Despite consumer advocates insisting that rising auto financing default rates are mirroring the mortgage mess that triggered the most recent recession, Moody’s Investors Service explained that elevating delinquencies for loans originated by independent finance companies reflect a loosening of credit typical of the current expansionary consumer lending cycle.
Analysts determined the rise does not indicate that lending has reached a tipping point at which finance companies will not be able to manage losses. Moody’s arrived at that assertion according to the report titled, “Rising Subprime Auto Delinquencies Reflect Gradual Credit Expansion.”
Although 60-plus delinquencies rose 14 percent to 2.07 percent in third-quarter 2014 from 1.82 percent one year earlier, Moody’s data showed they are still below their highs following the financial crisis.
In addition, Moody’s vice president and senior analyst Peter McNally noted that loosening credit and increased competition among finance companies has caused delinquencies to rise across other segments.
“These factors have led to a 5-percent rise in delinquencies for banks and a 9-perccent rise for credit unions, which tend to focus on prime lenders,” McNally said.
McNally emphasized the current rise instead reflects the expansion of credit that typically occurs following a downturn.
“Lenders would have to dramatically expand lending to borrowers with the weakest credit to cause subprime auto performance to significantly deteriorate in 2015,” McNally said.
Moody’s also mentioned that performance is unlikely to deteriorate significantly, because finance companies are already showing some caution in underwriting in response to rising delinquencies. Analysts projected this tightening will limit the amount by which losses will rise.
The report pointed out the rate at which banks and captive finance companies have increased their lending to subprime borrowers slowed in the third quarter, and credit unions reduced their share of subprime loans by 4.2 percent year-over-year.
“However, subprime lenders continue to pursue some risky strategies, such as offering larger loan amounts and extended loan terms, which put the lenders at greater risk in the event of borrower default,” Moody’s said.
It’s the thought of those risky strategies that are giving fuel for arguments offered by the Center for Responsible Lending, which recently published a report titled, “Reckless Driving: Implications of Recent Subprime Auto Finance Growth.”
Center analysts acknowledged individuals who argue that the auto finance market is not facing similar issues that the mortgage market did before the housing meltdown usually start with a comparison of delinquency and default rates. They believe claims auto loan delinquencies and default rates look much lower in comparison to the mortgage market are misleading for several reasons.
“First, the delinquency and default rates used are a snapshot in time measurement,” the report said. “These rates are calculated by taking the total number of accounts outstanding and dividing that by the number of accounts in delinquency (meaning that the consumer is behind on their payments) or in default (the point at which the lender seeks to recover the collateral).
“Data on the cumulative number of delinquencies and defaults over a period of time is much more revealing because that data show the overall impact on the market, and is virtually never reported in the auto market,” center analysts continued.
“The second fault in the comparison is that auto lenders can repossess a car in about one-tenth the time it takes to foreclose on a house,” they added. “On average, a lender repossesses a car within 48 days, whereas the average foreclosure takes 577 days. A delinquent home loan stays on the delinquency and default report until the home is foreclosed, which means that those loans are included in the delinquency and default rates for a long time. Conversely, auto lenders are able to clear delinquent loans off the books relatively quickly.”
The Center for Responsible Lending cheered the regulatory moves made by agencies such as the Consumer Financial Protection Bureau. But the center closed its report by emphasizing that it is looking for federal officials to do more, especially when it comes to dealer participation.
“Dealers already receive compensation in forms other than interest rate markup, and those other forms have far less risk of discrimination and unfairness than interest rate markup,” the report said. “Regulators should also strongly consider applying a consistent ability-to-repay standard for auto lending, and ensure that lenders are exercising appropriate underwriting practices.”
EFG Companies claims the results of its most recent dealer services client satisfaction study released this week show the company scored higher than outfits such as Apple iPhone, Southwest Airlines, USAA Banking and Insurance, and Nordstrom.
Among the key findings, officials indicated dealers rated the account representative, compliance oversight and F&I training as the highest priority capabilities of F&I providers. On a scale of one to 10, where 10 is the highest for attributes in a given area, dealers ranked EFG as:
• 9.4 for account representative
• 9.3 for compliance
• 9.2 for F&I training
• 92 percent likelihood to recommend
“At EFG, we are obsessive about performance measurement and accountability,” said John Pappanastos, president and chief executive officer of EFG Companies.
