Facing scrutiny over its dealer fraud prevention and income verification policies, Santander Consumer USA detailed precisely how it evaluates dealerships during the company’s second-quarter earnings call in July.
Santander uses a dealer performance management program, which evaluates dealers based on “quantitative portfolio metrics as well as qualitative behavior triggers” including consumer complaints, negative media, and fair lending monitoring.
“SC monitors its dealers on an ongoing basis to determine whether a dealer should be placed in an enhanced monitoring environment, which may include additional stipulations — such as verifications of income and employment,” Chief Executive Jason Kulas said during the call. “All of these steps feedback into our originations process and help us ensure that we are setting our customers up for success.”
The subprime lender entered into a $25.9 million written agreement with the Attorneys General of Massachusetts and Delaware in March over allegations that the company funded loans consumers could not reasonably repay and knew about a network of dealers offering these loans but did not stop it. Those allegations were from 2015, and Santander claims it has since changed policies, as evidenced by the development of its dealer performance management program.
Santander also added a slide in its earnings presentation about income verification and how it’s ensuring that consumers can repay their debts.
“We consider a wide range of quantitative and qualitative factors to manage and price for risk — income verification is only one of those factors,” Kulas said. “Variables including down payment, maximum monthly payment, credit bureau history, and loan to value contribute to SC’s credit-approval decision and allow us to structure loans customers have the highest likelihood to repay. Other validation methods we use prior to funding a loan include identifying risk through our know-your-customer and fraud income verification processes by leveraging third-party solutions to complement our efforts.”
Still, these checks on inaccuracies are not used on every deal, but rather on a “risk-determined basis,” Amy Martin, lead analyst for auto ABS at S&P Global, previously said. The topic also came up on Consumer Portfolio Services’ earnings call.
“We do verify 100% of incomes in every single deal and job verification,” Charles Bradley, chief executive of the subprime lender, said on the call. “That obviously was a hot topic in the news last few quarters. It’s ironic that that isn’t more the norm in the industry, but for us it is. We’ve always there verified 100% of the income of our borrowers before we buy a loan.”