Listen: Weekly Wrap discussion on CFPB oversight and fintech advancements

Joey Pizzolato 00:02
Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter automotive lending and leasing. It’s Monday, May 23. And I’m Joey Pizzolato, joined by Amanda Harris and Whitney McDonald. This is our weekly wrap on what happened in auto finance for the week ending May 20 2022. In broader automotive retailing electric vehicles are now cheaper to buy in New Jersey than they are in California. According to a recent report from energy innovation, policy and technology, LLC, a climate policy think tank. The analysis looked at financing costs, state taxes and fees, state and federal rebates and tax credits, especially in the 7500 tech, federal tax credit, fuel costs, maintenance costs, and insurance costs for six Evie models and gas related inversions, finding that the Eevee version was cheaper to finance in New Jersey, Delaware, Oregon, Colorado and Montana. Speaking of auto dealers, many are concerned about inflation negatively affecting their businesses in the next three months as more consumers become cognizant of their purchasing habits and car prices both new and the US market remain elevated. According to a Capital One survey. Smaller dealers especially are feeling inflationary pressures already. high turnover at dealerships is also affecting dealerships bottom lines forcing over 80% 88% of dealers to reevaluate compensation strategies. In auto finance salaries among senior executives at publicly traded auto finance companies were flat last year, but total compensation tripled to nearly 7 million thanks to generous stock awards. Executives from Credit Acceptance Corp shift technologies room and Ally financial were among the top five earners in 2021. According to an auto finance News Analysis of filings with the Securities and Exchange Commission. Meanwhile, to auto ABS deals hit the market last week, subprime lender flagship Credit Acceptance close to $600 million deal. It’s second of the year, and Carvana. Close its second prime securitization of the year, a $660 million deal. Moving on to our top story of the week, and it’s around Surprise, surprise, the Consumer Financial Protection Bureau. Amanda what’s up there?Amanda Harris 02:12
Sure. Um, so we know that, you know, gap refunds and similar products have kind of been under a microscope for a while now, but especially the last year or so, and especially under Rohit Chopra, as you know, taking taking the reigns, it’s become even more so related to unfair practices. So the CFPB sewer Financial Protection Bureau is look taking a hard look at these refunds. But also they’re looking a little closer and they’re looking at lender practices related to potentially miscalculating ancillary product refunds in general following you know, a loan ending firm repossession or being paid off early. So typically lenders will need to calculate, you know, that refund them out because they typically will charge upfront as part of the loan financed the total amount, you know, for GAAP, or does other add on products at the start of a loan. And so when a loan ends early, you know, they have to refund that difference, but was happening and they found when they’ve done some examinations is that some lenders were miscalculating that amount. And so what they were doing was, because they incorrectly calculated that amount, it resulted in a higher deficiency balance that the consumer then was being asked to pay. So then the CFPB said, that is unfair practice, because if you had calculated this correctly, if you had, you know, let the third party services of these products know that this this was being ended, and then a refund is needed and facilitate that process, then that would offset some of the deficiency that the consumers owed, meaning they would owe less. So that’s kind of the gist of what they’re looking at. Now, there’s kind of two sides of this one, lenders have to make sure they’re calculating it correctly. So they need to know like what their role is, and you need to make sure they’re reaching out to the providers of these products to get the correct amounts, make sure they’re applying this correct amounts to deficiency balances, before they alert the consumer to what’s owed. They also need to make sure that they are facilitating the process and reaching out to these third party providers to get that information and to ensure that what’s being applied is correct. So that’s kind of a new thing. It kind of puts the onus on the lenders to really take take care of these refunds. And in some court cases, the lenders are the ones actually said that they would go ahead and take like the responsibility of making sure those refunds happen. And that obviously sets a pretty big precedent. And what could be a precedent if more states adopt that particular route of handling these refunds. So lenders just need to be aware that this is happening because it could be something that becomes industry wide. Because there are, like I said, some cases where lenders took on that responsibility. So if it becomes that, the CFPB says that they have to send these notices or else and unfair practice, that’s one area lenders can be deemed for. And if it becomes just standard practice for them to make sure that they’re the ones taking care of it, obviously, it’s something they need to consider going forward. So that’s kind of what’s happening. Right now related to cap and needs these products add ons.

Joey Pizzolato 05:34
It’s an interesting move, because as you said, usually the onus, or I guess the regulatory guidance has come from the state specifically. And you know, the CFPB is usually taking a hands off approach to this particular topic. So now that they’re, you know, honing in on this a little bit more, that’s just a different additional regulatory scrutiny that’s coming from the CFPB. In an environment that’s already sort of higher, the more there’s more scrutiny out there, then there was, you know, in the previous administration, and it’s interesting as well, because this is the second such sort of bulletin and or notice whatever you want to call it, from the CFPB, that surrounds auto lenders, you know, two weeks ago, I believe it was they had their notice on fair servicing and Equal Credit Opportunity Act and making sure that there is fair lending throughout the life of the loan rather than just you know, as we usually talk about fair lending in the application process, which brings us to another one of our top stories last week that sort of addresses this issue, which was US banks, Spanish speaking voice assistant. So Amanda, why don’t you give us a little bit of insight there as well.

