aftermarket providers, allowing them to retrieve product rates, register a product sale and execute a contract for an aftermarket product as part of the eContracting process and eSigning ceremony.
• Mobile signing application, which can allow dealers to present contracts to customers and capture their signatures on a tablet device, de-tethering the signing process to allow dealers to support consumers anywhere they wish to do business and reducing reliance on proprietary devices.
The company added finance sources are also benefiting from recent enhancements, including:
• Complete electronic validation and processing, which can provide finance sources a more robust funding package to enable automatic booking of eContracts with no human interaction. It can offers dealers faster funding by alleviating the need for manual review of contracts.
• eContracting certification for loan origination systems, which can help ensure that the technical implementation for finance source customers who choose eContracting, is a fast and easy process. It establishes standard functionality requirements that Loan Origination Systems must meet.
“RouteOne is very pleased to have accomplished these eContracting milestones in partnership with our owners and customers,” RouteOne chief executive officer Justin Oesterle said.
“We are committed to making the investments needed to support and lead the industry’s continued adoption of eContracting. It is becoming the standard for RouteOne users to the benefit of dealers, finance sources, and consumers,” Oesterle went on to say.
Dealers or finance sources interested in optimizing their F&I experience by implementing eContracting can contact RouteOne at (866) 768.8301 or www.routeone.com.
EFG Companies recognized independent stores that turn about 50 vehicles monthly need the same F&I resources as franchised stores that watch two, three or four times that many units roll over the curb each month. It’s why the company announced the launch of its virtual F&I model, Simplicity Finance and Insurance.
With Simplicity Finance and Insurance, EFG Companies highlighted on Tuesday that dealers can expect to generate upwards of more than $1,000 per retailed unit, get more paper bought, increase product penetration, and make F&I compliance a non-issue.
Mark Rappaport, president of EFG’s Simplicity Division, acknowledged many independents and dealers struggle to generate F&I profit with inventory that does not meet finance company requirements, limited financing options, little investment in F&I training in a high-turnover industry, and inconsistent day-to-day staffing.
“As you know, the employees and teams at the independent dealerships have to wear a number of hats. Wearing all of those hats sometimes doesn’t make you the most effective in all the facets tied to running an automotive dealership,” Rappaport said during a phone conversation with SubPrime Auto Finance News.
“Often we found, on the independent side, it’s the salespeople handling the F&I business and often the salespeople are really good at sales but don’t have the time, ability or expertise and background to be able to support the F&I process, where a franchised dealership would have the significant bench strength to be able to do that,” he continued.
“At the independent level, when you’re doing 25, 50, 75 units a month, it becomes a little more difficult to support that from a resource standpoint and get the bench depth to make it in a profitable and functional manner,” Rappaport went on to say. “We decided there was an opportunity here to help support our dealers at the independent level to provide them with a service that offers them access to the bench strength on retail operational hours basis and gives them the ability to be sure we’re doing everything compliant and we’re doing it in the most effective format to add more profit to their back end.”
EFG Companies has developed a way to leap-frog over these issues without adding a single F&I person to staff. Simplicity Finance and Insurance can give dealers instant F&I expertise and improves the customer experience, while increasing F&I profits.
This virtual F&I model can enable dealers to focus on the front-end process, while a team of expert F&I personnel take care of the finance process from EFG’s headquarters, streaming live into the dealership. EFG’s professionals handle the financing, deal structure, product sales, contracting and funding to drive back-end profit on each vehicle sale.
Rappaport explained that all the independent dealer needs is a private room with high-speed dedicated Internet access to get started. An EFG representative will come to the store, set up the equipment and provide multiple days of training. Within a short timeframe, the store can be finalizing deliveries with Simplicity Finance and Insurance.
According to AutoTrader, the average time spent in the F&I process is 61 minutes. However, the average consumer wants that time cut in half. With Simplicity Finance and Insurance, the F&I process takes just over 30 minutes. In a national research study, 1,000 consumers said the following with regard to the Simplicity virtual F&I model:
• 68 percent of those between the ages of 18 and 44, and 61 percent of those between the ages of 45 and 60, were interested in going through the virtual F&I process.
• 71 percent of those between the ages of 18 and 44, and 57 percent of those between the ages of 45 and 60, believe virtual F&I could increase their customer satisfaction.
• 64 percent of those between the ages of 18 and 44, and 56 percent of those between the ages of 45 and 60, would feel less pressured and more open to learn about F&I products.
“The dealers who have seen this in action are most excited about the ability to use decades of experience, giving them the best opportunity to close all customer types and maximize their back-end profit,” Rappaport said. “They are also extremely interested in how Simplicity Finance and Insurance can enable them to better develop their inventory and lender mix for a greater opportunity for back-end product sales.”
John Pappanastos, president and chief executive officer of EFG Companies, reiterated the points in a news release, stating: “We developed Simplicity Finance and Insurance to enable these dealers to evolve the F&I process from a basic transaction to a highly-lucrative profit center that enhances the consumer experience.”
To learn more about Simplicity Finance and Insurance, watch the video at the top of this page or here as well as by visiting www.efgcompanies.com.
