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Equifax says Subprime Auto Lending Market is Stable
Saturday, February 25th, 2017 | Author:

The subprime auto lending market has received plenty of flak recently. Subprime loans, which are made to consumers with lower credit scores and are therefore seen as riskier, has gotten a lot of blame for rising delinquency rates over the past couple of years. However, new research from Equifax shows that this is largely misplaced.

Recent Data on the Subprime Auto Lending Market

The auto finance market has expanded in a big way in recent years. And subprime auto loans have played a part in that growth. But with delinquencies now on the rise, more and more market analysts are getting concerned.

Equifax data found that 60-plus-day auto loan delinquencies have increased from 1.24% in 2015 to 1.35% today. Data from Experian shows that 60-day delinquencies inched upward in the third quarter of 2016 compared to 2015. Meanwhile, Forbes notes that subprime auto loan delinquency rates hit their highest levels since 2010 during the 2016 third quarter.

Numbers like these have many analysts wondering if another financial crisis could be on its way. But Equifax put out that fire when it revealed that their latest research found loan performance to be stable.

Equifax: Loan Performance Remains Stable

On January 24th, Equifax representatives addressed concerns about the subprime auto lending market. They did so at the American Financial Services Association (AFSA) Vehicle Financing Conference and Expo in New Orleans, Louisiana.

In response to growing concerns, Equifax dug through their data. What they discovered, basically, is that any belief that the rising delinquency numbers will lead to big trouble is mostly misguided. They found that loan performance is stable across the lending market as a whole.

What the data told them is that an increasing number of vehicles are being financed. For context, data from fellow credit bureau Experian indicates that the percentage of new cars being financed is greater than 86% now, up from below 80% just nine years ago. Over that same time period, used vehicles that are being financed have jumped from 50% to 56%.

Equifax pointed out that it is natural to see a rise in delinquencies in the wake of increases of that scale. They also noted that much of the growth is a result of loans to consumers with prime credit.

And while subprime loan originations have been steadily rising since the recession, Equifax research found that most lenders remain very conservative compared to their pre-recession habits.

For example, a majority of banks and credit unions are being very careful with subprime loans. Only 13.1% of their portfolios are considered subprime. On the other hand, dealer-financed and independent finance companies have portfolios that are comprised of 34.8% of subprime loans.

Their data is telling them that specialty lenders (dealer-financed and finance companies) are serving the higher-risk segments, while the majority of traditional lenders have been playing it safe. Therefore, they are confident in calling the overall auto lending market stable.

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Contribution Supports VT Small Businesses with Financial Consulting amp; Training

The Vermont Community Loan Fund (VCLF) has been awarded a $5,000 contribution from Citizens Bank in support of VCLF’s Microlending Technical Assistance Program.

VCLF, a nonprofit, mission-driven lender, provides loans to small and emerging Vermont businesses that don’t qualify for financing from a traditional lender. VCLF provides borrowers low-interest loans augmented by financial consulting and business development skills training in areas including marketing, managing, budgeting and more.
“VCLF’s business development services are a critical component of our relationship with our borrowers,” said VCLF Executive Director Belongia. “We’re so grateful to Citizens Bank for this contribution because of the success this training has had and will continue to have, helping borrowers build their operations, jobs, and Vermont’s economy,” he added.

“VCLF’s microlending program has been highly effective at bringing jobs and financial vitality to Vermont communities throughout the state,” said Joe Carelli, President, Citizens Bank, Vermont. “We’re proud to award VCLF’s program yet again to continue these efforts to help Vermont’s small business owners thrive and to strengthen Vermont.”

Between 2014 and 2016, VCLF’s microlending program closed 42 microloans totaling $965,000, creating or preserving jobs for 262 Vermonters. During that period 17% of microloan borrowers operated businesses in town centers, and 57% had women in positions of senior management or business ownership.

Citizens Bank made the contribution as part of its Citizens Helping Citizens Strengthen Communities initiative, a bank program designed to contribute to the economic vitality of the communities it serves.