“Soliciting direct, objective input through a national client satisfaction survey augments the ongoing measurement of our effectiveness against the commitments we make to our partners,” Pappanastos continued. “Our partners' feedback is an invaluable driver in the evolution of our business, and they seized the opportunity to also identify areas of their business where we have not traditionally engaged, but where they believe our engagement could meaningfully impact their business performance.”
Research study participants noted the high quality and depth of EFG’s account service team as one of the company’s greatest strengths, describing the service as an extension of the dealership’s management team.
EFG’s clients found the company’s knowledge regarding government regulations and industry trends highly beneficial to their business, as well as EFG’s proactivity in offering new ideas and recommendations:
• 97 percent of EFG’s clients stated that EFG representatives are F&I education and compliance leaders.
• 98 percent of clients regarded EFG overall as an expert of the F&I landscape.
• 95 percent believed that EFG has expert knowledge about government regulations and economic trends that affect their business.
• 95 percent of dealers stated that EFG understands the performance drivers of their F&I organization.
Troubadour Research and Consulting, who conducts national research with brands such as Kaiser Permanente, Toyota, and Samsung Mobile, administered EFG’s client satisfaction study, analyzing qualitative metrics from dealer principals and quantitative metrics from general managers and F&I directors.
“The results of the study weren’t just excellent, they were aspirational,” said Dale Gilliam, CEO of Troubadour Research and Consulting. “It’s our goal to be the EFG of the research industry.”
In the qualitative analysis, recurring comments from dealer principals said the following about EFG:
“The onsite training is invaluable. Our account rep is training the entire time he’s here, every time.”
“EFG is proactive and ahead of the curve on compliance compared to most F&I providers.”
“Ultimately, we have great F&I numbers and I attribute that largely to EFG.”
The Bob Moore Auto Group — the national leader in F&I revenue per retail unit among the top 125 U.S. dealer groups — also cheered EFG’s capabilities.
“EFG’s objective, professional counsel has enabled us to evolve and strengthen our business processes with innovative solutions and products,” said Curtis Hayes, chief financial officer of the Bob Moore Auto Group. “Their engagement model is not replicable by any other product provider.”
Exeter Finance Corp. completed the launch of its new originations platform this week; a process the company insisted can reduce the typical decision time to under 15 seconds.
Additionally, Exeter highlighted that it is now able to restructure the loans in real time.
As a result of the full rollout of the new system, all Exeter loan applications will be processed through two operations centers — one in Irving, Texas and the other in Clearfield, Utah — enabling faster and more efficient application processing and a higher level of service for dealers.
“Exeter has created a strong national footprint utilizing a traditional branch model, growing its portfolio from $150 million to $2.8 billion in the past three years,” Exeter chief executive officer Tom Anderson said. “However, we recognize the importance of adapting our business to accommodate the need for more expedient loan processing and higher service. Fundamentally, we have a goal of driving additional sales and customer loyalty in the dealership.”
Anderson emphasized that the changes will occur in a phased implementation to ensure a seamless transition for employees and dealer customers.
Exeter went on to mention the company continues to invest in tools to better support its dealer customers. Exeter’s new program typically provides decisions in 15 seconds or less, while still offering dealers the ability for rehash and personalized service.
“Our new structure allows the dealer to provide immediate offers to the end consumer, potentially generating more sales within the dealership and improving customer satisfaction rates overall,” Anderson said.
Anderson pointed out that consumers are demanding a quicker vehicle purchase process, driven largely by their increasing reliance on technology to better educate themselves, even before entering the dealership. As a result, the Exeter CEO thinks both dealers and finance companies alike are adapting business models to better accommodate the consumer's preference.
“We look forward to the opportunities for growth and change in 2015,” Anderson said. “We will continue to serve our dealers and end consumers in the most efficient and effective manner possible.”
Editor’s Note: Look for more insight on Exeter next week when SubPrime Auto Finance News catches up with Anderson in San Francisco during the Vehicle Finance Conference orchestrated by the American Financial Services Association.
President Obama highlighted the move made by Ally Financial on Monday to offer its auto finance customers free access to their FICO score as a means to better understand their credit health.
Obama mentioned the development during an event at the Federal Trade Commission highlighting the administration’s BuySecure initiative, which was launched last year to safeguard Americans’ financial security.
