Spireon recently launched its next generation GPS vehicle tracking and collateral management system (CMS). The company highlighted GoldStar Lender has proven to help customers increase their loan portfolio performance by up to 20 percent.
The company indicated Spireon’s GoldStar Lender solution can add new features to Spireon’s legacy products for managing and mitigating risk in subprime financing.
Executives stressed the value for auto finance companies in adopting GPS vehicle tracking is proven stemming from the following results based on Spireon customer feedback:
—84 percent of customers report reduced delinquencies after installing Spireon GPS vehicle tracking
—78 percent of Spireon customers have been able to finance customers with lower credit
—68 percent of customers have been able to finance customers with smaller down payments
Additionally, Spireon’s GoldStar Lender provides features to achieve state and federal lending regulatory compliance, including Consumer Financial Protection Bureau regulations.
“The greatest risk in subprime lending is a potential loss of collateral, when the borrower defaults and the lender is unable to recover the vehicle,” said Kristina Lowe, director of product marketing at Spireon.
“Building on the legacy of our groundbreaking auto finance products that we first introduced over 10 years ago, the new GoldStar Lender solution extends our ability to greatly reduce this rising delinquency problem, while also delivering new features and the government regulatory compliance that our customers need,” Lowe went on to say.
Clarity Services is also part of the parade of data and analysis providers rolling out solutions developed specifically for the auto finance industry.
Through its research, Clarity highlighted that it gained “tremendous” insight into non-prime consumer behavior and how finance companies should address many different aspects of consumer risk, including applicants’ stability, as well as intent, willingness and ability to repay debt obligations. Clarity conducted analyses and collaborated with numerous non-prime auto finance companies to develop customized solutions for the industry.
The company pointed out that many auto finance companies currently use auto versions of a FICO score or other custom credit scores as a foundation for their risk assessment. Clarity has shown numerous finance companies how to more precisely assess risk by overlaying the Clear Fraud score to enhance their current underwriting framework.
The Clear Fraud score, developed to predict a consumer’s intent to repay, can be combined with one or more credit scores to produce a superior underwriting system that provides more precise risk assessment.
A second Clarity solution to be available later this year is a new auto risk indicator. Clarity chief analytics officer George Coutros explained that auto finance companies will also be able to overlay this indicator onto existing underwriting frameworks to achieve more precise risk assessment.
“Having worked as a risk executive on the lender side myself, I understand first-hand the many benefits that can be derived from more precise risk assessment,” Coutros said.
“Being able to more accurately price and structure deals will have a favorable impact on loan portfolio performance, funding rates, and operational costs such as verification,” he added.
In recent months due to increased competition in the subprime market, Clarity acknowledged many finance companies might have lowered their underwriting standards in an attempt to gain new customers.
“This decision could prove to be a costly mistake if the proper tools are not in place for precise risk assessment,” Clarity said. “Lenders no longer have to rely solely on traditional credit scores developed with traditional credit bureau data.”
For more information on Clarity’s auto finance risk solutions and integrating with Clarity, finance companies can send a message to [email protected] or call (727) 489-7266.
LexisNexis Risk Solutions and Equifax spent more than two years working on a solution sought by the auto finance industry; a tool one of the lead managers in development told SubPrime Auto Finance News is the answer to several requests on how to leverage alternative data more effectively and efficiently.
On Tuesday, the companies launched PowerView Score, a new, three-digit credit score tailored specifically for use in the vehicle finance space. The new scoring leverages alternative data sources, including telecommunications and utility payment history from Equifax and public records information from LexisNexis, to help finance companies identify creditworthy vehicle buyers.
Ankush Tewari, senior director of credit risk decisioning at LexisNexis Risk Solutions, explained both companies saw a market need, articulating what finance companies sought.
“They need the score to be more predicative in what they’re doing today. They need better coverage of thin files and no files. They really needed the products to be easily integrated into existing decisioning systems,” Tewari said.
“Companies don’t necessarily want to do a whole huge build-out to ingest a new score. They would like it to fit in with what they’re already doing today,” he continued.
“They were looking for a solution that can be backed by the stability of two of the largest data players in the industry with LexisNexis Risk Solutions and Equifax,” Tewari went on to say.
The new alliance between LexisNexis and Equifax allows auto finance companies to have one-stop access to the power of Equifax’s National Consumer Telecom and Utilities Exchange (NCTUE) and traditional credit bureau data partnered with LexisNexis Risk Solutions decisioning data.
The companies highlighted that combining this data to construct the PowerView Score has demonstrated a strong ability to be highly predictive and allows for improved risk models that can be used to support credit analysis of applicants from prime through subprime.
