Today’s hot repo topic: personal property and redemption fees


Over the past year, the handling of personal property and redemption fees has become one of the hottest compliance topics in the industry. It is on the radar screen of virtually every auto finance company in the country, as well as the regulators. Most of this interest is sparked by Consumer Financial Protection Bureau concerns over disparate treatment of customers and inconsistencies in what customers are charged.

This issue has resulted in significant changes by most lenders as to how these fees are handled. Most lenders have shifted their approach to one of the emerging five models:

• Fees charged are up to agent and collected by agent

• Fees charged are up to agent and billed to lender

• Lender sets allowable charges and are collected by agent

• Lender sets allowable charges and are billed to lender

• All in one pricing

The remainder of this article will examine the key issues surrounding each model and aim to give you additional data points to gain a better understanding of the individual approaches.  Let’s look at the five models in a little more detail:

Fees Set by Agent/Collected by Agent

Most major lenders have moved away from this approach primarily because lenders have little control or visibility on what is actually being charged. Consumers face the same dilemma and can be taken advantage of by agents.  It’s no surprise that the lending community is migrating away from this model.

Fees Set by Agent/Billed to Lender

Although some states do regulate and specify repossession related fees, this approach still leaves the lender exposed to wide variations in fees charged. This structure does provide more visibility but there are inconsistencies on what is charged to different customers and by different agents. 

Lender Sets Allowable Charges/Collected by Agent

When it comes to personal property and redemption fees, this is one of the better models as it reduces disparate treatment and ensures reasonableness. The lender sets allowable charges which establishes a guideline for the agent.  While a more favorable approach, the lender continues to lack visibility since there’s no guarantee that an agent will comply.

Lender Sets Allowable Charges / Billed to Lender

When lenders set allowable charges and it’s also billed to the lender, there is both visibility and accountability. More and more lenders are migrating to this approach.

All in One Pricing

All in One pricing is a single flat fee set by the lender that covers the cost of the repossession, any personal property or redemption-related fees, and other ancillary services that might occur. This model is extremely straight forward and very easy for lenders to administer. It’s a one size fits all approach; however, therein lies the challenge. Only a percentage of repossessions involve personal property, redemption and storage.  This makes it difficult to come up with an appropriate price that would make sense for every repossession.

Our Recommendation

Each model does offer some advantages and disadvantages. However, based on an assessment of interests of the various stakeholders as well as both the administrative and regulatory issues, ALS Resolvion has been recommending the following framework to our clients:

• Allowable fees established by the lender and billed to the lender

• Personal Property Fee: Maximum of $50 unless state law provides specific guidelines in which case state law would apply.

• Vehicle Redemption: Storage of $20 per day for the first five days of storage and$35 per day thereafter. Redemption/Administrative fees – Maximum of $75. Total Maximum redemption related fees (admin fees + storage) equals $150.

We feel that this framework strikes the right balance between a fee schedule that is reasonable for the agent, the need to be fair to the consumer and the need for a process that the lender can defend from a compliance standpoint.

Mike Levison is the chief executive officer of ALS Resolvion. More details about the company can be found at

ARA rolls out newly improved CCRS program

IRVING, Texas - 

The next step in the collaboration involving the American Recovery Association and the National Automotive Finance Association unfolded on Wednesday.

Continuing their repossession efficiency project, ARA unveiled its newly improved Certified Collateral Recovery Specialist (CCRS) program.

The resulting baseline standards agreed upon by ARA and NAF Association encompass the key areas of vendor compliance, including owner/business regulatory reviews, training, policies and procedures and vendor site visits.

“The newly renovated CCRS program makes the compliance and education platforms much more efficient, which is something we’ve worked to achieve for a long time,” ARA president Dave Kennedy said. “In addition to reducing costs, I believe our CCRS program is the most well-constructed program in the industry.”

Kennedy insisted that ARA’s CCRS certification is the most comprehensive compliance exam in the industry, and it’s only awarded to those who score in the 80th percentile and above on each exam.

“We’re proud that our program was written by education professionals with the advice of attorneys, not by attorneys for attorneys,” said Les McCook, executive director of ARA.

