Underwriting

FCA wants its own captive, reviews Chrysler Capital options

AUBURN HILLS, Mich.  - 

According to confirmation from Fiat Chrysler Automobiles on Friday, how FCA dealers can finance inventory and their retail sales is going to change.

The automaker announced it intends to establish a captive financial services arm to provide U.S. consumers with more options to finance vehicle purchases while supporting the company’s sales volumes and bolstering its earnings.  

The currently does not have a captive finance company within its portfolio, even though Chrysler Capital exists. Established more than five years ago, Chrysler Capital is part of Santander Consumer USA.

More than 2.1 million new cars and trucks were sold by FCA in the U.S. last year. FCA said it currently is the only major automaker in the U.S. without a captive financing arm.

“Given our strong financial performance and improving credit profile, we believe the time is right to pursue a U.S. Finco strategy,” FCA chief executive officer Sergio Marchionne said. 

“FCA will have adequate capital to fund the equity needed and expects to have the credit rating to make the Finco funding competitive,” Marchionne continued

Chrysler Capital , along with a variety of other providers including Ally Financial, currently underwrites consumer financing for most FCA vehicle purchases in the U.S.

FCA said is exploring whether to acquire an existing financial services business, which could include exercising an option to acquire Chrysler Capital, or to build its own Finco. 

Exploratory discussions with Santander regarding Chrysler Capital have begun, according to the company.



PointPredictive leverages machine learning for income verification tool

SAN DIEGO - 

Through advancements in machine learning, auto finance companies now have another tool to answer one of the most important questions during the underwriting process.

PointPredictive recently released its newest product — Income Validation Alert — a solution that can offer a real-time predictive assessment of an applicant’s stated income. If that income appears to be overstated by 15 percent or more, finance companies are notified so they can perform additional verification.

For applicant incomes below the 15-percent threshold, the finance company can streamline the underwriting process to ensure good contracts are not impacted.

With sub-second response times and high accuracy rates seen in the laboratory, PointPredictive expects the solution to have wide-reaching market usability, including: 

—Pre-screening online mortgage and automotive applications

—Streamlining automotive application underwriting stipulations at dealers

—Enabling faster credit decisions for consumers

—Reducing the finance company cost of utilizing income-verification solutions that might be more time consuming, less accurate and more expensive

“Validating an applicant’s stated income in real-time has been an issue for lenders for many years. Traditional tools haven’t really addressed this issue well,” said Tim Grace, chief executive officer of PointPredictive.

“Employer-based database verification checks can typically verify income on only 30 percent of the applicant submissions, leaving 70 percent of stated incomes to be checked by manual processes,” Grace continued. “Verifying income directly with the borrower by requesting paystubs is often unreliable — some lenders report more than 20 percent of paystubs received are forged or altered.

“Lenders are looking for something accurate, fast and cost effective. Income Validation Alert should help immensely in this effort,” Grace went on to say.

Income Validation Alert can analyze a borrower’s stated income against millions of reported incomes and salaries from seven diverse sources. Then, using the applicant’s employer, occupation, job title, residence and estimated years of experience, a sophisticated machine-learning model can predict the borrower’s likely income.

When the borrower’s stated income exceeds what the model predicts by 15 percent or more, the finance company is alerted to the discrepancy and can further scrutinize the borrower’s income.

PointPredictive highlighted that what makes Income Validation Alert different than other approaches is the breadth and depth of salaries and reported incomes available to the validation process. Comparing a borrower’s stated income against seven different sources simultaneously and then using machine learning to cascade through those sources to determine the most reliable income for that borrower is a groundbreaking achievement.

The company added that early results illustrate just how powerful this approach is.

“In laboratory testing with live auto lending data, we were able to successfully clear the stated income data on more than 85 percent of applications while successfully identifying more than 80 percent of the applications with known, overstated incomes,” said Greg Gancarz, data scientist with PointPredictive.

“This level of detection is clearly a breakthrough in helping lenders identify one of their biggest pain points — knowing which applications require detailed income verification,” Gancarz went on to say.

Income Validation Alert is available to banks, finance companies and card issuers to verify stated income on applications. The service is available today for real-time integration into loan origination and underwriting workflows.

For more information on Income Validation Alert from PointPredictive, send a message to [email protected]

Megasys enhances partnership with Dealertrack

NEW HYDE PARK, N.Y. - 

Megasys and Dealertrack now are collaborating even more; a development that might be especially beneficial to subprime auto finance companies.

