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Auto Finance News

March + April | Volume 13 | No. 2

The

Department

of Defense:

What

are they

thinking?

BB&T

Dealer

Financial

Services

to abandon

fl at fees in

F&I

FTC and

state AGs

ready to

pick up any

slack from

altered

CFPB

Dissecting

how

infl ation

could

ripple into

automotive

space

Top 20 cities

that spend

the most

and least

on vehicles

14▼

16▼

20▼

15▼

18▼

Young executives are on the riseBy Nick Zulovich, Senior Editor

CARY, N.C — Chief executive offi cers oft en might

be the oldest professional within the company. But per-

haps, it won’t always be that way.

Th e assumption about age certainly was reinforced

by the latest analysis by Korn Ferry, a global people and

organizational advisory fi rm, which determined that

CEOs are the oldest and longest-tenured individuals

compared with other prominent C-suite roles.

In the automotive industry, those conclusions per-

haps do not seem surprising, especially if looking sole-

ly at automakers and the largest fi nance providers. Th e

Korn Ferry Institute’s study of the top 1,000 U.S. compa-

nies by revenue was conducted in late 2016.

Korn Ferry determined the average age for a CEO

across industries is 58, with the oldest average CEO age

of 60 in fi nancial services and the youngest of 55 in the

technology sector.

In terms of tenure, the average CEO tenure is eight

years, according to the report. Th ose in fi nancial servic-

es have the longest tenure, 9.7 years; and those in ener-

gy have the shortest tenure, 6.1 years.

“It makes sense that for large, complex companies, the

executive who holds the highest leadership position would

have more and diverse experiences, which would translate

to more years in the workforce,” said Tierney Remick, vice

chairman of Korn Ferry Board and CEO Services.

“Immediately following the 2008 Great Recession

we saw many boards asking their CEOs to continue to

lead and navigate through an unprecedented period of

dynamic change and ultimately, recovery,” Remick said.

But maybe those times are changing, especially now

with that Great Recession nearly a decade ago.

Just one example is Michael Bor, who is the CEO of

CarLotz, which is a used vehicle consignment and retail

remarketing business.

For a fl at fee, CarLotz will prepare the vehicle for

sale, market it nationwide, manage buyer questions

and conduct test drives from its retail stores, negotiate

a deal on the seller’s behalf, and ultimately, cut them a

check when the vehicle sells. Bor insisted the company’s

Q4 data shows ‘correction’ in auto fi nanceBy Nick Zulovich, Senior Editor

CHICAGO — Brian Landau, se-

nior vice president and automo-

tive business leader at TransUnion,

needed just one descriptive moni-

ker to summarize the auto fi nance

data from the fourth quarter — a

correction.

Th e auto fi nance portion of Tran-

sUnion’s Q4 2017 Industry Insights

Report released in February showed

that while auto fi nance balances grew

5.5 percent between Q4 2016 and Q4

2017, this fi gure marked the lowest

annual growth rate since a 5.3-per-

cent rise in Q2 2012 over Q2 2011.

Despite a slowdown in bal-

ance growth, TransUnion observed

a marked increase in the number of

outstanding auto contracts — grow-

ing to 79.4 mil-

lion in Q4 2017

compared to 75.8

million one year

earlier.

“I believe it

is a correction,

just like whatev-

er others in the

industry might

call it, because

we’re starting to see not necessarily a

sharp change happening with regard

to originations or balances,” Landau

told SubPrime Auto Finance News

ahead of the report release. “It’s more

Q4 continued on page 4CEO continued on page 4

Brian Landau

TransUnionFor a complete listing of this year’s honorees and our

past recipients, see pages 6-10.

CarLotz chief executive offi cer Michael Bor

March + April 2018 subprimenews.com 3

SPECIAL COVERAGE: AFSA VEHICLE FINANCE CONFERENCE & EXPO

ÔAnd now for something completely differentÕFirst, I would like to thank SubPrime Auto

Finance News and Cherokee Media Group for

providing me this platform to weigh in on

various economic and industry trends. But

why choose a “Monty Python” line as the title?

Because it is my hope this column will offer

a differing perspective. Not to be a contrarian

just for the sake of it, but rather to seek out

areas where conventional “wisdom” becomes

too lazily accepted. Consider the consensus

theory on how the new- and used-vehicle

markets will perform this year.

Used-vehicle sales will benefit as

new-vehicle sales slow.

Yes, there is little doubt that in unit terms

new vehicles will likely decline, while used

retail sales rise in 2018.

But it won’t be because of a substitution

effect. In economist speak, new and used

vehicles are complements; not substitutes.

For starters, consider the simple fact that

most new-vehicle sales force one or more

used-vehicle transactions within a matter of

months. Trade-ins and turn-ins must be

quickly retailed — and those sales often involve

additional trade-ins and sales.

Yes, there is some substitution between

new and used vehicles as the value proposition

shifts over time, but that is swamped by

underlying fundamentals.

Both markets are driven by the consumer’s

willingness and ability to buy. And, in fact, the

used-vehicle market is more sensitive to

affordability and credit availability issues than

is the new-vehicle market. Thus, it is ludicrous

to argue that rising interest rates in 2018 will

somehow help used-vehicle sales at the expense

of new vehicles.

‘Want’ versus ‘need’

This misinterpretation between substitutes

and complements is further exacerbated by a

failure to understand basic market drivers.

The “2018 Buyer Journey Study” from Cox

Automotive notes that 61 percent of new-

and used-vehicle buyers “needed” to buy,

versus 39 percent who “wanted” to buy. (The

percentage of need buyers was up from 56

percent in 2016.)

I suspect the survey respondents had a

squishy definition of the term “need.” Sort

of like when my granddaughter enters a store,

and she says she needs candy.

The only people who “need” to enter into

a vehicle transaction are those that have

suffered a total vehicle loss, are end-of-term

lessors, or are acquiring their first vehicle.

Those categories combined are a small part

of all transactions.

Most people buy vehicles because they have

the ability and willingness to trade up. So, to be

healthy, both the new- and used-vehicle

marketplaces need income growth, credit

availability and consumer confidence. Neither

market ever “benefits” from deteriorating

conditions within those forces.

The shifting value proposition

But, yes, the relative value proposition

offered by the new- and used-vehicle markets

does shift over time. And, as such, one

market will perform better than the other. But

that outperformance is a result of strength in

that particular market’s dynamics — not the

substitution effect between markets.

Price differentials between the markets

can, of course, greatly impact the relative

value proposition between a new- versus a

used-vehicle purchase. The ratio of the

new-vehicle CPI to the used-vehicle CPI has,

however, stayed in a fairly narrow range for

the past 35 years.

And, more importantly, there is no

correlation between that series and the

relative performance of new- and used-vehicle

sales. Again, market fundamentals trump the

substitution effect.

Bad theory, correct prediction. So what

difference does it make if analysts get to the

right forecast via a flawed theory? A lot,

because dealers need to know who their

used-vehicle buyers will be.

They will not be would-be new-vehicle

buyers trading down, they will be used-vehicle

buyers trading up. That’s especially true now

that companies from Apple to Wal-Mart

(and most in between) have given bonuses to

rank-and-file workers as a windfall from tax

reform. In addition, labor markets are just

now showing some signs of wage growth

for lower- and middle-income households.

Those will the tailwinds in 2018. Ride them!

Tom Webb is the former chief economist for

Cox Automotive, Manheim and NADA. He can

be reached at tomwebb1950@gmail.com and on

Twitter: @tomwebb1950.

Trade-ins and

turn-ins must be

quickly retailed —

and those sales often

involve additional

trade-ins and sales.

TOM WEBB

Agenda highlights of Vehicle Finance Conference at the Bellagio in Las VegasTuesday, March 20

Credit Market Overview: Where is the industry? This ses-

sion will give us an industry update on the past year and where

sales, financing and consumer trends will be taking us in 2018.

Speakers include Brian Landau of TransUnion, Jeff Parent of

GSFSGroup and Tanya Sanders of Chase Auto Finance.

Vehicle Market Overview: Learn from a cross section of ex-

perts from the OEM, marketing executives and dealers. Speakers

include Anil Goyal of Black Book, NADA senior economist Pat-

rick Manzi and Adam Simms of Price Sims Auto Group.

Wednesday, March 21

Keynote Address: As a Wall Street banker, Dan

Ammann helped shepherd General Motors through

restructuring. Now, as GM’s president, he’s leading a trans-

formation of the automaker’s global business operations to

prepare it for unprecedented technological change. Along

with CEO Mary Barra, Ammann has worked to aggressive-

ly focus GM’s resources on emerging technologies such as

autonomous and electric vehicles, in line with Barra’s long-

term vision of creating a future with zero crashes, zero emis-

sions and zero congestion.

Featured Speaker on the Future of Retail: Jonathan

MacDonald, strategist and crystal ball gazer advises us on

product marketing strategy and execution. He will speak on

the space where technology meets business, usually from an

unexpected perspective. What does the future of retail look

like? How do we prepare?

