Lending Curve

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

In the wake of large natural disasters like Hurricanes Harvey, Irma and Maria, lenders tend to see an upsurge in credit applications for auto loans. In fact, strategic lenders provide financial relief in the affected areas, offering better rates, 0% APR, alternative payment arrangements, and even payment relief. These efforts help consumers get back on their feet; they help the local economy; and, they help lenders capture more auto loan volume. However, no good deed goes unpunished because this relaxing of credit standards has the potential to make it easier for criminals to perpetuate identity fraud.

Think about it for a minute.

Your institution is processing more credit applications for auto loans than it has in the last three months. Your team is stressed and overworked as they try to capture as much business as possible. You’ve temporarily relaxed your standards as consumers with totaled vehicles are trying to trade them in even though they are upside down in their current auto loan. How easy do you think it would be for a person with the social security number of a relative, and who knows previous addresses and phone numbers, to slip through the system?

While relaxing your lending standards to help consumers affected by natural disasters is a noble idea that is beneficial for consumers, dealers, and your institution, it’s also important to stay vigilant on your compliance procedures. Do your due diligence:

Provide additional fraud detection training for your loan officers.
Work with your technology provider to implement additional stipulations and/or identity verification questions for all loan applications.
Ensure any updates to your procedures are documented.
Make sure all indirect consumer loans are standardized.
Monitor and document all training, forms and compliance efforts.

Of course, there’s only so much you can do to detect and prevent identity theft when consumers apply for credit through a dealership. That’s why it’s so important to develop strong dealership relationships. Remember, dealers are facing the same issues when it comes to preventing fraud. And, they are just as motivated to work with you to enhance their identity theft prevention process. Continue reading →

Contributing Author:
Brien Joyce
Vice President
EFG Companies

While everyone is following the news coverage of the impact of Hurricane Harvey, the estimated 500 auto dealers in the Houston area affected by the hurricane are already working to get back up and running. According to Automotive News and Wards Auto, dealers in Southeast Texas expect a surge in car buying as people begin receiving insurance payouts for their damaged vehicles. This means that there will also be a surge in auto financing, and lenders will need to be prepared to help dealers manage their time with each customer wisely.

It can be expected that there will be a period of “downtime” while both dealers and consumers survey their homes and businesses to understand the full scope of the damage. This “downtime” provides lenders the perfect opportunity to prepare their operations for when consumers in the seventh most populated market in the U.S. begin car shopping en masse.

One of the biggest challenges during a car-buying surge is simply servicing the increased traffic. Dealers will often extend their hours as part of their overall strategy to capture as many sales as possible. With that in mind, now is a good time to begin preparing your team to work longer hours to ensure auto loan officers are available during longer dealership hours.

It’s also important to remember just how easy it can be to crash an online platform when a large number of users try to use it all at once. Take the time now to work out a solution with your IT team for a surge in online applications sent via your dealer portals and through your website directly from consumers. Preparing your digital platform to have the bandwidth to handle a significant increase in traffic will help make sure you are able to capture as many loans as possible with no disruption to dealer service. Continue reading →

Contributing Author:
Brien Joyce
Vice President
EFG Companies

You’ve implemented strong technology solutions to provide dealers with automatic approvals and denials. You’ve created robust mobile applications to foster strong relationships with consumers. You might even have gone completely digital with all loan services. In the race to provide dealers and consumers with instant credit descisioning, have you lost the human element of building relationships?

According to J.D. Power and Associates’ 2017 U.S. Dealer Financing Satisfaction Study, lenders need to refocus on communication and dealer relationships. This annual study measures dealer satisfaction with auto financing providers, based on application and approval processes, provider offerings, and sales rep relationships among other factors.

It’s time to get back to basics when it comes to developing business relationships, especially with auto loan originations on the decline. TransUnion announced that auto originations fell for the third consecutive quarter in their most recent quarterly Industry Insights Report.

So, what does it take to develop strong dealer relationships? When pondering this question think beyond quick loan descisioning and interest rates. It takes superior service and a strong value proposition.

When an F&I manager calls about an application, are they met with a phone tree or an actual person?
Are your loan officers courteous and respectful when speaking with dealership personnel?
If your system flags a loan application as incomplete, do your loan officers just ignore it and assume the dealer will figure out the mistake when no funding decision is made, or do they proactively call dealers to address the application?
Does your auto financing department operate on dealership hours or banking hours?
When your representatives visit dealerships, do they just drop off donuts and coffee, or do they make a point to sit down with dealership management and discuss how your institution can be a better partner?
How often does your institution proactively provide in-person training and updates on your loan requirements, taking into account the high-turnover nature of retail automotive?
Aside from APR, how is your auto loan different from the competition?
Do your loans make it easier for F&I managers to upsell consumer protection products to boost their margins?
Do your loans provide consumers with value that insulates them from significant impacts to their savings?

Continue reading →

Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

When the CFPB was created, the Dodd-Frank law gave the CFPB authority to study mandatory, predispute arbitration agreements. Before the CFPB could do anything, they needed to conduct this study, report to Congress, and then propose whatever rule they deemed in the consumer’s best interest.

Last summer, the CFPB proposed a rule that would limit finance companies’ ability to use mandatory predispute arbitration agreements. Under the proposed rule, consumers would not be prohibited from participating in a class-action law suit. The CFPB also put a provision in the proposed rule that would require companies to report individual arbitration awards to the CFPB.

On July 10, 2017, the Consumer Financial Protection Bureau announced its final version of the rule on arbitration. The final rule has almost all of the exact same provisions as the proposed version from last summer. The rule specifically states that while finance companies may use arbitration agreements, they are prohibited from preventing consumers from engaging in a class action law suit.

This week, the U.S. House of Representatives voted 231 – 190 to revoke the rule, using authority under the Congressional Review Act. A similar resolution is on tap to be debated in the Senate in the coming weeks.

While the rule is currently under debate, lenders everywhere await very eagerly for the final outcome. In the auto finance industry, the rule could put both dealers and lenders at a greater risk for class-action law suits. Continue reading →

Lending Curve

Protecting Your Institution with Compliance

Preparing for a Surge in Auto Financing

Your Dealer Relationship Checklist

Staying Ahead of the CFPB Arbitration Rule