Megasys, a provider of complete loan servicing systems for the consumer finance industry, announced this week a new facet of its integral partnership with Dealertrack. The latest partnership integration quickens the indirect financing decisioning process with dealers utilizing Dealertrack’s Credit Application Network solution.

Megasys already relied on Dealertrack to manage the electronic lien and title (ELT) process for finance companies, where state mandates require both dealers and finance companies adopt a fully digital titling solution between them and their governing DMV office.

Megasys said it chose Dealertrack as their preferred ELT provider because of the ease of integration along with perfecting capabilities that speed the entire application-to-title process and lien/title management that helps mitigate fraud risk.

Now with the same ease of integration for the F&I portion of finance companies’ processes, Megasys indicated the Omega Loan Origination System has improved service for its subprime auto finance companies by automating the credit application delivery and decision process to provide real-time approvals, declines and counter-offers back to dealers.

“The vast majority of dealers in the subprime finance industry use Dealertrack’s Credit Application Network,” Megasys president Theo Austin said. “We are excited to expand our partnership with such a trusted industry leader. This Dealertrack integration supports our growing customer demand to provide seamless integration to streamline the credit application process.”

Cheryl Miller, vice president and general manager of F&I solutions at Dealertrack, added, “By integrating with Megasys’ Omega LOS, Dealertrack’s network of lenders can receive credit applications from their dealers in real time and return automated decisions — cutting down time consumers must spend in the F&I office.

“This drastically improves satisfaction with the entire buying process,” Miller went on to say.

For more information about Dealertrack, visit .

Black Book’s 2018 depreciation forecast and 3 other findings from Fitch

LAWRENCEVILLE, Ga. - 

Now with one quarter of 2018 in the books, Black Book and Fitch Ratings released their latest joint vehicle depreciation report.

Along with three other major findings, Black Book forecasted an annual depreciation rate of 17 percent in 2018 as the supply of used cars and trucks increases, up from a lower-than-expected 13.2 percent experienced in 2017 due to strong sales activity stemming from hurricanes last fall. 

Three other trends included in the report were:

• New light vehicles sales volume decreased by 2 percent in 2017 to 17.14 million, below the record of 17.46 million in 2016.

• Light trucks, including SUVs, crossovers and pickups, continue to increase in U.S. new sales, constituting 65 percent of the volume compared to 57 percent in 2016 and 55 percent in 2015.

• Incentive spending by auto manufacturers grew year-over-year in 2017, ending the year at nearly $4,000 in average incentive amount on new vehicles.

2017 depreciation trends

In 2017, Black Book determined the prestige luxury car segment had the highest annual depreciation at 23.4 percent. On the other hand, editors noticed full-size pickups retained their value well throughout the year as demand of used pickups remained high, ending the year with only 5.1 percent in depreciation.

Black Book found that full-size crossover/SUV, the largest of the SUVs, had the strongest retention with a depreciation rate of 9.4 percent. Their values held up well with nearly zero depreciation in the first two quarters of the year.

Editors pointed out that sub-compact cars, the smallest of sedans, experienced the highest depreciation rate among non-luxury car segments at 17.6 percent in 2017. On the other hand, the next level up in sedans, compact cars, performed much better than in previous years.

Among the crossover/ SUVs, the smallest of the luxury crossovers, sub-compact luxury CUVs depreciated the most at 19.2 percent, according to Black Book’s analysis.

A look ahead at 2018 trends

In January of this year, editors calculated that a 2015 model year vehicle on average was valued at 51 percent in the wholesale arena as a percentage of typically-equipped MSRP. This three-year retention has dropped from 52 percent in January 2017, which at that time was for a 2014 model year vehicle.

Black Book residual value forecasts show that values of 2018 model year vehicles in January 2021 are expected to be three percentage points lower than the current retention trends averaged across all vehicle models.

At the specific vehicle segment, brand and individual vehicle level, residual values offer a different look, according to Black Book.

When economic conditions and expectations are factored into Black Book’s scenario-based residuals modeling, the trend shows a steeper drop in residual values when considering an economic downturn scenario.

The company also expects to see a slight pullback in lease penetration, as rising interest rates, declining residuals, tighter credit criteria and rising availability of off-lease used vehicle options make leasing more expensive for auto manufacturers and their captive finance companies.