Thursday, March 22

CEO Panel and Top Industry Issues: CEOs from

major auto finance sources will discuss how they are

partnering with their dealer customers to address

consumer needs while confronting economic, political and

marketplace uncertainties and opportunities. Speakers in-

clude Dan Berce of GM Financial, Bryant Henrie of Prestige

Financial Services and Rich Morrin of Chrysler Capital and

Santander Consumer USA.

“We plan this conference every year with

input and feedback from our members.

They set the agenda based on the trends

they are seeing in their markets whether its

disruption by technology or by regulation.

Because our members’ markets range from

the captives, to the big banks to the

independents, we get diverse viewpoints

in our planning sessions, and this is

reflected in our conference offerings.”

Chris Stinebert, American Financial Services Association

4 SubPrime Auto Finance News Vol. 13 | Issue 2

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Publisher EmeritusRon Smith

Group PublisherBill Zadeits

PublisherAmanda Dunlap

SubPrime EditorNick Zulovich

Staff WritersJoe Overby

Chris Hart-Williams

Copy EditorSarah Rubenoff

Creative TeamJennifer Casey

Dylan GilroyBeth Harris

Lauren EarleyTeresa KriegsmanMichael McDaniel

Matthew RiceRachel SheffieldLane Singletary

AdvertisingAmanda Dunlap

Steve LeslieJessica Johnson

Media ManagerCherise Klug

Sales Support and CoordinatorErin Sayre

Accounting Valerie RenardKristin Black

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Auto Finance News

of a slowdown in some parts of the credit spec-

trum. That to me means it’s a controlled tight-

ening if you will.”

The TransUnion report showed origina-

tions also declined on a yearly basis for the

fifth consecutive quarter, falling 4.8 percent in

Q3 2017. The decline in originations was driv-

en by an 8.2-percent yearly drop for the sub-

prime, near prime and prime credit risk cate-

gories, though that was partially dampened by

only a 0.2-percent annual decline in the prime

plus and super prime risk categories.

TransUnion reiterated that originations

are viewed one quarter in arrears to account

for reporting lag.

Another important trend mentioned in

the report included TransUnion determining

that serious auto loan delinquency rates per

borrower — contracts 60 days or more past

due — also remained stable. The Q4 reading

improved 1 basis point to 1.43 percent.

“It’s still a little too early to say whether or

not we’re going to continue to see that trend.

But it is a positive indicator that a correction is

happening,” said Landau, while referencing that

the latest rate is more than 20 basis points low-

er than the reading spotted during the worst of

the Great Recession of 2008 and 2009.

So while some stock traders on Wall Street

might cringe at the thought of a correction, Lan-

dau reiterated how in this case with respect to

auto finance, it’s an overall positive development.

“As we all know, finance companies have

a number of different levers they can pull to

match risk,” Landau said. “They can pull back

on term. They can require a larger amount

down at the point of purchase to reduce that

(loan-to-value ratio). They can also adjust

APR and the buy rate through the dealer to

offset the credit risk that’s constantly chang-

ing. They’re always calibrating and recalibrat-

ing accordingly.

“The market is pretty resilient as I’ve said

before,” he went on to say. “We have a num-

ber of people in the industry who have gone

through a number of cycles to know what to

anticipate. They’re being very proactive to any

of the underlying trends they’re seeing. That’s

why you’re seeing a slight tightening of under-

writing policies and pricing.”

Overall credit trends

TransUnion highlighted that the con-

sumer credit market concluded 2017 on a

high note with a strong performance across

multiple credit products, according to Tran-

sUnion’s Q4 2017 Industry Insights Report

powered by Prama analytics.

Analysts found that most indicators point

to a healthy credit market, though there are a

few signals that lenders are being more active

in rebalancing portfolio risk.

“Consumers continue to gain access to

more credit, and balances are generally rising

at a healthy clip,” TransUnion vice president

of research and consulting Matt Komos said.

“For the most part, consumers are paying

their debts in a timely fashion, which has been

especially evident for mortgages and personal

loans,” Komos continued. “This is likely a re-

sult of the strong economy, which has helped

consumers manage their personal balance

sheets and build confidence.”

During 2017, TransUnion observed 20.3

million more accounts spanning auto, credit

card, mortgage and unsecured personal loans.

Analysts contend the growth is likely due to

continued declines in the unemployment rate,

which decreased to 4.1 percent in Q4 2017

compared to 4.7 percent in Q4 2016.

Additionally, the University of Michigan’s

Index of Consumer Sentiment — a measure

of consumer confidence — stood at 95.9 in

December 2017, up 2 percent from Decem-

ber 2016.

“This demonstrates consumers have pos-

itive expectations regarding the overall econ-

omy, and we anticipate this will lead to high-

er consumer credit activity in the near future,”

Komos said.

unique consignment model typically gen-

erates sellers thousands more than trade-

in and wholesale auction channels, while

buyers shop attractive, competitively

priced inventory online and through Car-

Lotz retail locations.

CarLotz was founded in 2011 and current-

ly operates six retail locations and three recon-

ditioning centers in Virginia, North Carolina

and Florida. The company landed $30 million

in equity funding last fall.

As someone below the average age men-

tioned in the Korn Ferry study, Bor described

what the title CEO means to him as the lead-

er of CarLotz.

“CarLotz is an extremely team-based or-

ganization so titles are not internally mean-

ingful. My role as a co-founder or as a co-ar-

chitect of the business plan and the innova-

tions that we’ve developed since starting the

company as well as one of the many senior

drivers of the company’s vision, mission and

values is most meaningful,” Bor said.

“In my role I do my best to constantly and

consistently communicate a very clear vision

to the entire team,” he continued. “That has

gotten more difficult as we’ve grown, but espe-

cially now as we are hitting an inflection point

in our growth curve, it’s very important that I

continue to drive the clarity of our vision and

to increase the volume of communication.”

As Korn Ferry referenced, younger CEOs

often are involved in technology. Bor ex-

plained the responsibilities that come with the

position, especially as an executive who has

been involved in start-up mode.

The role has definitely morphed over

time,” Bor replied. “When my partners and

I started the company several years ago, we

all went on test-drives, communicated offers

back and forth between our buyers and sellers,

handled all the paper work, title work, vehicle

detailing and making sure our license plate

frames were screwed on straight. Then, after

the doors closed for the evening, we worked

on our growth plan, marketing, hiring, pro-

cess design, vendor relationships and made

sure that we were all growing as a team.

“As we’ve grown, we’ve turned to special-

ization as a path to excellence,” Bor continued.

“Even though I miss it, I definitely don’t spend

nearly as much time in the stores as I used to, but

I do spend time with our corporate clients, our

investors and our functional area directors to en-

sure that we are moving towards our vision.”

Bor also shared a few recommendations

for a young person who might want to be a

CEO as soon as they can; perhaps long before

they reach age 55 or 60.

“The younger you are when you find your-

self as the leader of a business, the more im-

portant it is to have strong mentorship and a

support structure that can provide you guid-

ance through the ups and downs and the

tough decisions,” Bor said.

“For me, my leadership style comes from

combining and adapting the qualities of

the great mentors and role models I’ve had

throughout my life,” he continued. “Depend-

ing on your age and/or the amount of time

you have been a student of great leadership,

you may need more or less active mentors to

call on to assist in difficult business situations

or to maximize your chances of success.”

CEO continued from page 1

Q4 continued from page 1

“The younger you are when you find yourself as the leader

of a business, the more important it is to have strong mentorship

and a support structure that can provide you guidance through

the ups and downs and the tough decisions.”

Michael Bor, CEO of CarLotz

“It’s more of a slowdown

in some parts of the

credit spectrum. That to

me means it’s a controlled

tightening if you will.”

Brian Landau, TransUnion

Profi ling The CEO Marguerite Watanabe, president of

Connections Insights, has worked in the

auto and automotive fi nance industry for

more than 25 years, allowing her to tru-

ly understand its strengths, weaknesses

and, most importantly, opportunities.

Prior to forming Connections Insights

in 2006, she worked for Nissan North

America and Nissan Motor Acceptance

in the U.S. and Japan, as well as Equifax, BarNone and BenchMark

Consulting International.

Watanabe broke down three major components of chief

executive offi cers.

Characteristics for successful CEO:

■ Not afraid to take chances

■ Able to delegate fairly and recognize appropriately

■ Has exceptional fi nance knowledge

■ Has respect from all levels and angles

■ Is honest and demonstrates integrity

Mistakes:

■ Unable to manage succession plans

■ Not able to constantly challenge the value of

everything all the time

■ Build a team of cronies instead of more of a think-

tank executive team

Learning environment:

■ Talk to employees at all levels with an open mind.

■ Engage with customers and clients on a regular basis.

■ Meet with industry peers, be on the forefront of

industry issues and become a leader in addressing them.

This year’s honorees:Denis Brosnan, DIMONT

Steve Burke, AGORA

Cort DeHart, MBSi

Andrew Denton, Alfa

Richard Epley, Auto Financial Group

Stamatis Ferarolis, RISC

Jeffrey “Jake” Frank, PassTime

Brendan Gleeson, White Clarke Group

Cody Green, USADrives

Michael Kaplanis, Platinum Auto Finance

John Morris, REPAY

Shane O’Dell, Cox Automotive Financial Solutions

Scott Peters, Primeritus Financial Services

Chris Stinebert, American Financial Services Assoc.

