Categories
Economy

Dealing with Delinquency

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

A good portion of Experian’s latest State of the Auto Finance Market Report revolved around alleviating industry concerns that the auto market is looking more like it did right before the Great Recession. If you’ve been paying attention to headlines lately, you know that economists are worried about how quickly the subprime market is expanding and are asking if there will be another bubble to pop.

With those concerns in mind, lenders are especially concerned with the upward trend in auto delinquency. According to Experian’s report, finance companies experienced a 2.6% year-over-year increase in 30-day delinquent loans with a total balance of $6 billion. In addition, the top 10 states with the highest delinquency rates account for 32% of the total amount of delinquent loans.

With strong subprime growth and increasing delinquency levels, smart lenders are looking at how to level out their delinquency rates, or at least protect their loan portfolio from this growing risk. While some would argue that the best way to pad the portfolio is by increasing APR, there is another option that benefits the lender, the dealer and the consumer. That option is the use of complimentary consumer protection products.

With consumer protection products, like a vehicle service contract or vehicle return protection, consumers are protected from the high costs associated with a vehicle breakdown, or from the negative financial repercussions of instances like involuntary job loss. This same consumer protection also protects the loan. How? Consumers can continue to make loan payments if they don’t have to reallocate funds to cover costly mechanical repairs or cover living expenses on an unemployed budget.

Dealerships also benefit by setting up the F&I product presentation with a description of the benefits consumers will receive with their loans. This offers F&I managers an excellent springboard into presenting upgrade options or additional products to further protect the consumer. Your loan will essentially turn the conversation from strictly a sales presentation to a rewarding and productive discussion about the benefits of consumer protection products, and the value the dealership is providing.

Don’t feel like your only course of action to combat delinquency levels is to raise rates. Pair your loans with complimentary consumer protection products. They can help protect your loan portfolio, while also protecting your customers and providing your dealership partners with the ability to make additional F&I income.

With almost 40 years of experience in innovating compelling consumer protection products, EFG Companies knows how to strategically place the right product mix with your loan to achieve greater loan volumes. Find out how today!

Categories
Compliance Government Regulations Reputation Management

Don’t Get Lax With Customer Service

Contributing Author: Brien JoyceGreat News! The auto industry continues to break sales records! According to a report from Urban Science, the average number of sales per dealership in the U.S. is on track to hit an all-time record of 904 units, based on vehicle sales of 16.2 million. As far as subprime growth is concerned, according to CNW Research in July, the auto industry experienced a 25.5 percent year-over-year increase of subprime buyers. And, Edmunds determined that 77 percent of car buyers in the same month financed their vehicle purchase through the selling dealership.

With sales and indirect lending up, both lenders and dealers can be tempted to take a step back and relax. However, a new ground war is brewing around compliance and consumer perceptions.

The Consumer Financial Protection Bureau (CFPB) has continued to focus its efforts on the dealership finance process since fining Ally Financial, earlier this year. Recently, the CFPB fined First Investors Financial Services Group, Inc., which primarily operates in the subprime auto finance segment, $2.75 million for providing inaccurate information to credit reporting agencies. The CFPB and the Federal Trade Commission have also made it easier for consumers to post formal complaints regarding their treatment during the dealership finance process.

In addition, a recent survey of online shoppers by Kelley Blue Book found that:

  • only 14 percent of consumers planned to finance their next vehicle through a dealership;
  • 54 percent believed the interest rate would be higher at the dealership; and,
  • 31 percent didn’t trust the dealer to give them the best deal.

Analyzing the contradictory nature of consumer perceptions versus market statistics can leave you with a head ache, but it’s important to take their considerations seriously. Even though consumer perceptions are not directly affecting their decisions once they get to a dealership, consumers can easily file formal complaints and online reviews after the fact, which can have long-lasting and severe repercussions.

Certainly, the perception issue needs to be definitively addressed as the CFPB continues its campaign against dealer markup, but what does this mean for lenders?

The onus to change consumer perceptions does not lie solely on dealerships. Lenders can also re-evaluate their customer/dealer service to ensure they consistently provide dealers with an indirect lending model that meets consumer demands. Lenders need to ask themselves how they can act as an extension of the dealership:

  • Are my lending representatives accessible during dealership hours, not just bank hours?
  • How quick is my turn-around on loan decisioning, and how can I speed it up?
  • Do I provide understandable guidelines on the types of consumers that are eligible for my loans?
  • Have I implemented a quick and efficient funding process?
  • Is my institution making the F&I manager’s job easier?
  • Am I helping my dealers deliver more cars?