“We expect vehicle depreciation to increase and residual values to decline in 2018 as used vehicle supplies increase while overall demand stabilizes,” said Anil Goyal, executive vice president of operations at Black Book.

“Consumer demand at the vehicle segment level may see more volatility, and as such lenders should analyze and measure portfolio equity on a regular basis to assess risk within their portfolios,” Goyal continued.

US Auto ABS outlook for 2018

Fitch’s prime asset performance is projected to continue normalizing but remain well within recessionary levels.

Analysts indicated prime annualized net losses (ANL) will get closer to the 1-percent range in 2018. Loss severity is a focus in 2018 as high used vehicle supply and reduced used-vehicle demand will constrain recoveries.

Fitch explained that extended-term contracts (lasting longer than 60 months), which comprise a large majority of all prime and subprime ABS pools securitized, remain a key risk next year, particularly if early defaults increase on these riskier loans and drive the pace of losses higher.

Fitch added subprime asset performance will be pressured in 2018 at or near prior recessionary levels, with the weakest performance attributed to the smaller and less seasoned finance companies, whom ABS platforms Fitch does not rate.

Analysts went on to mention the risk to subprime finance companies may accelerate as auto sales decline and competition ramps up, forcing them to further loosen credit standards to gain or hold market share.

Overall, Fitch expects severity to remain as the main factor impacting ABS performance, especially as more used supply puts pressure on recovery rates in auto ABS pools during 2018.

“Despite a relatively stable outlook for auto lease ABS asset performance in 2018, it is evident that increasing lease returns in 2018 will place more pressure on residual performance throughout the year,” said Hylton Heard, senior director at Fitch Ratings.

The Black Book-Fitch vehicle depreciation report .

F&I roundup: Updates involving Darwin, RouteOne, Reynolds and Hendrick

ISELIN, N.J., and DAYTON, Ohio - 

Two leading providers of technology to help dealership F&I offices function smoothly — Darwin Automotive and Reynolds and Reynolds — each recently landed significant developments to boost their industry presence.

First, Darwin Automotive announced that Darwin Online is now integrated with RouteOne for retail contract validation, submission and approval.

Meanwhile, Reynolds and Reynolds and Hendrick Automotive Group said that the Reynolds docuPAD system will be installed in all dealership F&I departments throughout the dealer group by mid-July.

Darwin explained what its relationship with RouteOne means.

From the dealer’s website, a consumer can select their vehicle, briefly describe their driving habits, select payment options and then receive a 100 percent accurate payment.  After being educated on the available protection and accessories, the consumer can opt to save even more time and get approved via the RouteOne integrated credit application.

Darwin Online then can send the detailed deal structure inclusive of qualified customer and vehicle incentives and programs, insurance products, as well as any trade detail, if applicable.  Dealers have full control over how much of the process is automated via their online retail services configurations.

If the dealer chooses no further automation, notifications are immediately sent to assigned dealership personnel, and direct consumer engagement occurs. 

If the dealer chooses further automation, credit bureau selection occurs. Depending on the results and deal parameters, the deal automatically can be submitted to select finance companies. This process all can occur in seconds while the customer is still engaged on the dealership’s website.

RouteOne pointed out that that firm can protect dealers from compliance and fraud with a number of free services built into its platform as well as premium subscriptions for those looking for a more encompassing solution, including the dealer’s own privacy policy, Credit Score Disclosure Notices and Red Flag Screening, to name a few.

“Undeniably one of the last pieces of digital retailing yet to be tackled is online F&I,” Darwin Automotive chief executive officer Phil Battista said. “Dealers need to adopt digital retailing technology that directly addresses and prominently promotes both the ‘F’ and the ‘I,’ or there will be one less profit center for them to count on.

“With our RouteOne partnership, Darwin Online continues the evolution of digital retailing in F&I, allowing customers to shop the way they demand,” Battista continued. “We offer dealers F&I everywhere — the ability to educate and sell F&I protection to customers wherever they choose to engage your dealership and our dealers are profiting from this immensely.”

Darwin Online interfaces with more than 142 different product providers and allows dealerships to control their profitability and disclosure. It can interact with all dealership websites without any need for DMS integration. The platform can provide accurate payments that match the dealership’s DMS to the penny.