6 SubPrime Auto Finance News Vol. 13 | Issue 2

Denis Brosnan has served as president and chief ex-

ecutive offi cer of Dallas-based DIMONT since July 2015.

He brings more than 15 years of executive leadership ex-

perience in technology and technology-enabled servic-

es for the fi nancial services industry. Prior to joining DI-

MONT, Denis served as

the CEO of Prommis Solu-

tions, one of the largest na-

tional providers of technol-

ogy-enabled default-related

processing services to the

mortgage industry.

“Denis took advantage

of DIMONT’s longstanding

reputation and experience

in the collateral loss miti-

gation market and made

a bold move laterally into

other fi nancial segments.

By leveraging the compa-

ny’s talent and resources, Denis transitioned a success-

ful model and deployed it into the auto lending space. By

continually investing in technology and resources, he has

positioned the company for great success and a trajecto-

ry of signifi cant growth in the coming years,” the nomi-

nation said.

The nominator emphasized that if any executive has

been a driver of change, it’s been Cort DeHart.

“For the better part of a decade, Cort’s continual as-

sault on conventional wisdom combined with strategic

thinking has been a driving force in the automotive fi nance

industry,” the nomination

said.

“Cort generates a pro-

found sense of ownership

and accountability among

the team by giving people

the autonomy they need to

execute. His positive ener-

gy drives each of us to de-

liver more than the original

request, and his supportive

nature encourages people

to take risks understanding

that some failure will occur.

Then he coaches individuals

through those failures. Cort fosters a positive environment

that encourages individuals to grow with the company.

“Cort’s unique approach to solving industry problems

is the driving force that allows him to continue to be a suc-

cessful leader in this industry.”

The nomination for Steve Burke described how the

AGORA leader takes on challenges in a way that’s differ-

ent from other executives.

“Steve Burke sets out each day to be a market dis-

rupter and sets the tone at AGORA that we are all on a

mission to disrupt the auto

fi nance market and provide

cutting edge services to

all stakeholders in auto fi -

nance,” the nominator said.

“Steve does an excellent

job of cultivating a produc-

tive environment that in-

spires the organization at

all levels through clear and

concise communication.

He grooms, empowers and

provides all of the neces-

sary tools to his employees

while encouraging engage-

ment and interaction at all levels of the business.

“There’s a genuine family type work culture, which is

evident when speaking with his colleagues and staff. The

passion and focus Steve brings to work every day is con-

tagious and inspiring.”

Andrew Denton possesses 24 years of experience in

providing software that has helped streamline top busi-

nesses around the globe. With Denton at its helm, Alfa’s

rapid expansion in the United States is introducing disrup-

tive technology to a space dominated by mainframes.

“As CEO of Alfa, An-

drew continues to drive cli-

ent relationships and busi-

ness development for one

of the leading global auto fi -

nance software providers,”

the nomination said. “An-

drew’s commercial agility

continues to help secure

major new clients. Just as

Andrew steers each project

into a successful live imple-

mentation, he has led Alfa

through an IPO to become

a (multi-billion) auto fi nance

software provider.

“Andrew is well liked in the industry, appearing regu-

larly at conferences worldwide to chair committees and

panels that seek to advance the success and well-being

of the industry.”

Denis Brosnan, DIMONT

Cort DeHart, MBSi

Steve Burke, AGORA

Andrew Denton, AlfaMarguerite Watanabe

Connections Insights

Previous HonoreesEditor’s note: SubPrime Auto Finance News also

wanted to recognize previous leaders who have been

highlighted in The CEO Issue.

Stephen Bisbee

eOriginal

Marcelo Aita

NCB Management Service

Joshua Elias

Del Mar Recovery

Solutions

Robert Bronchetti

Millenium Capital

and Recovery

Rob Glander

GWC Warranty

Cyrus Bozorgi

Veros Credit

Stephanie Alsbrooks

defi SOLUTIONS

Scott France

Loan Portfolio Servicing

Robert Davies

OnlineBKManager.com

Jason Grubb

Exeter Finance

Jayne Bronchetti

Millennium Capital

and Recovery

Nathan Benson

Tidewater Finance Co.

George Fussell Sr.

Southern Auto Finance Co.

(SAFCO)

Allen Dobbins

Dobbins Ventures

Cam Hitchcock

XLerate Group

Key strategy to fi nd your next top executiveTh is annual project is one of my favorites we compile at Cherokee Media

Group. It’s given me the opportunity to connect with some of the most

talented professionals the auto fi nance industry has to off er.

In the past, I reconnected with two veteran chief executive offi cers,

Mark Floyd and Bill McIver, who shared their experiences from the top of

the corporate pyramid. Th is year, I had the opportunity to explore how being

a CEO isn’t necessarily for someone of more advanced age.

No matter if someone is in their 20s or 60s, fi nding someone who can

be a successful leader as the company CEO is crucial to success, especially

in today’s marketplace.

In an eff ort to help companies fi nd their next top executive, I also

reconnected with someone likely familiar to readers: Don Jasensky, CEO

of Automotive Personnel. Th e following is a conversation Don and I shared

earlier this year:

NZ: In February you will begin your 29th year

serving the subprime automotive fi nance and

aftermarket industries. From what you have

seen Don, what is the most common mistake

companies make in recruiting executives and

key personnel, and how can they fi x the mistake?

DJ: Most companies post their positions on

InDeed, CareerBuilders or other job boards and

wait for the resumes to roll in. Th e weakness here

is that you are only selecting from the small group

that is actively looking. When you understand the

sobering numbers of ‘recruitment math,’ you will

understand the shortcomings of this approach.

NZ: I don’t remember ‘recruitment math’ being a

part of the algebra or statistics classes I had in

college. Please explain what you mean.

DJ: Easiest explained through example. Let’s

assume a person is with a company for four years

on average and that it takes her three months of

searching before she fi nds her next position. Th at

means that she is actively looking only 6 percent

of the time, and bear in mind that she is looking

at other options, including your competition and

similar industries. Th is means 90 some percent

of the qualifi ed candidates are not looking while

your job postings are out there. Pretty slim margin

to select from.

NZ: So in light of those fi gures, what strategies

do you recommend to help companies put the

odds in their favor?

DJ: First, learn how to construct an attractive

job posting that will motivate the high performing

candidates to contact you. Techniques include

appealing to what high performers are interested

in when they search for a new position.

In my nearly 29 years of talking to high

performing candidates we learned that they

are looking for:

• A challenge that will stretch them and make

them better

• A boss/mentor they can learn from and

advance their careers

• A terrifi c company where they can advance

and feel secure

Appeal to these in your postings. For example,

tell them about your company and why they should

consider joining it. Unless you are a name brand

such as Wells Fargo or Ford Motor Credit, don’t as-

sume they know much about you.

Tell managers about the challenges you want them

to take on. Such as a remarketing manager increasing

dollars recovered per unit by 8 percent in the next six

months. Or a collection manager increasing dollars

per collector by X percent. High performers respond

well to large and clear challenges.

Most job postings are just responsibilities and

requirements with no real sell or appeal. Th is will

not attract the high performing personnel that you

desire, even if they read it.

To go aft er those 90 some percent of qualifi ed

candidates who are not looking you need to reach

out to them. Th is is oft en referred to as ‘headhunting.’

Finding qualifi ed candidates and discussing your

opportunity and helping them determine if this

could be a good potential career move.

NZ: Is that what your fi rm Automotive Personnel

does for clients?

DJ: Yes it is, Nick. We have over 20,000 resumes in

our proprietary database, so we have a pretty good head

start for any search assignment. Our recruiters spend

STRATEGY continued on page 8

NICK

ZULOVICHFROM THE EDITOR

March + April 2018 subprimenews.com 7

Chris Leedom

Leedom Group

Don Jasensky

Automotive Personnel

Perla Lewis

masterQueue

Berk Jolly

Fetchaquote.com

Chris Metaxas

Digital Recognition

Network

David Missimer

Automotive Compliance

Consultants

Jonathan Neubauer

Vehicle Acceptance Corp.

Mike Jurecki

RouteOne

Blair Korschun

CU Direct Connect

Jim Landy

SpringboardAuto.com

Previous

HonoreesEditor’s note: SubPrime

Auto Finance News also

wanted to recognize previous

leaders who have been

highlighted in The CEO Issue.

8 SubPrime Auto Finance News Vol. 13 | Issue 2

their day talking to and assessing candidates.

We have 28-year track record of fi nding and

assessing candidates for our clients.

NZ: Let’s talk about assessment of

candidates. What can you teach hiring

managers to become better with during

the assessment process?

DJ: First, make sure that everyone on

the hiring committee understands and

agrees to what duties/responsibilities/

authorities this position will have. I have

developed a great question to help put

everyone on the same page.

NZ: What is that question?

DJ: A year from now, what will this new

hire need to accomplish to be considered a

terrifi c hire? Th is quickly gets to the core of

what drives this position. I have seen hiring

committees break into arguments with this

question, but it is important that they end

up agreeing on what they are looking for.

I also teach my clients what I call

‘intelligent interviewing.’ Th at is asking

position relevant questions that will help you

understand if the candidate is the right fi t.

