Podcast: A discussion of fraud, debt ceiling, repos

Exclusive coverage of risk management platform Point Predictive ’s auto lending fraud trends report continued last week, and a delay in raising the U.S. debt ceiling could result in consumers needing payment extensions on auto loans. Early payment defaults (EPDs) are rising amid current economic conditions, likely indicating a higher risk of fraud in areas with large numbers of EPDs. Up to 70% of auto loans that are delinquent in the first six months after origination include fraudulent information on the application, according to Point Predictive. Lenders can implement strategies to identify fraudulent applications and minimize losses . U.S. legislators are working to reach an agreement on raising the U.S. debt ceiling. A June 5 deadline has been set and if an agreement is not met, it may cause challenges for consumers who rely on government payments to be able to make payments on outstanding debt, leading to loan extensions . Meanwhile, the number of repossession check-ins at auction are down 14% compared with pre-pandemic levels as recovery agencies become more selective about what vehicles they pick up. In this episode of the Weekly Wrap, Deputy Editor Amanda Harris and Associate Editor Riley Wolfbauer discuss these stories and what to expect in the week ahead. Subscribe to “The Roadmap Podcast” on iTunes or Spotify , or download the episode. The Big Wheels Auto Finance Data 2023 report , the only tabulation of the top 200 auto lenders by outstandings, is available now. Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Amanda Harris 0:09 Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation's leading newsletter on automotive lending and leasing. It is Tuesday, May 30. And I'm Amanda Harris joined by Riley Wolfbauer. This is our weekly wrap on what happened auto finance for the week ending May 26 2023. In general economic news gross domestic product increased at a 1.3% annualized pace in the first quarter, as gross domestic income fell 2.3% during the quarter. The 2.3% decline follows a 3.3% decline in q4 2022, marking the worst back to back declines in gross domestic income since the start of COVID-19. Consumer spending remain strong in the first quarter of 3.8%. Legislators meanwhile, are working on passing a deal to raise the US debt ceiling as a country has reached his limit. If the debt ceiling is not raised consumers who rely on government payments, Social Security benefits, Medicare benefits and government pay salaries to name just a few may find it challenging to continue making timely payments on outstanding debt. A pause and government payment is likely to more severely impact subprime borrowers than prime auditors who have savings as a backup a trend that rings true across all secured and unsecured consumer loans including auto however, lender extensions are expected to address any delaying government payments resuming and electric vehicles FinTech Springfree EV is aiming to launch a software as a service option for companies looking to offer similar EV fleet lease programs. As a company works to expand its electric vehicle specific underwriting engine Springfree EV purchases and then rents electric vehicles to fleet management companies charging a monthly fee along with the per mile fee. The fintechs underwriting process includes reviewing customer transaction data such as mileage and number of cars requested, along with basic credit risk evaluations of the business looking to rent the EVS. Meanwhile, we continue to cover a risk management platform point predictive latest auto lending fraud Trends report last week, bringing an update in how the audit industry is being impacted by increasing fraudulent activity. rising interest rates and inflationary pressures are contributing to an uptick uptick in early payment defaults in which the borrower stops paying six within six months after getting the loan. This is a problem for lenders to minimize fraud risk because 70% of loans that triggered early defaults are found to have some type of fraudulent information on the application. And many lenders believe early payment defaults are actually an early indicator of fraud that was originally missed. While repayment defaults are pretty rare. They are a growing problem, especially in certain areas of the country known to be hotspots for fraud, zip code 91755. And Monterey Park California, for example, had the highest concentration of early payment default in 2022. For all areas included in point predictive analysis, which looked at more than 800 zip codes nationwide, is likely that area has an active fraud ring. And that is partly why they're seeing such a large number of early payment defaults, just because fraud is also high in that area. There are also a ton of other zip codes that are on that list, there are some that we broke out in our story as well, to kind of take a look at that to see how it is trending to kind of see how that's playing out in certain areas. Certain makes the models of cars also carry a higher risk. early payment defaults oftentimes are fraudsters trying to target certain vehicles, we see a lot of luxury models on that list. But it could also be due to issues with the cars and sell sometimes older vehicles pop up as carrying a