FNI’s David Bafumo dissected a class action complaint involving Santander Consumer USA filed in the U.S. District Court for the Northern District of Illinois (Eastern Division) and uncovered three important questions that might impact other auto finance companies.
To recap, the matter that reached the court system on Aug. 31 is associated with allegations that a dealership’s failure to properly disclose the terms and conditions of a GAP debt-cancellation agreement resulted in federal Truth in Lending and Illinois State Retail Installment Sales Act violations, for which SCUSA — the holder of the retail installment contract — should be liable.
Before going into his trio of potential implications, Bafumo spelled out that the plaintiff's case is based on the following key factual allegations about the vehicle finance transaction that originated at Al Piemonte Super Car Outlet in Northlake, Ill. Those allegations included:
• Before consummation of the credit transaction, plaintiff was not delivered a copy of the required TILA disclosures "in a form she could keep."
• Plaintiff was not given any information regarding the GAP debt cancellation addendum, and specifically the amount charged ($895).
• Instead of being advised of required TILA disclosures, plaintiff, “was presented with a stack of documents (including the GAP addendum) containing signature lines marked by the letter ‘X.’”
• Plaintiff alleges she was told the entire stack of documents constituted her retail installment contract and were required to complete the vehicle purchase and finance transaction.
• The GAP addendum’s program limits include a maximum APR of 24 percent and the plaintiff's APR was 27 percent.
• The GAP addendum did not state the payment of the GAP charge was voluntary, but rather stated, “(a)lthough not required to do so, you elect to purchase this addendum.”
“The plaintiff’s core argument is that the plaintiff was sold a product that had no value in their particular situation — a GAP policy with program limits that are exceeded by the customer's actual loan APR,” said Bafumo, an expert in F&I products with more than 15 years of experience who now runs his own firm.
“Essentially, a TILA violation for inaccurately disclosing amount financed and finance charges because the GAP charge was not paid for coverage with any value, it must be excluded from the ‘amount financed and cannot be excluded from the calculation of the ‘finance charge,’” he continued.
“The complaint seems to also lift language from recent consumer rights lobbying efforts, alleging, almost as an aside, without any factual allegations in support, that GAP generally is a ‘deceptive product primarily used to pad loan transactions and improperly increase the amount financed with what is really profit, and part of the finance charge,” Bafumo went on to say.
“Interestingly, that statement is also posed as a ‘question of law and fact’ in the complaint’s justification for class action status,” he added.
In light of that backdrop, Bafumo elaborated about the three questions auto finance companies should ask if they are offering or underwriting GAP products similar to what SCUSA does.
What specifically makes this GAP contract allegedly worthless to this customer?
Bafumo indicated the GAP “program limits” set out on the front page of the contract states a maximum loan APR of 24 percent, and in the contractual list of exclusions, part “K” states that the GAP addendum does not provide coverage if the finance contract APR exceeds that maximum APR. Court paperwork showed plaintiff Joyce Pettye’s loan included a 27-percent APR.
“From a GAP product perspective, the limitation found in the contract at issue is fairly unusual,” Bafumo said. “Most GAP contracts do not specify such a limitation on the face of the contract.
“More typically, GAP benefits are contractually limited by loan-to-value percentages and vehicle type, value, or use classifications,” he continued.
Is the GAP contract at issue Santander's own private labeled program?
Bafumo noted the GAP contract at issue does not appear to be Santander's private branded S-Guard GAP program. Instead he said it appears to be a dealer selected product administered by a California company, Partners Alliance.
“That may raise some problems for the plaintiff’s class certification,” Bafumo said. “Their argument for class certification contends that a large percentage of Santander’s loans include this particular APR-limited GAP policy, which seems unlikely if it is indeed a dealer selected program rather than Santander's preferred program.
How is Santander supposed to prevent these kinds of alleged errors or improper disclosures that occur at dealerships?
Bafumo emphasize an indirect auto finance provider cannot monitor product disclosures and F&I practices inside every dealership that originates loan transactions.
