Categories
Compliance

Eating an Elephant One Bite at a Time

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

Let’s talk about the elephant in the room. Our nation’s lending industry has once again made headlines for deceptive consumer practices. While this negative press is highlighting one main lender, it is also affecting general consumer sentiment about the lending industry as a whole. And, this negative sentiment is bleeding in to auto finance.

With the CFPB’s heightened focus on auto finance, lenders have been under pressure to demonstrate dealership compliance. To date, lenders have put the onus on dealers to provide compliance documentation that they can then provide the CFPB. However, with these latest developments, it’s becoming clear that both consumers and businesses of all shapes and sizes will require lenders to demonstrate their compliance procedures to keep their business.

Dealers are now concerned with the negative repercussions they can receive from sending customers to noncompliant lenders. Remember, your reputation can have a direct correlation to a dealer’s reputation, especially if you’ve been their preferred lender.

Hypothetically, if a dealer’s preferred lender relationship was with a lender of suspect, the customers who purchased vehicles through that dealer may refinance, which equals lost profit and chargebacks to the dealership. With the chance of reduced unit profit, increased chargebacks, and a potential hit to dealership credibility, it makes sense for dealers to want some assurances from their lenders that everything is above board.

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Categories
Economy

Making Prime Hay with Pre-owned Financing

Mark Rappaport President Simplicity Division EFG Companies
Contributing Author:
Mark Rappaport
President
Sinplicity Division
EFG Companies

Experian’s latest State of Auto Finance Market Report made headlines recently, painting a rosy picture for the used-vehicle market. Overall, pre-owned vehicles accounted for 55.61 percent of all financing in Q2 of 2016. Consumers across all credit tiers are flocking to pre-owned vehicles, with super-prime and prime consumers accounting for 44.95 percent of all pre-owned loans, representing a 2.6 percent year-over-year increase.

While Experian highlighted the fact that more prime consumers had entered the market, to the discerning eye, the pre-owned vehicle market is still a subprime game. In fact, nonprime, subprime and deep subprime consumers accounted for 55.05 percent of all used loans in Q2 of 2016. And, just as consumers don’t quite know the true quality of the vehicle, or vehicle health, lenders are in the dark as far as vehicle reliability.

This unknown could lead to more vehicle repairs, a higher likelihood of breakdown, and even an increased risk of total loss. Add that to the fact that more than half of the pre-owned market is made up of risky credit tiers, and it’s pretty clear why auto lenders as a whole look to protect themselves with higher APRs for the pre-owned space.

Even Experian’s latest report reflects this trend with an average new APR of 4.82 percent and an average pre-owned APR of 8.97 percent.  However, with more prime and super-prime consumers entering the space, lenders will be hard-pressed to reduce their rates to be more in line with what those consumers are accustomed to in the new-vehicle space. So, how can lenders address this pressure to reduce their average APR for pre-owned vehicles while also protecting their loan portfolios as a whole?

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Categories
Business Growth Economy

Benefits of Leasing CPO Programs

Dave Gibbs Training Manager EFG Companies
Dave Gibbs
Training Manager
EFG Companies

According to the NADA Used Car Guide, more than 3 million vehicles will reach the end of their leases in 2016. This represents a 35 percent jump in off-lease volume. With such a huge increase in reliable, late-model, pre-owned vehicles, the industry has already seen used vehicle prices drop to become more competitive. Now, dealers are more concerned with maintaining front-end profitability while still being competitive.

Meanwhile, lenders are dealing with their own competitive struggle. Many are watching the auto finance market closely to determine when to tighten lending requirements. Some are already beginning to pull out of the subprime space. And, all lenders are determining how to remain competitive while also being compliant with the Consumer Financial Protection Bureau.

Outside of rates, one of the best ways to remain competitive in the auto finance space is by helping dealers accomplish their profitability and competitive goals. With a higher pre-owned inventory, more dealers are looking to utilize certified pre-owned (CPO) programs to differentiate their offerings and increase front-end profitability.

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