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Compliance

Keep On Keeping On

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

The Consumer Financial Protection Bureau (CFPB) has not come out unscathed in the wake of the Wells Fargo scandal. While some say the CFPB’s enforcement action demonstrates a need to strengthen the agency, others use the scandal as a case study to demonstrate the bureau’s inept and over-reaching practices. What’s behind the controversy surrounding the CFPB on this case? The L.A. Times broke the story of Wells Fargo deceptive practices in 2013, yet it just recently got the attention of the CFPB. Regulators are now asking the CFPB to account for this lapse.

In the background of all this, the Senate is scheduled to vote on legislation that could curb the CFPB’s independence. While both dealers and lenders avidly await that decision, it’s important to remember that the legislation does not dismantle with the bureau. And, with everything still up in the air, the best practice to undertake is to keep on overhauling your own compliance practices.

Regardless of any legislative changes, compliance will continue to be in the spotlight in the coming years. Whether the CFPB functions under more strict parameters or continues to have free reign over lending practices, we can expect them to continue to work to expand their influence.

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Compliance

Eating an Elephant One Bite at a Time

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

Let’s talk about the elephant in the room. Our nation’s lending industry has once again made headlines for deceptive consumer practices. While this negative press is highlighting one main lender, it is also affecting general consumer sentiment about the lending industry as a whole. And, this negative sentiment is bleeding in to auto finance.

With the CFPB’s heightened focus on auto finance, lenders have been under pressure to demonstrate dealership compliance. To date, lenders have put the onus on dealers to provide compliance documentation that they can then provide the CFPB. However, with these latest developments, it’s becoming clear that both consumers and businesses of all shapes and sizes will require lenders to demonstrate their compliance procedures to keep their business.

Dealers are now concerned with the negative repercussions they can receive from sending customers to noncompliant lenders. Remember, your reputation can have a direct correlation to a dealer’s reputation, especially if you’ve been their preferred lender.

Hypothetically, if a dealer’s preferred lender relationship was with a lender of suspect, the customers who purchased vehicles through that dealer may refinance, which equals lost profit and chargebacks to the dealership. With the chance of reduced unit profit, increased chargebacks, and a potential hit to dealership credibility, it makes sense for dealers to want some assurances from their lenders that everything is above board.

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Economy

Making Prime Hay with Pre-owned Financing

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

Experian’s latest State of Auto Finance Market Report made headlines recently, painting a rosy picture for the used-vehicle market. Overall, pre-owned vehicles accounted for 55.61 percent of all financing in Q2 of 2016. Consumers across all credit tiers are flocking to pre-owned vehicles, with super-prime and prime consumers accounting for 44.95 percent of all pre-owned loans, representing a 2.6 percent year-over-year increase.

While Experian highlighted the fact that more prime consumers had entered the market, to the discerning eye, the pre-owned vehicle market is still a subprime game. In fact, nonprime, subprime and deep subprime consumers accounted for 55.05 percent of all used loans in Q2 of 2016. And, just as consumers don’t quite know the true quality of the vehicle, or vehicle health, lenders are in the dark as far as vehicle reliability.

This unknown could lead to more vehicle repairs, a higher likelihood of breakdown, and even an increased risk of total loss. Add that to the fact that more than half of the pre-owned market is made up of risky credit tiers, and it’s pretty clear why auto lenders as a whole look to protect themselves with higher APRs for the pre-owned space.

Even Experian’s latest report reflects this trend with an average new APR of 4.82 percent and an average pre-owned APR of 8.97 percent.  However, with more prime and super-prime consumers entering the space, lenders will be hard-pressed to reduce their rates to be more in line with what those consumers are accustomed to in the new-vehicle space. So, how can lenders address this pressure to reduce their average APR for pre-owned vehicles while also protecting their loan portfolios as a whole?

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