NZ: Can you walk us through an

example using ‘intelligent

interviewing’ questions?

DJ: Sure. On a recent search, we were

looking for a collections manager for a

client whose collections revenue was

dropping signifi cantly per collector. We

prepared a list of intelligent questions

designed to help us better understand how

the candidates would solve this problem.

Th e technique makes interviewing so

much easier and eff ective if you know it.

During the interview, we explained the

situation to each candidate: Here is our

problem … then engage in a conversation

with these talking points:

• Do you think that you could fi x

this problem?

• Have you had a similar situation

in your career?

• Tell us how you resolved

the problem.

• Tell us about your ‘from-to’

numbers.

• What data/metrics would you

use to assess our problem?

• What information would you need

from us to prepare for your fi rst

day of work?

• What are your thoughts on

how long it will take to fi x this

problem assuming we have a

pretty good team of collectors?

• Tell us what your fi rst 30 days

here would look like?

Of course, we ask a lot more questions

than these. However with just these

questions, both you and the candidate

will have a pretty good sense if you are

interviewing the right candidate. Th is is

what I mean by preparing intelligent ques-

tions that will yield the information you

need to make an intelligent hire.

NZ: That seems a lot better than the old

standard of, ‘If you were stranded on a

desert island …’

DJ: Yes it is Nick, it really gets you

interacting with the candidate, and you

will develop that visceral sense if this is

your candidate or not.

NZ: Don, maybe the hardest decision

a leader has to make is terminating

an employee who is not meeting their

requirements. What insight do you

have to help leaders making these

diffi cult decisions?

DJ: Th ese diffi cult decisions are why

we say, ‘It’s lonely at the top.’ Here are our

guidelines to help bring clarity to the

process. You should consider termination

or reassignment when an employee is

incapable or unwilling to perform up to the

company’s needs. However, to be completely

fair to the employee, before replacing him I

advise a checklist that covers these points:

• Does employee need more training?

• Better oversight

• A mentor to work with

• More support

• Do you have the ability to provide

these if needed?

If the answer is yes, consider providing

these and see how the employee responds.

When it comes to a bad attitude or laziness,

I would terminate the employee, I don’t

think you can change these problems.

NZ: What advice can you give hiring

managers when they decide to bring in

an executive search fi rm such as yours?

DJ: You hire an executive search fi rm

to have the clout to bring you highly

qualifi ed candidates you would not

otherwise be interviewing and have the

insight to help evaluate the potential fi t.

Th erefore, it is very important to that

the executive search fi rm has roots in

your industry so they know the key

players and possess the knowledge to

understand the positions and the ability

to help evaluate them.

Executive search fi rms should be at

your industry conferences. Attending

these conferences help us stay abreast of

topics of interest to our industry and helps

learn the key players to our industry.

Our fi rm manages several LinkedIn

Groups, and that helps understand things

important and timely to our industry.

For more information about

Automotive Personnel, contact

Don Jasensky at (216) 226-8190, email

Don@AutomotivePersonnel.Careers or

visit www.AutomotivePersonnel.Careers.

STRATEGY continued from page 7

March + April 2018 subprimenews.com 9

Stamatis Ferarolis’ focus on compliance has been

molded from his fi rst-hand experience as a recovery

agency owner and operator. His 26 years of experience

has driven him to direct RISC’s focus to provide more than

education, training and support documentation to recov-

ery agents.

“With compliance so-

lutions top of mind, Stama-

tis strives to recruit the best

and brightest talent across

the United States,” the

nominator said. “He focus-

es on fi nding problem solv-

ers with an entrepreneur-

ial spirit. In the auto fi nance

recovery industry, it is crit-

ical to understand the reg-

ulatory pressures lenders

face along with the day-to-

day operational challenges

of recovery professionals to deliver solutions that meet

the needs of all parties.

“His well-rounded experience is what drives his re-

quirement that his businesses, and employees run at 100

percent integrity at all costs.”

Stamatis Ferarolis, RISC

Cody Green founded Canada Drives in 2010 after le-

veraging his experience in car sales with the goal of allow-

ing consumers to get approved online for fi nancing before

ever setting foot in a dealership. Fast-forward to 2018, and

the company has grown to 400 staff and has launched

USADrives.com, as well as

expanded into the U.K. and

Australia.

“Cody has fostered an

atmosphere of self-suffi -

ciency at all levels of the or-

ganization, allowing manag-

ers to avoid the need to be-

come intimately involved in

tackling every unforeseen

problem that arises. There

is a mentality ingrained in

the organization of con-

stant improvement in ev-

ery process and element of

their service,” the nomination said. “This has allowed the

company to never rest on their laurels and continue to im-

prove and innovate even in markets where they are al-

ready leaders.”

Cody Green, USADrives

Auto Financial Group has been in business for 18

years with Richard Epley successfully steering the com-

pany through some of the most challenging years the in-

dustry has experienced.

“Under Richard Epley’s leadership, AFG managed to

stay in business through

these most diffi cult times

by sticking to its strengths:

providing excellent custom-

er service, developing an

expanded product offering

that meets the needs of

the market and hiring ex-

ceptional staff with deep

industry and customer

knowledge,” the nomina-

tion said.

“Richard Epley’s man-

agement style is calm and

decisive, even under pres-

sure. It sets the tone for the whole company and helps

everyone focus on company goals. It is no coincidence

that AFG has grown signifi cantly as a result, especially in

the last fi ve years.”

Richard Epley, Auto Financial Group

Brendan Gleeson is the group CEO of White Clarke

Group, possessing more than 25 years’ experience in fi -

nancial services, including a number of board level ap-

pointments and expertise in creating and delivering stra-

tegic change initiatives.

His nomination includ-

ed comments from indus-

try contemporaries.

“Brendan is very cus-

tomer focused and very

hands on with customers,

and I fi nd him always avail-

able at the end of a phone

to discuss a problem or

query. He is professional in

what he does and how he

leads his organization,” said

Pat Creed, managing direc-

tor of the Bank of Ireland

Finance.

“Brendan has been ... really contributing to the de-

velopment of the business through his incredible energy,

his thorough expertise, strong commitment and account-

ability, all wrapped in a real partnership spirit,” said Martin

Thomas, CEO of Santander Consumer Finance.

Brendan Gleeson,White Clarke Group

Jeffrey “Jake” Frank is the chairman and CEO of Pass-

Time, as well as the founder and owner. He has worked

in the auto industry since 1990 when he and his partner,

the late Stan Schwarz, founded Gordon Howard Associ-

ates, which has been developing products for the auto-

mobile industry including

PassTime since 1992.

“Since taking the reins

as CEO a year ago, Frank

has reaffi rmed the com-

pany’s focus on putting its

customers fi rst by provid-

ing high quality products

and unmatched support.

Jake Frank’s direction and

leadership in steering the

company through the tran-

sition over the past year

cannot be overstated,” the

nomination said. “Through

constant innovation of products and services, PassTime

continually provides value to its customers. The compa-

ny is constantly speaking at industry events and trade

shows, particularly as an expert on compliance surround-

ing the use of GPS products in the market.”

Jeffrey “Jake” Frank, PassTime

The nominator explained how Michael Kaplanis posi-

tioned Platinum Auto Finance for success.

“By analyzing our structure and growth projection,

Michael worked with new partners to enhance our credit

line facilities and massively overhaul our infrastructure to

be ready to grow,” the nom-

ination said. “He also is

spearheading the build out

of our fi rst scorecard using

our legacy data and analyt-

ics to ensure the protection

of the portfolio. Compared

to other small companies,

we believe we are ahead of

the curve on being able to

build a sustainable, profi t-

able company.

“Our CEO is where

the business is going. Su-

perior mathematics and fi -

nance background are at the core of what Platinum does

and needs,” the nomination continued. “We base our pur-

chase policy on all our risk analytics. This, in our opinion,

gives us an advantage versus our peers, and Michael is a

leader in this area. He has a natural ability to deep dive the

data to ensure our success.”

Michael Kaplanis,Platinum Auto Finance

Previous HonoreesEditor’s note: SubPrime Auto Finance News also

wanted to recognize previous leaders who have been

highlighted in The CEO Issue.

Ozzie Ramos

National Auto Lenders

Robert Pollin

Autoscribe Corp.

Dov Szapiro

AFS Acceptance

Peter Sayer

FlexPath Capital

Brian Travis

Pace Financial

Richard Rodriguez

National Creditors

Connection

Rick Potter

CAR Financial Services

Steve Thibodeau

Global Lending Services

Glen Schnablegger

Gold Acceptance

James Vagim

United Auto Credit Corp.

Robert Rubin

Skypatrol

Greg Rable

FactorTrust

Jack Tracey

National Automotive

Finance Association

Stanley Schwarz

PassTime

Kevin Weiss

Spireon

10 SubPrime Auto Finance News Vol. 13 | Issue 2

Scott Peters is the president and chief executive offi -

cer of Primeritus Financial Services, and has left quite an

impact in a relatively short time.

“Scott took over as the CEO in August of 2015 and

immediately went to work trying to fi nd better, more ef-

fi cient ways to do things,”

the nomination said. “Scott

earned his Black Belt in Six

Sigma during his time with

GE and practices those

skills he learned to help the

company and the industry

get better every day.