“But the instant case is avoidable,” he said. “With established product funding approval policies and processes that include minimum product contractual requirements and benefits (amongst other product and administrator due diligence) and internal funding verification and audit, the GAP contract in this case would have been rejected and the deal returned to the dealership.
“Santander presumably has such policies and processes in effect for their own S-Guard suite of products but apparently none — or perhaps a failed policy — for dealer-selected products,” Bafumo added.
Bafumo also mentioned that less than 20 years ago, setting basic approval guidelines for add-on products like GAP and vehicle service contracts was a common practice among indirect auto finance providers. If a product contract form number and/or product administrator was not on the “approved” list, he indicated the product simply would not be financed.
“Mysteriously, this smart business practice has diminished and largely disappeared at many financial institutions — over the same time period that consumer protection litigation and regulatory interest has substantially increased —and remains consistently implemented only by auto manufacturer’s captives and some experienced operations, mostly in the subprime market,” Bafumo said.
CreditMiner announced that it has acquired full global reseller status with all three major credit bureaus, allowing for what the service provider called a “seamless” transition from a soft bureau transaction to a full application within its software platform.
Ahead of CreditMiner’s full launch of the BASISâ‚‚ platform, officials highlighted that this development means that dealers now have a single credit software solution to execute all of their credit based inquiries. The company insisted dealers can avoid the need for additional logins, or having to deal with multiple billing and other sources to obtain the data they need to complete a vehicle transaction.
“The acquisition of this status for CreditMiner truly solidifies our commitment to both the automotive dealers and the retail space we operate in,” CreditMiner general manager Don O’Neill said. “In many situations, the bureau’s released a multi-year freeze for the addition of new re-sellers, which I feel speaks volume to our organization, as well as our commitment to compliance and technology.”
As a re-seller for all three major bureaus, CreditMiner can now offer the full suite of available Fair Credit Reporting Act regulated and Non-FCRA regulated data from the bureaus. The company pointed out this component means a dealer can now have one relationship for all bureau products, rather than the current model of introducing yet another vendor/service provider into the relationship.
“I speak to dealers every day, more often than not, they can’t tell what they are being charged for credit and compliance data, yet alone who is providing it,” O’Neill said. “With this addition to our solution, we now allow the dealer to have full access to the credit and compliance data they need, without having to utilize multiple logins and multiple billing.
“CreditMiner provides dealers with the opportunity to hold a single vendor accountable for service and pricing, as well as the ability to elevate their product and service offering,” he added.
CreditMiner has timed this release to support the full launch of its patent pending BASISâ‚‚ platform. This solution can allow dealers to take a customer from online or in showroom pre-screen, all the way to deal funding, without collecting a social security number or DOB.
The company stressed its F&I and sales solution can provide a completely transparent finance transaction. It can allow consumers to immediately see which banks in the dealers’ indirect lending portfolio desire to provide finance options to the consumer.
With real-time finance company pre-qualification decisioning, BASISâ‚‚ can enable dealers to add applicable mark-ups, while still removing the finance guesswork for consumers.
“Our goal has always been to enable dealers to complete a vehicle transaction online. We are confident that this tool brings dealers to the point of consummation,” O’Neill said.
“With the addition of full spectrum offering as a reseller, we now allow the dealer to do it efficiently, cost effectively, and with cutting-edge technology that cannot be duplicated,” he went on to say.
CreditMiner will be demonstrating its full suite of products and services at the upcoming Digital Dealer 19 Conference and Exposition on Oct. 5-7 in Las Vegas.
For more information, visit booth No. 523 at Digital Dealer 19, call (817) 213-7042 or visit www.ecreditminer.com.
GrooveCar, a vehicle-buying resource for the credit union industry, recently formed a strategic partnership with DataOne Software to integrate real-time vehicle information within GrooveCar’s all new Everything Automotive Auto Buying Resource.
Because of the partnership, GrooveCar is looking to launch its all new Everything Automotive Auto Buying Resource this winter.