Finance company executives indicated the Ally effort will begin with a pilot program in February and a full launch this summer. The FICO Score will be available to customers who use Ally Auto Online Services or the Ally Auto Mobile Pay app.
“Efforts such as the BuySecure initiative help to drive awareness of the resources available to help consumers manage their financial matters, and we commend the White House for their attention to these issues. Having free and easy access to your FICO Score is one simple measure for consumers to continually monitor their credit health and track improvements, as well as a means to know early if your credit profile has been compromised,” said Ally chief executive officer Michael Carpenter.
“We are pleased to offer this information at no cost to approximately 2 million of our auto consumers later this summer,” Carpenter continued.
According to the third-quarter data available from Experian Automotive, Ally stood slightly ahead of Wells Fargo as the top auto finance market holder, possessing 5.56 percent of the market. Looking at just new-model financing, Ally holds 7.31 percent of the market. The institution’s portfolio also represents 4.41 percent of outstanding used-vehicle installment contracts.
FICO Scores will be available to Ally's auto consumers who have an online account profile at https://www.ally.com/auto. Customers can register for an online account profile at any time on Ally’s website.
Officials mentioned that the process will begin next month with a pilot program for a limited number of customers.
In addition to this resource, Ally also offers free financial education via its Wallet Wise program online at http://www.allywalletwise.com/ or through local community in-person sessions. All consumers can take the online curriculum at any time, free of charge. Ally also offers a Financial IQ quiz for consumers to test their knowledge of key topics on the Wallet Wise website.
"Access to your FICO Score is the latest addition to the free resources Ally makes available to our customers to help them get educated on their personal financial matters," said Jeffrey Brown, president and chief executive officer of Ally's Dealer Financial Services business.
“Ally has worked to advance consumer financial education for many years and since 2011, more than 61,000 consumers have taken our Wallet Wise financial literacy curriculum on the topics of credit, budget, banking and investing, and auto financing,” Brown continued. “We continue to believe that consumer education about financial matters is among the best defense."
FICO is a registered trademark of Fair Isaac Corp. in the United States and other countries.
The availability of financing coupled with family budget influencers such as softening gas prices prompted Manheim chief economist Tom Webb to say the following about the auto finance landscape — especially in relation to the subprime segment: “It doesn’t get any better than it is right now.”
Webb made that assessment because delinquency rates haven’t soared in recent quarters, and the price at the pump is at or below $2 a gallon in many portions of the U.S.
“Skeptics speak of loose standards, but you can’t criticize underwriting if the borrower makes the payment,” Webb said during his quarterly conference call last week. “And borrowers are making their payments.”
Webb pointed out data from the Oil Price Information Service shows that gas prices haven’t been this low and trending down since the recession sent the economy into a tailspin in the closing months of 2008. But now more than six years later, the situation is considerably different, especially for consumers who fall into the subprime credit tier.
“Those are people, by definition, living on the edge,” Webb said. “To the extent you have an increase in gasoline prices, it puts them in arrears. This has been a windfall for them. I think it’s one of the reasons for the help in loan delinquency rates, which in turn creates more availability of credit.”
Still, Webb is sensing that finance companies are making some moves to curb risk in light of wholesale vehicle pricing potentially softening as more off-lease volume begins to fill the lanes.
“There is some indication and as most people would anticipate, that a lot of these lenders would probably start to look for more up-front money in terms of getting approvals the way they want them simply because expectations are that values will decline,” Webb said.
“I think there will be more pressure to get more upfront money in the deal, but good dealers should be able to do that,” he continued.
Besides looking to increase down payments, Webb noted another element that’s leaving industry at a juncture where it potentially can’t get any better.
“If you look at some of the securitization deals, they actually became less favorable for the lenders, which is indicating that the market is doing some of its own self-correction,” he said.
Finally, Webb touched on one segment of the financing world — the upcoming swell of income tax refund money into consumers’ accounts. He acknowledged many dealers already have leveraged tax season through programs offered by service providers such as TaxMax, which calculate the anticipated refund and structure contracts so dealers can turn vehicles in the fourth quarter.
“I have not really found anyone who has been a great source in terms of actually predicting whether tax flows will be heavy or light,” Webb said. “Certainly we know some of the complications that come when know that tax season will be delayed. Technically, this year it is not going to be delayed in terms of filing. However, there are anticipations that there might be some hiccups.”
