The Ups and Downs of Low Interest Trends

May 15, 2012 | No Comments | share on facebook | retweet | share on LinkedIn

by Jessica Capocy, DealerTrack

Several years ago with the downturn of the economy, we were shocked by the first 0% interest rate. As ground breaking as that program was, we now see it as commonplace. Both consumers and dealers have gotten used to OEM special financing offers for vehicle purchases that range from 3% all the way down to 0%, but is this a good thing for your dealership?

Sure, special financing offers definitely draw a crowd, but today’s battered consumer has a harder time qualifying for these low rates. A buyer who in the past qualified for 0 – 3% may now only qualify for a loan at 8%. Times have changed, but this certainly doesn’t eliminate his or her desire for a new car. To get the deal to work, you may be extending the loan term or asking for a higher down payment in order to get the payment where it needs to be on a higher rate loan. This is a viable option, but consider where this can lead for your dealership down the road.

Yes, you sold a car, but what is the long-term outcome? With a loan maturity of over 5 years, how will you ensure that your customer will come back and re-buy from your dealership? Have you just put your customer into a negative equity position that will prevent them from coming back when they are tired of their car? Have you essentially sacrificed short-term gain for long-term success?

Studies show that the average loan term is 51.5 months, however a consumer gets tired of their car around the 38-month mark. Not only are consumers still wanting to have the “new car experience” after just over three years, they are also less loyal to brands and market segments. Stretching out a loan term to 5 or even 7 years can mean you may have just lost a customer for life.

So what is your dealership’s best option to sell a car, maintain customer loyalty, maintain CSI and ensure profitability? Remember leasing? Now more than ever leasing may be the best option for you and your customers. Consider building a lease next time you start to pencil a deal, it may be a win-win!

Jessica Capocy is a Sales and F&I Solutions Manager for DealerTrack, Inc.  This article is intended for information purposes only and does not constitute the giving of legal advice to any person or entity.

New Studies on ID Theft Raise Concerns

May 14, 2012 | No Comments | share on facebook | retweet | share on LinkedIn

by Randy Henrick, DealerTrack

DealerTrack's Regulatory and Compliance Counsel, Randy Henrick, presents some alarming statistics on the rise of ID theft and how to protect your dealership.

CFPB to Investigate Credit Discrimination in Auto Lending

April 26, 2012 | No Comments | share on facebook | retweet | share on LinkedIn

by Randy Henrick, DealerTrack, Inc.

The Consumer Financial Protection Bureau (“CFPB”) announced that it would be using its supervisory and enforcement powers to investigate and combat unlawful discriminatory practices in auto lending.

"Whether they are applying for an auto loan, student loan, or home loan, consumers need to know their rights and they need to know what red flags to look for that may indicate their rights are being violated," said CFPB Director Richard Cordray. "We want consumers to be able to recognize when they may be victims of discrimination."

The CFPB also reaffirmed that it would use the doctrine of “disparate impact” to find credit discrimination.  Also called “the effects test,” this principle can hold a creditor liable for credit discrimination without needing to prove discriminatory intent or even knowledge.  If a practice that seems neutral on its face has a disproportionate, negative effect on borrowers that are protected under the Equal Credit Opportunity Act (“ECOA”) (persons on the basis of sex, marital status, race, color, religion, national origin, age or the fact that all or part of an applicant’s income is derived from any public assistance program), then the practice is unlawful unless it meets a legitimate business need that can’t be met by an alternative that has a less disparate impact.

Patrice Ficklin, the CFPB’s Asssistant Director for the Office of Fair Lending and Equal Opportunity, made it clear that the CFPB will look at auto credit for signs of credit discrimination, whether by overt evidence of discrimination or disparate treatment (deliberate discrimination) or under the disparate impact doctrine.

“Today we are giving fair notice on fair lending,” said Ficklin.  “We are letting both lenders and consumers know that in our examination and enforcement work, we will combat unlawful, discriminatory practices—including those that have an illegal disparate impact on protected borrowers.  We will look not only at mortgage lending, but also at other types of credit including student loans, loans for cars, and credit cards.”

Civil liability for ECOA violations (typically asserted in a class action) include actual damages and up to $10,000 in punitive damages, not to exceed the lesser of $500,000 or 1% of the creditor’s net worth, plus attorney’s fees.  The U.S. Attorney General can also bring an action if the CFPB believes the creditor has engaged in a pattern or practice of violations under the Act. The Attorney General can recover actual and punitive damages without limitation as well as injunctive relief.