The intended goal is to provide credit union members with the ability to make informed decisions on their next auto purchase, using a powerful auto shopping and research platform provided to them by their credit union. A portion of the diverse and extensive wealth of information powering this platform will be delivered by DataOne Software.
The direct connection between GrooveCar’s proprietary SUPRtec platform and DataOne’s PerfectFit software is designed empower the user to find the right vehicle at the right price. SUPRtec utilizes next generation technology to provide a rich user experience when searching for new or pre-owned vehicles.
This smart technology is the power behind several key features new to the site including the “Right Fit” vehicle preference search tool; a calculator tool which retains user preferences and applies accurate payment and purchase costs to each vehicle searched in real-time; and a garage function that houses all searches and information for future searches and decision making.
“When we made the decision to completely overhaul our existing platform, we knew we had to collaborate with forward thinking enterprises that understood each vertical our program currently provides, as well as those we would like to deliver. After going through a formal selection process, it was an easy decision to partner with DataOne Software,” GrooveCar vice president of strategic alliances Robert O’Hara said
“Our new platform will exceed the expectations of our extremely diverse and demanding partners and their auto shopping consumers,” O’Hara continued.
With the launch of its new website, GrooveCar is poised to help credit unions take advantage of this thriving auto buying market. Users can research millions of vehicles from national inventory, build and compare vehicles, read all the newest reviews and articles while staying informed of current rebates and incentives.
“Early in our discussions with GrooveCar, both parties realized what a great match there was between their product vision and the capabilities of our PerfectFit Vehicle Shopper API,” DataOne Software general manager Jake Maki said.
“GrooveCar wanted to develop a powerful shopping and research tool that was customized to each consumer’s values and needs,” Maki went on to say. “Using our PerfectFit suite of products, they have been able to accomplish this, creating the unique and intuitive shopping experience they envisioned.”
More information can be found online at www.groovecarinc.com.
Perhaps while finance companies consider changes to underwriting practices as the fourth quarter approaches, Black Book’s latest white paper shows how executives and managers should be using collateral and residual values in the underwriting process.
Black Book highlighted that the paper illustrates the importance of how collateral and residuals can help finance companies manage risk levels appropriately and confidently, as well as facilitate the ability to identify continued pockets of profitability, particularly for longer-term loans.
Despite the Federal Reserve deciding against a rate hike last week, Black Book analysts insisted the strategy explained in their latest white paper will only grow in importance as interest rates eventually rise and finance companies need better visibility in determining the position of equity for their portfolios.
In the paper authored by Black Book Lender Solutions and titled, “Vision 20/20: Using Residuals to Spot Portfolio Growth Opportunity,” analysts reiterated access to collateral insight and residual data can help identify the right vehicle or segments, especially in an environment where loan terms are stretched out beyond 60 months.
“What’s more, collateral and residual data can team together to help lenders identify their tolerable inequity levels and set terms accordingly in order to minimize risk and accelerate profit potential,” analysts said.
Black Book also offered specific vehicle segment examples that show how different vehicles reach a position of equity at different intervals.
And while historical depreciation trends can help finance companies determine varying degrees of risk for the vehicles in consideration for a portfolio, Barrett Teague, vice president of Black Book Lender Solutions, pointed out the paper also shows how finance companies can maximize profit potential while minimizing this risk.
“An increasing number of lenders are realizing the importance that collateral and residuals can play in the underwriting process, and it all begins with access to accurate vehicle data,” said Teague, who will be moderating a panel session at Used Car Week’s SubPrime Forum where top executives from Chase, DriveTime Automotive and Exeter Finance are scheduled to participate.
“This practice will only become more important as auto loan terms grow beyond 60-month terms and interest rates eventually rise, placing more pressure on the ability to minimize risk while remaining profitable,” Teague continued.
Black Book’s latest white paper, “Vision 20/20: Using Residuals to Spot Portfolio Growth Opportunity,” can be downloaded for free by clicking here.