And could that hiccup be, especially for dealers and finance companies that work with subprime consumers?
“You’re not interested in total income tax flows. You’re interested in the earned income tax credit,” Webb said. “The majority of those people file a Form 1040-EZ, which they can’t this year if they received subsidies under the Affordable Care Act. Supposedly there is supposed to be a reconciliation between their subsidies received and their tax refund, which you would assume would slow the process.
“And of course the IRS has indicated because of their stingy budget, they can’t handle overtime, etc.” Webb added with a chuckle. “So there are indications the flow of money may be a little bit slow and a little bit lower.
“Anyone who has to reconcile because of the subsidy, they’re going to have a lower refund. It can’t go higher,” he went on to say.
GO Financial executives announced on Wednesday that they completed the sale of an additional equity interest in the subprime auto finance company to Manheim through a deal that was effective at the close of this past year.
Last April, the companies revealed Manheim’s initial substantial equity investment in GO Financial, which is owned by Manheim and by DriveTime chairman Ernie Garcia and DriveTime president and chief executive officer Ray Fidel.
In other company news, GO Financial also mentioned that it completed the roll out of its GO Program to all NextGear Capital markets during the fourth quarter.
To recap, qualified NextGear Capital dealers across the country that sell to the expanding subprime market can use GO Financial’s online electronic signature process to join the GO Program. Participating dealers can access GO Financial’s proprietary online portal to manage their credit approvals and receive fast funding.
Dealers also can leverage GO Financial’s automated direct pay program that’s geared to improve dealer cash flow and access to their NextGear Capital credit line.
“Manheim is our true partner in GO Financial because they provide more than equity capital and access to NextGear Capital dealers,” Garcia said. “Manheim also brings invaluable market experience and leadership.”
Manheim Financial Services group vice president Patrick Brennan added, “This partnership demonstrates the commitment of Manheim and its parent Cox Automotive to develop, deliver and execute the products and services dealers need to compete, win and grow.
“What every dealer can expect from doing business with our companies is what we are committed to provide — superior value,” Brennan went on to say.
CNW Research is upbeat about how much subprime paper is going to flow into finance company portfolios this year.
In a special projection report released on Tuesday, CNW is expecting subprime approvals to improve in 2015, but not quite to the same level as this past year. President Art Spinella pegged the year-over-year improvement projection at 12.75 percent “driven in large part by automakers’ captive finance companies looking to expand sales.”
The forecast comes on the heels of CNW shared December data that showed encouraging signs for the subprime segment.
Spinella indicated the number of subprime used-vehicle buyers rose 115 percent to more than 1.16 million in December versus 1.08 million reported for the closing month of 2013.
And much of that December figure was associated with deep subprime purchasers — consumers with FICO scores below 550. CNW determined the amount of deep subprime vehicle installment contracts rose 17 percent year-over-year in December. The amount came in at 738,000 or 22.25 percent of total used-vehicle sales for the month.
Spinella also noted about 7.4 percent of used-vehicle buyers in December leveraged a pre-approved auto loan, representing a 2-percent uptick year-over-year.
Furthermore, the trends CNW reported coincide with the dealer sentiment expressed in the most recent dealer survey orchestrated by KeyBanc Capital Markets. A total of 57 percent of dealers surveyed in November for KeyBanc’s December report said financing for subprime borrowers was loosening while the remaining 43 percent didn’t notice any change on a sequential basis.
Factors that could prevent CNW’s forecast from coming to fruition or dealers beginning to spot tighter underwriting are two elements mentioned by Peter Turek, automotive vice president in TransUnion’s financial services business unit.
“When you’re in the subprime space, there are two things you really have to focus on — loss frequency and loss severity,” Turek said. “I think each individual lender will have to pay close attention to that as we continue to grow. Those two things are probably unique to each individual lender.
“I think what will happen as those thresholds and tolerances get to a point to where those subprime lenders are reluctant to lend money, I think that’s when you’ll see changes in the marketplace,” he continued.
TransUnion noted that delinquency levels for subprime borrowers have grown from 4.2 percent in Q3 of 2012 to 4.5 percent in Q3 of 2013 to 5.3 percent in Q3 of 2014.