About VCLF

Since 1987, VCLF has loaned over $90 million to local businesses, affordable housing developers and community-based organizations that has created or preserved 5,200 jobs; built or rehabilitated 4,000 affordable homes; created or preserved quality care for over 3,700 children and their families; and supported community organizations providing vital services to hundreds of thousands of Vermonters.

About Citizens Financial Group, Inc.

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $149.5 billion in assets as of December 31, 2016. Headquartered inProvidence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. In Consumer Banking, Citizens helps its retail customers “bank better” with mobile and online banking, a 24/7 customer contact center and the convenience of approximately 3,200 ATMs and approximately 1,200 Citizens Bank branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Citizens also provides wealth management, mortgage lending, auto lending, student lending and commercial banking services in select markets nationwide. In Commercial Banking, Citizens offers corporate, institutional and not-for-profit clients a full range of wholesale banking products and services including lending and deposits, capital markets, treasury services, foreign exchange and interest hedging, leasing and asset finance, specialty finance and trade finance.

Citizens operates through its subsidiaries Citizens Bank, NA, and Citizens Bank of Pennsylvania as Citizens Bank, Citizens Commercial Banking and Citizens One. Additional information about Citizens and its full line of products and services can be found at www.citizensbank.com (link is external).

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Texas Trust Credit Union Achieves $1 Billion in Assets
Tuesday, February 21st, 2017 | Author:

ARLINGTON, Texas–(BUSINESS WIRE)–Texas
Trust Credit Union has surpassed $1 billion in assets, reaching
$1,021,430,369 to be exact, achieving an ambitious, multi-year goal.

.@TexasTrustCU hit $1 Billion! Growth: membership 66%; auto lending 204%, credit cards 127%, real estate lending 26%

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When joining the credit union in 2011, Jim Minge, President and CEO, was
challenged by the Board of Directors, led by Larry Skinner as Chairman,
to reignite the credit union’s growth. While the credit union was
healthy, its growth was not keeping up with the booming population in
its markets.

“Our mission is to build brighter financial futures for our members,
said Skinner. Our leadership team has achieved this by expanding our
footprint, strengthening community relationships, and enhancing our
product offerings, all while observing sound fiscal practices.”

The credit union doubled its number of branches by moving into new
markets, adding two school branches and expanding its presence in
Arlington, the largest city within its core field of membership.
Additionally, Texas Trust vastly multiplied its ATM network by entering
into partnerships with Allpoint and Dolphin Debit, which proved
instrumental in giving members more convenient and surcharge-free access
to their money.

Texas Trust also relocated its headquarters to an Arlington office park,
which gave it room to add employees and serve more members. Overall, the
credit union has grown by more than 33,000 members since 2011 with a
total membership exceeding 84,500.

Through its Spirit Debit Reward program, Texas Trust differentiated
itself and solidified strong community relationships with local school
districts and the University of Texas at Arlington. The Spirit debit
card opened new doors for the credit union, which increased member
loyalty and brand visibility, and gave more than $1.3 million to
participating schools based on card usage. The school relationships have
also become central to Texas Trust’s mission of building brighter
financial futures for its members and the communities it serves.

Product enhancements focused on strengthening core deposits, mortgages,
auto lending and leasing, credit card services, insurance and
investments, and business loans, including SBA loans. Its Checking20
Account has been so successful that the credit union paid member bonuses
in excess of $797,000 within 19 months of launching the product.

Texas Trust’s focus on improving its lending enabled the credit union to
build its auto financing into one of the largest programs in North
Texas. Additionally, growth in real estate lending – which surpassed
$240 million – made Texas Trust one of the largest credit union mortgage
lenders in the Dallas-Fort Worth market.

On the technology side, Texas Trust improved operations and member
services with a focus on convenience. It invested heavily to improve
everything from back office loan processing to rolling out advanced
mobile services that included card controls and remote deposit.

Two key mergers were also instrumental in reaching the billion dollar
milestone. Texas Trust joined forces with Arlington-based Security One
Federal Credit Union in 2013 and Midlothian-based TrustUS Federal Credit
Union in 2016. Texas Trust gained talented employees, members and
branches through these mergers along with increased assets.

