Lending Curve

Contributing Author:
Brien Joyce
Vice President
EFG Companies

We’re halfway through a very interesting year in the auto-lending space. If you had planned for slightly lower auto loan volume, rising delinquency rates, and an uncertain economic outlook, congratulations! You’ve planned for this situation and hopefully are managing well. Going forward, you’ll need to stay the course. The forecast for the second half of this year and all of 2020 appears to be equally bumpy.

The Economy and Vehicle Prices

On June 19^th, the Federal Reserve chose to keep interest rates steady in the near term, but retained an option to cut rates as economic risks mount and inflation remains stuck below their target. Many officials on the Fed’s policymaking committee expect to lower rates before the end of the year amid continuing trade tensions and slowing global economic growth. Essentially, the Fed is preparing for the economy to take a hit and is keeping an interest rate ace up their sleeve.

There are other indicators of a stalling economy. A subdued global economy, increased corporate stock buybacks, and some spikes in lay-offs will keep business bumpy throughout 2019 and into 2020. Significant peaks and valleys in the stock market have caused unrest. The good news is a recession may still be a few years off. In fact, a brief inversion in Treasury notes prompted investors to predict another recession in two to three years. Continue reading →

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

In April, the Federal Trade Commission (FTC) published in the Federal Register its proposed amendments to the 2000 Privacy Rule and 2003 Safeguards Rule. The genesis of these amendments is based on the FTC’s enforcement experience, and are intended to keep pace with technological developments within the financial industry. The proposed revisions relevant to automotive lenders fall under the Gramm Leach Bliley Act (GLBA).

Changes to the Privacy Rule

Revisions to the Privacy Rule would result in two substantive changes:

The scope and definition of “financial institution” was modified to include entities that are engaged in activities that are incidental to financial activities, to bring both rules into accordance with the CFPB’s Regulation P (Privacy of Consumer Financial Information).
The annual privacy notice requirements were modified to implement statutory changes to the GLBA enacted by the Fixing America’s Surface Transportation Act (the FAST Act).

The FAST Act established that a financial institution is not required to provide an annual privacy notice under the Privacy Rule if it:

only shares NPI with nonaffiliated third parties in a manner that does not require notice of an opt-out right to be provided to its customers; and,
has not changed its privacy policies and practices with respect to the disclosure of NPI since it last provided a privacy notice to its customers.

The CFPB published a final rule to implement these statutory changes in September 2018. The FTC’s proposal would amend the annual notice requirements to bring it in line with the FAST Act and the CFPB regulations. Continue reading →

Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

The Federal Reserve recently signaled a pause in raising interest rates, citing concerns about a slowing global economy and sluggish consumer spending. However, these two economic factors have been countered by strength in labor numbers and strong consumer spending in the first quarter. When asked, economic prognosticators and financial pundits say the economy reflects the lens through which it is viewed.

From a lender’s perspective in the automotive space, there are some unique mitigating factors. New vehicle prices continue to rise, pricing some consumers out of the market. Even with relatively low interest rates available for prime buyers, loan terms extended to upwards of 84 months leave consumers uncharacteristically exposed.

For those consumers who pivot away from a new vehicle toward a low mileage used vehicle, the picture is not much better. Low inventory and steadily rising used car prices put prime buyers in competition with traditional sub-prime buyers. Even used car auctions have seen a rise in general consumers willing to take a risk on untested vehicles.

These micro-economic issues do not reflect the macro-economic concerns of tariffs, lengthening loan terms and default exposure. A record 7 million Americans are 90 days or more behind on their auto loan payments, as reported by the Federal Reserve Bank of New York in February. This number is higher than during the wake of the financial crisis. Some economists warn that this is a red flag.

Given these factors, what levers are available for an auto lender trying to increase an auto loan portfolio? Continue reading →

Lending Curve

Finding Opportunity in Economic Uncertainty

The Economy and Vehicle Prices

FTC Amendments Strive To Keep Up with Technology

Changes to the Privacy Rule

Battling the Squeeze