Categories
Compliance EFG Companies Government Regulations

Targeting GAP

If you look at the flurry of GAP-related state-level legislative bills proposed so far in 2022, you could surmise that this consumer protection tool is under fire. According to American Financial Services Association Senior Vice President Danielle Arlowe, the organization has counted 30 pieces of legislation in 2022, compared to 14 bills between 2019 – 2021. These new legislative efforts join existing statutes on the books in 11 states which require the lender to refund a consumer who cancels financed GAP coverage.

At the federal level, officials have again raised the issue that bundled GAP coverage renders the auto loan to be under the purview of the Military Lending Act (MLA). The Consumer Financial Protection Bureau, Department of Defense, and Department of Justice recently argued in the class-action lawsuit Davidson vs. United Auto Credit that loans containing a nonexempt product such as GAP would not be exempt from MLA.

These developments put retail automotive lenders in a difficult position. For example, the California Assembly Bill AB 2311 requires that customers be notified that GAP insurance is an option and requires that lenders automatically refund any GAP balances if the loan is paid early. Other components of the bill stipulate a cap on the price of the GAP insurance as well as banning its sale under certain criteria related to the amount financed. Arlowe believes the industry is at a turning point with GAP insurance and the relationship between creditor, dealer, and administrator.

Categories
Economy

The Fed’s Impact on Auto Lending

2022 has kicked off with some very mixed signals. While corporate earnings and retail auto sales closed out the 2021 fiscal year with strong numbers, the stock market has been on a roller coaster ride, and labor and supply chain issues continue to stifle growth. Adding to the confounding picture is the rate of inflation. At its current rate – 7.04 percent – most economists and investors do not expect inflation to return to anything like the double-digit levels that prevailed in the early 1980s. However, the rate of inflation and the contributing indices will still have an impact on auto lending in 2022.

Let’s look a little deeper into the details. The U.S. economy grew 1.7 percent in the fourth quarter, a 6.9 percent annual rate and its largest one-year jump since 1984. While impressive, the expansion reflects the depth of the damage inflicted by the pandemic in 2020/2021.

From a consumer standpoint, the rate of inflation is reflected in both the consumer price index and the personal consumption expenditure index — each climbed to a 39-year high last year. The cost of goods and consumers’ consumption of those goods has a direct correlation with inflation and purchasing power. To put it simply, you would have to spend 7.04 percent more money in 2022 than in 2021 for the same item.

Categories
Business Growth

There’s Still Opportunity for Gains

The latest report from Experian on the State of Auto Finance Q2 2021 revealed that banks and captives continued to gain auto loan market share while credit unions continued a 3-year trend of losing market share. Combined, banks and captives account for approximately 60 percent of the overall share, while credit unions slipped to 18.21 percent. The health of a consumer’s financial stability is clearly on display as loans ranked prime+ were nearly 62 percent of total loans while total subprime dropped below 20 percent and deep subprime hit record lows.

According to Experian, subprime financing will remain at near-record lows while prime will increase across all transaction types for the remainder of the year. Loan amounts and payments will remain at near-record highs and will likely hit record-highs for used vehicles. Overall outstanding balances will increase, and 60-day delinquencies will decrease.

Opportunity for credit unions

Surprisingly, the U.S. consumer actually became financially stronger during the pandemic, boosting personal savings by nearly 2X of disposable income. This strong balance sheet enables credit unions to focus on maximizing their customer engagement time, with discussions of supporting and maintaining that wealth.