Used nationwide by finance companies to the benefit of their organization and vendor network, ARA pointed out that its CCRS is least expensive program of its kind in the industry, and it’s the only all-inclusive system available to date.

In addition to rivaling any other training platform, association leadership highlighted the added benefits of ARA’s system include client customization, fingertip information resources and outside independent audits.

“For those paying these costs for their entire network, this is a major savings when compared to comprehensive operational costs,” ARA said.

ARA’s CCRS program is currently accepted by several finance companies in the country. Not only is it recognized by the Louisiana state government, but ARA indicated it will soon be also recognized in several states.

“ARA is working diligently toward full national adoption,” the association said.

For more information about ARA, its partnerships and its member benefits, visit .

Why finance companies should analyze static pools of dealers, not just consumers


Equifax auto finance leader Lou Loquasto pictures an industry landscape where finance companies rank dealerships based on risk and potential profitability, just like they do consumers as applications arrive in the underwriting department.

By extrapolating the knowledge gleaned through static pool analysis, Loquasto explained how dealerships and finance companies still can capture potential business in the subprime space as the current cycle backs off the growth pattern seen for several years.

The latest data Equifax shared with SubPrime Auto Finance News showed 1.37 million retail installment contracts were originated through March to consumers with a VantageScore 3.0 credit score below 620; deals generally considered to be subprime accounts. The figure represented a 7.3-percent decrease year-over-year.

“Does that mean every dealership subprime is down 5 to 10 percent? Without looking at the data and knowing what we know about the business, probably not,” Loquasto shared during a recent phone conversation. “That would be pretty remarkable if you look at 30,000 dealerships, and they’re all down 5 to 10 percent.

“We see dealers that are up in subprime and some that are down 25 percent,” he continued.

So how are some stores moving on an upward trajectory in subprime? Loquasto explained that finance companies need analytics platforms to determine which dealers are a better fit for their book of business and provide the right amount of risk for their appetite. Equifax recently analyzed TradeSight metrics evaluating a series of dealers with a focus on subprime accounts in the 560 to 580 credit range.

The chart below shows two dealerships with side-by-side comparisons that look at a handful of credit performance criteria, such as delinquency rates, average APR and length of months on the book.

According to the data below, dealer A shows a higher propensity for customers with 30- and 60- delinquencies, as well as charge offs. However, dealer A also represents clientele with higher APR rates. Based on this data from platforms such as TradeSight, Loquasto pointed out that finance companies can best analyze which contracts and dealers make up the best opportunity for their book of business based on a number of credit performance and risk assessment data.

“The difference in profitability of those two scenarios is dramatic,” he said.

Item Dealer A Dealer B
 Charge-off and Repo at Month 14  3.80%  3.60%
 Charge-off and Repo at Month 22  12.00%  5.20%
 30 Days Delinquent at Month 18  36%  11%
 60-Plus Days Delinquent at Month 18  18%  8.20%
 Average APR  12.70%  9.50%


“Some dealerships where the performance is worse than you would expect and worse compared to their peers, some of those dealerships are down a lot in subprime. You say that makes sense. Lenders spotted something with that dealership, and so they’re pulling back and tightening up,” Loquasto said.

“But we see dealerships that are down in subprime, but the performance in their static pool is much better than other dealerships within the same credit band,” he continued. “We would look for lenders to review data, identify dealers like that and be a little more aggressive with that dealership. They might say, ‘This might be a deal I would normally turn down, but this dealer’s performance is so good that we’re going to give them the benefit of the doubt.’”

Loquasto acknowledged that sometimes dealerships have a negative reputation when it comes to subprime originations so finance companies simply tighten up underwriting across the board when they feel a market shift. He suggested that finance companies take a deeper analysis before just cutting.

“Our industry is so sophisticated right now, especially in subprime, that if a lender was looking at 1,000 loan applicants, they would scrutinize those 1,000 loan applicants with sophisticated scores and data with people who have great experience choosing good borrowers from bad borrowers, and they’ll be able to rank order the least riskiest to the most riskiest, and they do an awesome job,” Loquasto said.

“But they don’t do that with dealers so well,” he continued. “They don’t look at these 1,000 dealers and do a sophisticated analysis using all of the available data and sophisticated scorecards not only for the business they book, but the business their competitors book. And then have a sophistical ranked order list at the dealer level.