“Our leadership team continues to drive toward creating happy, motivated
employees who help us cultivate happy, loyal members,” said Minge,
President and CEO. “The first billion dollars is a colossal milestone,
one that took us 80 years to reach. We are already hard at work toward
that next billion.”

About Texas Trust Credit Union

Texas Trust Credit Union opened in 1936. Today, more than 84,500 members
are served through checking and savings accounts; loans (personal,
mortgage, auto, and small business); credit cards; insurance products;
and investment services. Texas Trust supports local students through its
“Spirit Debit Rewards” program. With every swipe of an eligible SDR
card, funds are donated to the school or district of the member’s
choosing. Texas Trust serves members in Dallas, Tarrant, Henderson,
Ellis, and Johnson counties through 17 locations in Mansfield,
Arlington, Grand Prairie, Cedar Hill, Midlothian, DeSoto, Hurst, and
Athens. Texas Trust is one of the largest credit unions in North Texas
and the 18th largest in Texas. For more information, visit TexasTrustCU.org
or follow at facebook.com/texastrustcu
or @texastrustcu

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By Jeff Sanford

Toronto, Ontario — February 2, 2017 — It’s been another interesting week in the collision repair sector and the wider automotive world. This week’s edition of Friday Fun takes a look at an insurance company that just wouldn’t let a client go, another “car vending machine” about to land in North Carolina, the latest on auto lending fraud and much, much more!

– A client of one of Canada’s best-known property and casualty insurance companies had to call Global TV to force action on an account. According to the complainant, over four months the insurer, “… refused to believe the mother of a 33-year-old woman who died and kept billing her for auto insurance premiums.” The complainant, Kim Douglas of Orillia, Ontario, was quoted as saying, “They were not pleasant about it, they were ignorant.” According to the report, Nicole Douglas, 33, died in a Toronto hospital on September 10. The family contacted the insurance company and told them they wanted to stop paying on the auto insurance policy of the deceased. Douglas accused the company of continuing to make withdrawals from the deceaseds bank account to January 19, 2017 even after a stop payment order had been put on the account and the death certificate forwarded to the insurer. Eventually Douglas contacted Global, which contacted the company, COSECO Insurance, a subsidiary of Co-operators Insurance. According to the story, on multiple occasions, Douglas said she was told by the insurance company that, ‘We can’t take your word for it,” and that “we need the client” to confirm the cancellation. Within four hours of being contacted by Global News, COSECO and the Co-operators admitted what it did was wrong, according to the story. “An internal investigation revealed that human error resulted in some confusion and a delay in cancelling this policy,” company spokesperson Leonard Sharman was quoted as saying. “We have now made the necessary corrections and are processing a refund back-dated to September 22. We deeply regret that due to our internal miscommunication, the family was contacted more than it should have been, during a very difficult time.”

– A dealership in Charlottesville, North Carolina is on track to see a new kind of development: a “car vending machine.” The service will be offered in partnership with online auto dealer Carvana. The company is targeting a site near a local commuter rail line. According to a report by The Charlotte Observer, “… the Carvana location would include an 8,20 square foot auto store, part of which would be a 71-foot-tall car display located at the front of the building.” The way the system works, “Customers buy their cars online, through the company’s website. Then, they can choose to pick their car up at the vending machine.” A similar car Vending Machine in Nashville is, “…a beautifully designed glass building that contains a Welcome Center, a five story glass Tower storing up to 20 cars, three customer Delivery Bays and an automated delivery system that moves a customer’s vehicle from the Tower and into each Bay.”

– A story from our US content partner, Repairer Driven News, notes that, “Aluminum OEM certification seen as worthwhile, results in higher pay.” The study was undertaken in October of 2016 and involved more than 500 collision repair experts. The data suggests that shops that have been certified by an automaker in aluminum collision repair reported, “… optimism about the decision.” The data also suggests that, “… OEM-certified shops are being paid more for aluminum work than uncertified repairers.”

