CPS Expands Direct Lending to Lower Loss Rates

Consumer Portfolio Services plans to expand direct lending offerings “rather significantly in 2017,” President and Chief Executive Charles Bradley said on the company’s fourth-quarter earnings call last week.

Direct originations currently account for “a couple million” dollars a month of the company’s reported $1.1 billion in full-year originations for 2016, Bradley said.

However, direct lending is an area Bradley wants to grow because the company has seen a lot of interest online, and he thinks “the losses are substantially less.” With indirect, consumers can get “wrapped up in buying a car” to the point where they only hear the monthly payment, Bradley explained.

“When you come through the direct lending side, first thing you see is: You’re going to be paying 18% or 19% interest, and you get the sticker shock right away,” he said. “So they kind of understand the game better.” Secondly, in direct lending, CPS is the one screening the consumer, rather than the dealer. “Both those areas end up truly having that guy perform better,” he said.

An analyst on the call speculated that direct lending could cut CPS’s overall losses in half, however, Bradley estimated that loss rates would likely drop 20% or 25%. Full-year net losses for CPS stood at 7.03%, up from 6.42% for the full year 2015. So, if there really was a 25% improvement, CPS might see losses tick down below 6%, the same analyst predicted.

However, the company is still probably a long way off from direct volume affecting its overall portfolio. “Certainly, that’s a very strong goal we have for this year,” Bradley said. “It’d be nice to grow it enough to where it really did impact the overall numbers.”