Tag: EFG Companies

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Compliance F&I

Are You Taking Advantage of the Domino Effect?

Karen Klees, Certified Consumer Credit Compliance Professional

 

Contributing Author: Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies

In December 2013, the Consumer Financial Protection Bureau (CFPB) ordered Ally Financial to pay $80 million in civil penalties over Ally’s allowance of dealer markup, representing the federal government’s largest auto loan discrimination settlement in U.S. history.

Throughout 2014, the auto finance industry was on the edge of its seat to see who would be next. Rumors flooded the industry of CFPB investigations, but no news came out about another settlement. Meanwhile Chrysler Capital, Santander Consumer USA proactively took action and lowered their cap on dealer participation in October 2014.

We then waited another eight months before another lender felt the sting of the CFPB. In June 2015, BB&T announced the launch of flat fees as the CFPB announced the expansion of oversight to larger non-bank auto finance companies.

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Economy

Bubble, no Bubble? It Doesn’t Matter!

Contributing Author: Steve Klees

 

Contributing Author: Steve Klees, Senior Vice President, Specialty Channels, EFG Companies

For the past several months we’ve heard arguments across the industry about whether a subprime bubble is forming. Experian has stated in at least the last three quarterly State of Auto Finance updates that there simply is no bubble.  I tend to agree. Here’s why:

For an economic bubble to form in the auto industry, the prices of vehicles must inflate well beyond the actual vehicle value, past what the market can bear. While prices for both new and used vehicles have gone up in recent years, the market is still very capable of handling those prices. The main reason for this is the combination of low interest rates and longer-term loans.

For example, take a subprime consumer who purchased a vehicle in 2009. Because of the stringent lending requirements at that time, that consumer locked in a 9% interest rate on a 60-month term loan. Then, in 2014, they decided to trade in their vehicle for a newer used-model vehicle. Because the consumer kept up with their monthly payments and possibly made other credit strides with better employment, etc., they returned to the dealership as a near-prime consumer, and were able to refinance the remaining balance into their new vehicle payment at a 3.9% interest rate. With a new 60-month term loan, their payments stay roughly the same. The consumer already proved they could afford those payments with the first vehicle, so the risk remains roughly the same.

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F&I

Are You Appealing to Millennials?

Contributing Author: Steve Klees

 

Contributing Author: Steve Klees, Senior Vice President, Specialty Channels, EFG Companies

When you hear the term “Millennials” paired with the term “car,” what comes to mind? Do you automatically think, “Millennials aren’t interested in cars?” For the past few years, it seemed like a new article was published every month stating that the reason Millennials weren’t buying cars was due to personal preference.

Today, economics has proven that assertion false. According to J.D. Power & Associates, Millennials (those born between 1980 and 2004) accounted for 27 percent of new car sales in the U.S. last year. Millennials have already surpassed Generation X to become the second-largest group of new car buyers after Baby Boomers; and each year, the influence of the Baby Boomer generation recedes and Millennial buying power increases.

It turns out, personal preference had very little to do with Millennials approaching the auto industry. Rather, it had all to do with the economy, the job market, and wage growth. Most of the Millennials with buying power today entered the job market during the economic upheaval in the Great Recession. Because of the lack of prospects, some returned to school, while others moved in with parents or got roommates and stuck it out in low-paying or part-time jobs that did not utilize their post-high school training or education.

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