“While Scott is very

competitive and has a re-

lentless pursuit for perfec-

tion, he is also a very com-

passionate leader always

wanting to make sure that

his employees are taken

care of. In the short time Scott has been in this industry

he has made a signifi cant impact.”

Chris Stinebert is president and chief executive offi -

cer of the American Financial Services Association, a na-

tional, Washington, D.C.- based trade association for the

consumer credit industry, protecting access to credit and

consumer choice.

Before assuming the

helm at AFSA in 2006, he

served as president and

CEO of the Manufactured

Housing Institute (MHI).

Prior to joining MHI in 1998,

he was president and CEO

of the National Concrete

Masonry Association.

He has more than 30

years of experience in man-

aging national trade associ-

ations with key highlights in

government affairs and ad-

vocacy, strategic planning

and implementation, technical standards and regulations,

and economic and statistical data collection.

Scott Peters,

Primeritus Financial Services

Chris Stinebert, American Financial

Services Association

Under John Morris’ leadership, REPAY Realtime Elec-

tronic Payments has been recognized as one of the fast-

est-growing private companies in the U.S. with seven

consecutive appearances on the Inc. 5000 list.

“Everyone who has worked with John can agree that

he is the quintessential ser-

vant-leader and has built

REPAY into an extreme-

ly successful, fast-growing

company by focusing on

others fi rst,” the nomina-

tion said. “He truly embod-

ies servant leadership, ‘a

philosophy and set of prac-

tices that enriches the lives

of individuals, builds better

organizations and ultimate-

ly creates a more just and

caring world.

“John is passionate

about helping auto dealers and auto fi nance companies

increase their bottom lines through increased payment

acceptance and risk mitigation, and REPAY’s products

and technology are uniquely tailored to the auto fi nance

industry.”

As the leader of Cox Automotive Financial Solutions,

Shane O’Dell holds many responsibilities as the nomina-

tor articulated, and his impact goes way beyond helping

dealerships retail vehicles.

“Shane is known for his high-energy and approach-

able leadership style. His

face-to-face company-

wide team meetings and

an open-door policy have

helped him earn high

marks (surpassing industry

averages) for his leadership

and ability to inspire oth-

ers, based on a recent Cox

Automotive Global People

Survey.

“Shane refl ects ev-

erything this honor repre-

sents. He has helped auto

fi nance companies fl our-

ish in a competitive marketplace, grown team members

and business models, as well as led with passion and

integrity. He is prepared to share best practices and in-

sights with others coming up the ladder and those invest-

ed in strengthening this industry – making him an ideal

candidate.”

John Morris, REPAY

Shane O’Dell,

Cox Automotive Financial Solutions

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14 SubPrime Auto Finance News Vol. 13 | Issue 2

The Department of Defense: What are they thinking?

As with so many other

Congressional statutes,

an agency was given

authority to issue rules

implementing the law.

PATTY COVINGTON

RICHMOND, Va. — Well 2017 ended

with a surprise to the auto finance industry

— and not a good one! Then, 2018 opened

with chaos. All compliments of the Depart-

ment of Defense’s (DOD) December 2017

pronouncement on what its Military Lending

Act (“MLA”) Rule covers and doesn’t.

Both dealers and finance companies

asked

• Are my auto finance transactions

covered by the MLA?

• Then, how can GAP waivers be sold

to servicemembers who want it?

• What do I about past transaction that

occurred after Oct. 3, 2016?

• Are you sure this is what you meant?

As you know (unless you’ve been living

under a rock), the cause for all these

questions is a Dec. 11 DOD interpretive

rule clarifying what the DOD meant in a

MLA Rule it published in 2015.

Let’s review. The MLA was enacted in

2007 and later amended by Congress in 2013.

It provides protections to “covered borrow-

ers,” who are generally servicemembers and

their dependents. Originally, the MLA’s pro-

tections applied only to certain products —

payday loans, title loans and refund anticipa-

tion loans. However in 2013, Congress

extended these protections to a much

broader range of closed-end and open-end

credit products. However, it included two

exceptions to its general rule: one for pur-

chase money personal property secured

financing, and the second for purchase

money motor vehicle secured financing.

In other words, Congress did not apply

the requirements of the MLA to credit

transactions where the servicemember

(the official term is “covered borrower”)

obtains financing to buy a vehicle or

personal property secured by such vehicle/

personal property.

As with so many other Congressional

statutes, an agency was given authority to

issue rules implementing the law. And for the

MLA, it is the DOD. The DOD issued its rule

in 2007, which it later revised in July 2015, in

response to the 2013 Congressional amend-

ment to the MLA. And, there is one last rele-

vant fact — the 2013 amendment requires the

DOD to consult with certain federal regulators,

including the Consumer Financial Protection

Bureau, regarding its rulemaking. The CFPB’s

influence can be felt in the current chaos.

The beginning of the uncertainty as to

whether the MLA applies to motor vehicle and

personal property purchase money financing

began in August 2016, when the DOD

issued its first interpretive rule in the form

of 19 FAQs. The purpose was to explain how

the DOD interprets its 2015 rule. In one of its

FAQs, the DOD addressed the personal prop-

erty exception and the extent to which the

MLA applies when the covered borrower

obtains a “cash out” as part of the financing.

The FAQ explained, rather unartfully, that the

exclusion applied only if the item being

financed was personal property, and that any

“cash out” took the transaction out of the ex-

ception, resulting in all provisions of the MLA

applying. Because the motor vehicle financing

exclusion is identical to the personal proper-

ty exclusion, this startled the auto finance com-

munity, causing them to question the applica-

tion of the motor vehicle financing exception.

The DOD recognized the confusion and,

in an effort to rectify it, issued a second inter-

pretive rule on December 2017. The DOD also

threw in a few more FAQs. In this second

interpretive rule, the DOD recanted the FAQ

that caused the confusion in 2016, and replaced

it with another FAQ. This replacement FAQ

“clarified” that the DOD interprets the personal

property and motor vehicle exceptions to apply

to the “object” being financed and costs related

to the “object.” This does not include

“credit-related costs.” Inclusion of “credit-

related costs” disqualifies the transaction from

DOD continued on page 21

March + April 2018 subprimenews.com 15

BB&T Dealer Financial Services

to abandon fl at fees in F&IBy Nick Zulovich, Senior Editor

GREENSBORO, N.C. — With regulators

such as the Consumer Financial Protection

Bureau issuing offi cial requests for informa-

tion about the implications of rules, investiga-

tions and enforcement actions, a sterling ex-

ample might have arrived from BB&T Dealer

Financial Services.

In a direct message to SubPrime Auto Fi-

nance News on Feb. 9, the auto fi nance divi-

sion of the North Carolina-based commercial

bank indicated that it’s abandoning its fl at-fee

dealer compensation

program fi rst imple-

mented nearly three

years ago.

Brian Davis,

BB&T’s director of

corporate communi-

cations, explained the

reasons for the bank’s

decision; details that

likely won’t come as

much of a surprise

to providers trying to

compete for the best

paper to fi ll their portfolios.

“While we had some successes with the

fl at fee program announced in 2015, BB&T

also experienced an overall reduction in vol-

ume,” Davis said. “So to provide our dealer cli-

ents with more options and better fl exibility,

we will introduce a more traditional auto pric-

ing program in mid-March.”

“BB&T remains fi rmly committed to the

auto fi nance industry and to the fair and equal

treatment of all consumers,” Davis added.

Th e bank originally made the switch to

fl at fees back in July 2015, just weeks aft er

the CFPB published a rule that allowed the

agency to supervise larger nonbank auto fi -

nance companies for the fi rst time. Th e bureau

already supervised auto fi nancing at the larg-

est banks and credit unions, but that rule ex-

tended that supervision to any nonbank auto

fi nance company that makes, acquires or refi -

nances 10,000 or more contracts or leases in

a year.

When then-CFPB director Richard Cor-

dray arrived for his semiannual hearing with

the House Financial Services Committee that

fall, lawmakers clashed with the agency leader

over the rule, believing it was directly target-

ing dealer participa-

tion in hopes of mov-

ing the entire indus-

try toward a fl at-fee

structure.

Rep. Scott Garrett,

a New Jersey lawmak-

er, directly asked Cor-

dray, “Are you work-

ing to eliminate deal-

er reserves?”

Cordray replied

with, “We have been

working to try to ad-

dress a practice that we believe is discrimina-

tory, discretionary markups.”

With dealer participation possibly com-

ing back at BB&T Dealer Financial Servic-

es, perhaps the bank’s auto fi nance activities

will improve.

According to the bank’s third quarter fi -

nancial statement — the last one that included

a carve-out of Dealer Financial Services per-

formance as the institution changed its struc-

ture and reporting for Q4 — net income for its

auto-fi nance division came in at $38 million,

fl at compared to the prior quarter and down

by $2 million year-over-year.

“While we had some

successes with the fl at fee

program announced in 2015,

BB&T also experienced an

overall reduction in volume.”

Brian Davis, BB&T

16 SubPrime Auto Finance News Vol. 13 | Issue 2

We are more likely

to see traditional

Administrative

Procedures Act

rulemaking processes

of the CFPB publishing

notice of proposed

rules, giving an

opportunity for all

affected constituencies

to provide comments

and then issue

final rules taking

the comments into

consideration.