– An independent collision repair chain in the United States has developed its own in-house mobile app, allowing clients to get an estimate “minutes after a collision…[and] from the comfort of their own home.” Hamp;V Collision Center introduced the mobile estimating device to allow customers to get free and confidential estimates on damage to their vehicle in minutes. According to a press release, “Hamp;V is the only collision repair shop in the Capital Region of upstate New York to offer the Mobile Estimating Tool.”

– Consumer Reports has published six different ratings of car insurance companies since 1992. The publication has made available a chart of the rankings. Based on national surveys of readers of the magazine the results, “… reflect [the] overall satisfaction with auto insurers, as well as factors such as service and claims handling.” According to a write-up on the results, “Over those years, we’ve learned several important things.” For one, “car insurance companies tend to perform consistently over time, with their scores usually varying by only a few points from survey to survey. And while the companies generally tend to perform well–typically earning scores of 80 or higher on our 100-point scale–some regularly appear near the top.”

– German media is reporting this week on the emission cheating scandal at Volkswagen and has uncovered new allegations that, “… if proven, reach a completely new dimension of a scandal,” according to a report. The story goes on to note that, “Months after the dieselgate scandal broke in 2015, Volkswagen seems to have slipped regulators cars for … approval that were [different as to] what later was sold.” German reporters have uncovered written communications from German regulator KBA to Volkswagen that apparently suggests that, “Due to the uncertainty that production vehicles are always used for type approval examinations and that the technical service can reach its findings in an unfettered manner, the KBA will perform random tests and will commission another technical service for the test.” That is, the regulator couldnt confirm that the cars submitted to it were of the same type being sold, and so had to move to random checks of vehicles on the road.

– The owner of a US-based collision repair shop owner has been charged with rolling back odometers on vehicles with the help of city employees. According to a local newspaper, “Following an extended investigation, the owner of a now-defunct Chesapeake auto shop was charged earlier this month with rolling back the odometers of more than 100 vehicles and selling them to unsuspecting buyers.”

– As more and more buyers rely on extended terms to access auto financing it seems the amount of auto lending fraud is rising. A report finds that, “… the annual value of auto loan originations that contain some element of misrepresentation may be as high as $6 billion in 2017, which is twice as much as 2016 estimates.” The white paper, Estimate Auto Lending Fraud, finds that auto lending fraud risk has, “… been rising for several years, but remains hidden in credit losses. With 2016 auto lending originations soaring to historically high levels, the downstream impacts are now revealing themselves in higher fraud losses.”

– Teslas habit of upgrading its vehicles through software updates has, “…upended the product life cycle in the car industry … With this system, any product can be open-ended and continuously in the making,” according to a story on LSE Business Review. “Traditionally, cars are sold as finished and complete products, with a price premium attached to the specification and quality of design and craftsmanship. The buyers do not expect new cars to improve or change once they are rolled out of the dealer’s premises. Only occasional maintenance services, software updates or repairs are carried out to keep cars functional. To stay competitive, car makers design and introduce new models to market every four to seven years. The models are refreshed with minor functional and cosmetic changes around halfway through a model’s life cycle … This traditional model is challenged by the Californian car company Tesla. Similarly to your smartphone, Tesla releases frequent software updates to improve and change functionality of the cars they have designed and manufactured, thereby modifying cars continuously even if they are already sold and in use,” the story reads.

– The owner of the record-setting Spirit of America jet car, Craig Breedlove, has reached an agreement with the Museum of Science and Industry over a lawsuit alleging his car was damaged during its 50 years on display. Terms of the settlement were not disclosed, according to a joint statement released by Breedlove and the museum.

– A new report finds that, “Scientists pay the lowest car insurance rates. They pay as low as $870 on the average. Retired persons pay slightly more at an average of $920. Pilots and navigators also belong to the low car insurance rates bracket.” It seems occupation affects car insurance rates. Those in high insurance brackets are “business owners,” who average around $1400 in car insurance premiums. Also paying higher rates are “executives”, attorneys, lawyers and judges who average around $1370.