“Right now, the delinquency in subprime is growing, but it’s off of a really low base,” Turek said. “It’s really not had an impact in the overall delinquency rate. But each lender will have to judge their tolerances for loss frequency and loss severity before we see any kind of significant changes.”
Perhaps a factor helping to push outstanding auto loan balances toward the $1 trillion threshold is if the transaction price activity spotted by Kelley Blue Book analysts maintains the current rate.
KBB reported on Monday that the estimated average transaction price (ATP) for light vehicles in the United States was $34,367 in December. New-vehicle prices increased by $842 (up 2.5 percent) from December of 2013, while rising $556 (1.6 percent) from November.
Kelley Blue Book senior analyst Alec Gutierrez determined this reading is the highest month on record for average transaction prices.
“If you look at the strength we’re seeing today, you have to remember that it’s not just a consumer buying a Toyota Camry LE equipped with navigation is paying 3 or 4 percent more than they were a couple of years ago,” Gutierrez said during a conference call with the media on Monday. “That’s part of it. Individual model lines and trim lines are inching up in terms of MSRP and what consumers are actually paying.
“But it also speaks to the mix,” he continued. “Trucks, CUVs, SUVs and luxury cars have done extraordinarily well. That’s really been the core driver of ATPs.”
After talking about vehicles, Gutierrez turned his attention to what finance company executive and portfolio managers might find interesting.
“From a lending standpoint, it’s not as though we’re seeing cars transact above MSRP or anything along those lines,” he said. In terms of lending standards, I don’t necessarily see any lenders tightening up. If we track default and repossession rates, there have been slight increases here and there in some of the lower credit tiers but for the most part, things are very stable and healthy.
“It will be interesting to see if we see that overall outstanding auto loan level pass the $1 trillion mark. It seems as though that’s a possibility,” Gutierrez continued. “As far as the implications there and what that could mean for the industry as a whole, that’s hard to say.
“You could argue there’s increased risk should industry quickly change direction. But knowing that there’s so many people that account for all of those loans, it would take something just absolutely wide spread and astronomical like we saw in 2008. That’s to say it’s not impossible to see the sort of defaults that would really impact and budge that number,” he went on to say.
“From my perspective, I don’t really see any sort of changes or significant shifts. But’s it’s definitely something to keep an eye on,” Gutierrez added.
According to the latest Equifax National Consumer Credit Trends Report, the total number of outstanding auto loans year-to-date in November came in at more than 70.0 million, the highest level in more than five years.
That amount of paper in finance company portfolios as of November pushed outstanding balances 9.6 percent higher year-over-year to $965.0 billion.
Earlier in Monday’s call, Gutierrez also touched on how interest rates and leasing trends are coupled together and what the industry might see in 2015.
“You look at one of the key drivers of industry sales — for utilities, small cars, luxury cars, you name it — is leasing,” Gutierrez said. “The last several months we’ve been tracking closer to 29 to 30 percent lease penetration rates. That’s only made possible because we have such historically low interest rates coupled with a historically high used-car market.
“When you look at the possibility that interest rates might increase this year — although we’ve heard that for the last year or two — and if the used-car market takes a bit of hit which we expect in the next couple of years with the lease activity we’ve seen, that’s where you’ll potentially see some downward pressure on sales and demand,” he continued. “With ATPs as high as they are, you lose some of those options that help offset those rising transaction prices.”
CarMax Auto Finance still is steadily originating subprime paper through its own test program as company executives continue to monitor the performance of this portfolio segment they launched last year.
During the third quarter of its 2015 fiscal year, CarMax Auto Finance originated $12.3 million of loans through its subprime financing program. That amount represented 0.5 percent of the company’s total Q3 retail unit sales.
As of Nov. 30, CarMax Auto Finance reported total of $56.7 million of loans had been originated in this subprime program, which had an initial first-year objective of $70 million.
When asked during the company’s latest quarterly conference call, CarMax executive vice president and chief financial officer Tom Reedy indicated “it’s still a bit early,” to give a complete evaluation of how the company’s subprime endeavors are performing. Before launching this program, CarMax previously had their subprime customers obtaining financing solely from its third-party subprime providers.
“We’re seeing the first vintages that we originated kind of across a six-month time frame, and we really need to go through a full tax season, a full cycle with this product before we can make any conclusions,” Reedy said.