RANDY HENRICK

FTC and state AGs ready to pick up any slack from altered CFPBCHARLESTON, S.C. — Most of us in

the auto finance industry were very happy to

see Consumer Financial Protection Bureau

director Richard Cordray resign his position.

Despite Cordray’s effort to replace himself with a

consumer activist clone, the federal courts have

affirmed President Trump’s appointment of Mick

Mulvaney as the acting director pending a suc-

cessor director being confirmed by the Senate.

Mulvaney’s approach to the enforcement

powers of the CFPB is quite different from

Cordray’s. Most significantly, Mulvaney has

expressed strong doubts about Cordray’s philos-

ophy of regulation by enforcement, the practice

by which a target company doesn’t know they

violated any law or regulation until the CFPB

shows up with an enforcement action claiming

they did so. We are more likely to see traditional

Administrative Procedures Act rulemaking

processes of the CFPB publishing notice of

proposed rules, giving an opportunity for all

affected constituencies to provide comments and

then issue final rules taking the comments into

consideration. There is also no indication that

Mulvaney will continue Cordray’s active efforts

to indirectly regulate franchised auto dealers.

The FTC’s more aggressive

role against dealers

But that doesn’t mean dealers can ease

up on compliance activities. The Federal Trade

Commission became a much more aggressive

agency pursuing auto dealers during the past

several years and there is no indication that this

trend is going to abate. Last year, the FTC

entered two consent decrees with auto dealers,

imposing penalties of $2.4 million against one

dealer and $1.6 million against another. Penalties

for FTC Act Section 5 unfair and deceptive prac-

tice violations also increased from $16,000 per

violation to $40,654 per violation.

Primary violations cited by the FTC consist

of unfair and deceptive advertising. Advertising

is perennially at the top of the FTC’s list of unfair

and deceptive dealer practices. The first thing the

FTC typically looks at in an ad is whether

“triggered” terms required by federal Truth in

Lending or the Consumer Leasing Act are

clearly and conspicuously disclosed. For

credit sales, among other things, if you advertise

payment amount, term of payment or down

payment, then you must disclose these along

with the APR (advertising APR alone is not a

triggering term). For leases, if you advertise pay-

ment amount, lease term, the amount due at

signing or any capitalized cost reduction, you

must disclose the transaction is a lease, the full

amount due at lease inception (all-in except for

tax and registration), lease payment amounts

and lease term, along with whether or not a

security deposit is required. Scrolling or

mouse-type disclosures don’t cut it. Required

disclosures must be such that a reasonable

consumer can read and understand them.

One of these cases also marked the first time

the FTC had fined a dealer for what it called

“yo-yo financing,” a term used by consumer

advocates for spot deliveries. The FTC also

issued a blog to auto dealers, “Don’t toy with

yo-yo financing.” In the blog piece, the FTC

described the practice as, “Some buyers told us

that they financed a car through a dealership,

signed a contract and drove the car home, only

to be told that the financing didn’t go through,

and they had to sign a new deal or lose their

down payment. There’s a name for that: It’s called

a ‘yo-yo’ financing tactic.” It was one of a handful

of unfair and deceptive practices in the $2.4

million fine case and, given the absence of any

FTC prior rule on spot delivery practices, may

indicate that regulation by enforcement is very

much alive at the FTC.

Payment packing also was cited by the FTC

in dealer enforcement actions in 2017. In one

case, the dealer was accused of preprinting

contracts or addenda with GAP, extended

service contracts, vehicle etch or other

aftermarket products and indicating either

they were required to obtain credit or were

free to the consumers.

The FTC described one dealer’s payment

packing process as follows:

“Information about the add-on products is

often included in a stack of lengthy, complex,

highly technical documents presented at the

close of a long financing process after an already

lengthy process of selecting a car and negotiating

over its price. Consumers report that defendants’

employees, in numerous instances, have rushed

consumers through the closing process and have

simply indicated to consumers where to sign. In

some cases, Defendants have obtained consumer

signatures purporting to indicate assent to pur-

chase add-on products even though consumers

did not, in fact, authorize the purchase. For

instance, a third-party audit found that defen-

dant required consumers to sign for GAP and

service contracts regardless of whether the

consumers were actually purchasing the add-on

products. The third-party audit also found that

other dealerships were having consumers sign

blank documents.”

The FTC has field agents posing as

consumers on site to identify unfair and

deceptive practices. For example, a dealer in

Arkansas was fined $89,000 for not having

Used Car Buyer’s Guides displayed on all of its

vehicles on its used-car lots.

The FTC has an excellent website that

summarizes its policies and positions on auto

dealer conduct and is especially valuable in the

advertising context. The site is:

https://www.ftc.gov/tips-advice/

business-center/selected-industries/automobiles

Check it regularly to make sure your activi-

ties are within FTC guidelines.

State attorneys general, your local regulator

on the scene

State attorneys general (AGs) have made

clear that they intend to take up the activist

consumer protection activities established by the

CFPB. The state AGs have tools at their

disposal to help them fill any void that may

be left by scaled-back CFPB enforcement. The

Dodd Frank Act grants stage AGs the ability to

enforce the Dodd-Frank Act and regulations

promulgated under the Act’s authority against

entities within their jurisdiction. Section 1042

authorizes state AGs to secure the remedies

provided by the Dodd-Frank Act, which include

civil money penalties of up to $1 million per day

for knowing violations of law. While AGs must

give notice of their intended actions to the CFPB

and any prudential regulators, the CFPB does

not have the power to veto any proposed AG

action but only the power to intervene. Several

other federal laws such as Truth in Lending and

the Fair Credit Reporting Act give State AGs the

right to enforce certain provisions, as well.

State unfair and deceptive practice laws of-

fer another alternative for relief with penalties in

some states that vastly exceed those under fed-

eral laws and allow for private rights of action as

well. A somewhat dated but good starting place

to learn the laws of your state is maintained by

the National Consumer Law Center, a consumer

activist think tank, at the following websites:

https://www.nclc.org/images/pdf/udap/

analysis-state-summaries.pdf

https://www.nclc.org/images/pdf/udap/

report_50_states.pdf

Pennsylvania has effectively established its

own mini-Consumer Financial Protection

Bureau under its State AG, and Maryland is

pursuing a similar initiative. Other states have

also been active against auto dealers:

• New York: AG Eric Schneiderman has

prosecuted and settled with dealers for

more than $15 million in the past three

years for deceptive advertising and

aftermarket product selling and has

convicted a dealer of felony charges

regarding the burial of hazardous waste.

The New York AG also settled two

payment packing suits in December

2017 for restitution totaling $1.6

million. Since 2015, he has obtained

more than $17 million in restitution

and penalties as part of his office’s

crackdown on the practice of

“jamming,” or payment packing.

• Massachusetts: The Massachusetts

AG entered into a $13 million

settlement regarding GAP.

• Washington: The Washington AG sued

and settled with a dealer for discrim-

inating against Spanish consumers,

misrepresenting finance terms, inter-

est rates, title branding and warranties.

The dealer paid $250,000 in its settle-

ment and was forced to provide Spanish

translated contracts in the future.

March + April 2018 subprimenews.com 17

• Delaware and Massachusetts: The

attorneys general of these two states

settled with a major financing source

for $26 million regarding purchasing

retail installment sale contracts for

thousands of consumers who could

not afford them. These contracts

were all originated by auto dealers.

• Missouri: The Missouri AG

settled with a used-car dealer for

failing to provide titles and complete

repair work under service contracts.

The dealer will pay $38,067 in resti-

tution to 23 consumers with a poten-

tial for an another $46,000 in fines.

Additionally, for the next five years,

the dealer principal will be

prohibited from selling or leasing

motor vehicles; accepting any pay-

ment for any work selling, leasing or

purchasing any motor vehicles; and

owning, operating or controlling any

businesses engaged in buying, selling

or leasing of motor vehicles.

• New Jersey: A New Jersey used-car

dealer was ordered to pay $693.645.91

in restitution, penalties and attorney’s

fees for, among other things, advertis-

ing used motor vehicles for sale with-

out disclosing to consumers the vehi-

cle’s prior damage or prior use; selling

vehicles “as is” when they qualified for

a warranty; and permitting third par-

ties to advertise, offer for sale and/or

sell used motor vehicles on Craigslist

that were titled to the dealer.

An association of Democratic Attorneys

General has made clear that it intends to fill

any gap resulting from decreased enforcement

by the Trump Administration. DAGA stands

for the Democratic Attorney General

Association and its statements on its website

tell you their goals: “Our Democratic Attor-

neys General provide crucial checks and

balances on a new federal administration that

often refuses to follow the rule of law. Demo-

cratic Attorneys General Are The First Line Of

Defense Against The New Administration.”

Summary

In case you haven’t noticed, the fines and

penalties for enforcement violations have

multiplied geometrically from years back when

$10,000 to $50,000 was more of the norm.

Assume six to seven figures plus attorney’s

fees, management time and customer ill will

as additional costs from a regulatory enforce-

ment proceeding. And the regulator you will

probably most often see is your state AG.