Teague and other members of the Black Book team again will be at Used Car Week to present the SubPrime Auto Finance Executive of the Year Award, which was given to Ian Anderson of Westlake Finance Services last year. This year’s recipient will be on hand during Used Car Week, which runs from Nov. 16-20 at the Phoenician in Scottsdale, Ariz.
The discussion that’s being titled, “Soaring in SubPrime,” and moderated by Teague is just a part of what’s on tap for the SubPrime Forum. Presentations by organizations such as Experian Automotive, Equifax, Benchmark Consulting International and Hudson Cook also are on the agenda.
Details about who already is coming to Used Car Week can be seen here.
To register, secure accommodations and more, see www.usedcarweek.biz.
CU Direct Connect (CUDC), a participant in the Colorado automotive financing market that provides indirect services to credit unions and dealers, announced the upcoming availability of a custom auto loan risk score designed by FICO.
Officials highlighted this new score — which is expected to be available during the third quarter — is geared to help credit unions that are lending through CUDC’s program manage their risk with greater precision and safely extend their credit to more people.
Designed to complement the proven performance of the FICO Score, CUDC explained that the custom application score analyzes specific data elements from consumers’ credit bureau files, information from the consumer’s credit application and deal information to more precisely distinguish good and bad credit risks for vehicle installment contracts.
The overall goal is to help participating credit unions drive more profitable decisions.
As CUDC expands into Wyoming, Arizona and other markets, this new custom score will allow CUDC credit unions to better manage credit risk on portfolios in new markets.
“The FICO Score has been the gold standard for assessing consumer credit risk in North America for 25 years,” said Tim VanTassel, vice president of credit risk lifecycle solutions at FICO. “Adding our custom application score brings CUDC and its lending partners the sharpest possible prediction of a borrower’s likely performance on an auto loan.”
CUDC president and chief executive officer Blair Korschun reiterated that the company fully supports its credit union partners that are looking to drive better bottom line results by taking a smart, strategic approach to credit-risk evaluation and compliance
“By working with FICO to create a custom application score, we are taking a big step in supporting our credit union partners and their interests,” Korschun said. “By using this new score, the credit unions in the CUDC program can better manage risk associated with auto loans.”
To learn more about the CUDC program and becoming a credit union or dealer partner, go to www.CUDirectConnect.com.
NextGear Capital chief technology officer Bryan Everly recently was named CTO of the Year by the Indianapolis Business Journal and TechPoint, while Peter Kelly of KAR Auction Services was among the finalists.
The company highlighted Everly, who took home the award in the Private Companies Over $100 Million Revenue category, was awarded this distinction for his efforts in helping the inventory finance provider grow its technology products and team.
“Bryan’s leadership and passion have brought a new level of agility to our initiatives,” NextGear Capital president Brian Geitner said. “This award is a testament to the dedication and hard work Bryan and his team have put in over the last year and we are proud of how they have represented both NextGear Capital and Cox Automotive.”
Since joining the company in 2014, Everly has taken a software development team of three and expanded it to more than 150 software professionals while also putting measures in place to enhance NextGear Capital’s Web and mobile platforms, infrastructure and security.
Earlier this year, NextGear Capital — one of the many sponsors signed up to be a part of Used Car Week — received the IT Services for Business Mira Award from TechPoint for its development and implementation of a proprietary ERP/CRM/mobile platform, which contributed to the company doubling its revenue in 2014.
In response to receiving the latest award, Everly said, "I was honored to even be nominated and even more so to have been selected. Something like this could not happen without amazing support from our leadership at NextGear Capital and more broadly, Cox Automotive.
“In addition, I have been blessed with an amazing team that sets the bar higher every day with their incredible work,” Everly added.
Kelly, chief technology officer of KAR Auction Services and president of the company’s digital services group, was selected as a CTO of the Year finalist among public companies.
The CTO of the Year program honors CTOs who play vital roles in making Indianapolis businesses, institutions and not-for-profit groups successful. These individuals, along with their CEOs, impact all aspects of the business, including growth, profitability, functionality and competitiveness.