The provider noted that studies show that 63 percent of online consumers surveyed said they would be more likely to buy F&I products if they were educated about them before they came into the dealership. Darwin Online can prescribe products the customer needs 24 hours a day, 365 days a year.

Approximately 2,500 dealerships have enrolled in Darwin Automotive’s F&I software in just the past two years. 

For more information, or to schedule a product demonstration, call (732) 781-9010 or visit .

Hendrick adds the Reynolds docuPAD System in all dealerships

As mentioned, Reynolds and Reynolds and Hendrick Automotive Group recently announced that the Reynolds docuPAD system will be installed in all dealership F&I departments throughout the dealer group by mid-July.

Overall, Reynolds will install more than 350 docuPAD system workstations in the 96 Hendrick Automotive Group dealerships, with a large portion of those installations already having occurred.  Headquartered in Charlotte, N.C., Hendrick Automotive Group will be the largest single user of the docuPAD system in the United States.

“The docuPAD system has proven itself everywhere it’s been installed,” said Bob Brockman, chairman and chief executive officer of Reynolds.  “I’ve always admired Hendrick Automotive Group as disciplined and well run.

“Adding the docuPAD system to their F&I functions will help them take another step forward in the efficiency and effectiveness of their operations and in generating better financial returns in F&I,” Brockman continued.

Installing the docuPAD system also can enable Hendrick Automotive Group stores to adopt Reynolds eWorkflow, an end-to-end digital solution for creating and processing a deal and securing funding using eContracting.  Hendrick Automotive Group dealerships are already using electronic deal jackets and eliminating the stacks of paper that go to the accounting office, the lender and the consumer.

Reynolds eWorkflow also can improve dealership cash flow by cutting contracts-in-transit time and facilitating faster funding of deals.  Additionally, it reduces document storage costs.

“The people at Reynolds are true partners who share many of our company’s core values,” said Rick Hendrick, chairman of Hendrick Automotive Group.  “Continuous improvement has been a long-standing focus for our company.  The combination of Reynolds’ leading technologies and close working relationship with our team members is helping our dealerships take care of a whole new generation of customers.”

The Reynolds docuPAD system is well established in dealerships across the automotive industry as an effective way to increase financial returns in F&I offices, while also reducing errors in the F&I process and safeguarding a dealer’s compliance efforts.  At that same time, the docuPAD system completely changes the consumer experience in F&I.

“Reynolds is working with our dealerships on becoming more efficient, helping reduce storage costs, and simplifying compliance needs,” said Robert Taylor, vice president of Hendrick Automotive Group information technology.  “These new technology platforms are also fully interactive and allow our team members and customers to go seamlessly through an interactive F&I process.  They are interchangeable, giving our individual F&I departments the ability to customize the process, fit the needs of their customers, and improve the overall dealership experience.”

Dealerships across the industry last year closed approximately 1.6 million vehicle sales using the Reynolds docuPAD system, which is an increase of more than 30 percent over 2016.  On average, those dealerships also realized increased gross profit in F&I operations, according to Reynolds.

Looking ahead, Reynolds projected that 2 million vehicle sales will be closed through the docuPAD system in 2018.

“All of us at Reynolds are extremely proud to work with the people across Hendrick Automotive Group,” Brockman said.  “We recognize that their customers expect a rewarding, convenient, and efficient experience.  We believe the new solutions we’re providing will help every Hendrick Automotive Group store deliver that experience more effectively and profitably.”

4 trends uncovered in latest Equifax consumer survey

ATLANTA - 

Along with highlighting the fruit of its collaboration with Dealer Marketing Services, Equifax also released findings from its latest consumer automotive survey, analyzing automotive shopping and buying behaviors across prime and subprime credit buyers, as well as millennial and Baby Boomer age groups.

Among the key takeaways from the survey, Equifax determined prime and subprime millennials expect to spend the same amount on their vehicles, and subprime millennials say they are more aware of their credit situation compared with subprime Baby Boomers.

The online survey was conducted by Equifax during February and included more than 1,000 participants.

Other findings included:

• Prime millennials (70 percent) and subprime millennials (64 percent) are similarly likely to understand their credit situation.

• However, 78 percent of prime Baby Boomers are aware versus just 53 percent of subprime Boomers.