State AGs have and continue to

consider dealer advertising and other

misconduct as the “low hanging fruit” to fill

state coffers. Consumer complaints, BBB

complaints, notices from competing dealers

and referrals from the CFPB and FTC who

operate online complaint lines are ways that

State AGs identify potential targets. Make sure

your compliance management system (CMS)

has a procedure for addressing and resolving

consumer complaints and give the consumer

the benefit of all doubts. It’s easier and more

reasonable to pay several hundred or even

several thousand dollars to an aggrieved

consumer than having a regulator question the

transaction and poke around for others in a

compliance exam.

So make sure you have a comprehensive

CMS and audit the processes and procedures

so you can demonstrate your good faith

compliance to a regulator. The CFPB may

be off the board for a while, but the FTC and

your state attorney general are more than

making up the enforcement of federal and state

consumer protection laws.

Be forewarned and forearmed.

Randy Henrick is an auto dealer compliance

expert who offers compliance consulting

services to dealers at www.AutoDealerCompliance.

net. He served for 12 years as Dealertrack’s lead

regulatory and compliance attorney and wrote all

of Dealertrack’s Compliance Guides. He presented

workshops at the last three NADA national

conventions and will do so again in 2018.

He speaks to dealer associations, and prepares

training and other compliance materials for

dealers. Because of the general nature of this article,

it is not intended as legal or compliance advice to

any person but raises issues you may want to dis-

cuss with your attorney or compliance professional.

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18 SubPrime Auto Finance News Vol. 13 | Issue 2

Dissecting how inflation could ripple into automotive spaceBy Nick Zulovich, Senior Editor

CARY, N.C. — Cox Automotive senior

economist Charlie Chesbrough explained in

detail the challenge facing the Federal Open

Market Committee (FOMC) at the Federal Re-

serve. Chesbrough articulated how the implica-

tions might not impact dealership turns and fi-

nance company originations immediately, but

he cautioned that trends can be difficult to steer

if momentum builds too much.

That challenge revolves around inflation

and how much Fed policymakers might accel-

erate interest rate increases. During a confer-

ence call at the beginning of February, Ches-

brough pointed out that the federal funds rate

has risen by 75 basis points in the past year.

“That’s a real cost for consumers out there

in the marketplace, not only for their automo-

tive loans, but for interest rates they have to pay

on credit cards, home loans and everything

else out there,” Chesbrough said. “The expec-

tation is that although the economy is strong,

those interest rates are going to continue to rise

throughout the course of the year.

“In fact, the recent passage of tax reform

may force the economy to grow a little bit more

quickly than what’s expected, which may force

the Fed to raise interest rates a little more quick-

ly than expected,” he continued.

“Those higher interest rates are going to

have a higher impact on vehicle sales. Wheth-

er it’s enough to stop the vehicle market, I think

that’s probably a stretch. But we do expect it to

be a growing headwind throughout the course

of the year,” Chesbrough went on to say.

At least thus far, any impact from interest

rates on vehicle sales has been largely muted,

judging by what the Fed shared from its auto-

motive contacts for its first Beige Book of 2018.

The rundown from the 12 Federal Reserve Dis-

tricts indicated that the economy continued to

expand from late November through the end of

the year. More than half of the districts specifi-

cally noted auto activity, including:

• Bank of Cleveland: The report said,

“Year-to-date unit sales through No-

vember of new motor vehicles rose 3

percent compared to those of a year

ago. One dealer commented that in-

terest rate changes have not yet made

an impact on new-car transactions.”

• Bank of Atlanta: The report noted,

“District retail contacts reported an

uptick in sales levels since the last re-

port. Merchants noted that early hol-

iday sales activity was above expecta-

tions. According to automobile dealers

in the district, however, momentum of

auto sales slowed compared with year-

earlier levels.”

• Bank of Chicago: The report men-

tioned, “New light-vehicle sales in the

District were flat in spite of generous

incentives. Used-vehicle sales were

also flat. Dealers expected new light-

vehicle sales in 2018 to be about the

same as in 2017.”

• Bank of St. Louis: According to Beige

Book: “Reports from auto dealers were

mixed — while multiple auto dealers

from Louisville and Little Rock report-

ed improved traffic and sales, Mem-

phis auto dealers reported that sales

have softened the past two months.

Auto dealers throughout the district

hold an optimistic outlook for 2018.”

• Bank of Kansas City: The report

found, “Auto sales fell moderate-

ly since the previous survey but were

above year-ago levels. Dealer contacts

anticipated a moderate pickup in sales

in the months ahead, and auto inven-

tories were expected to remain stable.”

• Bank of Dallas: The report stated,

“The auto industry remained very

strong, with a notable pickup in auto

sales after a lull in the prior reporting

period.”

• Bank of San Francisco: “Vehicle deal-

ers reported strong in-store traffic and

sales, as activity rebounded from the

previous months,” according to the

report.

Soon after the Fed released its first of eight

installments of Beige Book on tap for 2018, pol-

icymakers distributed their statement on lon-

ger-run goals and monetary policy strategy.

FOMC members reiterated that they are firm-

ly committed to fulfilling their statutory man-

date from Congress of promoting maximum

employment, stable prices and moderate long-

term interest rates.

In setting monetary policy, the committee

seeks to mitigate deviations of inflation from its

longer-run goal and deviations of employment

from the committee’s assessments of its maxi-

mum level,” the members said. “These objec-

tives are generally complementary.

“However, under circumstances in which

the committee judges that the objectives are

not complementary, it follows a balanced ap-

proach in promoting them, taking into account

the magnitude of the deviations and the poten-

tially different time horizons over which em-

ployment and inflation are projected to return

to levels judged consistent with its mandate,”

they continued.

Chesbrough picked up on what the Fed

stated and looked to interpret the strategy while

explaining how it could impact the auto space

as dealers look to keep inventory churning, and

March + April 2018 subprimenews.com 19

finance companies try to maintain prudent

origination growth.

“If you look historically where we’re at, it

does appear on the charts visually that we’re

on the cusp of something happening with in-

flation,” Chesbrough continued. “We’ve been in

such a low inflationary environment for such a

long time now that it’s become the expectation

if inflation is coming, probably on the backs of

rising wages from the tight labor market, that’s

almost what everyone is hoping for; that work-

ers are able to start asking for higher wages, em-

ployers have to give those to keep those work-

ers, and then the costs are passed on to con-

sumers. That launches the inflationary envi-

ronment. That’s what’s the expectation is, and I

think there is a lot of evidence to suggest that’s

where we’re at.

“The big question is can the Federal Reserve

manage this environment? That’s where the real

danger is. Can there be a policy mistake? Can

the Fed raise interest rates too quickly and choke

off consumer spending and send us into a reces-

sion? And I’m not suggesting any kind of 2008-

2009 kind of recession, more of a mild down-

turn in the market. But that’s the question. Or if

they go too slowly, inflation may get out of hand,

and then that can be very difficult to get back in

the bottle. Once inflation starts taking off, every-

body wants to see their wages go up, and it’s a tax

on everyone because your spending power goes

down,” he went on to say.

Perhaps complicating the situation even

further is federal tax reform that’s set to po-

tentially send more money into consum-

ers’ pockets, which could provide more lee-

way for prospective buyers to stretch to make

monthly payments.

Despite any moderate snags, Cox Automotive

is seeing that tax cuts should enhance new-vehi-

cle sales this year. In fact, the analyst team raised

its sales forecast by 100,000 units to 16.7 million.

“Certainly the expectation is that consum-

ers are going to see more money in their take-

home pay because the withholding rates have

been changed from the IRS because it’s a low-

er tax bracket,” Chesbrough said. “We should

see some noticeable improvement at least in-

dividually that they should see they have more

money than they would normally. The theory is

that’s a very good plus for the economy because

people will have more spending money.”

“On the whole, I think it’s going to be posi-

tive for economic growth,” he added.

AUTO FIN

CON 2018SMART SOLUTIONS FOR AUTO FINANCE

SAVE THE DATENOV. 12 - 14, 2018

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PART OF

usedcarweek.biz

20 SubPrime Auto Finance News Vol. 13 | Issue 2

Top 20 cities that spend the most and least on vehiclesWASHINGTON, D.C. — Consumers taking delivery of fi -

nanced vehicles in places like Texas appear to be spending more

for their units than in places like California, according to the latest

analysis from personal fi nance website WalletHub.

Contained in the fi rst-quarter installment of its “Auto Financ-

ing Report,” WalletHub determined this year’s cities that overspend

and spend the least on vehicles. Half of the overspend rundown

included cities in Texas, while seven communities in California

landed among the spend-the-least mentions.

To assemble its listings that stemmed primarily from bank-orig-

inated contracts, WalletHub applied the following assumptions:

• $20,000 in fi nancing for new models and $10,000

in fi nancing for used vehicles

• 80 percent loan-to-value ratio

• An excellent credit score of at least 720

Aft er plugging in those parameters, here what analysts found:

CITIES THAT SPEND THE LEAST ON CARS

Cupertino, Calif. Birmingham, Mich.

Lafayette, Calif. Bloomfi eld Hills, Mich.

Los Altos, Calif. Ridgewood, N.J.