“That’s something we’ve been advocating for a long time,” Loquasto went on to say. “As a long as I’ve been in the business, more than 20 years, there are pools of dealers that help you with market share, which is fine. But what we’re advocating is dealer pools to rank order risk at the dealership level.”

Not just in subprime, Equifax data also showed a general slowdown in auto financing.

Again through March, Equifax said 5.82 million auto loans, totaling $130.6 billion, were originated, representing a 2.0-percent decrease in accounts and a 0.1-percent decline in balances year-over-year from this time last year.

Through March, Equifax found that 23.5 percent of auto loans were issued to consumers with a subprime credit score, and they accounted for 18.5 percent of origination balances.

Equifax went on to mention the average origination amount for all contracts came in at $22,693, a 3.5-percent rise. The average subprime amount stood at $18,033, according to Equifax, which added that figure marked a 2.7-percent lift year-over-year.

“Where we are in the cycle, there isn’t as much profitability out there for lenders. That’s why we’re talking about strategies like this so they can squeeze out every bit of profitability they can,” Loquasto said.

“Three, four, five years ago when profitability was high, maybe lenders weren’t as diligent about squeezing out every dollar of profit. But now they are,” he continued. “If we’re in the seventh inning of this cycle and lenders can get into the good habit of doing a better job rank ordering dealer risk then as soon as the cycle turns like we know it will and we get back into growth, they’ll have built in these good habits.

“Just like every customer has to be looked at differently and the industry does a great job of that, every dealer can’t be looked at the same,” Loquasto went on to say.

Levison: Are you buying a repo service or a repo result?


Over the years, repossession and skip-tracing services have come to be viewed somewhat as commodities by many in the lending community. As such, outside of compliance, the primary focus around the management of these services has been cost. After all, since these services are available through multiple providers, why pay more than what the low-cost provider is willing to accept?

This downward pressure on costs has resulted in the service providers having to reduce resource allocation, in several key areas, in order to maintain an acceptable margin on the business.  In many cases, this strategy ends up costing the lender more in the form of higher charge offs, higher priced deep skip services, etc.

However, some lenders have realized that even small differences in recovery rates can translate into big gains in net dollars recovered even if the cost of the repossession was slightly higher.

When recovery fees are driven down to rock bottom levels, the service provider (whether a direct agent or a forwarder/skip company) is typically forced to undertake one or more of the followings:

• Reduce the labor allocation devoted to the portfolio

• Reduce payment to the agent/driver

• Reduce the amount and quality of the data purchased from third party providers

Let’s look at each of these issues in a little more detail.

Labor allocation

In the case of forwarders or skip service providers, typically administrators or skip tracers are assigned to work a specific group of cases. The labor pool allocated to these functions is a significant part of the provider’s overall cost structure. When a lender pushes for rock bottom fees, inevitably queue sizes get increased in order to reduce labor cost. The more cases an investigator has to work, the less time that can be spent on each and recovery rates usually suffer.

Repossession agent fees

When margins are very tight due to low fees, the forwarder/skip provider is also limited as to how much can be offered to the recovery agency. In our case, those fees range from $275 on the low end to $375 on the high end. You can bet there is a big difference in the amount of effort the agent puts into the $375 cases than the $275 cases.

The repo agency faces the same dilemma since they also work primarily on a contingent model. On low fee cases, they will inevitably have to reduce the number of times an address is run, reduce the fee to the driver — or both.

This is a real issue in today’s world where the agent ranks have thinned over the past few years due to rising costs and compliance requirements. Fewer agents, combined with rising delinquency rates, means that agents are in a good position to pick and choose where they put their resources and you can be sure that they do just that. Wouldn’t you?

Reduced data purchases

When it comes to locating missing cars (outside of LPR technology) it is all about finding good addresses and numbers. Fortunately, there are many data sources out there that provide information. The cost can be anywhere from free to several dollars per report. As you might expect, the more expensive reports often (not always) contain the better/more current information.  However, the service provider must be very careful on how and when the best data sources are used.