Equifax suggested these findings might generate an opportunity for dealers and finance companies to empower subprime consumers earlier in the underwriting process through online shopping in regards to their credit risk situation. This educational opportunity may help avoid surprises at the dealership, which can lead to lost sales and lower customer satisfaction.  

The survey also illustrated that subprime millennials expect to spend the same amount on a vehicle — roughly $20,000 — as their prime Millennial counterparts. However, subprime borrowers are less likely to negotiate (25 percent less likely) than prime counterparts.

“Online resources available today have helped millennials become more educated and savvy shoppers along with their Boomer counterparts,” said Rebecca Kritzman, senior director of automotive marketing at Equifax. 

“Even though the Internet has provided many of these educational resources, we believe auto dealers and lenders can play an even bigger role in helping to guide and advise these customers before and during each transaction,” Kritzman continued. “A larger emphasis here can help customers avoid defaults in their loan, thus increasing the number of shoppers that return for repeat purchases in the future.”

Additionally, Equifax found that subprime and prime millennials place a higher value on input from their family and friends when seeking advice on affordability before obtaining a loan versus Boomers. However, subprime millennials (11 percent) are much less likely to rely on banks and credit unions versus prime millennials (25 percent) when seeking input on vehicle affordability.

Considering the number of “underbanked” individuals that fall into this subprime category, Equifax recommended that dealers should again look at this trend as an opportunity to help advise on the realistic price point for purchase, given their overall financial picture, and look at educating influencers as well.

Equifax and ProMax partner to boost online financing capabilities

In light of what the survey data highlighted, Equifax and Dealer Marketing Services are continuing to team up to help dealerships and finance companies.

To empower online auto shoppers with access to their credit scores earlier in the loan process and make their time in the F&I office more efficient and productive, Dealer Marketing Services — the maker of ProMax — are using several auto products and solutions powered by Equifax. Since 2016, ProMax has used the Equifax suite of auto products to generate high quality leads, target the right in-market shoppers, convert website visitors and service customers into buyers, verify employment and income and speed up the overall sales process.

Last year, the union with Equifax enabled ProMax’s dealers to convert more than 180,000 online visitors into high-quality leads.

Additionally, ProMax uses The Work Number from Equifax Workforce Solutions to improve the consumer experience by verifying borrower employment and income in real time to eliminate the need for borrowers to present physical paystubs and W2s. The Work Number database contains employer-provided payroll records, including more than 80 percent of Fortune 500 companies, a majority of federal government civilian employers. Results from the database can also help instantly clear some bank stipulations, leading to quicker funding of contracts.

To date in 2018, ProMax has used The Work Number to verify income and employment for more than 25 percent of more than 40,000 deals.

ProMax offers a full front end software suite to automotive dealers and a strong track record of innovative and award-winning credit solutions. With Equifax, ProMax is able to centralize requests for credit reports, scores, employment and income verifications and more with one partner.

“We’ve had tremendous success offering these Equifax products to dealers and subsequently consumers, too,” said Shane Born, chief operating officer of Dealer Marketing Services. “Generating and qualifying leads is the lifeblood of the auto business, and Equifax’s suite of consumer credit and digital marketing solutions makes the process easier than ever.”

The Work Number database, managed by Equifax, is one of the nation’s largest centralized repository of payroll data. In 2017, Equifax delivered double digit record growth to its database, benefitting operations such as Dealer Marketing Services.

“Consumers expect a better, more personalized shopping experience, and aligning the right vehicle to a consumer’s budget is an important, often overlooked piece,” said Lena Bourgeois, Equifax vice president of the enterprise alliance automotive division.

“ProMax understands this and has taken the necessary steps to ensure they are an early adopter and innovator in the market,” Bourgeois continued. “The process has become so simple that income and employment verification will become an industry norm.”

TurboPass launches verification tool powered by FormFree

SAN ANTONIO - 

An automated verification solutions provider that’s flourishing in the mortgage space now is bringing its technology into auto finance.

Start-up company TurboPass, which is powered by FormFree, says its tool can eliminate the hassle and risk associated with traditional asset and net income verification. Instead of requiring potential vehicle buyers to submit paper or electronic bank statements, TurboPass can use augmented intelligence to analyze data sources directly from financial institutions. In seconds, TurboPass can generate a digital report that fulfills finance companies’ need for copies of PDF or paper bank statements.