“So what I can say is that we have not seen anything negative and unexpected that would lead us to dial back or not continue to test,” he continued. “Like I said, we’d like to get through tax season and continue through the test that we have, and figure out where we go from there at the end of the year.
“We’ll probably have something to say about where we’re going because we’re likely to use up that initial $70 million during the quarter,” Reedy went on to say according to the transcript available from SeekingAlpha.com.
During Q3, CarMax Auto Finance reported that its income increased 6.9 percent year-over-year to $89.7 million, driven by an increase in average managed receivables, partly offset by a lower total interest margin percentage.
The finance company’s average managed receivables grew 17.9 percent to $8.03 billion as CarMax Auto Finance’s originations have continued to grow.
“The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined to 6.4 percent of average managed receivables in the current quarter from 6.8 percent in last year’s third quarter,” CarMax officials said.
When asked later during the company’s conference call to describe how the subprime auto finance market is behaving in general, Reedy noted that he hadn’t spotted any specific changes.
“What I can speak to is we have seen over the past several months is relatively stable behavior from our subprime lenders,” Reedy said. “We saw the big correction last year as they adjusted their behavior, but if we look at conversion of customers that were given acceptances, I think it would be fair to say that the behaviors have been relatively consistent over the last several months.
“As to where that goes going forward, we want them to run a good and sustainable business, and we’re going to encourage them to do that, and things will shake out the way they do,” he continued.
“There’s really nothing beyond that I can really say about the bounce back, other than we feel like we’ve been in a pretty stable place for the last several months,” Reedy went on to say.
As a part of the last SubPrime News Update of the year before the Cherokee Media Group team breaks for the holidays, the publication wanted to share a rundown of the top 10 stories that generated the most reader interest in 2014.
Not surprisingly the majority of these leading stories had a connection to a significant regulatory development with agencies such as the Consumer Financial Protection Bureau, the Federal Trade Commission and the Department of Justice.
1. SubPrime Auto Finance Executive of the Year Winner Named
CARY, N.C. — SubPrime Auto Finance News has revealed the recipient of this year’s SubPrime Auto Finance Executive of the Year award, an honor sponsored by Black Book Lender Solutions.
The accolade is going to Ian Anderson, president of Westlake Financial Services, which reached $2 billion in total receivables earlier this year.
Sparked by the some of the best months in company history this summer, Westlake’s portfolio now has that total receivables figure connected to more than 270,000 customer accounts.
2. Credit Acceptance Subpoenaed by Justice Department
SOUTHFIELD, Mich. — Another day, another finance company acknowledges it has received a subpoena from the U.S. Department of Justice.
Credit Acceptance Corp. posted a filing with the Securities and Exchange Commission stating the company that specializes in subprime auto financing received a civil investigative subpoena from the Justice Department pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
The subpoena is directing Credit Acceptance to produce certain documents relating to subprime automotive finance and related securitization activities.
3. CPS to Pay $5.5M to Settle FTC Charges
WASHINGTON, D.C., and IRVINE, Calif. — The Federal Trade Commission said that Consumer Portfolio Services will pay more than $5.5 million to settle charges that the subprime auto finance company used “illegal tactics” to service and collect consumers’ loans, including collecting money consumers did not owe, harassing consumers and third parties, and disclosing debts to friends, family and employers.
According to regulators, CPS agreed to refund or adjust 128,000 consumers’ accounts constituting more than $3.5 million and forebear collections on an additional 35,000 accounts to settle charges the company violated the FTC Act.
The FTC also indicated CPS will pay another $2 million in civil penalties to settle FTC charges that the company violated the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA)’s Furnisher Rule.
4. CFPB Allegations Against American Honda Finance
TORRANCE, Calif. — First, the Consumer Financial Protection Bureau and the U.S. Department of Justice delivered notices to Toyota Motor Credit Corp., alleging discriminatory practices regarding vehicle financing.
Now, American Honda Finance revealed it also received the same allegations from these federal regulators.
In documents filed with the Securities and Exchange Commission, officials from the CFPB and DOJ sent a letter to Honda’s captive finance company saying they have authorized enforcement actions alleging discrimination in automobile loan pricing to certain borrowers by dealers and alleging the loan pricing disparities were caused by AHFC’s business practices related to dealers.
