The Consumer Financial Protection Bureau was expected to announce its rule governing debt collection by third parties “any time now,” but with the reaffirmation of Mick Mulvaney as the agency’s interim director, the rule could be voided or drastically changed, said Christopher Willis, partner at Ballard Spahr LLP.
“I would expect that any industry-wide pronouncements that the agency would make would now be filtered through the director and likely impacted by the identity of the new director,” Willis told Auto Finance News, noting Mulvaney’s record of deregulation. “I’d be surprised if that proposed [debt collection] rule comes out at all now, and if it does, it would be delayed and modified significantly from the outline released a year ago.”
The CFPB originally sought to equalize the standards for third-party debt collectors and lenders. Former CFPB Director Richard Cordray had announced over the summer that the rule making would be done in two parts, starting with guidance for third parties sometime this quarter or next.
However, Mulvaney has already instituted a 30-day moratorium on all rulemaking and hiring at the bureau. If the new director decides to move forward with the debt collection rule, he might look to increase the number of times a debt collector can reach out to a borrower, said John Redding, partner at Buckley Sandler LLP.
“Under the last iteration it was six total contacts in a week, and three to any one number,” Redding said. The rule could clarify some areas of ambiguity, such as, “Does an answering machine pick-up count as a contact? Does simply connecting with the number count as a contact? Or, do I, in fact, have to reach the person for it to count?” he said.
Jim Cockey, Bank of America Dealer Financial Services’ new central region and national market executive
Marisa Carnevale-Henderson, Bank of America Dealer Financial Services’ new east region market executive
Bank of America Dealer Financial Services aims to “redouble” its efforts to improve the customer experience, which includes investing in technology like direct lending and virtual reality, Jim Cockey, the bank’s new central region and national market executive, told Auto Finance News.
“By keeping a pulse on industry trends, we are able to address client concerns in modernization and smart investments for dealerships,” Cockey said.
Bank of America Dealer Financial Services hired two executives in mid-September — Marisa Carnevale-Henderson as east region market executive and Cockey as central region and national market executive. Both executives lead seasoned teams in the auto and recreational vehicles industries across the U.S., according to a company statement.
Carnevale-Henderson joined Bank of America’s predecessor Barnett Bank in 1988, where she worked in various areas of the firm. She was promoted to marketing manager in 2013. In her new position, Carnevale-Henderson leads a team of relationship managers who deliver financial solutions to clients in the auto industry throughout the eastern U.S.
Cockey has been with Bank of America for more than 25 years. He was most recently market executive for the central region healthcare and institutions team, and prior to that served as business development manager for Bank of America Business Capital. In his new position, Cockey leads a team that delivers solutions across the automotive and RV dealer network.
AFN spoke with Carnevale-Henderson and Cockey about their new roles, top priorities, and Bank of America’s technology investments. Following are edited excerpts from the interview:
Auto Finance News: What are your top goals for the remainder of 2017?
Marisa Carnevale-Henderson: One of the goals for this year is to grow our business by delivering customized solutions to our clients. Over the past two years, we have increased the number of our clientfacing associates by 30%. Expanding our team is key to improving the existing client experience and enhancing our new business development efforts. Our clients benefit from having access to the full resources of the Bank of America/Merrill Lynch enterprise. Whether it’s investments in technology that power an easy-to-access treasury platform or insights from award-winning global research analysts, our clients are armed with the best resources to maintain and grow their businesses, giving them a significant advantage in the marketplace.
Jim Cockey: Moving into 2018, client satisfaction is our top priority. The Dealer Financial Services team has the highest client satisfaction rating across our commercial bank. We want to continue this great work by being out in the marketplace with our clients, expressing our appreciation for their business, and continuing to find new ways to provide best-in-class service for our clients. Demonstrating our continued commitment to the auto dealer industry is also a top priority. As new additions to the DFS team, our focus on client commitment and industry leadership is key. We continue to support industry-focused organizations because we know how important they are to our clients and to the advancement of the industry.
AFN: What marketing strategies are you undertaking to help boost the bank’s auto portfolio?