high percentage early payment defaults. And it could just be that the car stopped working, or there was some other reason that the consumer stopped paying on that loan. So like I said, to be fair, not every loan that defaults in six months is due to fraud. Other reasons a bar might stop paying could be a lost job health problem and natural disasters such as a hurricane, destroying the vehicle, so they don't want to keep paying for a vehicle that no longer exists. So it's crucial for lenders to have measures in place to weed out potential fraudulent applications that contain forged pay stubs, for example, or employment income misrepresentation before finding the deal. Since like we said earlier, a good portion of these early payment defaults are because whoever got the loan lied about something when they applied for it either did not have the intention to pay it off, or they didn't actually have the income to make those payments. And within six months they stopped doing so that's kind of what we're looking at with broad. Now. Shifting gears a little bit. Riley, you heard a story on Friday about what's happening on the repossession side of things. So what is going on there?Riley Wolfbauer 4:43 Yeah, repossession volumes are still down compared to pre pandemic levels, but they have been rising. The number of repossessed vehicles that are checked in at auction remains 14% and below pre pandemic levels as recovery agencies are being more selective and the vehicles that they pick up to start 2023. vehicle recovery requests peaked in January and February, but have come down slightly since March due to tax refund refunds propping up consumer payments. But once payments are no longer propped up by tax refunds, there's an expectation that recovery agencies will see an increase in repossession requests, leading to a bottleneck in the recovery process, mainly due to a lack of vehicle storage space. Storage space is so hard to come by that some recovery agencies had to stop repossessing vehicles on certain nights when levels were extremely high in January and February. It's increasingly becoming a problem for agencies as the cost of land is high. And they're competing for large corporations for the land to store the vehicles. So I spoke with Vaughn Clemmons, president of the American Recovery Association and automobile recovery Bureau, which is based in Houston. And he actually said that he had an agent in Philadelphia that was paying $7,000 a month for his storage space, then Amazon came in paid $18,000 for that exact same space. And because the agent missed his period of time, when he could try to renew his contract or negotiate, he lost his space. So since Amazon came in and paid triple as to what that agency was already paying, there was no way for them to compete. So they just lost their lot and lost their business. So since space is hard to come by, many agencies are now prioritizing certain recovery requests by lender. Clemmons said that his agency is being more selective, based on recovery rates and incentives from lenders. His agency receives about 375 recovery recovery requests per day, but only accepts 150 to 175. Because that's what the space on their lot allows. As well as that that's what allows them to make more money, because if they accept more requests, and go out to try to recover vehicle, but the vehicle isn't there, they have to go back to their lot. And they aren't making money because they didn't come back with the vehicle. So they're wasting the money, the manpower, the gas, all their supply on going to look for a vehicle that's not there. So they're prioritizing the lenders that have a higher recovery rate. And as I said, he's also their agency is also looking at lenders of who are applying incentives for vehicle pickups, for example, Wells Fargo pays repo agencies, a an additional $500 per vehicle incentive to pick up the vehicle. And then there are a few lenders that are doing it as well. There are some lenders that Clemmons did not name that are offering $50 to $75 per pickup. And then he also mentioned that, that Toyota has implemented a $400 per month incentive. We reached out to Toyota for them to confirm that's the amount that they are providing to agencies, but they did not confirm. So overall, it really just comes down to agencies are prioritizing ways that they can make money and they're looking for lenders to assist them and be more collaborative and picking up vehicles. So it's a more productive process for everybody. Amanda Harris 8:53 Definitely, yeah. And by the way, Houston's also a really big area for fraud. That's a cool popped up quite a bit. So I can see that being maybe an additional struggle for them, especially if they see numbers go up because of fraud happening. So they're very interesting. There will definitely have some more coverage on fraud coming up this week, as well as our magazine feature, which looks at trends from AFSC. So if you want a nice recap from the show, whether you were there or not. Stay tuned for that. And again, thank you for joining us on the roadmap, be sure to follow us on LinkedIn and we will see you online at auto finance news.net and here next time.

Podcast: A discussion of fraud, debt ceiling, repos

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