– A report in the Toronto Star notes that, “Toronto’s red-light camera program is headed for a major expansion, a year after the devices appear to have resulted in a record number of charges against drivers.” Toronto officials recently announced plans, “… that could see the number of cameras, currently installed at 77 locations across the city, effectively doubled. The expansion is being billed as part of the city’s new $80-million road safety plan, which Mayor John Tory has championed with the aim of eliminating traffic deaths and serious injuries.” Tory was quoted as saying, “I think the objective here is to get people to slow down and drive safely in school zones, places like that, to stop this carnage that’s been happening on the roads and to get (the number of traffic deaths) down to zero.”

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Goodwin, a leading Global 50 law firm, announced today the release of the 2016 Consumer Finance Year in Review, a detailed report that highlights the major litigation, enforcement and regulations that impacted the consumer finance industry in 2016. The second annual report, produced by the firm’s Financial Industry and Consumer Financial Services Litigation groups, is one of the few in the industry that takes an in-depth view of the issues, trends and regulatory developments across a variety of sectors, including mortgage servicing, credit and prepaid cards, credit reporting, student lending, auto lending, debt collection, and payday lending, among others.

The report examines recent regulations, lawsuits and enforcement activity by federal agencies, such as the Consumer Financial Protection Bureau (“CFPB”) and Office of the Comptroller of the Currency (“OCC”), as well as state-level lawmakers and regulators. The report also analyzes the year ahead and the regulatory uncertainty surrounding the new presidential administration.

“There have been a lot of new regulations and proposed rules over the past year, some of the most impactful of which are still being finalized, creating a level of uncertainty for businesses,” said Sabrina Rose-Smith, partner in Goodwin’s Financial Industry Practice and a co-author of the report. “Compounding this uncertainty is the new administration, which is likely to change enforcement priorities and regulatory objectives.”

“Unsurprisingly, enforcement and regulatory actions were primarily driven by the CFPB in 2016,” said Kyle Tayman, partner in Goodwin’s Financial Industry Practice and a co-author of the report. “The Supreme Court and DC federal appellate court also made a big impact in 2016, deciding several high-profile cases that challenged the reach of the CFPB, impacting plaintiffs’ constitutional standing to sue, and affecting the application of debt collection laws to bankruptcy proceedings.”

In addition to covering the major developments in 2016, the report also highlights a number of predictions for 2017 and the impact of the new Trump administration on the consumer finance industry, including:

  • An increased focus on regulating FinTech, with more agencies trying to take the lead including the OCC, SEC and CFPB.
  • Increased scrutiny and activity from state regulators and enforcers in the face of a mildly relaxed enforcement focus by federal agencies.
  • Amendments to Dodd-Frank and the CFPB, such as subjecting the Bureau to the Congressional appropriations process and oversight.

The report can be accessed through Goodwin’s LenderLaw Watch and Consumer Finance Enforcement Watch blogs.

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SAN DIEGO, Feb. 02, 2017 (GLOBE NEWSWIRE) — PointPredictive announced today the publication of a white paper detailing new analysis confirming that auto lending fraud risk has been rising for several years, but remains hidden in credit losses. With 2016 auto lending originations soaring to historically high levels, the downstream impacts are now revealing themselves in higher fraud losses. PointPredictive estimates the annual value of auto loan originations that contain some element of misrepresentation may be as high as $6 billion in 2017, which is twice as much as 2016 estimates.

The white paper, based on analysis of historical loan performance across several different portfolios, reveals that auto lending fraud can be broken into three separate categories: known fraud that lenders have been able to identify, hidden fraud that ends up misclassified as early or first payment default, and systemic fraud perpetrated by unscrupulous car dealers or representatives at car dealers. Each of these categories is a significant contributor to the increasing fraud losses that we are forecasting for the auto lending industry in 2017.

“Our analysis revealed that hidden fraud is the largest category of auto fraud risk as it is often mistakenly categorized with all of the other credit losses,” says Frank McKenna, Chief Strategy Officer of PointPredictive. “Early Payment Defaults range between 1 percent and 3 percent of originated loans for a typical auto lender. We are finding that up to 70 percent of those loans that default on the first payment or within the first six months after funding have fraudulent misrepresentation in the original application. This is a primary contributor to the increase in auto lending fraud risk we are forecasting for 2017.”