JC: We focus our time, effort, and resources on regional to national dealers. We are also investing in the technology to predict and handle the complex needs of our clients. For example, we are taking a deeper look at augmented and virtual reality. By keeping a pulse on industry trends, we are able to address client concerns in modernization and smart investments for dealerships. Additionally, fraud and security are top-of-mind issues for dealers right now. We help clients protect their businesses by tapping into our deep understanding of corporate security. By providing fraud protection technology solutions, foreign exchange capabilities, and interest rate management services, we are preparing our clients to manage risk in fluctuating market conditions. Our leadership in these initiatives will be a key driver of growth within our portfolio.
AFN: In your new role, what changes do you hope to bring to Bank of America?
JC: We want to redouble our efforts to improve the customer experience for our clients. We want to put a greater focus on new business development as we move into 2018. To be successful, a key factor is removing internal roadblocks. We ask ourselves how we can simplify and improve our own processes, which can lead to meaningful change in how we interact with our clients. From a leadership perspective, we are thinking about sustainability for our own business and that of our clients. We continue to tackle questions like: What does it take to grow responsibly while being a good corporate citizen? Also, we want to spend more one-on-one time with our clients so we can understand and serve their unique needs.
AFN: What technology initiatives do you have on the roadmap?
MCH: Our team’s technology goals this year are centered on our consumer vehicle lending platform. Our partners are working to pilot a new offering (which will be delivered nationally by Bank of America next year) related to searching for auto loans within a defined geography. This initiative, among others, is part of a larger technological effort that spans both business-to-business and businessto-consumer sectors. It will include a series of upgrades to ensure we are delivering cutting-edge solutions for our clients.
OneMain Financial Holding LLC’s second direct auto loan securitization in 2017 has an average Fico score of 642 — 32 points higher than the first ABS of 2017 and 33 points higher than its 2016 ABS.
The most significant contributor to the Fico increase in the $500 million deal is a drop in the percentage of 549 & lower Ficos, according to a Kroll Bond Rating Agency presale report. In the current pool, 2.7% of loans had a Fico score of 549 and lower, compared to 16.2% in the company’s earlier issuance this year. There was also a notable increase in the 650 – 699 range. The pool consists of 30% of 650-699 Ficos, compared to 19% in the earlier issuance.
Additionally, the primarily subprime pool is made up almost entirely of used vehicles and has a weighted average original term of 55 months.
The weighted average original term of 55 months is shorter than that of subprime peers, according to a Moody’s presale report, but Kroll Bond Rating Agency’s report notes that the company allows renewals of direct auto loans to its existing borrowers. A renewal
may take place if a borrower requests an increase in loan size and the company undergoes a full underwriting process. Also, the weighted average LTV in this transaction is 126%, higher than many subprime peers, according to Moody’s.
OneMain has issued nine consumer loan term securitizations since 2014 through a network of over 1,600 branches, however, its entry into direct loan securitizations started this year. OneMain Financial grew its auto portfolio in the 3Q driven by an increased focus on direct lending, the company said during its recent earnings call.
Separately, the auto finance company has been actively soliciting takeover bids, Auto Finance News has previously reported.
Three auto finance companies — Credit Acceptance Corp., Clover Commercial Corp, and Westlake Financial Services — are the first auto lenders targeted by the New York Department of Consumer Affairs as the city ups its enforcement of “predatory financing practices.”
The companies will pay a combined settlement of more than $311,000 in restitution to 50 consumers who were charged interest rates as high as 24.9% across four New York dealerships, according to a press release this week. In May, the Consumer Affairs Department announced that it was seeking restitution from the lenders alongside the issuance of a $1.2 million fine to the dealerships.
Consumers who submit complaints to the agency before March may also be eligible for restitution. The lenders are also to work with the credit bureaus to delete information that may have negatively affected the borrowers’ credit scores.
While the settlement was relatively low — Credit Acceptance holds $4.4 billion in auto loans outstanding while Westlake has a portfolio of $3.1 billion, according to earnings reports and Big Wheels Auto Finance 2017 — it could be the start of increased scrutiny from the city.