For instance, a $6 report on a portfolio that generates a 20 percent recovery rate will add $30 in cost per recovery just for that report. Combine that with a low fee schedule and it makes it very difficult to utilize that data source.

All of these “adjustments” that are required to deal with low margin business absolutely make a difference in recovery rates, charge offs, auction values, etc..

Financial impact

Let’s take a look at a couple of different analysis of the trade-off between higher recovery costs and higher recovery rates.

The analysis below illustrates the additional “lift” in recovery rates that is required to offset a $50 difference in recovery costs.

As you can see, based on these assumptions, the service provider would only have to generate less than one additional recovery for every 100 assignments to offset the cost of paying $50 more on all recoveries.  This does not even take into consideration the value of avoiding the charge off. 

Note: The below analysis is designed to illustrate two issues:

1. The extremely small (1/4 of 1 percent) additional recovery rate that would have to be achieved to offset an additional $50 recovery fee

2. The additional value ALSR believes it will generate based on the higher recovery rate we believe we can achieve

  $375 Recovery Fee $425 Recovery Fee $425 w/ Improvement
 Involuntary Repo Fee  $375  $425  $425
 Unit Value  $10,000  $10,000  $10,000
 Annual Assignments  1200  1200  1200
 Precentage Recovered  45%  45.25%  48%
 Number Recovered  540  543  576
 Total Recovery Expense  $202,500  $230,775  $244,800
 Total Value of Recovered Units  $5,400,000  $5,430,000  $5,760,000
 Less Recovery Expense  -$202,500  -$230,775   -$244,800
 Net Recovery Value  $5,197,500  $5,199,225  $5,515,200
 Additional Recovery Value    $1,725  $317,700

Of course, the net benefit between higher costs and higher recovery rates is significantly impacted by auction values. Some portfolios deal in collateral that often has little more than scrap value when recovered and some have average values in excess of $25,000.  The table below illustrates the financial gain, under different auction value scenarios, if recovery rate increases just 5 percent.

Here are three assumptions:

• 250 first placement cases per month

• 35 percent versus 45 percent recovery rate

• $50 increase in recovery fee

Average Auction Value

   $5,000  $7,500  $10,000  $15,000
 Additional Annual Recovery Value  $690K  $1.065MM  $1.5MM  $2.2MM

If you would like to see a more detailed analysis based on the specifics of your portfolio, just let us know and we will prepare.


Cost is an important variable in the repossession management process, but pushing costs too low can produce a diminishing return.

Mike Levison is the chief executive officer of ALS Resolvion. More details about the company can be found at .

COMMENTARY: Considering all-in-one pricing for repossession services


During the past 12 to 18 months, there has been a real increase in interest by lenders around the idea of establishing “all-in-one pricing” (AiO) with their repossession forwarders. Most of this interest has been spurred by concerns expressed by the Consumer Financial Protection Bureau regarding ancillary fees as well as a desire by lenders to simplify the invoicing/payment process.

AiO can, indeed, offer benefits in these areas. However, as many lenders have come to understand, it must be approached very carefully and requires fairly deep analytics to gain a clear view of where the pricing should fall.  While many lenders have been examining the strategy, at this point, very few have adopted it as they have come to realize they simply don’t have the data points necessary to gain a solid understanding.

The remainder of this article will examine the key issues surrounding AiO pricing with the aim of giving you a better understanding of the dynamics that come into play.

What Is AiO pricing?

Perhaps the answer is obvious, but we have found that different lenders do have different views. In its purest form, AiO pricing is a single flat fee that covers the cost of the repossession and all ancillary services that might come into play to complete the processes required by the specific case.  This may include:

• Key cutting
• Personal property
• Storage
• Redemption
• Use of flatbeds
• Transportation to auction

It would be great if the full cost of these services could just be added to the cost of every repossession. However, since all, some or none of these services may come into a play on a given case, simply adding the full fee to each obviously would result in an AiO fee that would be ridiculously high.

So, the challenge lies in understanding the utilization factors relating to the various ancillary services possibilities. Unfortunately, the utilization factors can vary tremendously from portfolio to portfolio and, therefore, detailed analytics are required to come up with a fee that makes sense for both your customer and your vendor partner.

Let’s take a look at some of these variables and how they can impact the pricing model.