In back-testing, the companies indicated the new scoring showed significant improvement in model performance across portfolios.
“This score presents a growth opportunity to prime and nonprime lenders who want to auto decision more customers or may be considering expanding their criteria to address a broader market,” Equifax auto finance leader Lou Loquasto said in a press release about the solution.
“The alternative data capabilities of LexisNexis Risk Solutions merge perfectly with Equifax’s robust telecom and bureau data offerings to create an industry leading risk solution for auto lenders, while helping them to make more informed decisions,” Loquasto added.
Tewari elaborated about how the reading PowerView Score can generate is different from other tools that might be available and why it’s so specific for vehicle financing.
“If you’re familiar with how credit scores are built, generic scores are built on generic consumer samples that cover all different types of loans,” he said. “This score was built on a sample that was specifically auto industry focused. No other type of data was used other than auto loan data to develop the score.
“We had experts from both sides who are experts in the auto lending industry provide input on how the score should be constructed, what the goals should be. There was a lot of industry expertise from both sides that brought the score together,” Tewari continued. “The key was building it on an industry specific example of records.”
The industry creditability both LexisNexis and Equifax possess also influenced why the two companies collaborated, according to Tewari.
“We had really good collaboration starting with the business leadership and that propagated down to the product teams, teams of statisticians from both companies working together. It’s really been just a process of getting the score built, coded up and ready to go. There really haven’t been any obstacles per se,” Tewari said.
“To have a company as well known and stable as Equifax with complementary data assets like the NCTUE, that was really critical to all of this,” he continued. “The alternative data space is rather relatively new compared to traditional credit bureau data. Having large companies with well-known brand names contributing assets to a score that is jointly brought to market provides signals that this a product that is legitimate, predictive and better than other solutions out there in the market and that lenders should be at least interested in testing it.”
Digital Matrix Systems formalized an agreement on FactorTrust to provide DMS clients with access to FactorTrust’s alternative credit information and risk scores.
The companies insisted the strongest risk management strategies in use at leading financial services, auto finance, and insurance companies employ not only traditional credit data, but a balance of alternative data as well. FactorTrust is a provider of non-prime consumer data, analytics and risk scoring solutions for those underserved by traditional banking channels. The company can provide a unique and highly predictive source of alternative credit information that is unavailable from traditional credit reporting agencies.
“Working with DMS enables FactorTrust to help more lenders better assess credit risk and a consumer’s ability to repay by streamlining access to real-time, trusted data on the underbanked that is not available anywhere else,”, FactorTrust chief executive officer Greg Rable said.
Access to FactorTrust data will be available early in the third quarter of this year through Data Access Point by DMS, a connectivity hub that can offer clients flexibility when using alternative data sources.
“We are pleased to announce our strategic relationship with FactorTrust,” DMS executive vice president David Graves said.
“There is a growing need for quantifiable and actionable data on underbanked consumers. Our companies share a mutual interest in helping companies strengthen risk-based decisions, and DMS continually seeks out alternative data sources that will better support our clients,” Graves went on to say.
A recent TransUnion survey found that three in four lenders said it is increasingly difficult to find and acquire new customers.
Meanwhile, nearly 75 percent of respondents acknowledged they are challenged by a continued low interest rate environment, which is spurring more competition for a pool of consumers who receive multiple credit offers.
Analysts explained the survey results are in line with TransUnion data that show there were more than 26 million additional auto, credit card and personal loan accounts in 2015 compared to 2014.
Yet, according to the Consumer Financial Protection Bureau, at least 45 million U.S. consumers are still not able to access credit because they either have no credit report or have insufficient credit histories.
“Competition for new borrowers has not been this fierce in the lending space since prior to the recession,” said Steve Chaouki, executive vice president and the head of TransUnion's financial services business unit.
“Our survey results and core performance data point to a new lending environment,” Chaouki continued. “Millions of previously unscorable consumers — now scorable by way of alternative data, which is not traditionally found on a credit file — could have access to new loans.
“Importantly, many of these borrowers are expected to be good risks and welcome additions into lender portfolios,” he went on to say.
TransUnion’s survey of 317 lenders, conducted by third-party research firm Versta Research, showed how alternative data may be leveraged to better assess risk and price offerings appropriate both for unbanked, unscored consumers and for traditionally prime borrowers.
According to TransUnion’s survey, which can be downloaded here, 87 percent of lenders say they decline some credit applicants because they cannot be scored. Yet 83 percent of those using alternative data to score credit applicants report seeing tangible benefits.