Misrepresentation on the application of a borrower’s identity, income, or employment, as well as other key factors such as the price or condition of the vehicle, has a material impact on the performance of a loan.

“Credit scores or credit policies cannot be relied on to identify or prevent these losses, and identity scores only identify a small percentage of these types of misrepresentation losses. A predictive, full application fraud score is necessary to allow the lender to prevent a significant percentage these losses,” adds Tim Grace, CEO of PointPredictive.

The white paper also provides insight into the role that car dealers play in various ‘systemic fraud’ schemes. For most lenders, less than 3 percent of dealers are providing loans that are responsible for 100 percent of their known fraud and early payment default risk. Often, the frauds at these dealers can be traced to a rogue finance manager or other key employee embedded in the finance office that works with fraud rings or identity thieves to facilitate the delivery of fraudulent applications to lenders. On the positive side, more than 97 percent of car dealers represent very low risk to lenders as they have never been associated with a single instance of fraud.

To receive a copy of the white paper contact Kathleen Waid at kwaid@pointpredictive.com.

About PointPredictive Inc.
PointPredictive Inc. is a leading provider of fraud solutions to banks, lenders and finance companies. It solves the billion-dollar fraud problems of auto lending, mortgage lending and on-line retail fraud with the latest predictive scoring techniques, smarter science and business experience by leveraging big data with analytic models. Located in San Diego, Calif., more information about PointPredictive can be found atwww.pointpredictive.com.

Media Contacts
Gina Ray
Ray Public Relations
gina@raypr.com
949.370.0941

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BankThink Reforming CFPB isn’t enough. Eliminate it.
Tuesday, February 07th, 2017 | Author:

The Consumer Financial Protection Bureau has a positive-sounding name. But in five and a half years since its creation, the CFPB has proven that the agency is merely an excuse for a massive expansion of federal regulatory power. The CFPB doesn’t protect consumers, as its name suggests. Rather, the American people need protection from the CFPB.

It’s time to end this failed experiment. Let’s return the CFPB’s regulatory responsibilities to the specific departments and agencies covering the relevant industries, and of course, to the states that have been responsible for basic consumer protection for a long, long time. I should know. As a former attorney general of Virginia, I took my responsibility to protect consumers seriously.

The Dodd-Frank Act created the CFPB as an unaccountable agency, with a director that could not be removed, a budget from the Federal Reserve that was self-determined, and sweeping legislative, judicial and executive powers vested in the person of the director. Indeed, this design was such an affront to the US Constitution that a US Court of Appeals for the DC Circuit declared the agency’s single-director structure unconstitutional.
In what should be an unsurprising development, the CFPB has abused its unaccountable power. A non-exhaustive list of executive overreach from the CFPB in its five short years includes:

  • The agency began collecting the credit data of up to 600 million American financial accounts in 2012, with what the Government Accountability Office described in 2014 as inadequate privacy security measures. After this practice was revealed, a Zogby Analytics poll found that 55% of Americans believe that the CFPB’s data collection methods are as intrusive as the National Security Agency monitoring program.
  • Despite a Dodd-Frank provision exempting auto dealers from CFPB oversight, the agency found a way around that by cracking down on indirect auto lending relationships. The CFPB started citing auto finance companies because of a study claiming to find racial discrimination in the dealer pricing for auto loans. But the study used a methodology to guess the race of applicants that the CFPB itself admitted had an error rate of at least 20%. It’s no wonder that even Rep. David Scott, a Georgia Democrat, said: “The CFPB has done the dealers a massive injustice.”
  • In a gift to trial lawyers, the agency pursued a rule to expand class action litigation in consumer finance. The attempt occurred even though the agency’s own study found that consumers recover an average of $5,389 per individual arbitration claim, while only recovering an average $32.25 per class action claim.
  • The agency wrote unneeded rules for prepaid debit cards — rules that threaten to significantly curtail the convenient and innovative product.
  • The agency proposed rules on payday loans and other forms of short-term credit that in fact would eliminate short-term financial options for poor Americans.
  • Despite having no authority to do so, the agency attempted to claim authority over education accreditation in order to investigate the accreditation process for for-profit schools, before a federal court smacked down the attempt.

