Category: Compliance

Categories
Business Growth Compliance

Finding the Perfect Balance

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

From the very first time one person loaned another person their hard-earned money or goods, there has been a level of risk on whether they would ever see their money or property again. As the lender, finding that balance between risk and reward created the concepts of payment plans, requiring borrowers to pay back more than the total amount they originally received, as well as sophisticated algorithms for lenders to use to determine how lenient or restrictive to make their lending policies.

We are currently in a highly contemplative and speculative time when it comes to determining that perfect balance in auto finance. After seven consecutive years of vehicles sales gains, the National Automobile Dealers Association (NADA) is forecasting that vehicle sales will total out at 17.1 million new vehicles in 2017, slightly lower than total sales in 2016. This plateau could extend into 2018, or we could potentially even see the beginnings of a period of decline, or even a period of growth and expansion. It could go either way.

Lending practices differ greatly depending on whether an economy is expanding, plateauing, or declining. Hence, the period of reflection. Of course, a plateau at 17.1 million vehicles means that the consumer appetite for auto finance is still strong.

According to Experian’s latest State of Auto Finance Market Report, the total automotive open loan balance reached another record high in the second quarter of 2017, topping $1.1 billion. Average loan amounts remained high across all credit tiers, as well as across both new and used vehicles.

Continue reading “Finding the Perfect Balance”
Categories
Compliance

Protecting Your Institution with Compliance

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

In the wake of large natural disasters like Hurricanes Harvey, Irma and Maria, lenders tend to see an upsurge in credit applications for auto loans. In fact, strategic lenders provide financial relief in the affected areas, offering better rates, 0% APR, alternative payment arrangements, and even payment relief. These efforts help consumers get back on their feet; they help the local economy; and, they help lenders capture more auto loan volume. However, no good deed goes unpunished because this relaxing of credit standards has the potential to make it easier for criminals to perpetuate identity fraud.

Think about it for a minute.

Your institution is processing more credit applications for auto loans than it has in the last three months. Your team is stressed and overworked as they try to capture as much business as possible. You’ve temporarily relaxed your standards as consumers with totaled vehicles are trying to trade them in even though they are upside down in their current auto loan. How easy do you think it would be for a person with the social security number of a relative, and who knows previous addresses and phone numbers, to slip through the system?

While relaxing your lending standards to help consumers affected by natural disasters is a noble idea that is beneficial for consumers, dealers, and your institution, it’s also important to stay vigilant on your compliance procedures. Do your due diligence:

  • Provide additional fraud detection training for your loan officers.
  • Work with your technology provider to implement additional stipulations and/or identity verification questions for all loan applications.
  • Ensure any updates to your procedures are documented.
  • Make sure all indirect consumer loans are standardized.
  • Monitor and document all training, forms and compliance efforts.

Of course, there’s only so much you can do to detect and prevent identity theft when consumers apply for credit through a dealership. That’s why it’s so important to develop strong dealership relationships. Remember, dealers are facing the same issues when it comes to preventing fraud. And, they are just as motivated to work with you to enhance their identity theft prevention process.

Continue reading “Protecting Your Institution with Compliance”
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.

Continue reading “Staying Ahead of the CFPB Arbitration Rule”