TransUnion noted that nearly two in three lenders (64 percent) say they have seen tangible benefits within the first year of using alternative data.
The survey also pointed out that three in four survey respondents said they expect alternative data will bring about positive economic changes.
Other key benefits derived from alternative data, according to survey respondents, include:
—66 percent of lenders using alternative data say it is helping them reach more creditworthy consumers in their current markets.
—56 percent of lenders using alternative data say the data has opened up new markets.
—87 percent of lenders using alternative data do so to evaluate thin-file or no-file consumers.
—67 percent use alternative data to evaluate non-prime borrowers.
Last October, TransUnion released CreditVision Link, a score that combines both trended credit bureau data and alternative data sources. TransUnion insisted CreditVision Link can enable finance companies to score up to 95 percent of the U.S. adult population.
The tool also can allow more than 60 million traditional “no-hits” and unscorable records to be scored.
“TransUnion is the first single source of scores with both trended credit and alternative data, and in just the last few months, we have seen immense interest from lenders in reaching consumers who may not have been traditional prospects,” said Mike Mondelli, TransUnion’s senior vice president of alternative data services.
CreditVision Link’s alternative databases include more than 3 billion non-traditional data records collected on more than 260 million adult Americans. The score’s alternative data assets include property, tax and deed records, checking/debit account and payday lending information, among other sources.
Whereas a traditional credit report offers a glimpse of a consumer at a snapshot in time, Mondelli explained trended data assets can leverage an expanded view of credit data with up to 30 months of historical information. These details include information on each loan account, including payment history, such as dollars paid, amount paid versus minimum due and the total amount borrowed over time.
“This is especially important because a traditional credit report may tell you a consumer has $5,000 in credit card debt, but one using trended data will show you whether they have built up or paid down that balance over time,” Mondelli added.
FactorTrust finalized a partnership with Equifax on Tuesday to provide its customers with an improved view of consumers’ ability to repay (ATR).
Executives explained that the collaboration blends data from the alternative credit bureau with traditional credit data from one of the nation’s largest credit reporting agencies. As a result, the companies indicated finance companies will have access to the comprehensive credit profiles needed to assess an underbanked consumer’s residual income and comply with forthcoming regulations regarding a consumer’s ability to repay loans.
FactorTrust’s Ability to Repay product, LendProtect ATR can provide finance companies with a robust solution that can accelerate their ability to add the information and tools needed to meet the anticipated ATR underwriting requirements from the Consumer Financial Protection Bureau. The flexible platform simplifies integration of core data sets such as existing credit obligations from FactorTrust and Equifax with validated income and living expense data to calculate residual income, a key component of the CFPB’s proposed rulemaking.
In addition, the platform can help finance companies to manage compliance, reporting and maintain data on underwriting decisions.
“We are committed to continually improving our solutions with quality data that helps our customers,” FactorTrust chief executive officer Greg Rable said.
“Our partnership with Equifax not only benefits lenders, but also borrowers,” Rable continued. “It’s important that everyone have access to financial services when needed, and it is important for lenders to make the most informed decisions possible when offering loans to consumers.”
LendProtect ATR will include new predictive data attributes and scores. These components will capture borrowing capacity, debt-to-income ratio and other measures related to a consumer’s ability to repay in order to enable improved credit risk management.
“Lenders will now have more insight into a consumer’s credit history, enabling the lender to offer smart, profitable lending solutions with confidence,” FactorTrust said.
If you’ve been in this business for any length of time, you’re no doubt familiar with the spot delivery. That’s when a dealer signs a contract with a customer, allowing them to take possession of their new car before they’ve even received bank approval. It’s a practice about as old as the industry itself — and one that’s also fraught with risk.
Back in my retail days, I worked with numerous general managers who didn’t think twice about spot deliveries. They’d espouse the notion that if you weren’t bringing enough cars back, you just weren’t spotting aggressively enough! Their motto seemed to be: “If the customer can fog a mirror, we’ll spot them.”
The fact that spot deliveries still occur today seems a bit of a mystery. With the advent of technology and the development of channels like Dealertrack, RouteOne and CUDL, you’d think the practice would have gone the way of the DeLorean. This is hardly the case.
Many dealers will stop at nothing to put a deal together, including pushing spot deliveries. This is a frequently used tactic to remove a buyer from the market until the dealer has had enough time to hash out the particulars with the lender. This effectively keeps the buyer from going elsewhere while waiting for approval and limits the risk that they’ll be scooped up by the competition.
