Categories
Business Growth

The Early Bird Tactic to Growing Your Auto Loan Volume

According to the FDIC, cash is readily at hand as a record $2 trillion in cash hit the deposit accounts of U.S. banks since the beginning of the pandemic. With interest rates near zero, net interest margins have narrowed. Financial institutions would love to issue loans, but there are few opportunities to grow right now. Auto loans are a frequent go-to solution, but the pandemic has added a few wrinkles to that tried-and-true tactic.

Used car values typically decline during a recession, raising concerns about negative net equity on typically long-term 84-month loans. But analysis from Edmunds reflects there could be more demand for used vehicles versus new, as the cost of new units continue to rise and manufacturers continue to fall behind on production schedules.  

How can a credit union capitalize on the opportunity to grow their auto loan portfolio? The first step is to reach the car shopper early in their search. By the time a consumer visits a dealership, they are likely to have conducted an average of 13-14 hours of research. Offer proactive, pre-approved loans to members along with assistance in selecting the best deal for their credit position. Partner with members in their buying journey rather than waiting for them to come to you.

Categories
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.

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.