Tag: consumer protection products

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Economy

Protecting Your Loan Portfolio from Auto Defaults

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

According to recent data from the S&P Dow Jones Indices and Experian, auto defaults rose by 9 basis points in August, and by 10 basis points in September, 2017. These represent the largest month-over-month increases since December 2011. In addition, September’s auto defaults represent the highest level analysts have seen since February 2015.

With these numbers in hand, it’s no surprise that more banks are pulling out of the subprime auto finance space to retool their credit algorithms. As credit unions and captives scramble to capture that market share, lenders everywhere are evaluating how to securely expand their auto loan portfolios without significantly increasing risk.

We’re seeing more lenders looking into alternative data to expand their algorithms and better qualify consumers. Among other criteria, lenders are increasing the importance of income verification, employment tenure, pay frequency and the possibility of employment disruption in their qualification process.

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Categories
Business Growth Compliance Featured

Staying Ahead of the CFPB Arbitration Rule

Mark Rappaport President Simplicity Division EFG Companies
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.

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Categories
Uncategorized

Is Your Auto Loan Affordable?

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

According to a recent study from Bankrate.com, the average new-car price tag is too high for the majority of medium-income U.S. households. Here’s the breakdown:

In May, Kelley Blue Book updated the average new-vehicle transaction price to $33,261.

Using that transaction price, Bankrate applied the traditional 20-4-10 rule to conduct the study – i.e.:

  • a down payment of 20 percent
  • a four-year loan
  • principal, interest and insurance payments accounting for 10 percent of the household’s gross income

From looking at your own portfolios, you probably know that the majority of American consumers don’t put 20 percent down on their vehicle, and they are often financing for upwards of seven years. The fact that consumers don’t use the 20-4-10 rule should give you a good picture of the state of American finances in comparison to vehicle prices.

It should come as no surprise that Bankrate’s study came back showing that only one metro area could afford the average-priced new vehicle – Washington, D.C., where the median income is nearly $100,000.

Despite the fact that, according to Bankrate, most households can’t afford to purchase a new vehicle, new unit sales are still on par with last year’s levels. The most recent LMC Automotive/J.D. Power forecast puts 2017 new vehicle sales volume in the low 17 million-unit range for the year.

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