In October, Mayor Bill de Blasio signed legislation that is meant to more strictly regulate auto financing in the city’s used-car industry. The new rules go into effect in February and require dealerships to post a “Consumer Bill of Rights” that discloses information about the automobile price and financing terms.
“All three financing companies have agreed to pay restitution to consumers who were burdened with exorbitant interest rates on loans they received through these deceptive dealerships,” said DCA Commissioner Lorelei Salas in a press release. “The city will not tolerate predatory financing and sales practices. We will continue to hold dealerships and financing companies accountable in an effort to protect innocent New Yorkers from purchasing unusable cars and loans that place excessive financial burdens on themselves and their family members.”
Westlake declined to comment while the other two auto lenders could not be reached for comment by press time.
Delinquencies and losses continue to climb across the industry, and while many lenders are pulling back their volume of originations, others turn to refining their collections and repossession practices to stymie increasing losses.
The percentage of borrowers 30 days or more past due grew 4 basis points year over year in the third quarter to 7.39% of new originations, according to the latest data from the New York Federal Reserve.
Industry-wide numbers for losses are harder to come by, but hardly any auto lender reported lower year-over-year net losses during third-quarter earnings, or any quarter this year for that matter.
Here are six issues lenders are tackling in collections and repossessions:
1. Charging Off Later
Due to increased regulatory scrutiny, many lenders are choosing to wait longer in the delinquency cycle before repossessing the car. Pelican Auto Finance LLC instituted that policy earlier this year.
“What you have is people saying, ‘There is a new way I have to do business. I can’t call as much, I can’t shut off the car, and I can’t do X, Y, or Z so early. I have to let [the delinquent loan] go out to 90, 120, or 180 days,’” Joel Kennedy, Pelican’s chief performance and compliance officer, told Auto Finance News in April. “Because of that, you are going to carry more in the later [delinquency] buckets.”
The New York Fed data proves that. The percentage of delinquent borrowers at least 90 days past due grew to 2.36% of new originations in the third quarter — a 15 basis point jump compared to the same period the year prior.
Captives such as Hyundai Capital America are choosing to charge off later on certain applicable accounts on a customer service basis, Bill Miller, HCA’s senior director of collections and recoveries, said during a presentation at the 2017 Auto Finance Summit.
“Just because a customer is delinquent doesn’t make them a bad customer, anyone can fall into a difficult patch,” Miller said. We want a long-term relationship with that customer, we have a very consultative collections approach. … We may delay the repo assignment process later than some, but it’s a view towards the endgame.”
Bill Miller, HCA’s senior director of collections and recoveries, at the 2017 Auto Finance Summit.
2. Charging Off Earlier
Hyundai Capital will also use analytics to determine particular accounts it should advance into repossession sooner. For example, accounts that don’t have good contact information should receive more intense treatment sooner, Miller said.
“If you don’t have good contact numbers, why are you rolling those accounts through a dialer system? Why are you rolling those accounts to collectors who are only making phone calls?” Miller said. “You have to roll those accounts out and put them into a skip or no-file [treatment].”
Many lenders will delay more intense treatment until the industry standard 75 or 90 days past delinquency, but new analytical tools can help identify high-risk accounts based on right party contacts (RPCs) or promise to pay in a specified number of days, he added.
“When you have an account that is ready to move into more intense treatment, delaying the inevitable is a waste of time,” Miller said. “Just because an account is not 75 days past due — if that’s when you want to go ahead and issue a repo assignment — to wait that long when you already know the account is going to go down that path, what are you waiting on?”
At the same time, he warns that lenders have to be careful not to get overly aggressive and face regulatory backlash.
3. Reassess Reinstatement Rates
When looking to charge off accounts earlier, Miller said it’s important to pay attention to reinstatement rates — the number of borrowers who were able to get their vehicle out of repossession.