Amanda Harris 06:45
Sure. Um, so yes, bank for about a year, I believe it was, has had a virtual assistant through their app, but it’s been English speaking. So English speaking, consumers could use their app and talk into it, to do things like check their balances, transfer money, make payments, check the credit score, all those kinds of functions, just like talking into your phone, like you do with your smartphone for pretty much anything else, or your car nowadays. So us being had this in place. But last month, they launched a Spanish language version of that smart voice assistant. So now, the same kind of options are available for Spanish speaking consumers, as are their English speaking customers. This is really important, obviously, because you know, not everyone who uses these apps speak English, definitely not maybe as their first language may not be their preferred language. So by launching this, you’re basically meeting those needs and making sure that their virtual assistant is available to more of their consumer base. And it’s also really important in light of what we were just talking about, because whenever you have something being offered to consumers, you want to try to make it as uniform as possible. And that’s, you know, something that CFPB seems to be really honing in on as well, trying to be fair, and making sure that all your consumers that are on equal footing, have the same access to tools, whether in programs and assistance, etc. So it’s just something that’s easily looking into. So this is just really like a good thing that they’re doing. And probably will put them in a good position, since you can use like looking at these kinds of things very closely. But the Spanish speaking assistant is pretty cool, because they can speak in Spanish to their phone, and their phone will respond in Spanish. And the app, the language on the app itself is all in Spanish as well. And the bank actually worked with Spanish speaking, like professionals in order to build this, so that they’re ensuring like, you know, because context and all that is very important, especially when you’re integrating another language. So they did work with the right people to make sure that it responds in a way that makes sense. And it’s not just you know, straight translation. So it’s a little bit more than so they didn’t take the English one and just translate it essentially, they built like from the ground up a brand new version. With that, that new language from the ground up. So that’s really important as well. And it just, you know, again, goes back to financial inclusion, removing barriers, you know, equality and making sure that you’re in the Bureau’s your good graces, as far as your discrimination and unfair practices, you don’t want to be highlighted for any of those, because you’re not offering things to everyone.

Joey Pizzolato 09:35
Right. And as far as I know, there’s no other bank or auto lender for that matter that allows, you know, servicing options through you know, an app that is Spanish speaking. So it’ll be interesting to see where the industry moves from there. Speaking of new technology, and banking and apps and all of that good stuff. Whitney last week you attended Finovate Spring and we had some really great stories out of there what banks are doing, why don’t you give us a rundown of sort of the top line takeaways?

Whitney McDonald 10:10
Yeah, there was definitely not a shortage of new tech innovation. Lots of cool things that happened at finovatespring that was held in San Francisco. At the end of last week, a couple of things that jumped out. One was from the FinTech demos, there was several days of demos that went on. One of the common new technologies that they showcased was built around fraud, risk and fraud prevention, from the use of artificial intelligence to flag fraud alerts, new identity verification processes, voice authentication technology, and one company is even using technology to monitor real time body language from the other side of the screen, which flags any oddities that might be deemed as suspicious, anything from emotional choices, hesitancy, your confidence, your intention, and what you’re clicking around. So that was really interesting to see, of course, we know that fraud is always top of mind for lenders. So lots of new fraud tech. And, and also, speaking of new tech, the founder of Starling, bank, and Bowden, she was there to talk about how lenders can start the digital transformation journey. And basically, one of the things that stood out was, don’t be afraid to fail. So don’t be afraid to jump in and start something she said, sometimes things get lost in the planning, and you’re too afraid that something might go wrong. But that’s where you’re going to learn. That’s where those mistakes are going to actually lead you into progressing into something that can help your consumers or your processes. So don’t be afraid to actually take the leap of faith and start something, edit it from there, change things from there. So a little bit more on what Ann Bowden was saying from our coverage last week. Lastly, Joey kind of alluded to this, but banks are investing in their mobile apps that was kind of a hot topic, something that we’ve been following. But for example, Bank of America, Chase city, Wells Fargo, they are all improving their mobile apps, because consumers are asking for it. That’s something that we kind of have watched unfold since the start of the pandemic. But instead of being forced to go to technology, now people want to go to technology. They want to be using mobile apps, they want to bank online, and specifically those Gen Z consumers are the ones asking for it, but other other people to want it. So you’re going to be continuing to see the enhancement of mobile apps, the launching of mobile apps, just to meet the needs of consumers. That’s what they’re asking for. So Finovate was a jam packed three days, lots of new innovation and some more content coming this week on new data use that banks are using and some dei best practices. So lots of stuff.

Joey Pizzolato 12:58
Well, yeah, I mean, we have lended us a conference in New York that later this week, as well. So our our coverage will be jam packed with new FinTech technology stories, you know, in the week ahead. Don’t forget to register for the auto finance Summit, which returns to the Wynn Las Vegas October 26 through 28th. That about does it for our episode today. Thanks for joining us on the roadmap. Follow us on Twitter and LinkedIn and we will see you online at auto finance news.net and here next time