The engine for the solution is provided by FormFree and its flagship technology, AccountChek. The provider claims AccountChek is the first and only patented automated verification of assets and deposits (VODA) solution for mortgage lenders that is accepted by government-sponsored enterprises (GSEs). Winner of the 2013 Mortgage Technology Fix-It Award and used by more than 200 mortgage lenders, AccountChek can collect data directly from virtually any financial institution and generates reports in just minutes, creating enormous time savings in the mortgage origination process while eliminating the need for borrowers to submit paper bank statements.

“Very few technology companies have the potential to change an entire industry. FormFree is one of them,” said Brent Chandler, founder and chief executive officer of FormFree. “When coupled with other proven products, AccountChek is a much broader tool than income verification because of the extraordinary wealth of asset and income data that it collects, analyzes and delivers. Most importantly, it virtually eliminates the potential for fraud in the borrower approval process. I’m a big believer in FormFree’s mission to make lending a faster, safer and more confident experience for everybody.”

And with fraud becoming for a problem in auto financing, TurboPass highlighted the ways it can deliver a compliant report:

• Tap more than 15,000 data sources and complete millions of API data calls daily.

• Use augmented intelligence and data analytics — including more than 1,000 proprietary algorithms — to maximize data accuracy.

• Seventy-four percent of data comes directly from financial institutions.

• Present unstandardized data from thousands of financial institutions in one standardized format for partners’ ease of consumption.

• Both FormFree and its aggregator routinely perform automated and manual data quality checks.

• Support all asset account types, including retirement, savings and checking.

Company leaders insisted that submitting information through TurboPass is significantly more secure than emailing, faxing or mailing sensitive financial documents because of these reasons:

• Undergo rigorous lender, investor and third-party audits as well as annual penetration and vulnerability testing.

• Maintain SOC 2 and ISO/IEC 21002:2015 security certifications.

• Hosting partner, Microsoft Azure, is SSAE 16, SOC 2 and Cloud Security Alliance CAI certified.

• Data used is encrypted at rest and in transit, monitored in real-time and secured behind firewalls and 2048-bit security keys.

• Segregate asset data and borrower credentials in separate systems protected by both hardware and software encryption and ensure credentials are never visible to, or accessible by, any human.

• Only pull asset data with express consumer permission.

 “You can rely on us for regulatory compliance,” TurboPass said.  “Our ‘open door’ audit policy allows partners to conduct virtual and on-site audits as needed.”

For more details, go to .

RouteOne and MaximTrak roll out single, digital signing capability

FARMINGTON HILLS, Mich. - 

RouteOne and MaximTrak are continuing to respond to consumer demand for streamlined, digital completion of vehicle delivery.

On Wednesday, the companies announced they tried to enhance the consumer experience with the ability to include MaximTrak aftermarket documents in the RouteOne eContracting package for a single, electronic customer signing ceremony.

Officials believe this functionality can enable the fastest and easiest, secure electronic consumer signing experience on the market and allows for distribution of all F&I documents from one portal.

As the vehicle purchasing process changes at an increasingly rapid speed, consumers and dealers alike expect consistency, transparency, and most importantly, ease of use. There must be a seamless transition across all F&I channels.

 One year ago, RouteOne and MaximTrak began to unify their technologies to innovate the sales process and deliver on the vision of a complete sales and F&I solution that meets OEM, dealer and consumer needs. 

“This is just one of many exciting ways RouteOne and MaximTrak are aligning our combined technologies to benefit our dealer customers by bringing the “F” and the “I” together for one cohesive user experience,” said Imran Mussani, MaximTrak’s vice president of product development and operations.

This single, digital signing ceremony brings RouteOne’s 6,700 active eContracting dealers the ability to include aftermarket documents from MaximTrak’s 110 insurance providers.

Dealers interested in streamlining their F&I process can their RouteOne business development manager at (866) 768-8301 or .

Fitch monitoring how recent subprime trends impact overall auto finance performance

NEW YORK - 

Fitch Ratings is keeping a close watch on how subprime auto finance paper is performing in a similar fashion to Equifax and  TransUnion.

Analysts indicated that loss frequency and severity ticked up slightly from historically low levels for the largest U.S. auto finance companies, according to the latest U.S. Auto Asset Quality Review from Fitch Ratings.