“Let’s say your reinstatement rates are north of 30%,” Miller said. “That means of every 10 vehicles you repossess, three of them had the ability to secure the funds and bring that account not only current, but one payment ahead, plus repo fees. It’s generally a fairly significant amount of money. So the question is, why weren’t you able to collect that before the vehicle went to repossession?”
Many in the industry would say the realized impact of having the vehicle repossessed caused the borrower to get their finances together.
“I don’t disagree with that, but the funds were there and available,” Miller said. “Looking at the right collections activity earlier on might allow you to delay the repo activity, still pick up those cures, and not have to go through that repo process overall.”
Toyota’s new Texas headquarters.
4. Implementing New Technology
Toyota Financial Services underwent a large change in its CRM system, which aggregates all the information about its borrowers, and began rolling that out to its collections team about a year and a half ago.
“We started with our mid-stage collections department … and after that it took about nine months to roll out to the rest of the team members,” Gordon McGrath, TFS’ division information officer, told AFN. “We sunsetted our legacy platform in under a year and rolled out the new system to 4,000 team members, and not just in our customer service centers but across our entire organization.”
The biggest change from that effort is that the tech department is able to roll out faster improvements to the system and employees, such as those in collections, and are able to make suggested enhancements that are actually enacted.
“Now that we’re doing monthly releases, they are way more engaged and submitting suggestions in terms of how to make the platform better and service our customers better,” McGrath said. “We’re turning around those enhancements into production within two to three months at the longest.”
5. Lower Recoveries Lead to Higher Losses
Lenders have enjoyed an increased volume of recoveries due to new technology and strategies, but that may have reached a peak, Peter Winter, an analyst at Wedbush Securities, told AFN.
In fact, several regional banks are reporting that recoveries could start to run-off and result in higher losses, he said.
“There are two parts to net charge-offs: gross charge-offs and recoveries,” Winter said. “[Regional banks] are saying net charge-offs could go up even as gross charge-offs remain stable because the amount of recoveries is starting to run off. Recoveries are starting to run its course and most banks are expecting credit costs to move up to more normal levels than credit concerns.”
Robert McDonald, vice president at Goldman Sachs, at the 2017 Auto Finance Summit.
6. Securitization Market Is Less Concerned
Subprime annualized net charge-offs are actually slightly down year over year at 9.24% in September, compared with 9.29% during the same period the year prior, according to Fitch Ratings’ Auto ABS Index.
On the securitization market, what matters more is a lender’s expectation for losses, Robert McDonald, vice president at Goldman Sachs, said during a presentation at the Auto Finance Summit.
“Clearly if you originated loans with lower Fico scores, performance will get worse over time but relative to your expectations, and I don’t think anyone has performed worse than they expected,” he said. “The auto finance asset is such a short duration asset, so when things go worse than you expect that’s usually fixed in three to six months. So you usually see a self-correction. I don’t expect losses to go as high as they were [during the Great Recession] without some sort of event.”
Mick Mulvaney speaking at CPAC 2011 in Washington, D.C. (Photo by Gage Skidmore via Flickr)
A federal judge sided with the White House Tuesday evening in a decision that officially installs Mick Mulvaney as the acting director of the Consumer Financial Protection Bureau.
Leandra English, the recently appointed deputy director of the CFPB, filed suit earlier this week claiming that she is the “rightful” director of the bureau under the Dodd-Frank Act. Ultimately, the judge decided that the Federal Vacancies Reform Act of 1998 supersedes the line of succession designation in the Dodd-Frank Act, which was the argument made by the administration and the Department of Justice.
However, the ruling only denied English a temporary restraining order, and her legal counsel Deepak Gupta said they are weighing the next steps.
“There needs to be an answer from the courts,” he said after the ruling. “There needs to be a final answer.”
U.S. District Judge Timothy Kelly acknowledged that the case raised constitutional issues and was given no assurance by the Government’s counsel that President Donald Trump won’t turn around and fire English.
