During the last five months, and against the backdrop of a global pandemic, civil unrest marked by the deaths of George Floyd in Minneapolis and Breonna Taylor in Louisville, Ky., has sparked a nationwide call to action amid protests across the country.
Tension and uncertainty are palpable. The Aug. 28 March on Washington in response to the Black Lives Matter movement on the 57th anniversary of Martin Luther King Jr.’s “I Have a Dream” speech echoed similar calls for justice heard nearly six decades ago at our capitol. And the Sept. 18 passing of U.S. Supreme Court Justice Ruth Bader Ginsberg, a resounding voice of gender equality, has left many wondering who will step in as the next champion for women.
This year has forced entire industries to reevaluate how they transact with customers, and demanded institutions take a hard look at social injustices, representative diversity and economic equality.
In auto finance, inclusion and diversity have recently been prioritized as lenders work to bridge the gaps in racial, ethnic and gender equality. But like any worthwhile cause, the success of such an undertaking will require the sustained effort of every lender in the auto finance community, as they address change within their own corporate cultures and in how they provide services in diverse communities.
Fostering financial inclusion
In auto finance, what we talk about when we talk about diversity relates in large part to fair and equitable access to credit for underrepresented communities. The Consumer Financial Protection Bureau estimates that 45 million Americans are considered thin- or no-file, meaning that they lack enough credit history to secure a loan.
For many within this subset, an automobile will be their largest asset, and by proxy, their largest credit, Tricolor Auto Acceptance Chief Executive Daniel Chu told AFN. Tricolor, which has a managed portfolio of $400 million, uses artificial intelligence and machine learning technology to underwrite auto loans to thin- and no-file Hispanic borrowers. Tricolor is the only auto lender that securitizes its assets on the capital markets to be classified as a “community development financial institution,” Chu said.
“Because of their low income, and because in many cases they lack credit bureau data, it was our view that they had a significant problem in terms of accessing affordable credit where they could actually be successful in their loans,” Chu said.
However, some state attorneys general — in Massachusetts and Delaware, for example — have put an increased focus on populations’ ability to repay, said John Redding, partner at Alston & Bird. This represents a significant hurdle for auto lenders to clear in order to serve underrepresented populations.
Specifically, some regulators have taken the stance that if a large segment of a population defaults on their loans, they shouldn’t have received loans in the first place.
“If you’re going to focus exclusively on default rate and say that high default rates among a meaningful percentage of that population means that [lenders] are not necessarily, by definition, making an appropriate ability to repay analysis, then the answer has to be that from these AG or regulators’ perspective: These people should not be getting credit,” Redding said.
State interest rate caps also limit lenders’ ability to serve this population, because they have to price in risk when underwriting loans, said Jean Noonan, partner at Hudson Cook and a former executive on the Federal Trade Commission. Noonan also serves on the CFPB Taskforce on Federal Consumer Financial Law.
“The irony is, if I’m a [consumer] in a state with a rate cap of 18%, and it’s only financially feasible to lend to me at a higher rate, then I’m not going to get credit,” Noonan said. “And it’s exactly the usury rate law that we thought was protecting the consumer that keeps them out of the market.”
Still, lenders can set up special-purpose credit programs to serve these underbanked communities, which helps them work around the exact regulations that might keep lenders out of the market.
“Special purpose credit programs allow [lenders] to lower their standards of debt, or lower their prices of debt, to increase their diversity,” Noonan said. “This is permissible under the Equal Credit Opportunity Act and Regulation B,” she explained.
A marathon, not a sprint
Looking inward, while lenders’ internal D&I initiatives vary, their success at any organization requires a culture of inclusion and diversity that starts from the top down. For Shunda Robinson, global head of diversity and inclusion at GM Financial, support from the Fort Worth, Texas-based lender’s top leadership was a prerequisite to her accepting the newly created position in 2015.
At the time, “GM Financial was no different than many other auto finance companies where there wasn’t a D&I focus, at least not from an intentional perspective of having a designated leader for the function,” Robinson told Auto Finance News.
“When you’re trying to build an initiative like D&I, it has to have very strong leadership support,” Robinson said. “That was very important to me.”
From day one, Robinson’s focus has been centered around trying to understand the industry as a whole and GM Financial’s internal makeup. “We know, historically, this industry has been [comprised of] white men, by and large. In the last decade or so, we’re seeing a lot more diversity; however, that diversity is more at the lower levels.