Finalists were honored at The CTO of the Year Awards event on Wednesday.
“Peter is much deserving of this recognition, and we are proud of his accomplishments and contributions to the growth of the KAR group of companies. Since he joined our team in 2011, his guidance and insight have been instrumental to bringing our technology-driven vision to life,” KAR chief executive officer Jim Hallett said.
“This recognition is a reflection of Peter’s unique expertise in the auto remarketing industry and his dedication to continue to take KAR’s technology to the next level,” Hallett added.
Kelly’s experience in the technology industry began in 1999 when he co-founded OPENLANE, an online vehicle auction company that is designed to make the wholesale remarketing process easier and more efficient for dealers. Kelly began his career with KAR Auction Services when KAR acquired OPENLANE in 2011.
Since the acquisition, Kelly has served in multiple leadership roles throughout the company. Kelly is also the president of KAR’s digital services group, which is comprised of KAR’s technology and digital-focused business units, including OPENLANE, CarsArrive Network and Recovery Database Network.
A complete list of winners and finalists can be found here.
McGladrey acknowledged that third-party relationships are helping many financial institutions stay competitive. But the consulting firm insisted these associations also are creating new cybersecurity risks.
The situation prompted McGladrey to ask executives and managers whether they’re doing everything they should to protect their systems and data from attacks through their vendors.
To help them answer that question and more, McGladrey’s experienced cybersecurity professionals are hosting a free, one-hour webinar on Thursday beginning at 11:30 a.m. ET. These experts plan to discuss:
• The basics of effective vendor management programs
• How to incorporate cybersecurity into your vendor management efforts
• How to move beyond due diligence and on-boarding to help ensure that vendor security evolves with your changing needs and the ever-shifting threat environment
“Cybersecurity is one of the biggest risks confronting your financial institutions today, and ineffective vendor management can be one of the biggest risks to your cybersecurity effort,” McGladrey officials said.
“Join us on Thursday to learn how to understand and control this threat,” they added.
Individuals can register for the webinar by going to this website.
McGladrey also mentioned that it is pleased to offer one CPE credit for attending this event. To qualify, attendees must log in to the webcast and be connected for a minimum of 50 minutes with 75 percent polling question participation to receive credit.
CPE certificates for eligible participants will be available to download and save at the end of the webcast.
For more information regarding administrative policies, such as refunds, cancellations and complaints, contact McGladrey at (800) 274-3978 or [email protected].
Along with taking their usual look at activity during the past three months, Federal Reserve officials also asked participants in the latest Senior Loan Officer Opinion Survey on Bank Lending Practices to examine trends going back 10 years.
Specifically, the Fed wanted a description of the current level of lending standards at banks relative to the range of standards that has prevailed between 2005 and the present. When it comes to subprime auto financing, the participants’ responses showed the banks that underwrite vehicle service contracts in this space indicated that standards on such loans remained tighter than the midpoints of the corresponding ranges since 2005 on net.
While the survey included more than 60 banks participate in prime auto financing, a total of 30 banks that responded to the survey delve into the subprime space.
A total of 11 banks said their subprime underwriting trends have been near the midpoint of the range that standards have been during this period. Seven banks indicated they have been somewhat tighter than the midpoint while six institutions noted they have been somewhat easier.
Another five banks said they have been either significantly tighter or near the tightest level that standards have been during this period as just one acknowledged it has been significantly easier.
Of the 30 banks that participate in subprime auto financing and responded to the Fed’s survey, the split was even between banks classified as large — which are generally defined as firms with annual sales of $50 million or more — and small firms — which are those with annual sales of less than $50 million.
Within the prime spectrum, the Fed found that 40 of the 61 banks told officials that their underwriting has been near the midpoint of the range that standards have been during this period. Another 12 firms said they have been somewhat easier while the remaining nine indicated they have been either somewhat or significantly tighter.
Looking at just the past three months, the Fed survey mentioned 45 out of 62 described demand for vehicle financing as “about the same” during that span.
