Comment by Gene Daughtry on March 20, 2013 at 11:38am

The FTC and CFPB are my primary concerns right now. The CFPB is not in favor of our industry (BHPH) and will shine a brighter light on us as they grow and hunger for ways to justify their existence. UDAAP's, disparative impact, first contact all topics I haven't heard much about but will be important to us if the government doesn't slow the regulatory pump soon.  

Comment by JJ Hornblass on March 20, 2013 at 12:27pm

Thanks, Gene. I fully expect us to include CFPB-related compliance in the query.

What about on the market side? Are there wrinkles to competition or operations that you are focusing on right now? 

Comment by Chas Roscow on March 21, 2013 at 9:03am

JJ; you are spot-on.  But I'd prioritize it this way.  The CFPD is here to stay, and lenders will adapt their guidelines as industry legal experts help guide them to prudent regulations.  Regardless of the industry attitude towards the CFPB, they are needed to curb the few predators that "ruin it" for those lenders actually trying to help consumers obtain vehicles while pricing for risk.  So while it is a concern, it should not be concern #1.  What is concern #1?  Easy, you already said it.  The coming CREDIT LOSS STRORM from insane underwriting practices to gain market share.  During portfolio reviews and thus seeing metrics by dealer in portfolios of various size lender type - It is not uncommon to see subprime loans purchased at prime rates "as called" without stipulations nor curbed advances all in the name of servicing dealers.  Even the most casual observer can see the "relatively new" entrants are building a bad book of business today.  As you already pin-pointed - margin compression coupled with loose underwriting standards is the toxic mix for future credit losses.  And how many lenders are performing a static loss analysis not just by portfolio, but by region, officer, and dealer?  Very few.  Mark my words; there will be blood.  And red ink resonates, but all too often it does so after the lender already cut themselves.  Unfortunately for me, I get many calls to fix a credit issue.  I get few from lenders who want to be proactive and secure a 2nd opinion to be sure they are not one of the "stupid lenders" we always here prudent lenders complain about.  Ask any lender what their biggest challenge is today - the response often is "the stupid competition".  Their words, not mine.

Comment by Gene Daughtry on March 21, 2013 at 9:22am

Chas is right about the sub prime lenders building a bad book of business. That is history repeating for at least the 4th or 5th time. Some of the big players in prime lending will eventually cave to the pressure to capture some of the sub prime business.

In BHPH I am focusing on service operations. How dealers handle post sale repairs of the vehicles within their portfolios is as variable as the number of dealers in the business. I  am doing a webinar and a class on the subject to discuss some best practices and talk about consistency in customer service.

Comment by Chas Roscow on March 21, 2013 at 12:07pm

Gene is correct.  The subprime lenders/specialists tend to be more diligent in their underwriting.  The prime lenders don't play in the ugly segment of the market.  Seasoned "full spectrum lenders" (think Huntington Banks) have seen this cycle, as Gene points out - 4 or 5 times so they have awareness.  It is those relatively new "full spectrum lenders" that are at risk of committing financial suicide.  I just hope purchasers of ABS securities do their homework when purchasing receivables from certain lenders.  Again - "A seller needs only one eye; a buyer two".  That quotes applies to an individual underwriter contemplating a single deal from a dealership - as well as a purchaser of a $1 billion securitization.

Comment by JJ Hornblass on March 21, 2013 at 1:54pm

Good stuff, gentlemen. Let us process your comments, so we can incorporate them into our live query at the Risk Summit.

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