Listen: Weekly Wrap on increased interest rates, leasing trends and fraud

Issues related to the pandemic continue to linger, evidenced by last week’s Federal Reserve rate hike, an influx in fraudulent activity, and suppressed leasing incentives in the automotive lending space. Last week, the Federal Reserve raised interest rates by a quarter percentage point as inflation continues to climb. Bank of America , Fifth Third , JPMorgan Chase , PNC Financial , Truist Bank and Wells Fargo responded by raising their prime rate 25 basis points (bps) to 3.5%. Auto loan rates have been increasing over the past few months in anticipation of the Fed’s rate hike. Fraud exposure, too, is on the rise as auto loan fraud increased 5% year over year to $7.7 billion in 2021, led by employment fraud, income misrepresentation and use of synthetic identities. Lastly, OEM leasing incentive spend continues to be depressed as a result of limited inventory in the new-vehicle market, which has opened up the lease market share to non-captive lenders, according to Credit Union Leasing of America . In this episode of the Weekly Wrap, Auto Finance News Associate Editor Whitney McDonald and Editor Joey Pizzolato discuss the week’s top stories and what to expect in the week ahead. Subscribe to The Roadmap Podcast on iTunes , Spotify , or download the episode. Auto Finance Risk Summit, the premier event for risk and compliance management in auto finance, returns April 25-26 in San Diego. This event is the central resource for education and networking focused on best practices in risk management and will prepare your team for the dynamics of the evolving auto finance market. To learn more about the 2022 event and register, visit www.AutoFinanceRiskSummit.com . Video Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain . Joey Pizzolato 00:10 Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation's leading newsletter on automotive lending and leasing. It's Monday, March 21. And I'm Joey Pizzolato joined by Whitney McDonald. This is our weekly wrap on what happened in auto finance for the week ending March 18 2022. Last week, the Federal Reserve raised interest rates by a quarter percentage point after signaling a rate hike over the past several months. This is like the first hike of six for 2022 as inflation continues to remain a major concern in today's economic environment. Increasing interest rates as a bet is a balancing act for the Fed and needs to be done gradually to avoid the risk of inflation quote, getting out of control. Looking ahead, the Fed could end up raising interest rates as high as 3.25% in the next year, which would be the highest rates since 2008. That is assuming that they raise it by a quarter of a basis point in each of those six increases. Following the right height. Some of the nation's largest banks with auto lending arms announced prime rate increases including Bank of America Fifth Third, JP Morgan, Chase, PNC Financial truce bank and Wells Fargo. Each of these banks increase their prime rates by 25 basis points to 3.5%. Last Thursday, auto loan rates to have been climbing over the past several months in anticipation of anticipation of the Feds rising rates and are expected to continue to rise throughout the year. Also, last week, digital marketplace fair entered into an asset purchase agreement with consumer finance assets, asset management to sell its leasing and subscription assets, including VT vehicles, consumer contracts and receivables. The deal is running parallel with FERS marketplace asset purchase agreement with Shift technologies. Speaking of leasing, Whitney, you spoke with credit union leasing of America last week about leasing trends. Whitney, what do they have to say?Whitney McDonald 02:06 Yeah, I was able to talk with them last week, as we know an ongoing industry trend has been that manufacturers are not, there's no need for incentives right now. So incentive spending continues to be low as supply shortages continue and demand continues to drive sale. So this pressure on the market, Cuellar shared with me that the lack of need for incentives has actually allowed credit unions to take more of the leasing market share from OEMs, like GM and Ford, who have continued to slash incentives, then into the fourth quarter of 2021. So this has evened the playing field they shared with us and allowed credit unions to kind of have more of a competitive state in the space. So culo, for one, they have 32 credit unions and more credit unions are actually joining on to auto lending right now, because they have a little bit more of a competitive edge than they have in the past. So yeah, Kula is has five more credit unions joining on to joining them, and they're expanding their footprint to 15 more states this year. So that just shows the growth that they're seeing. So yeah, the growth in the credit space has has taken place as incentive spend remains low, there's really still no telling when incentives are going to be coming back. If they are dealers are remaining profitable. OEMs are remaining profitable. So it's been kind of a benefit for credit unions to be able to be a little bit more competitive and add to their lease portfolios right now. So that was an interesting conversation last week.Joey Pizzolato 03:49 Right in an industry interesting trend. I want to shift gears a little bit here and talk about another trend that we you know, we're always closely watching that is fraud, which is always top of mind for lenders. Last week, you also spoke with point predictive chief fraud strategist Frank McKenna on, you know, what's going on in the volume of auto loan fraud. So what's going on there? Whitney McDonald 04:15 Yeah, a lot of big interviews last week, last month, or this month point predictive on their auto fraud Trends report came out, and it showed that auto loan fraud increased 5% year over year to $7.7 billion in 2021. So that's a big number. The shift to digitization, the end of government stimulus funds, that all contributed to the growing fraud rates. The leading fraud was employment fraud, that accounted for $4.7 billion dollars, or more than 60% of the total fraud that was followed by income misrepresentation and the use of synthetic identities, which is that combination of both true and false identification in the process. s so fraudsters are benefiting from that shift to digitization in the space. They can apply for multiple loans on line, never stepping foot into a dealership never having to show face. And if they don't get approved, they just move along to the next lender. Like it never happened. So the influx of fraud does follow up point predictive is December 2021 report where auto loan application fraud linked to fake and player surpassed a billion dollars. So fraud is top of mind, digital transactions aren't going anywhere more deals are moving on line. So fraud is gonna remain a hot topic in a space right now. And we are going to be continuing to following along as we see those big numbers surface so we'll be watching for what red flags lenders can watch for and following along on the fraud front. Joey Pizzolato 05:54 Great, thanks, Whitney. Um, that about does it for this episode today. Thanks for joining us on the roadmap. And please follow us on Twitter and LinkedIn. We'll see you online at auto finance news.net and here next time

Listen: Weekly Wrap on increased interest rates, leasing trends and fraud

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