As a result, the vast majorities of respondents told officials that several other factors have remained virtually unchanged during the past three months, including:
— Credit standards for approving applications
— Maximum maturity
— Spreads of loan rates over the bank’s cost of funds
— Minimum required down payment
— Minimum required credit score
— The extent to which financing is granted to some customers who do not meet credit scoring thresholds
The entire July survey can be downloaded here.
FactorTrust chief executive officer Greg Rable regularly receives questions from finance companies that are seeking more information about millennials, and for good reason. FactorTrust indicated that millennials — individuals born after 1980 — make up the largest percentage of non-prime auto applicants at 43 percent.
“If you look at millennials overall and their position today within auto, then you fast forward 10 to 15 years,” Rable said, “it will be the segment of their customer base that will be the difference between (finance companies) being successful and not. They want to know as much as possible about them.”
Not only do millennials constitute a larger segment of the potential vehicle installment contract applicants finance companies might see, but they also might have a better capacity to remain current on those deals.
Non-prime auto loan applicants make more money than other underbanked consumer loan applicants, according to FactorTrust’s special auto edition of the Underbanked Index. In fact, millennial non-prime auto applicants have incomes comparable to Baby Boomer consumer loan applicants.
FactorTrust reported non-prime auto applicants make more on average than underbanked consumer loan applicants. Overall, non-prime auto applicants make $3,287 per month, while consumer loan applicants — individuals who used those funds for other personal expenses and purchases — make an average of $2,937 per month.
When SubPrime Auto Finance News recently asked Rable to examine why so many millennials end up being classified as non-prime, he replied, “It could have been something in their past where they may have not managed their credit obligations in a way that allowed them to maintain a prime credit score. But then it’s also market driven.
“As everybody knows over the last five or six years, as the economy has recovered there was a big period of time there between 2008 and to a certain extent even 2011, there were a lot of people right at the prime line or just above the prime who struggled mightily and ended up moving below that prime line,” Rable continued.
“What we’ve seen in the data is a lot of consumers who were historically above the prime line are now below,” he went on to say. “They still have the same needs as everybody else. They still have a need for an auto loan. They’re employed so they need to get to work. They need as many credit options as other people have. They’ve just found that over time maybe the non-prime lenders were the better option for them based on their score at that time.”
And that credit score doesn't just play a role in underwriting; Rable mentioned the consumer stability component, too. FactorTrust’s latest index report showed non-prime auto applicants are more likely to change addresses than consumer loan applicants, while consumer loan applicants are more likely to change phone numbers than auto applicants.
Rable explained that millennials are more open to move from place to place but keep their phone number — likely connected to a mobile device — since “they use it for everything.”
He added that FactorTrust’s 10 years of experience in the alternative data space shows, “consumer stability has been a pretty substantial predictor of credit risk for underbanked and non-prime consumers from the get-go when we started looking at risk. Having all of our customers contribute their data to us allows us to continue to see who that changes over time.”
FactorTrust’s latest analysis also touched on employment.
The company found that most non-prime auto and consumer loan applicants are employed in the retail segment, but employment segments split after that, with the second most-common employment segment for auto applicants being government, and quick-serve restaurants for the consumer loan segment.
The largest employer segment of underbanked millennials is retail, with quick-serve restaurants as the second-largest employer.
FactorTrust brought all of this material to the attention of finance companies because Rable insisted that alternative credit data can enhance their underwriting process. FactorTrust boasts a study that determined a finance company can reduce default rates by up to 48 percent by integrating alternative data into its process.
Rable acknowledged that finance companies changing their protocol from traditional underwriting processes is the hurdle the entire industry has yet to clear when it comes to leveraging alternative data.
“We don’t ever say replace a big three bureau with us. We always say our data augments big three data in the auto space,” Rable said. “It’s really valuable to see everything about this consumer. Today the big three don’t work with a lot of alternative financial services companies. We have a lot of tradelines on these consumers that the big three bureaus don’t have.