“One of my immediate focuses right out the gate was how do we diversify the leadership levels to a degree that it’s not just looking at metrics — you’ve got to have numbers — but also setting those individuals up for success in those roles,” she said.
To achieve this, Robinson created a mentorship program and D&I councils “where we really step out and give professionals of color the opportunity to be able to be developed, so when those positions open, we have individuals that can step into those roles fully ready and fully prepared to do well in those positions,” she said.
“I believe mentoring is a game changer,” Robinson said. “When you talk about an individual who wants to get serious about their career, we know it takes a village, and the village is really who’s mentoring you, who’s pouring into you, who’s helping you, who’s giving you guidance and who’s giving you exposure. When I came to GM Financial, I immediately saw an opportunity to create a program.”
That mentorship program, which started with about 128 people — or 64 pairs — has grown to a global program with over 700 participants, Robinson said. And the company’s diversity and inclusion councils, which started with a team of one, now has a presence in 91% of GM Financial’s locations and serves as a conduit between Robinson and team members from across the organization.
On an organizational level, GM Financial today is 57% professionals of color, representing 38% of leaders; and 58% women, representing 45% of leadership. Back when Robinson joined the organization in 2015, she estimates those numbers were around 28% women, and 17% professionals of color.
“This journey has definitely been a marathon and not a sprint,” Robinson said. “And it continues.”
4 pillars of support
Dallas-based subprime lender Exeter Finance focuses on four pillars to create a culture of diversity and inclusion, Charita Henderson, vice president of leadership development, told AFN.
“When we think about our culture, and our real pillars of our culture being our people, and how people are interacting with the service that we put out there into the industry, we’ve always had an eye on making sure our people were equipped,” Henderson explained.
To start that work, Henderson’s team reached out to Exeter’s leadership team to understand what they wanted to see from the initiative.
“We started having many discussions throughout the organization, which we call ‘culture chats,’ and that really allowed people to engage in meaningful conversation about, ‘Hey, what do you think about how we’re handling diversity across our organization? What are some things that we could be doing differently?’” Henderson said. “We heard an appetite for specific network-type groups that would allow people to come together not only to explore their differences, but to share their similarities. We heard an appetite for things like more education about different cultures and different groups,” she added.
As a result, Exeter modeled its diversity and inclusion program around four pillars. The first pillar is implementing support for a diverse workforce, starting with the leadership team. “Then we focus on our second pillar, which is truly our environment and making sure we focus on developing what we call a ‘culturally competent organization,’” Henderson said. The third pillar is focused around empowerment and creating a safe space where all voices can be heard, and the fourth is “accountability at all levels of the organization, from top down and throughout management and our employee base, as well.
“What we did when we started down this path was make sure that we got direction and support from the very top of the organization, because the leaders have got to lead in this war, they’ve got to embrace this work, and they’ve got to walk in it,” Henderson said.
Exeter is also working to address compensation and pay equality, Henderson noted. In 2018, according to the Pew Research Center, women earned 85% of what men earned, based on an analysis of median hourly earnings for full- and part-time workers.
“We are very careful to make sure that there is due diligence in place, that our compensation team has annual assessment and audit reviews to identify where we are and if there are areas of concern, just to make sure that due diligence is in place from a [human resources] perspective to ensure appropriate alignment,” Henderson said.
Fear lives in silence
PNC Financial Services, which celebrated the 10th anniversary of its bankwide D&I program this year, focuses on three key strategic priorities: workforce, workplace and marketplace, Vice President of Diversity and Inclusion Ashley Brundage told AFN.
“For our workforce, our strategic priority is executed by our employee business resource groups,” Brundage said. “It’s about shared values, shared culture, professional development, employee engagement, and really enhancing our employee experience as a way to build and cultivate an inclusive culture for our organization.”
The second priority is workplace, Brundage said. “As you can imagine [PNC has] a lot of different business units, being a financial services organization. We have a line of business diversity and inclusion councils that operate within strategic business units. And they work to really enhance our corporate culture through the workplace, and moving diversity and inclusion priorities within their business units.”
The third priority is the one Brundage directly manages for PNC: marketplace, or how the lender connects with its diverse communities and customers. She taps into diverse regional markets through region-specific diversity counsels, she said. “Each one of our regional markets are very different based on many factors, including who lives in the community, the makeup of the community, where the community is, and what inclusion looks like there.”