While these are pretty straightforward, you’d be surprised at how many lenders struggle with consistency in these areas. Your availability and active engagement with the dealer is critical. Ensuring that you provide a quick turn-around process and secure enough funds to meet dealer demands will keep your organization competitive and help dealers cultivate a positive brand image.

In addition, providing complimentary consumer protection products, like a vehicle service contract or vehicle return, on your auto loan will directly address consumer concerns about getting the best deal.  Never before have consumers held on to cars as long as they are now. After dealing with significant vehicle repairs, consumers are now shopping for more than just APR. They are looking for the deal that provides the most for their money. With strategic F&I products paired with your loan, consumers will know that their investment is protected should an unforeseen mechanical breakdown or job loss occur.

For instance, with vehicle return, consumers coming out of the recession know they are protected if for example, they lose their source of income. This program allows consumers to return their vehicle to the selling dealership should unforeseen circumstances occur, like involuntary job loss.

Providing complimentary consumer protection products on your loans will also
make the F&I process smoother, allow for dealerships to make money on upgrades,
and protect your loan portfolio from the risk of delinquency or default.

With nearly 40 years of experience in innovating profitable solutions in the dealership space, EFG Companies knows how to differentiate your business and create sustained loan volume. Find out how, today!

Categories
Compliance

NADA Fair Credit Compliance – 8 Months Later

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

It’s been eight months since NADA released their Fair Credit Compliance Guidelines to help the retail auto industry navigate today’s increased focus on regulatory compliance. As the Consumer Financial Protection Bureau (CFPB) continues to aggressively seek out discriminatory practices, more dealers and lenders are implementing flat fee programs to help alleviate these concerns, including disparate impact (practices that seem neutral but result in negative impact to customers in a protected class).

While NADA has provided this guidance to dealers and lenders as they scramble to navigate a more stringent compliance operating environment, it also means that the opportunity to make finance reserve is slimming or coming to an end. For dealers, this means they now need to focus more on selling F&I products to enhance bottom line productivity. For lenders applying a flat fee, this means re-evaluating how to remain competitive against lenders who still operate under a traditional fee structure.

How are you positioning your institution to capitalize on evolving dealer demands and remain competitive?

  • Are you paying a competitive flat rate?
  • Are you either allowing room to sell consumer protection products or providing competitive products built into your financing options?
  • Are your field representatives actively supporting the dealerships with which you work?
  • Are your field representatives familiar with the dealers’ operations and the markets in which they conduct business?

Today’s indirect lenders have to compete on so much more than they are used to. Now, instead of just competing on APR, they contend with a flat fee markup and leaving room for the sale of F&I products. With all these considerations in play, it can be extremely difficult to determine how to structure your loan.

Consumers want low APR and the dealership wants to make money – that will remain constant. And, until everyone adopts a flat fee, dealers have a variety of options to choose from to achieve their goals. If you are a lender operating under a flat-fee markup, one of the best ways to differentiate yourself is to provide complimentary consumer protection products on your loans. With this option, dealerships still make money on the flat, as well as have the ability to maximize their profit potential by selling upgrades to the products on your loan. In addition, those same products protect your loan from unforeseen circumstances that could affect the consumer’s ability to make their monthly loan payments.

It’s also important to remember the value of good customer service. Making your field representatives available during dealership hours, providing swift loan approvals, and providing sufficient underwriting guidelines will go a long way to securing your business with the dealership.

Cultivating a strong working relationship with F&I managers has always separated good lenders from their competition. A lending institution may have the best rate or fee structure available, but if their representatives aren’t available and attentive, that lender will fail to see sustained loan volume from their dealership partners.

Finally, understanding demographics for the surrounding areas can help your field team better position your loan for any particular dealership. Demographics have changed significantly since 2008, and statistics like the type of employers in your area, home value trends and income levels can help paint a more comprehensive picture of their current and potential customers. With this information in hand, you have a better ability to provide lending services that support the dealership goals of selling more vehicles, and in turn increase loan volume for your institution.

With more than three decades of developing and delivering consumer protection solutions and go-to-market strategies, EFG Companies gives clients the edge in the market place. Put our agile product innovation and unmatched partner engagement in your court today.