Key cutting

As we all know, sometimes a key is obtained when a car is recovered and many times one is not. To determine a key cost factor that can be applied to every repossession, you have to make an assumption about what percent of recoveries will require a key. This is data that we are able to track in our proprietary database and I can tell you we see a wide variation, ranging from 2 to 3 percent to as much as 10 percent where keys have been provided.

Another very significant factor is the mix of the types of keys required. Again, it can be very portfolio specific. For instance, we have one large captive lender client that was an early leader in the deployment of proximity keys which are very expensive. The average key cost is off the chart. Conversely, we have title lending clients where exactly the opposite is true. 

The chart below summarizes the impact both can have on the AiO price.

  Captive Lender Title Lender
 Percent of Vehicles Keys Must Be Cut  10%   10%
 Average Key Cost (based on mix)  $235   $144
 AiO Cost Factor  $24  $13


Your institutions’ policy regarding keys can also have a major impact. Some lenders want operational keys available on all cars prior to transport. Others only want keys cut if required to access the vehicle for personal property determination.  Several considerations, and we have only covered keys!

Redemption fees

Pricing for the costs related to the redemption of the vehicle by the customer is one of the trickiest aspect of AiO pricing. 

The first hurdle is to understand the average redemption rate on the portfolio. To predict the variable with any confidence/accuracy, one must have at least six (preferably 12) months of history tracking the issue. Not only do redemption rates vary significantly by lender, but they also vary significantly by portfolio within the lender.

For instance, a post charge off skip portfolio will have a much lower redemption rate than a first placement pre-charge off portfolio.

To put the issue in context, we have one lender whose first placement business redeems at a 24-percent rate and another that redeems at a 42-percent rate. Assuming that the agent will be limited to a maximum total fee of $150 per actual redemption, the impact on the AiO rate would be:

AiO Cost Factor
Port A (42%)  Port B (24%)
 $63   $36


The other very important component of the redemption related costs is the amount the agents are allowed to charge the lender in redemption situations.  Any redemption has a potential combination of personal property, administrative and storage related cost that the agent does expect to invoice.  Historically, these costs have varied by region and even by agents operating in the same region.  However, for an AiO approach to work, these fees must be standardized across all forwarders/agents. 

The approach to doing so is all over the board. We will leave that for another article.

Personal property — no redemption

In many cases, a car is not redeemed but the customer does want to retrieve personal property. Due to CFPB concerns, most lenders do not want the agent collecting any personal property related fees from the customer. However, it properly accounts for these fees in the AiO model, one must make assumptions on what percent of recovered vehicles will involve retrieval of personal property. 

Again, it varies meaningfully by portfolio.


Excess storage fees must also be accounted for in the model. Most repossession come with a certain amount of free storage, but what happens when that is exceeded?  The AiO model must anticipate that possibility and assign a cost for it.  Again, that can vary significantly by portfolio.  We work with one lender that generally moves cars off the lot to transport within four to five days and another that averages almost 20 days.

Clearly the AiO pricing model has many moving parts.  If you want the right price and you want to feel confident that your vendors will be able to live with that price for a reasonable period of time, you will need to be able to provide very solid data on your portfolio.

Final thoughts

If you are unable to do so, our recommendation is to have a very transparent process with your vendors in which all assumptions are provided along with the resulting pricing model. With that in place, all parties can monitor the actual performance and agree to make adjustments accordingly.

Mike Levison is the chief executive officer of ALS Resolvion. More details about the company can be found at .

Procon Analytics debuting AI-driven risk mitigation tool at NIADA

IRVINE, Calif. - 

Advantage GPS, a Procon Analytics company that can capture and translate raw data into actionable business intelligence, announced it will debut its recently released AI-artificial intelligence-driven vehicle finance platform this week at the National Independent Automobile Dealers Association Convention in Orlando, Fla.

The company’s platform is a solution that integrates artificial intelligence technology to automatically group risk data into categories for auto finance companies to achieve a new level of risk mitigation in the industry.

At NIADA, Procon Analytics will demonstrate how its groundbreaking solution can give real-time analytics upon log in, along with a unified portal that provides them access to all of their GPS devices regardless of brand or GPS provider.