“Once lenders understand that aspect and are willing to say that these guys might not have all of the data, once they get over the hump of taking a look at alternative data and understand what it can do for them either by reducing credit risk to helping them fund more loans at scores that maybe they wouldn’t have funded in the past and seeing the value of doing that, the actual implementation in a risk model or whatever their underwriting decision process is can be pretty easy and straightforward,” he went on to say.
FactorTrust also emphasized that the pool of consumers — especially millennials — using alternative financial services likely isn’t going to diminish.
“Based on their age and the time in which they grew up, there is a much larger open view to alternative financial services than older generations,” Rable said. “Those older generations grew up saying you had to have a banking relationship for a checking account and a savings account.
“Younger consumers have a more openness to trying new things and looking at alternative financial services as an opportunity because to a certain extent they like the convenience. They like the speed,” he went on to say. “They recognize that in some cases the products might be priced differently than the more traditional products. But they like what they get in return.”
More key findings outlined in the auto edition of the FactorTrust Underbanked Index can be found by clicking the link below.
Michael Buckingham, senior director of the auto finance practice at J.D. Power, acknowledged dealers and finance companies already know that trying to get a new-vehicle contract completed for a customers with a soft credit profile can be “tricky.”
So when J.D. Power released its 2015 U.S. Dealer Financing Satisfaction Study on Monday, Buckingham mentioned two points that helped finance companies that book non-prime paper to score higher marks.
Buckingham shared with SubPrime Auto Finance News that the first component is important no matter if it’s a deal for someone with sterling credit or if the individuals just had a bankruptcy discharged. That’s speed of funding and completion of the application process.
“It makes sense because you’ve got trickier credits. It’s not like just checking the box and saying no problems,” Buckingham said.
“There are so many more multiple franchises managed by general managers and principals,” he continued. “As these dealers are getting bigger, they’re sitting back and saying, ‘Cash flow is king for us. Let’s not hold out for a little bit of rate or a little bit lower lender fee or things like that.’ They’re looking at cash flow.”
Buckingham noted that study results showed the application process also can be improved when stipulations for funding are clearly known by store finance managers.
“It is really critical for the lender through their sales team to help the dealer understand exactly what their parameters are,” he said. “We see that really resonate where the lender has got to do a great job of making sure of what they’re looking for and what’s in the buy box is clearly articulated out there.
“We see a huge sway when that’s not being done. You can think about it and it’s just causing a lot of frustration and to a degree time wasters,” Buckingham added.
The other element that helped finance companies that cater to the non-prime space to score higher in J.D. Power’s study was improvements in the verification. For example, Buckingham mentioned that finance companies that have alliances with credit bureaus to validate residency or income made dealers more satisfied.
“They’re looking to see a lender that’s easy to work with. If they’re seeing a lender eliminate some of the stips, there’s definitely higher satisfaction,” Buckingham said.
Overall study results
In the highly competitive auto financing environment, J.D. Power determined the level of service provided, including technology and a collaborative and consultative staff, is more important than price, as dealers are willing to pay a premium for high-quality service.
The U.S. Dealer Financing Satisfaction Study measures dealer satisfaction with finance providers in four segments: prime retail credit; non-prime retail credit; retail leasing; and floor planning. Satisfaction is calculated on a 1,000-point scale.
Dealer satisfaction in the prime retail credit segment came in with an average score of 868. In the non-prime retail credit segment, satisfaction settled at 828.
Dealer satisfaction in the retail leasing segment stood at 894, while in the floor planning segment, satisfaction topped out at 943.
While dealerships continue to seek ways to improve their margins, Buckingham reiterated that they also seek providers to speed customer throughput in the sale or lease of their vehicles and in many instances are willing to pay a premium for a higher-quality financing experience. He noted 63 percent of dealers are willing to pay an additional 0.50-0.60 basis points on their loan terms (down 4 percentage points from 2014) to receive good service from their lenders in the prime retail credit segment.