Excluding General Motors Financial — whose credit performance continues to benefit from a significant portfolio mix shift — Fitch highlighted the average net charge-off rate for finance companies covered in this report increased to 0.95 percent in the fourth quarter compared to 0.92 percent in the closing quarter of 2016.

Likewise, analysts noted delinquencies increased in Q4, with the 30-day delinquency rate ticking up to 3.07 percent as 2017 finished. A year earlier, Fitch pinpointed the rate at 2.86 percent.

“We continue to see a divergence in subprime credit relative to prime credit and expect performance to weaken further in 2018 due partially to the expansion in recent years of less-tenured, independent auto finance companies that have demonstrated higher-risk appetites and less underwriting discipline,” Fitch senior director Michael Taiano said.

Just like Equifax mentioned, Taiano pointed out that underwriting for vehicle installment contracts and leases continued to tighten for banks during the second half of last year — albeit at a more moderate pace — which Fitch views as a credit positive.

The Fitch expert explained the tighter standards are likely in response to deterioration in used-vehicle prices and weaker credit performance in the subprime segment. After a respite in during the second half of 2017 that was partially due to increased vehicle demand stemming from the hurricanes in Texas and Florida, Fitch expects further deterioration in used-vehicle prices in 2018 to be driven by increases in off-lease vehicles, elevated new-model incentives and tighter subprime financing.

Taiano went on to stress that lower used-vehicle prices will put downward pressure on finance companies’ recovery values and lease residuals, resulting in higher credit losses.

“The outlook in 2018 for auto asset quality is clouded to some extent by macro crosscurrents. Positive indicators including greater household net worth, low unemployment and increased wage growth are countered by rising consumer debt levels, weaker used vehicle prices and rising interest rates,” Taiano said.

The complete report, U.S. Auto Asset Quality Review: 4Q17, is available to premium subscribers at .

PointPredictive rolls out Synthetic ID Alert to stop a growing fraud concern

SAN DIEGO - 

PointPredictive understands criminals looking to orchestrate auto finance scams aren’t sitting idle.

On Tuesday, PointPredictive announced the launch of a new patent pending solution called Synthetic ID Alert. The solution is a complement to the company’s comprehensive application fraud scoring solution Auto Fraud Manager.

Synthetic ID Alert can help auto finance companies stop synthetic identity fraud by producing alerts on applications that exhibit patterns consistent with synthetic ID fraud. This sophisticated machine learning AI is quickly and easily installed within a lender’s technology system to be used in real-time application review.

“Auto lenders participating in our consortium meetings have identified that one of their top three issues this year is solving synthetic identity fraud. Our analysis shows that synthetic identity fraud accounts for 15 to 20 percent of fraud and misrepresentation losses across the industry. This equates to more than $1 billion in synthetic identity originations this year,” said Eric Werab, vice president of fraud and product strategy at PointPredictive.

“Synthetic identity thieves have figured out that credit scores and reports can be manipulated through schemes such as trade line piggybacking, which can artificially inflate their credit scores.”

Synthetic ID Alert scores applications based on patterns of fraud that fraud data scientists have identified in millions of historical automotive applications. This solution understands the logistics of social security number issuance, the interconnections between each of the pieces of information supplied on the application by the dealers and borrowers, and how all of these compare to proprietary and statistical norms accumulated from historical applications, dealer performance and fraud ring patterns.

If the solution determines that an application has a high likelihood of synthetic identity, a score and actionable reason codes are provided to the finance company so they can take immediate steps to prevent funding the fraudulent installment contract.

With this solution, PointPredictive projected that finance companies will need to act on less than 0.5 percent of their total application population to stop a significant portion of their synthetic ID fraud.

“Our proprietary machine learning algorithms are built on over 40 million historic applications and are capable of instantly identifying a pattern of synthetic identity. We wanted to create a simple, easy to install and use solution for lenders to solve a specific need,” PointPredictive chief executive officer Tim Grace said.

“With Synthetic ID Alert, we think we can help lenders identify a significant portion of their synthetic identity fraud applications before they approve the loans that will lead to losses,” Grace continued.

The solution is available immediately to finance companies as an application that can be installed in less than a day on existing technology systems. We also plan to offer this installation to our partner loan origination and solution providers.

To receive more information about Synthetic ID Alert, or to request the firm’s latest white paper entitled, “How Hidden Fraud & Misrepresentation are Contributing to the Rise in Default Rates,” send a request through or directly to [email protected]

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