“Our goal at this year’s NIADA conference tightly aligns with the show theme of ‘rewriting the playbook’ since we will demonstrate the new universe of powerful features that vehicle finance customers can get out of their risk mitigation solution when they are no longer handicapped by outdated, legacy technology,” said David Meyer, chief operating officer of Procon Analytics.

“Attendees will experience first-hand the game-changing Advantage GPS platform, which is based on advanced technology and our deep industry know-how that comes from developing our products in-house,” Meyer continued.

Designed for and by auto finance companies, Meyer explained the scalable Advantage GPS platform can deliver stability with nearly 900 vehicle finance companies relying on the solution via over 400,000 connections and counting.

Advantage GPS highlights also include 4G LTE Cat-1 device no extra charge along with an interactive analytical dashboard powered by artificial intelligence.

Demonstrations are available through Thursday during NIADA’s event.

 “Advantage GPS is solving problems that auto lenders still face, but their current providers simply cannot touch,” Meyer said. “We’re not just returning to the game — we’re redefining it.”

For more information, visit .

Spireon rolls out new features of GoldStar GPS at NIADA

ORLANDO, Fla. - 

This week during the National Independent Automobile Dealers Association’s Expo and Convention, Spireon introduced Quick Locate, the latest feature of its GoldStar GPS solution.

The company highlighted Quick Locate can provide dealers and subprime auto finance companies instant visibility to vehicle location and current status, improving efficiency by reducing the need to manually locate vehicles individually.

Spireon went on to note that GoldStar can provide insightful data analytics that make financing vehicles easier, less risky and more profitable.

With the new Quick Locate feature, GoldStar can deliver critical, near real-time information, such as how long a vehicle has been parked in a particular location, or how long it has been in motion, to determine the appropriate course of action.

“For the BHPH industry, having immediate access to the most accurate data possible is key to successfully managing risk and running a profitable business. With Quick Locate, that’s exactly what we deliver, saving our customers valuable time and increasing the likelihood of continuing payments,” said Brian Deeley, director of product management at Spireon.

“As the industry leader, our job is to continually introduce features that streamline operations and increase data intelligence for our customers, giving them more time to focus on growing their business,” Deeley continued.

Representing Spireon, a long-time NIADA Diamond Partner, Deeley will present a NIADA session titled, “Quick Locate and Predictive Insights: Taking Risk Mitigation and Vehicle Recovery to New Heights,” on Thursday beginning at 8:30 a.m. The session will focus on how dealers and finance companies can use location data and predictive insights to improve operational efficiencies and positively impact their bottom line through early detection of potential customer delinquency, improved customer payment behavior, and streamlined recoveries, when necessary.

The new Quick Locate feature is viewable through the GoldStar dashboard. Feature rollout has begun, and will be available to all GoldStar Basic, Pro and Enterprise customers through an over-the-air firmware update.

To learn more about Quick Locate and other GoldStar features, visit .

Positive signs for delinquency in Q1


Perhaps the tightening of underwriting is leading to stabilization of delinquencies on the cusp of repossession as well as a bit of an improvement among those contracts that are behind but could possibly be brought back current.

The newest State of the Automotive Finance Market Report from Experian Automotive indicated the percentage of 30-day delinquencies has dropped 3.1 percent to 1.90 percent in the first quarter, while 60-day delinquencies have remained flat at 0.67 percent.

“Traditionally, lenders’ risk tolerance has swung back and forth like a pendulum, and right now we’re seeing a more risk-averse side,” said Melinda Zabritski, Experian's senior director of automotive financial solutions

“But if payments continue to improve, we could see credit standards loosen,” Zabritski continued. “The more insight lenders have into consumer credit behavior, the better decisions they can make.”

Drilling deeper into the Experian data at 60-day delinquencies, what analysts classify as finance companies — providers oftentimes with the most subprime paper in their portfolios — posted a delinquency rate more than double the overall Q1 reading at 1.60 percent. However, that figure is just 5 basis points higher year-over-year.