Often times, dealers bank on catching lenders asleep at the wheel. But it’s when third-party financing can’t be obtained at the quoted rates that things start to get messy. That’s when the customer is called back into the dealership and presented the cold hard facts by the F&I manager: The deal was not approved on the original terms offered. In order to keep the car, they’ll have to resign on higher payments or different terms.
Although many states have no laws in place preventing the practice of spot delivery, there are several conditions that apply. For example, it’s considered a deceptive practice to have a customer sign a contract on terms you know they may not be approved for. This is commonly known as a “yo-yo” deal, and can lead your dealership into a world of trouble — not the least of which could result in a class action lawsuit.
When spot deliveries go bad
Spot deliveries gone bad often result in one of two scenarios: recontracting and unwinding. Unwinding is a more straightforward action, resulting in the complete cancellation of terms and the return of the vehicle to the dealership.
Recontracting is the most common result of failed spot deliveries. That’s when the original contract is rescinded and a new contract is written up, this time for terms more likely to result in a third-party approval. Some states, like California, require the use of specific forms when recontracting customers. These forms also typically require dealers to provide full disclosure for the reasons why.
Recontracting is a sticky practice. Many dealers aren’t aware that back-dating contracts isn’t legal. All recontracted deals must show the new date of the contract. If not, this may lead to the inaccurate disclosure of a stated APR — a major no-no that can cause your dealership to be hit with a Truth in Lending Act violation.
Stips and liabilities
Another common mistake dealers make is letting customers slip on stip collections, attempting to collect stips only after the customer has taken possession of the vehicle. This practice can open you up to significant risk — like the customer being unable to offer proof of income, or the provided proof of income not matching what was entered into the application.
In this case, you as the dealer will have no choice but to send the deal to another bank. This provides customers with anywhere from two weeks to 45 days to shop the loan without adversely impacting their credit. If credit is pulled outside of that allowance, it may damage the customer’s credit file. This can leave your dealership liable. The solution? Never let the customer leave without validating their income and without all stips in hand.
Insurance and liability
Yet another danger inherent in the spot delivery is the question of insurance in the event of an accident. If a customer drives a new car off the lot and gets into an accident — wrapping the vehicle around a telephone pole and injuring others in the process — your dealership will be responsible for paying for the damages. In this scenario, an insurance provider is not obligated to pay the claim. It’s not until the transaction is fully funded by the bank that insurance kicks in.
State requirements vary
Some states require dealers to obtain bank approval within a specific time frame. Recently, New Jersey revised spot delivery time frames to four days. If bank approval can’t be obtained within that time, the customer has to return the vehicle. Once outside that four-day allowance, customers can demand the originally contracted terms – leaving the dealership responsible for providing in-house financing. In-house financing, also known as full recourse, can open up a can of worms with respect to various regulations.
Other states have different rules about spot delivery. In Wisconsin, dealers there are required to provide financing if they spot deliver a vehicle and can’t get the customer approved through a third-party lender. Because state laws differ, ensure you are up to speed on where your state stands with respect to spot delivery.
Deferred down payments and promissory notes
Often, dealers offer to hold checks or promissory notes to defer the customer’s down payment when doing a spot delivery. While this may not be considered illegal by FTC standards (as long as no interest is charged to the customer and you’ve been fully transparent), it could raise serious issues with your bank provider.
If the customer fails to make payment to the lender and the lender discovers your dealership accepted a deferred down payment or promissory note in lieu of actual money down, your dealership could be on the hook for the full value of the car. Naturally, much of this has to do with your established relationship with the lender in question – but it’s a risk better not taken. As a point of caution, always read your dealer agreement and closely review your retail installment sales contracts.
No such thing as a free ride
Spot deliveries offer numerous conveniences for both customers and dealerships. Customers can drive their new vehicle off the lot much sooner, and dealerships enjoy selling more cars. But spot deliveries also come wrapped in risks that must be considered. Spot decisions can wreak havoc in the wrong hands. As a dealer, it’s imperative that you examine the potential pitfalls of spot delivery and determine if the risks to you outweigh the benefits.
Rebecca Chernek of Chernek Consulting provides customized in-dealership training for franchised, independent and high-line luxury brand automotive dealers. Interactive virtual training programs in conjunction with role play, including a recently added course on compliance, are available at www.chernekconsultingvirtualpro.com.
Along with tapping an executive to fill the newly created role of chief sales officer, eLEND Solutions — a technology company delivering integrated credit, identification and finance solutions to dealers — recently announced the provider joined DealerVault’s Premier Network.
