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Compliance F&I

Prepared for F&I Product Compliance?

Steve Roennau Blog Headshot

With the Consumer Financial Protection Bureau (CFPB) quickly ramping up its influence over auto-finance, it is widely expected that F&I products will be the next area of scrutiny. As a lender, there are a few ways to proactively prepare your institution for this next step in CFPB regulation.

The first, and most obvious step is to set limits on how much you’ll fund for the sale of F&I products. Be aware, however, that as the CFPB is reducing the dealer profit from rate markup, dealers will be looking to maximize profit from F&I product sales. They will be looking for lenders who are competitive with their funding options. Look at your entire compensation plan to ensure that it not only promotes consistent pricing, but also fairly and competitively compensates the dealer for the business.

As with all of the vendors that a lender uses, the CFPB is likely to require lenders to vet all product administrators. Savvy lenders are reviewing the contracts to get a better view into the product administrator’s practices, and their customer service standards.

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Compliance F&I

Are You Taking Advantage of the Domino Effect?

Karen Klees, Certified Consumer Credit Compliance Professional

 

Contributing Author: Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies

In December 2013, the Consumer Financial Protection Bureau (CFPB) ordered Ally Financial to pay $80 million in civil penalties over Ally’s allowance of dealer markup, representing the federal government’s largest auto loan discrimination settlement in U.S. history.

Throughout 2014, the auto finance industry was on the edge of its seat to see who would be next. Rumors flooded the industry of CFPB investigations, but no news came out about another settlement. Meanwhile Chrysler Capital, Santander Consumer USA proactively took action and lowered their cap on dealer participation in October 2014.

We then waited another eight months before another lender felt the sting of the CFPB. In June 2015, BB&T announced the launch of flat fees as the CFPB announced the expansion of oversight to larger non-bank auto finance companies.

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Economy

Bubble, no Bubble? It Doesn’t Matter!

Contributing Author: Steve Klees

 

Contributing Author: Steve Klees, Senior Vice President, Specialty Channels, EFG Companies

For the past several months we’ve heard arguments across the industry about whether a subprime bubble is forming. Experian has stated in at least the last three quarterly State of Auto Finance updates that there simply is no bubble.  I tend to agree. Here’s why:

For an economic bubble to form in the auto industry, the prices of vehicles must inflate well beyond the actual vehicle value, past what the market can bear. While prices for both new and used vehicles have gone up in recent years, the market is still very capable of handling those prices. The main reason for this is the combination of low interest rates and longer-term loans.

For example, take a subprime consumer who purchased a vehicle in 2009. Because of the stringent lending requirements at that time, that consumer locked in a 9% interest rate on a 60-month term loan. Then, in 2014, they decided to trade in their vehicle for a newer used-model vehicle. Because the consumer kept up with their monthly payments and possibly made other credit strides with better employment, etc., they returned to the dealership as a near-prime consumer, and were able to refinance the remaining balance into their new vehicle payment at a 3.9% interest rate. With a new 60-month term loan, their payments stay roughly the same. The consumer already proved they could afford those payments with the first vehicle, so the risk remains roughly the same.

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