PNC uses statistical, geographic data to understand who lives in a particular area. Then, the regional councils partner and engage with community organizations to build a strategy on how to best serve that specific community.
There’s intersection, too, with the bank’s other strategic priorities. “We invite the leaders of the employee business resource groups to sit on our regional councils so that way, they’re aware of what we’re doing,” Brundage said. “We’re able to make sure we’re getting all the different perspectives from diversity, but also from the business unit.”
PNC also deploys a mentorship program that has seen a 123% year-over-year increase in employee participation to 2,200 employees, according to the bank’s 2019 Diversity and Inclusion Year in Review report. The program “assists employees with navigating the corporate culture; building workplace relationships; and creating opportunities to discuss career, personal and professional development,” according to the report.
But diversity and inclusion can’t just be top of mind, it must be visible, Brundage said. “I’m a big believer in representation — being strategic in making sure that you have diverse representation in everything you do, from marketing to advertising to, obviously, hiring.”
Being purposeful as an organization in providing employees with the shared value that they are being recognized is paramount, Brundage said.
“I’m very open about my status as a transgender woman, but not everyone from the trans community is at that same level where they
share their status,” Brundage explained. “A lot of times, they may want to not share because of fear. And I always say fear lives in silence. If we’re not vocal about who we are and our lived experiences, then that’s where biases can live. They breed in that scenario.
“Once you shut the door in a board meeting or in an executive leadership meeting and you don’t have representation around the room, you are complicit in that process,” Brundage said.
Go where the fish are
While banking and financial services workforce diversity demographics outpaced the overall U.S. labor force composition in 2018, according to the U.S. Bureau of Labor Statistics and a U.S. House Financial Services Committee staff analysis of bank diversity data, that diversity is “more visible in entry-level positions rather than executive and senior-level positions,” the committee wrote in its February 2020 report on diversity and inclusion in banking.
In fact, of the 44 banks with managed assets over $50 billion solicited by the House Financial Services Committee to comment on their diversity and inclusion practices and data, 25% cited competition for talent with science, technology, engineering, math or finance expertise as a major challenge to recruiting a diverse workforce.
However, this challenge could be remedied with a change in where lenders seek out diverse talent, Renee Horne, vice president of consumer lending at USAA Bank, told AFN.
“There’s an enormous amount of highly capable, highly accomplished talent that is in the marketplace,” Horne said. “Oftentimes, you’ll hear, ‘we can’t find them’ from folks under pressure to fill those roles. And I always say, ‘if you take a step back and change your sourcing strategy, you could easily achieve the outcome you want in that same time frame.’”
When it comes to identifying diverse talent, augmenting internal staffing strategy with outside partnerships can help lenders identify overlooked talent, Horne explained. “I call it, ‘go where the fish are,’ and partner with those organizations that, by design, provide talent pools and a source to meet the demand, whether it be Hispanic Chambers, Hispanic MBA cohorts, or consortiums, or black MBA associations — the list goes on.”
There is a business case, too, that points to inclusive organizations being more productive and profitable, according to a 2015 study by management consultants McKinsey and Company. “There is a linear relationship between racial and ethnic diversity and better financial performance. That is, for every 10 percent increase in racial and ethnic diversity on the senior executive team, earnings before interest and taxes rise 0.8 percent,” the report read.
In 2015, McKinsey found that companies in the fourth quartile for gender diversity — those with the least diversity on their leadership teams — were 19% more likely than companies in the other three quartiles to underperform on profitability.
“At companies in the fourth quartile for both gender and ethnic diversity, the penalty was even steeper in 2019: they were 27% more likely to underperform on profitability than all other companies in our data set,” the report read.
At the end of the day, when it comes to addressing the gap in diversity and inclusion in auto finance, the work never stops.
“It is such an enormous body of work that needs to be done,” said John Hoffmann, director of communication strategy at Exeter Finance. “As an organization, how do you decide where to start? How do you decide in terms of resources to deploy to address the vast array of issues that need to be addressed?”
The answer, according to GM Financial’s Robinson, is to just start. “I think it’s important to just acknowledge where you are, and just start. There’s never going to be a really good time.”
Editors Note: This feature first appeared in the October issue of Auto Finance News, available now.