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.

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Categories
Business Growth Economy

Don’t Settle for More of the Same

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

Q4 2017 has finally arrived. Are you on track to meet your auto loan volume projections?

Vehicle sales numbers are flowing in and so far it looks like the projections for a flat market have panned out, even with the upsurge in sales in flood-damaged areas. The Federal Reserve raised interest rates twice this year, and expects to raise them once again in December. Credit Union auto loan market share saw an 8.5 percent increase in Q2, according to Experian. Consumer spending grew marginally in Q3, by 1.5 percent, while consumer confidence decreased in September.

All signs point to more of the same in the coming months. Unit sales will still eke out at around the same volume as last year. The combination of raising interest rates and lackluster consumer confidence will create an atmosphere where consumers are more hesitant to make those big-ticket purchases.

In auto lending, this means increased competition for the available supply of consumers in the market for a vehicle. As you take the time in Q4 to prepare for 2018, it’s important to evaluate how to differentiate your institution with both dealers and consumers.

Evaluate your value proposition through the optics of building a relationship:

  • Do you instill the value of providing superior service across your institution?
  • Are your dealer partners well versed in how you fund and your funding requirements?
  • How quickly does your institution respond to an application?
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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.

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