Manhattan Beach, Calif. Summit, N.J.

Mill Valley, Calif. Westfi eld, N.J.

Palo Alto, Calif. Bronxville, N.Y.

Saratoga, Calif. Garden City, N.Y.

Darien, Conn. Oceanside, N.Y.

Westport, Conn. Scarsdale, N.Y.

Lexington, Mass. McLean, Va.

CITIES THAT OVERSPEND ON CARS

Coachella, Calif. Corsicana, Texas

Lake Placid, Fla. Donna, Texas

Okeechobee, Fla. Kingsville, Texas

Brunswick, Ga. Laredo, Texas

Cordele, Ga. Magnolia, Texas

Dahlonega, Ga. Mercedes, Texas

Moultrie, Ga. Pharr, Texas

Bastrop, La. Rio Grande City, Texas

Leesville, La. San Benito, Texas

Brownsville, Texas San Juan, Texas

Cities that spend the least on cars

Cities that overspend on cars

March + April 2018 subprimenews.com 21

the exception, and, the MLA applies. And,

the DOD further “clarifi ed” that this has al-

ways been its interpretation — meaning that

it retroactively dates back to Oct. 3, 2016,

the rule’s eff ective date.

So, now creditors are in an untenable

position — every transaction involving

a “covered borrower” after Oct. 3, 2016

that included credit-related costs may

violate the MLA. And note, there is no

way to remediate.

Ain’t that a pickle! Why no ability to

remediate? Because a transaction that

violates the MLA is void. Void is a

specifi c legal term that means “never existed.”

It doesn’t mean canceled or rescinded;

rather, it means that it never was. And, on

top of that, there are other penalties: criminal

liability for a knowing violation, actual

damages no less than $500, punitive damages,

attorney’s fees and equitable relief.

And that’s just looking back! Looking

forward, there is more fun! Th ere are

other protections aff orded “covered

borrowers,” including, but not limited to:

• Th e calculation of a military

APR (“MAPR”), which MAPR

cannot exceed 36% (the MAPR

is much like an “all in” APR —

which must include the cost of

ancillary products)

• Providing certain oral disclosures

regarding the covered borrower’s

rights under the MLA

• Providing certain written

disclosures regarding the covered

borrower’s rights under the MLA

• Prohibition against mandatory

arbitration provisions

• Prohibition against waivers of a

covered borrower’s right to legal

recourse under any state or federal

laws, such as the Servicemembers

Civil Relief Act

• Prohibition against using a title as

security for the obligation

Note that industry trade associations

are not sitting on their hands. Th ey are

actively advocating for their members,

explaining to the DOD and Congress

that this “interpretive rule” has serious

consequences, mostly negative for

servicemembers and the industry. Access

to credit will be aff ected, and the real

benefi t of GAP coverage will be lost to

those servicemembers who seek this

protection (which is a way bigger popula-

tion than the DOD thought).

Patty Covington is a partner in the

Virginia office of Hudson Cook. She is a

frequent writer and speaker on matters

relating to consumer credit. She can be

reached at (804) 212 1201 or by e-mail at

pcovington@hudco.com.

DOD continued from page 14

we are.

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22 SubPrime Auto Finance News Vol. 13 | Issue 2

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in the Industry

DIMONT develops solution to help finance companies track insurance coverageBy Nick Zulovich, Senior Editor

DALLAS — DIMONT entered the

auto-finance space a couple of years ago

looking to leverage its experience in the

mortgage market as a foundation for help-

ing providers manage insurance claims

associated with their repossessions.

Chief executive officer Denis Brosnan

described how it only took a short while for

DIMONT to recognize a significant issue

auto finance companies of all sizes faced and

how his service providing firm could step in

and perform what he believes is its founda-

tional offering — collateral loss mitigation.

“The starting point for us was doing the

insurance claims on repossessed vehicles.

We’ve been doing that for quite a while now

and feel good that we’re adding a lot of val-

ue to our clients in that regard,” Brosnan said

during a phone conversation with SubPrime

Auto Finance News.

“One thing we found out that was sur-

prising to us quite frankly was the state of

collateral protection if you will in this mar-

ket segment. A lot of lenders really didn’t

know whether there was insurance on the se-

cured vehicles or the state of that insurance.

We started drilling into that issue and found

there are just not a lot of good, cost effective

options for lenders to ensure their collateral

is protected.”

During this year’s Vehicle Finance Con-

ference hosted by the American Financial

Services Association, DIMONT is rolling out

a solution that can be customized based on

an auto finance company’s portfolio size and

other needs, so these institutions can track

insurance coverage through a tool Brosnan

believes is effective and affordable.

It’s taken DIMONT more than two years

to create this solution, but Brosnan has high

hopes 2018 can be a turning point for not only

the company, but the industry as a whole.

“We built some technology that will al-

low us to harvest all of the data related to in-

surance status of a vehicle,” he said. “We’re

going to manage that data process for our

clients. This will allow them to proactively

reach out to borrowers about the importance

of having insurance on the vehicle. It will be

a great touch point for them. At the end of

the day, it’s their customer. They all need to

be dealing with their customers about these

types of issues.

“That will give them peace of mind to en-

sure that they’ve done all they can to make

sure the collateral is protected,” Brosnan con-

tinued. “Then most importantly from our

perspective, it will make for a really good

data record as it relates to that particular ve-

hicle so whether it stays performing or goes

non-performing, if at some point an insur-

ance claim needs to be filed, we’re there to

help our client with that process, which is

what we’re good at.

“It’s consistent with what we’ve done

for our lender clients in other market seg-

ments. Collateral loss mitigation is what we

do,” Brosnan went on to say. “This collateral

DIMONT president and chief executive officer Denis Brosnan, seen here during Used Car

Week 2017, recently highlighted how the company is rolling out a new solution to help finance

companies track insurance coverage on their collateral.

Photo by Jonathan Fredin

March + April 2018 subprimenews.com 23

assurance service if you will is going to be part

of the DNA of what we do. Clients that sub-

scribe to our services, this will be the back-

bone of that.”

Brosnan acknowledged DIMONT’s

mortgage experience helped to create this

solution — especially after company devel-

opers got over the fact a tool like this one

was even necessary.

“That data movement capability is some-

thing that mortgages are all about. That’s

helped us,” Brosnan said. “But the specific is-

sue in terms of having insurance coverage on

the property, that doesn’t exist in the mort-

gage world. Nobody has collateral that’s not

covered with insurance. That was the shock-

ing thing for us when we came to the auto fi-

nance world is just that this problem even ex-

isted. And it’s a pervasive problem. Proba-

bly half of the vehicles on the road today do

not have insurance in some jurisdictions, and

that’s despite state laws that require it.

“We figured out pretty quickly we were

going to have to come up with a solution for

that,” he added.

Along with creating the technological

nuts and bolts for this solution, DIMONT

also faced the challenge of working with

the myriad of insurance companies and

regulators to make sure this tool is effec-

tive and compliant.

“What’s good for us is we do build all of

our own technology and have done so for a

very long time,” Brosnan said. “Creating so-

lutions like this is native to us. We’re talk-

ing about moving massive amounts of data

and organizing it and structuring it in a way

people can use to whatever end case they’re

looking for. That’s really what we’re good at.

“There have been a lot of different constit-

uents in the marketplace we’ve had to reach to

build relationships to get the data that we need

but also to get it in a format that makes it easy

to translate into our solution,” he continued.

Brosnan insisted auto finance compa-

nies do not need to purchase new servers or

install software in order to use DIMONT’s

insurance tracking product.

“It’s been designed as a very client

friendly solution,” Brosnan said. “Lenders are

typically very resource constrained as it re-

lates to technology and IT staff. We de-

signed our solution as we’ve always done to

make it a very push oriented solution. Once

we have the data elements we need from the

client to architect the solution, we’re going

to be pushing data to them instead of hav-

ing to pull it.

“With just a few portfolio related met-

rics we can come up with a solution they

need. We’re looking at stuff they can prob-

ably call up off the top of the head,” he

continued. “What’s the size of their port-

folio? What’s the composition in terms of

prime versus subprime? What are the vol-

umes as it relates to repossessions, damage

claims and things like that? What are they

currently doing in terms of tracking insur-

ance coverage and the spend on that? We

can take that information and craft a data

solution so we can push data back to them.

“At the end of the day, it’s designed so

they can sign up, and we can make it hap-

pen for them,” he added.

With DIMONT planning to tout this

solution during industry events for the

remainder of 2018, Brosnan is enthusiastic

to see how the industry responds.

“It’s going to be interesting to see where

we are a couple of years from now,” Bros-

nan said.

“At the end of the day, we’re all about

what we call collateral loss mitigation,

which is helping our clients mitigate their

losses on the collateral itself,” he continued.

“We developed a data driven solution

that we think is going to be very benefi-

cial for the lenders and change the way the

industry looks at collateral protection,”

Brosnan went on to say.

“It’s consistent with what we’ve

done for our lender clients

in other market segments.

Collateral loss mitigation is

what we do. This collateral

assurance service if you will

is going to be part of the DNA

of what we do. Clients that

subscribe to our services, this

will be the backbone of that.”

Denis Brosnan, DIMONT