J.D. Power acknowledged that the industry works hard to establish high-value, one-on-one relationships with customers when it comes to the sales and service processes. The same principle applies to dealers when it comes to the relationship with their finance companies in all consumer-facing products — prime retail credit, non-prime retail credit and retail leasing.
“Auto lending continues to be a relationship business. Findings of the study show that assigning/aligning dedicated underwriters positively impacts dealer satisfaction by providing higher levels of service and collaboration,” J.D. Power said.
As Buckingham pointed out, the study showed a dealer-focused sales rep relationship has a positive effect on satisfaction and retail contract volume.
When a high level of sales rep service is provided, satisfaction is substantially higher than when there is no focused support (935 versus 754, respectively). Among dealers with a focused relationship in which all sales rep relationship key performance indicators (KPIs) are met, 68 percent said they “definitely will” increase the percentage of business they conduct with their provider.
“Speed of funding has become a critical differentiator in the eyes of the dealer as efficient cash flow is demanded by dealer management, not absolute finance and insurance income,” Buckingham said.
“Fast application processing allowing dealers to speed the customer delivery process is also critical. Auto dealers are willing to pay a price premium for these services,” he went on to say.
Buckingham added dealers don’t want loan processors, instead, stores want collaborative consultants who can support them every step of the way.
“High-performing lenders provide a range of services that resonates with dealers, which include helping them understand the variety of lending options available and how they can maximize profits, reduce expenses and retain customers,” J.D. Power said.
Other key findings
J.D. Power mentioned six other notable points stemming from this year’s study, including
— A majority (84 percent) of dealers indicate their lender provides a dedicated underwriter person and or team who contacts them frequently, providing valued-added communications.
— Overall satisfaction is highest when sales reps engage in discussions about customer retention (922), dealership performance consulting (916) and training and clarification of programs (916), compared with when they do not (831, 818 and 816, respectively).
— In the floor planning segment, 85 percent of dealers are assigned a primary support representative or team who can quickly respond to their needs and questions. Additionally, 75 percent of dealers indicate being able to immediately reach their support staff. When this occurs, satisfaction is 975. When dealers have to wait one hour to reach their support staff, satisfaction declines significantly to 938.
— eContracting, or finance company-provided technology that enables same-day contract funding, improves dealer satisfaction. When dealers use eContracting or a proprietary technology provided by their lender, overall satisfaction averages 913, compared with 856 when lenders do not use this service. Additionally, 56 percent of dealers indicate that faster funding time is the main reason to use eContracting. On average, there is a 39 percent increase in dealers’ business with their finance provider due to eContracting.
— The study found that dealerships retain 59 percent of their leasing customers through retention programs and consumer guidance provided by their lender.
— A total 75 percent of dealers indicate increasing retail business with their provider because of their floor planning relationship.
Dealer financing satisfaction rankings
Mercedes-Benz Financial Services ranked highest among finance companies in the prime retail credit segment with a score of 971. Following in the rankings were Mini Financial Services (962) and Alphera Financial Services (961).
Mercedes-Benz Financial Services also took the highest mark among finance companies in the retail leasing segment with a score of 978. Following in the rankings were BMW Financial Services (961) and Lincoln Automotive Financial Services (956).
Furthermore, Mercedes-Benz Financial Services ranked highest among floor planning providers for a fifth consecutive year with a score of 986. Following in the rankings were BMW Financial Services (974) and Ford Credit (961).
Satisfaction is measured across three factors in the prime and non-prime retail credit segments, including:
— Finance provider offerings
— Application and approval process
— Sales representative relationship.
Four factors are measured in the retail leasing segment, including:
— Finance provider offerings
— Application and approval process
— Sales representative relationship
— Vehicle return process.
Four factors are measured in the floor planning segment, including
— Finance provider credit line
— Floor plan support
— Sales representative relationship
— Floor plan portfolio management.
The study captures nearly 21,798 finance provider evaluations across the four segments. These evaluations were provided by roughly 3,934 franchised dealerships in the United States.
