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Compliance

NADA Fair Credit Compliance – 8 Months Later

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

It’s been eight months since NADA released their Fair Credit Compliance Guidelines to help the retail auto industry navigate today’s increased focus on regulatory compliance. As the Consumer Financial Protection Bureau (CFPB) continues to aggressively seek out discriminatory practices, more dealers and lenders are implementing flat fee programs to help alleviate these concerns, including disparate impact (practices that seem neutral but result in negative impact to customers in a protected class).

While NADA has provided this guidance to dealers and lenders as they scramble to navigate a more stringent compliance operating environment, it also means that the opportunity to make finance reserve is slimming or coming to an end. For dealers, this means they now need to focus more on selling F&I products to enhance bottom line productivity. For lenders applying a flat fee, this means re-evaluating how to remain competitive against lenders who still operate under a traditional fee structure.

How are you positioning your institution to capitalize on evolving dealer demands and remain competitive?

  • Are you paying a competitive flat rate?
  • Are you either allowing room to sell consumer protection products or providing competitive products built into your financing options?
  • Are your field representatives actively supporting the dealerships with which you work?
  • Are your field representatives familiar with the dealers’ operations and the markets in which they conduct business?

Today’s indirect lenders have to compete on so much more than they are used to. Now, instead of just competing on APR, they contend with a flat fee markup and leaving room for the sale of F&I products. With all these considerations in play, it can be extremely difficult to determine how to structure your loan.

Consumers want low APR and the dealership wants to make money – that will remain constant. And, until everyone adopts a flat fee, dealers have a variety of options to choose from to achieve their goals. If you are a lender operating under a flat-fee markup, one of the best ways to differentiate yourself is to provide complimentary consumer protection products on your loans. With this option, dealerships still make money on the flat, as well as have the ability to maximize their profit potential by selling upgrades to the products on your loan. In addition, those same products protect your loan from unforeseen circumstances that could affect the consumer’s ability to make their monthly loan payments.

It’s also important to remember the value of good customer service. Making your field representatives available during dealership hours, providing swift loan approvals, and providing sufficient underwriting guidelines will go a long way to securing your business with the dealership.

Cultivating a strong working relationship with F&I managers has always separated good lenders from their competition. A lending institution may have the best rate or fee structure available, but if their representatives aren’t available and attentive, that lender will fail to see sustained loan volume from their dealership partners.

Finally, understanding demographics for the surrounding areas can help your field team better position your loan for any particular dealership. Demographics have changed significantly since 2008, and statistics like the type of employers in your area, home value trends and income levels can help paint a more comprehensive picture of their current and potential customers. With this information in hand, you have a better ability to provide lending services that support the dealership goals of selling more vehicles, and in turn increase loan volume for your institution.

With more than three decades of developing and delivering consumer protection solutions and go-to-market strategies, EFG Companies gives clients the edge in the market place. Put our agile product innovation and unmatched partner engagement in your court today.

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Featured

Enterprise Financial News – Volume 3

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Categories
Economy F&I

Post-recession consumers are primed for F&I products. Are you taking advantage of this trend?

Contributing Author: Steve KleesWe have a paradox! More consumers are returning to the dealership to get out of their old vehicles; yet, there are more decade-old cars on the road today than since the depths of the recession in 2009.

If you’ve been following the news for the past two years, or even just the past month, there is not a doubt in your mind that the economy is improving and consumers are returning to dealerships. Both new and used car sales are up, and lenders across all credit tiers are seeing an uptick in loan volume.

According to the latest “Automotive Market Trends” analysis from Experian, the percentage of vehicles on the road predating the 2001 model year has reached its highest level since 2009. In fact, vehicles in that age group made up more than 28.3 percent of all vehicles on the road. To put this in perspective, before the recession, in 2008, that age group only made up 22.1 percent of vehicles on the road.

It’s understandable that during the worst of the recession, consumers held off on making big purchases like vehicles. With mass layoffs and companies filing for bankruptcy left and right, everyone was concerned about jobs and economic stability.

But now that the economy is expanding, shouldn’t consumers be trading up for a newer model?

According to Melinda Zabritski, Experian Automotive’s senior director of automotive credit, “While the growth in early model vehicles on the road is slowing, getting the most out of the vehicle they purchase still appears to be top of mind for consumers.”

After the recession F&I managers were faced with a more informed and demanding consumer. But what few have taken into consideration is that this could be a good thing. With consumers hyper-vigilant about stretching their dollars, and getting more value from the companies with which they choose to do business, dealerships and lenders have the opportunity to create lasting relationships by aligning with their needs.

The consumers sitting across from the F&I manager are knowledgeable and concerned about the difficulties involved in maintaining older model vehicles. Credit-challenged consumers especially feel the strain of costly mechanical breakdowns and most certainly understand the choice between fixing their vehicle and making a car payment, and therefore the benefits consumer protection products can provide.

By structuring your subprime loans with the option of consumer protection products like a vehicle service contract, you have the opportunity to differentiate your loans from the competition with both F&I managers and consumers. Depending on credit score, and income to debt ratios, many F&I managers find it difficult to secure enough financing to cover both the price of the vehicle and their F&I benefits. By considering an offer with limited complimentary consumer protection products structured within your loan, you can equip finance managers with an easy way to start the F&I conversation by emphasizing the value they are providing to their customer and capitalize on upgrade options to boost their bottom line.

With almost 40 years of experience in structuring successful consumer protection products, EFG Companies knows how to leverage consumer trends to successfully impact your business. Find out how today!