When looking by state at 60-day delinquency, the Top 10 locations continue to be areas likely familiar to auto finance institutions, forwarding companies, repossession agents and other service providers. Experian reported these Q1 figures:

1. Maryland: 1.33 percent
2. Mississippi: 1.22 percent
3. Louisiana: 1.11 percent
4. South Carolina: 0.95 percent
5. Alabama: 0.90 percent
6. Georgia: 0.89 percent
7. New Mexico: 0.80 percent
8. Texas: 0.78 percent
9. North Carolina: 0.77 percent
10. Nevada: 0.76 percent

7 highlights of 2018 Non-Prime Automotive Finance Survey

FORT WORTH, Texas - 

With more data than ever to consider, the National Automotive Finance Association and the American Financial Services Association highlighted seven of the most important findings from this the 2018 Non-Prime Automotive Finance Survey.

Released last week during the annual Non-Prime Auto Finance Conference, the NAF Association and AFSA collaborated with FICO, TransUnion, IHS Markit and Black Book to generate the report that serves as a key source of benchmarking for those who participate in or support non-prime automotive financing.

The 2018 report represents 40 financing sources and $34.6 billion in principal balance as of the end of 2017 — an increase for the seventh consecutive year.

In addition to key financial metrics, this report helps to promote best practices and collective knowledge of leading industry professionals to ensure that financing companies can meet their portfolio goals and work effectively with their dealers, liquidity providers, vendors and other partners to create compelling customer value.

This year’s data survey has been managed by FICO and provided the analysis and conclusions in the report.

Key findings from the survey include:

• Non-prime portfolio balances have increased 5.3 percent year-over-year in 2017. However, the number of contracts originated in each of the last two years has decreased.

• Competition remains robust overall, but niches of underserved sub-segments still exist.

• Financial metrics were mixed overall and softened for some.

• Automated origination activity is increasing.

• Rise in dealer, first-party and synthetic identification fraud

• Used-vehicle depreciation was mitigated by destructive hurricanes, which increased the demand for used vehicles.

• The customers of non-prime auto finance companies represent mainstream America.

The survey report, which has been produced for the past 22 years, is distributed at no cost to finance company participants. Others may purchase a copy of the report for $500.  Ordering is available online at .

Fitch conducts 2 stress tests to examine recovery impact


A new Fitch Ratings report shared results of internally conducted stress tests that likely won’t please recovery managers, but these findings nevertheless cannot be ignored by any finance company, regardless of size.

Fitch explained that falling used-vehicle values and swelling supply are set to continue at least through next year, which will lead to worsening recoveries and heightened performance pressures for both auto loan and lease ABS.

Losses have been slowly trending higher since 2016, though, “The prospect of higher defaults becomes more tangible if increased competition, a decline in sales and looser underwriting standards converge,” Fitch director Margaret Rowe said.

“Incentives and original equipment manufacturer spending is also up in each of last three years and may further weaken used vehicle values, which will make managing vehicle production levels more critical over the next two years,” Rowe continued.

The intensifying wholesale market pressures will not be enough to dent Fitch’s rating outlook for auto ABS, which remains positive for this year thanks to growing credit enhancement levels, swift amortization and Fitch's through-the-cycle loss proxy approach.

Auto lease securitizations are further protected by including more conservative securitization mark-to-market Automotive Lease Guide (ALG) residual values. Fitch expects upgrades on subordinate note tranches to continue in 2018, particularly for more seasoned transactions.

Nonetheless, Fitch stress-tested its rated auto ABS with two separate hypothetical scenarios to examine potential rating implications if used vehicles fall more precipitously and supply continues to swell.

Under Fitch’s “moderate” scenario (a roughly 20 percent trimming to recoveries), analysts determined there would be no rating deterioration for both loan and lease ABS.

Under the “severe” stress scenario (a 50-percent reduction), however, analysts indicated subprime auto loan ABS could see one- to two-notch downgrades for their subordinate tranches. Analysts added high investment-grade ratings in both asset classes would see little to no impact and remain stable under this scenario.

 “Subprime subordinate tranches show greater potential for multiple compression and downgrades given their reliance on excess spread,” Rowe said. “That said, downgrades would likely be concentrated to the most junior subordinated notes of a subprime deal in the most severe scenario.”

The report titled, "Supply & Severity: Will Swelling Used Vehicle Supply Impact Auto ABS Ratings?" is available at .