The CFPB has been agency out of control — drunk on power. Even with the limitations imposed by the DC Circuit in its ruling, far too much power remains concentrated in the hands of the CFPB director. Furthermore, the agency remains beyond the power of Congress to control its activities through the power of the purse.

Rather than tinkering with this regulatory monstrosity, let’s pursue a simpler course: simply eliminate the standalone agency. Most of the regulatory powers that the CFPB now wields were previously under the jurisdiction of other departments and agencies. These entities often specialized in the specific industry being regulated; thus, they were more capable of informed, responsible action than the CFPB.

Remember what now-Chicago Mayor Rahm Emanuel said: “Never let a crisis go to waste.” That mentality gave us the CFPB — now it’s time to be rid of the agency once and for all.

Ken Cuccinelli is the general counsel to the FreedomWorks Regulatory Action Center and a former attorney general of Virginia.

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Upshifting on auto lending
Wednesday, January 18th, 2017 | Author:

By Zach Fox and Zain Tariq, Samp;P Global Market Intelligence staff writers

Lenders of all stripes are working on increasing auto loans despite rising concerns about credit quality.

LendingClub Corp. and BofI Holding Inc. announced plans to enter the space, and some of the nations largest banks have made moves to increase direct loan offerings. Some of the developments underscore how dynamic auto lending has become ever since the Consumer Financial Protection Bureau launched a campaign targeting dealer markups.

LendingClub recently unveiled plans for an auto loan refinance product, and BofI Holdings direct auto loan product similarly appears focused on refinancing based on management commentary during a recent earnings call.

Concerns about auto loans have increased as delinquencies have ticked up and subprime lenders have faced increased scrutiny, seemingly making it a difficult time to enter the space. For example, data from credit agency Experian shows that 2.25% of all auto loans were 30 days past due in the second quarter, up from 2.15% a year earlier.

I do think there is a fair amount of risk, said Michael Tarkan, an analyst for Compass Point Research amp; Trading, who covers LendingClub. Sales are plateauing, prices are on the verge of declining, and credit is weakening.

Analysts from Piper Jaffray also noted the pressure on used car prices while reviewing regional bank exposure to auto in a Nov. 9 note.

[W]e continue to expect credit losses to broadly drift higher for all banks exposed to auto lending, the analysts wrote.

More from digital lenders

A spokesperson for BofI Holding declined to comment, but Todd Denbo, vice-president of consumer lending for LendingClub, said the company was not concerned about the state of auto loans in the credit cycle.

Denbo said the companys product has several defenses against the recent uptick in delinquencies, most notably its focus on prime borrowers and its limitation to refinance loans, which tend to perform better than purchase loans.

We think that this is actually a perfect time to enter with an auto refinance product given that auto purchases have hit records over last two years, so its a great time to reach out to consumers and reduce their cost of credit, Denbo said.

Beyond online players

The trend is not limited to digital lenders. The nations biggest banks seem eager to win more auto loan share, too.

Inside Mortgage Finance recently reported that Bank of America Corp. will have its mortgage loan officers closing auto loans. Terry Francisco, a spokesman for Bank of America, said the bank has always offered auto loans in its branches and has pilot tested increased involvement from loan officers.

Were making investments in many areas to increase our direct-to-retail auto loan capability, Francisco said.

And in April, JPMorgan Chase amp; Co. announced an agreement to become the exclusive private-label financial provider for more than 100 Maserati dealerships in the US

Melinda Zabritski, senior director of automotive financial solutions for Experian, said banks are increasingly gaining market share through similar partnerships. She said it is difficult to track the share of indirect auto loans but that there is growing chatter about banks looking for different models.

I increasingly hear from lenders that folks are exploring different channels, Zabritski said. We do hear some lenders talk about growing their direct business a bit more. A lot, though, it appears to be almost a hybrid-type scenario where it looks like a direct loan but it is still fulfilled through the dealership.