DealerVault is a cloud-based system that can empower dealerships with control over the syndication and distribution of their DMS data — regardless of the DMS system they use.
“Vendor integration is vital to creating a connected car-buying experience for consumers — which means moving them quickly and seamlessly from the website or showroom floor into the F&I department — and DealerVault’s secure DMS data feed provides a solution that makes this an affordable and easy-to-implement process,” eLEND Solutions chief executive officer Pete MacInnis said.
DealerVault’s Premier Network can allows third-party solution providers to actively support dealerships’ desire to take control of their data, providing a what executives called a “win-win” for vendors and dealerships alike.
“DealerVault helps eliminate any data knowledge gaps that may happen as a result of an expensive or difficult to penetrate DMS system,” MacInnis said.
DealerVault president and CEO Steve Cottrell added, “eLEND Solutions is playing a unique role in changing the way the car-buying experience works for dealers and consumers alike and we’re thrilled to welcome them as a Premier Network partner.”
The company went on to highlight this partnership will help eLEND Solutions further transition from a product provider into the next generation finance platform.
Leading its growth strategy, the eLEND Solutions recently appointed Pogo Parr, a 18-year automotive industry veteran, to the newly created role of chief sales officer.
Parr has extensive experience in building highly successful sales teams that have achieved dramatic revenue growth for multiple companies, including Autotrader, CallSource, Century Interactive, and, most recently, DealerOn.
“We’re thrilled to welcome Pogo to our team and know that he will build an effective and focused sales team that will bring eLEND Solutions’ products to a much wider base of dealer customers,” MacInnis said.
With eLEND Solutions having plans for aggressive growth during the next 3 years, the company just moved into its new headquarters in Foothill Ranch, Calif., more than doubling its office space.
TD Auto Finance U.S. — the auto financing business unit of TD Bank — recently shared its plans to consolidate its contact centers in the U.S. Officials explained the action is expected to capture efficiencies, expand service to dealer customers and support further growth.
The consolidation will result in the closure of TD Auto Finance's contact center in Dallas in April, which employs approximately 330 people. TD Auto Finance will transfer these positions to other TD contact centers and make additional hires, with 250 positions to Greenville, S.C., 70 positions to Farmington Hills, Mich., and nearly 30 to Jacksonville, Fla.
“Taking maximum advantage of our core contact centers will enable TD Auto Finance to benefit from the significant investments we've made in our regional campuses," said Andrew Stuart, president and chief executive officer of TD Auto Finance U.S.
“Expansions in these locations will allow us to better serve our customers and position our auto finance business for future growth,” Stuart continued.
Stuart went on to mention TD Auto Finance's plans reflect the company's continued commitment to its presence in South Carolina, Michigan and Florida. The company expects to maintain current support levels and does not anticipate any disruption to service as a result of this change.
Wells Fargo spokesperson Natalie Brown told SubPrime Auto Finance News late this summer that the company doesn’t “grow for growth’s sake.” So it’s likely the company made a concerted effort with its due diligence as it opened its 57th regional business center (RBC) this week.
Wells Fargo Dealer Services chose to make its expansion in Texas, adding the RBC as the fifth location in the Lone Star State and the second one in the Houston market. The facility — located at 12603 Southwest Freeway, Suite 315, in Stafford — will serve approximately 100 existing dealerships in the region.
“Our new RBC reflects Wells Fargo’s continued commitment to providing localized service to the dealership community through a team of in-market auto finance experts who understand the market because we live and work in the communities we serve,” said Mark Beedlow, greater Texas market manager for Wells Fargo Dealer Services.
“Through this new RBC and four others in the state, we will continue to offer solutions that meet the dealers’ needs, so they can provide vehicle financing for their customers across the credit spectrum,” Beedlow said.
Steven Kannenberg was appointed to lead the new RBC that will initially house 11 Wells Fargo Dealer Services team members. Kannenberg has more than 15 years of industry experience.
Wells Fargo Dealer Services now operates 57 RBCs nationwide staffed with teams of in-market auto finance experts who provide financial solutions for the dealer community, including indirect auto financing, real estate and floor plan financing with access to commercial banking services designed to help dealers operate more efficiently.
“Our story is one of consistency and discipline, and we are pleased with how we’re performing and growing,” Brown said. “We are committed to responsibly providing consumers access to a broad credit spectrum of financing through our network of dealers in all economic cycles.
“We are located in the communities with our dealers and customers,” Brown continued. “Being in the same market helps us understand the local economy, industry, employment and pay scales and this information helps us make responsible lending decisions. It also helps us remain a leader in serving the transportation needs for millions of customers.”