5. Pelican Auto Finance’s Plan to be a Top Subprime Player
CHADDS FORD, Pa. — Pelican Auto Finance is using what executives describe as a “crawl-walk-run approach” to growth in the deep subprime auto financing world. And they want to start running to the point where the company’s portfolio ranks among the top five institutions nationwide, blending together a business strategy of being an indirect lender for franchised and independent dealers to tap as well as a purchaser of paper from buy-here, pay-here operators.
“Right now we have significant capitalization behind us,” Pelican chief executive officer Troy Cavallaro told SubPrime Auto Finance News.
“I think a year from now we’re going to be well positioned to be one of the top four lenders in the deep subprime space,” Cavallaro continued. “I understand that Westlake’s portfolio is well over a $1 billion and Credit Acceptance’s portfolio is well over $1 billion. We don’t expect to get there in the next 12, 18 or 24 months. But we think we can position ourselves to be the No. 4 or No. 5 deep subprime lender in the nation. That’s our goal is to get there.”
6. Dodd-Frank Power Triggers Action Against NY Lender
NEW YORK —The Dodd-Frank Act provided the foundation for more regulation of auto financing by federal regulators. Now a state-level agency is leveraging Dodd-Frank to seek orders against a New York-based subprime lender.
Benjamin Lawsky, who is New York’s Superintendent of Financial Services, obtained a temporary restraining order in federal court against Condor Capital Corp., a subprime auto lender headquartered on Long Island, and its owner, Stephen Baron.
Lawsky explained a DFS investigation uncovered that allegedly Condor has engaged in a longstanding scheme to steal millions of dollars from its customers — among other unfair, abusive, and deceptive practices.
7. Investment Firm to Merge Flagship Credit Acceptance & CarFinance Capital
CHADDS FORD, Pa., and NEW YORK — The investment firm that oversees two subprime auto finance companies — Flagship Credit Acceptance and CarFinance Capital — announced that it is merging the two operations together.
Officials from the alternative asset management unit of Perella Weinberg Partners explained the combined company now will total assets in excess of $2 billion.
“Since forming Flagship and CarFinance, we have been pleased with the performance and strong execution of both companies,” said David Schiff, partner at Perella Weinberg Partners and portfolio manager of the asset based value strategy. “Together, the two companies will create a top-tier independent auto finance company with enhanced scale, lower cost of capital, superior cost controls and more efficient access to the capital markets.”
8. Report: 6 Finance Companies Subpoenaed in NY
NEW YORK — Regulatory investigations of auto finance companies are piling up as now reportedly the New York Department of Financial Services is joining the fray.
An online report citing an anonymous source indicated New York state’s financial services regulator subpoenaed the captive arms of Ford, Honda, Nissan and Volkswagen as well as Santander and TD Bank.
A person familiar with the matter told Reuters the developments are part of a probe of possible consumer abuses in subprime auto lending.
9. Department of Justice Subpoenas GM Financial
FORT WORTH, Texas — As the company completed a property purchase to house more personnel, General Motors Financial said in a regulatory filing that the company has been subpoenaed by the U.S. Department of Justice.
According to the paperwork posted with the Securities and Exchange Commission, Justice Department officials served GM Financial with a subpoena on July 28.
Company officials said the subpoena directs them to produce certain documents relating to their and their subsidiaries’ and affiliates’ origination and securitization of subprime auto loan contracts since 2007 in connection with an investigation by the U.S. Department of Justice in contemplation of a civil proceeding for potential violations of Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
10. Latest House Bill Aims at Curbing CFPB’s Authority
WASHINGTON, D.C. — During the same week the Consumer Financial Protection Bureau “strongly urged” companies to make credit scores more readily available, a bill passed through the U.S. House aimed at limiting the authority of the bureau, which the measure’s author called, “a dangerously powerful and dangerously unaccountable agency.”
As currently constructed, Rep. Sean Duffy, a Wisconsin Republican who authored H.R. 3193 — known as the Consumer Financial Freedom and Washington Accountability Act — indicated the bill would accomplish four objectives.
SubPrime Auto Finance News gratefully thanks all subscribers, advertisers and industry partners for their support, interest, readership and feedback throughout the year.
Regular updates on industry trends, analysis and more will return on Jan. 2.
In the meantime, happy holidays and best wishes for a great 2015.
Best regards,
Nick Zulovich
Editor, SubPrime Auto Finance News