While that legal battle continues to play out, Mulvaney now has the authority to make changes at the CFPB that the financial industry has long wanted to see. Earlier this week, he instituted a 30-day hiring and rule-making freeze, and he has authority to drastically reduce the budget and starve the agency he previously called “a joke.” However, budget changes would be unlikely before the first quarter of 2018, according to The Atlantic.
“We look forward to working with Acting CFPB Director Mick Mulvaney to bring transparent and balanced consumer protections to all customers and small businesses,” said Richard Hunt, president and chief executive of the Consumer Bankers Association, in a statement. “Many actions conducted previously by the CFPB as well as those that are pending warrant a thorough review and we support Mr. Mulvaney’s previous comments concerning a five-person bipartisan commission.”
TCF Bank is exiting the indirect auto finance space effectively on Dec. 1, and is folding Gateway One Lending & Finance LLC into the bank as it continues to service the remaining loans on its balance sheet.
Despite growing the size of its auto portfolio in 2016, TCF Bank became unsatisfied with the profitability of those loans and made a number of changes to try and correct course throughout 2017, Auto Finance News previously reported.
“After a thorough review of our businesses by our executive management team and board of directors, we determined that the financial outlook of the indirect auto loan origination business was less favorable compared to alternative uses of capital,” Craig Dahl, the bank’s chairman and chief executive, said in a press release. “As a result, we believe this is the appropriate time to discontinue originating indirect auto loans. While the business performed as expected under the new direction we set earlier in the year, we believe there are better opportunities to deploy our capital and earn a higher return for our shareholders.”
One of the bank’s changes included a focus on near-prime credit rather than low returns on super-prime loans. TCF also nearly exited the auto ABS market entirely in the second quarter by reducing its loans held for securitization by 85% year over year.
“While our current auto business was expected to be profitable in 2018, it still would have been dilutive in return capital to the organization as a whole,” Dahl said on a webcast explaining the changes. “There are better opportunities to deploy our capital and earn a better return for our shareholders.”
He added that the decision “was not based on any perceived long-term change in underlying credit quality of our auto portfolio.”
TCF acquired its indirect lending arm Gateway One Lending & Finance LLC in November 2011. Per today’s announcement, Todd Pierson, president of Gateway One since March, is no longer with the company, a spokesman told AFN.
Additionally, TCF said efforts to “wind down operations that support indirect auto originations will begin immediately,” including the “retention of the necessary staff,” according to the release.
“I want to personally thank the team members who have diligently supported our auto strategy,” Dahl said. “Our decision is not a reflection of their hard work and dedication to execute the plans we put in place at the beginning of the year.”
Due to this market exit, TCF expects a one-time, after-tax charge in the fourth quarter that will come in two parts: $73.4 million for “goodwill and other intangibles,” and $7 million to $12 million for “severance, asset impairment, and lease termination write-offs.”
The bank’s auto portfolio represented 17% of total loans and leases at $19 billion outstanding, according to third quarter earnings.
“We are confident that the actions we are taking will meaningfully improve our return on capital and earnings per share in 2018,” Dahl said. “We remain committed to making decisions that will drive shareholder value moving forward.”
Congressman Mick Mulvaney speaking at the 2013 Young Americans for Liberty National Convention at George Mason University. (Photo by Gage Skidmore via Flickr)
The fight over who will lead the Consumer Financial Protection Bureau for an interim term intensified over the weekend as former Director Richard Cordray named the agency’s chief of staff as his temporary successor, while President Donald Trump continues to insist he has the authority to name a director.
The president’s pick — Director of the Office of Management and Budget Mick Mulvaney — showed up at the office this morning with a bag of donuts for staffers and began reading through the CFPB’s transition briefing book. At the same time, Cordray’s pick — newly named Deputy Director Leandra English — sent an email to staffers identifying herself as “acting director,” according to The Washington Post.
On Saturday, The Justice Department’s Office of Legal Counsel issued an eight-page report claiming the president has the authority to appoint a temporary director under The Federal Vacancies Reform Act of 1998. CFPB General Counsel Mary McLeod has also issued a memo supporting those findings and is expected to release it today, according to Reuters.