Indirect lending still dominates

Indirect auto loans often compensate the dealer via markups, where the dealer recoups a fee based on the borrowers interest rate.

The CFPB has issued multiple enforcement actions against lenders for employing the model, arguing it discriminates against minorities by charging them higher rates. That campaign has been highly controversial since the bureau does not have authority over auto dealers, and the agency has relied on statistical models to pursue the enforcement actions.

But Zabritski said indirect auto loans remain the dominant program, something that is unlikely to change soon. In fact, the auto refinance products offered by LendingClub and BofI suggest markups are very much still in use. LendingClub estimates consumers pay an additional $25 billion per year in interest due to dealer markups.

As for credit quality concerns, Zabritski is not worried. The increase in delinquencies tracks increases in subprime origination, she said. Further, subprime auto loans remain a small portion of the market and nothing compared to the subprime mortgage loans that contributed to the 2008 financial crisis.

In the second quarter, auto loan originations to borrowers with Equifax credit scores of less than 620 totaled $34 billion, compared to $100 billion of mortgage loans to such borrowers in the 2006 second quarter; auto loan originations to subprime borrowers are at similar levels to the months preceding the crisis.

All of the aforementioned lenders appear laser-focused on prime borrowers. Bank of Americas Francisco said the lender only targets prime and super prime borrowers. JPMorgan management recently said the company pulled back on 84-month auto loans, and the bank similarly focuses on prime borrowers. LendingClub also avoids subprime with a minimum FICO score of 640.

It would be a cause for concern if we saw rising delinquencies without increases in subprime, Zabritski said. The increase in delinquency is natural when we increase that portion of the business.

This article originally appeared on Samp;P Global Market Intelligence’s website under the title, “Lenders drive into auto even as credit concerns mount”

Download reprint of Samp;P Global Market Intelligence article

Category: Auto Lending  | Tags:  | Comments off
Category: Auto Lending  | Tags:  | Comments off

Timing is everything in marketing: make an offer too early and the consumer is likely to forget about your company when her actual need arises. Make an offer too late and that consumer is likely already someone else’s happy customer. For credit card and auto lending marketers, this issue is particularly important given typically low campaign response rates and the unproductive expense associated with making offers to consumers at the wrong time.

By Charlie Wise, Vice President, International Research amp; Consulting at TransUnion

The ability to identify consumers just before they are in market and shopping for new credit cards or auto loans can result in significant improvements in campaign response rates and return on investment. The question is: how can lenders easily and accurately identify consumers just before they are in market for new loan products?

A number of card issuers and auto lenders use inquiry triggers from consumer credit files to identify those who are shopping for new cards and auto loans. These inquiries are posted to the consumer’s credit report when she applies for credit, and are strong indicators that the consumer is actively seeking credit. However, as a call to action, these inquiries are generally not timely, in that the consumer has already applied for an auto loan or credit card. By the time another lender can see this information and contact the consumer with a rival offer, it is generally too late.

What lenders do not typically consider is using inquiry data from other loan types to predict demand for an auto loan or card. However, it is logical that there is an interrelationship between consumer loan types. The conventional wisdom is that consumers who are planning a major purchase and associated loan origination may defer taking out other loan types for a period of time, and then “catch up” soon after the major transaction is complete. If true, this may unlock a useful predictor of loan demand that could prove valuable to lenders in timing their offers. The most intuitive illustration of this dynamic is obtaining a mortgage to purchase a home.

To explore this concept, TransUnion conducted a study of mortgage borrowers to determine if their behavior before and after a new mortgage origination could predict activity on other loan types. The study looked at 16.7 million existing mortgage borrowers who originated a new mortgage — either moving to a new home or refinancing an existing one — from January 2013 to June 2015. The study looked at their behavior on credit cards and auto loans in the six months before- and 12 months after the date of their mortgage closing (the date on which the consumer pays off the prior mortgage and then opens the new mortgage).

Category: Auto Lending  | Tags:  | Comments off