Late Sunday, a lawsuit was filed in the U.S. District Court of D.C. claiming English is the “rightful acting director” of the CFPB, and asked for a temporary restraining order to prevent Trump from appointing Mulvaney.
Rulemaking procedures are largely expected to halt until the drama at the CFPB’s director’s office simmers down or a permanent replacement is confirmed by the Senate. Although English has largely served on the operational side of the CFPB and doesn’t have a history of policy, she is expected to continue the same tactics and enforcement seen under Cordray’s leadership.
Yet, Reuters reported that the bureau was expected to sue Santander Consumer USA today for overcharging consumers who bought guaranteed asset protection (GAP) policies. International Business Times also noted that Mulvany’s former chief of staff Natalee Binkholder now serves as a lobbyist for Santander. Binkholder served as his employee from 2011 to 2017.
Any action the CFPB takes under this fraught leadership structure could face legal challenges from companies being sued by the bureau, according to Bloomberg.
Both sides in this battle over the “rightful” director cite their own legal and congressional doctrine to justify their stance.
The Federal Vacancies Reform Act does give the president the authority to appoint an acting director who has already been confirmed by the Senate for another position, which makes Mulvaney eligible. However, it must be the “exclusive means” for installing a new director.
The Dodd-Frank Act does stipulate other means for enacting a director. Cordray and English point to the legislation, which states that the deputy director shall “serve as the director in the absence or unavailability of the [appointed] director.”
However, the Department of Justice found that there is another legal example to support the president’s authority to use the Federal Vacancies Reform Act, even when it’s not “the exclusive means.” In Hooks v.s Kitsap Tenant Support Services Inc., the court found that the president has the authority to choose between these two options. Yet, Barnie Frank, former Democratic representative of Massachusets and an author of the Dodd Frank Act, stated Monday that the Justice Department’s reading of the law was not the original intention.
The Justice Department “expresses no view” about the “validity” of English’s appointment as deputy director, but noted that Trump named Mulvaney as the acting director first.
“There is no way for this to get resolved short of court intervention,” Alan Kaplinsky, a lawyer at Ballard Spahr, told Bloomberg. “The CFPB will be paralyzed until we figure out who is in charge.”
Pictured, from left: Chris Clovis, owner and operator, Freedom EuroCycle; Kevin Lackey, president and CEO, Freedom Powersports; and Bradley Van Horn, owner, Buy Your Motorcycle, discuss F&I in a panel discussion at PowerSports Finance 2017.
LAS VEGAS — More near-prime financing was provided to consumers than any other credit tier between third quarter 2016 and first quarter 2017, according to data from TransUnion.
However, that hasn’t stopped dealers from calling for more financing options for those consumers.
“There’s this no-man’s land, which is that 550 to 640 Fico,” Chris Clovis, owner and operator of Freedom EuroCycle, said at PowerSports Finance 2017.
“This is our customer, this is the working-class American who wants to buy a powersports vehicle, and we don’t have options for him.” This sentiment was echoed among all the dealers on the panel, despite TransUnion data showing that 26% of all originations are made in that near-prime range — 6 percentage points higher than in the auto sector.
However, Bradley Van Horn, owner of Buy Your Motorcycle, said the issue is a lack of flexible options for these consumers. “If you’re a 620 [Fico], no one wants to touch you,” he said. “If you’re a 635, there are two to three options; and if you’re a 650, there are 70 options.”
Last week, in a surprise unveiling during Tesla Motors’ scheduled showing of its new semi-truck, a new car was introduced.
Let’s rephrase that actually, because that seems like an understatement: A brand new, record-breaking, revamped Tesla Roadster was shown off to riotous applause.
The Roadster can accelerate from zero-to-60 miles per hour in 1.9 seconds, making it the fastest zero-to-60 mph car in production.
Additionally, the car can travel for 620 miles on a single charge, and speeds above 250 mph — although Elon Musk, Tesla’s chief executive, declined at to disclose the top speed of the vehicle at the event.
Tesla just released a video showing the car in all its fast and furious glory. Check out the video below: