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of the printing and typesetting industry. Lorem Ipsum has been the industry’s standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum
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By: Staci Baker Just before the holidays, the Fed released proposed rules, which implement Sections 165 and 166 of the Dodd-Frank Act. According to The American Bankers Association, “The proposals cover such issues as risk-based capital requirements, leverage, resolution planning, concentration limits and the Fed’s plans to regulate large, interconnected financial institutions and nonbanks.” How will these rules affect you? One of the biggest concerns that I have been hearing from institutions is the affect that the proposed rules will have on profitability. Greater liquidity requirements, created by both the Dodd-Frank Act and Basel III Rules, put pressure on banks to re-evaluate which lending segments they will continue to participate in, as well as impact the funds available for lending to consumers. What are you doing to proactively combat this? Within the Dodd-Frank Act is the Durbin Amendment, which regulates the interchange fee merchants are charged. As I noted in my prior blog detailing the fee cap associated with the Durbin Amendment, it’s clear that these new regulations in combination with previous rulings will continue to put downward pressures on bank profitability. With all of this to consider, how will banks modify their business models to maintain a healthy bottom line, while keeping customers happy? Over my next few blog posts, I will take a look at the Dodd-Frank Act’s affect on an institution’s profitability and highlight best practices to manage the impact to your organization.
As we kick off the new year, I thought I’d dedicate a few blog posts to cover what some of the consumer credit trends are pointing to for potential growth opportunities in 2012, specifically on new loan originations for bankcard, automotive and real estate lending. With the holiday season behind us (and if you’re anything like me, you have the credit card statements to prove it!), I thought I’d start off with bankcards for my first post of the year. Everyone’s an optimist at the start of a new year and bankcard issuers have a right to feel cautiously optimistic about 2012 based on the trends of last year. In the second quarter of 2011, origination volumes grew to nearly $47B, up 28% from the same quarter a year earlier. Actually, originations have been steadily growing since the middle of 2010 with increasing distribution across all VantageScore risk bands and an impressive 42% increase in A paper volume. So, is bankcard the new power portfolio for growth in 2012? The broad origination risk distribution may signal the return of balance-carrying consumers (aka: revolvers) from those that pay with credit cards, but pay off the balance every month (aka: transactors). The tighter lending criteria imposed in recent years has improved portfolio performance significantly, but at the expense of interest fee profitability from revolver use. This could change as more credit cards are put in the hands of a broader consumer risk base. And as consumer confidence continues to grow, (it reached 64.5 in December, 10 points higher than November according to the Conference Board) , consumers in all risk categories will no doubt begin to leverage credit cards more heavily for continued discretionary spend, as highlighted in the most recent Experian – Oliver Wyman quarterly webinar. Of course, portfolio growth with the increased risk exposure requires a watchful eye on the delinquency performance of outstanding balances. We continue to be at or near historic lows for delinquency, but did see a small uptick in early stage delinquencies in the third quarter of 2011. That being said, issuers appear to have a good pulse on the card-carrying consumer and are capitalizing on the improved payment behavior to maximize their risk/reward payoff. So all-in-all, strong 2011 results and portfolio positioning has set the table for a promising 2012. Add an improving economy to the mix and card issuers could shift from cautious to confident in their optimism for the new year.
By: Joel Pruis Small Business Application Requirements The debate on what constitutes a small business application is probably second only to the ongoing debate around centralized vs. decentralized loan authority (but we will get to that topic in a couple of blogs later). We have a couple of topics that need to be considered in this discussion, namely: 1. When is an application an application? 2. Do you process an incomplete application? When is an application an application? Any request by a small business with annual sales of $1,000,000 or less falls under Reg B. As we all know because of this regulation we have to maintain proper records of when we received an application and when a decision on the application was made as well as communicated to the client. To keep yourself out of trouble, I recommend that there be a small business application form (paper or electronic) and that you have clearly stated the information required for a completed application in your small business application procedures. The form removes ambiguities in the application process and helps with the compliance documentation. One thing is for certain – when you request a personal credit bureau on the small business owner(s)/guarantor(s) and you currently do not have any credit exposure to the individual(s) – you have received an application and to this there is no debate. Bottom line is that you need to define your application and do so using objective criteria. Subjective criteria leaves room for interpretation and individual interpretation leaves doubt in the compliance area. Information requirements Whether or not you use a generic or custom small business scorecard or no scorecard at all, there are some baseline data segments that are important to collect on the small business applicant: · Requested amount and purpose for the funds · Collateral (if necessary based upon the product terms and conditions) · General demographics on the business o Name and location o Business Entity type (corporation, llc, partnership, etc.) o Product and/or service provided o Length of time in business o Current banking relationship · General demographics on the owners/guarantors o Names and addresses o Current banking relationship o Length of time with the business · External data reports on the business and/or guarantors o Business Report o Personal Credit Bureau on the owners/guarantors · Financial Statements (?) – we’ll talk about that in part II of this post. The demographics and the existing banking relationship are likely not causing any issues with anyone and the requested amount and use of funds is elementary to the process. Probably the greatest debate is around the collection of financial information and we are going to save that debate for the next post. The non-financial information noted above provides sufficient data to pull personal credit bureaus on the owners/guarantors and the business bureau on the actual borrower. We have even noted some additional data informing us the length of time the business has been in existence and where the banking relationship is currently held for both the business and the owners. But what additional information should be requested or should I say required? We have to remember that the application is not only to support the ability to render a decision but also supports the ability to document the loan and maybe even serve as a portion of the loan documentation. We need to consider the following: · How standardized are the products we offer? · Do we allow for customization of collateral to be offered? · Do we have standard loan/fee pricing? · Is automatic debit for the loan payments required? Optional? Not available? · Are personal guarantees required? Optional? We again go back to the 80/20 rule. Product standardization is beneficial and optimal when we have high volumes and low dollars. The smaller the dollar size of the request/relationship the more standardized we need to have our products and as a result our application can be more streamlined. When we do not negotiate rate, we do not need to have a space to note requested rate. When we do not negotiate on personal guarantees we always require the personal financial information be collected on all owners of the business (some exceptions for very small ownership interests). Auto-debit for the loan payments means we always need to have some form of a DDA account with our institution. I think you get the point that for the highest volume of applications we standardize and thus streamline the process through the removal of ambiguity. Do you process an incomplete application? The most common argument for processing an incomplete application is that if we know we are going to decline the application based upon information on the personal credit bureau, why go through the effort of collecting and spreading the financial information. Two significant factors make this argument moot: customer satisfaction and fair lending regulation. Customer satisfaction This is based upon the ease of doing business with the financial institution. More specifically the number of contact points or information requests that are required during the process. Ideally the number of contact points that are required once the applicant has decided to make a financing request should be minimal the information requirements clearly communicated up front and fully collected prior to rendering a decision. The idea that a quick no is preferable to submitting a full application actually is working to make the declination process more efficient than the actual approval process. So in other words we are making the process more efficient and palatable for those clients we do NOT consider acceptable versus those clients that ARE acceptable. Secondly, if we accept and process incomplete applications, we are actually mis-prioritizing the application volume. Incomplete applications should never be processed ahead of completed packages yet under the quick no objective, the incomplete application is processed ahead of completed applications simply based upon date and time of submission. Consequently we are actually incenting and fostering the submission of incomplete applications by our lenders. Bluntly this is a backward approach that only serves to make the life of the relationship manager more efficient and not the client. Fair lending regulation This perspective poses a potential issue when it comes to consistency. In my 10 years working with hundreds of financial institutions, only a very small minority of times have I encountered a financial institution that is willing to state with absolute certainty that a particular characteristic will cause an application to e declined 100% of the time. As a result, I wish to present this scenario: · Applicant A provides an incomplete application (missing financial statements, for example). o Application is processed in an incomplete status with personal and business bureaus pulled. o Personal credit bureau has blemishes which causes the financial institution to decline the application o Process is complete · Applicant B provides a completed application package with financial statements o Application is processed with personal and business bureaus pulled, financial statements spread and analysis performed o Personal credit bureau has the same blemishes as Applicant A o Financial performance prompts the underwriter or lender to pursue an explanation of why the blemishes occurred and the response is acceptable to the lender/underwriter. Assuming Applicant A had similar financial performance, we have a case of inconsistency due to a portion of the information that we “state” is required for an application to be complete yet was not received prior to rendering the decision. Bottom line the approach causes doubt with respect to inconsistent treatment and we need to avoid any potential doubt in the minds of our regulators. Let’s go back to the question of financial statements. Check back Thursday for my follow-up post, or part II, where we’ll cover the topic in greater detail.
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With the National Automobile Dealers Association (NADA) Show set to kickoff later this week, it seemed fitting to explore how the shifting dynamics of the used vehicle market might impact dealers and buyers over the coming year. Shedding light on some of the registration and finance trends, as well as purchasing behaviors, can help dealers and manufacturers stay ahead of the curve. And just like that, the Special Report: Automotive Consumer Trends Report was born. As I was sifting through the data, one of the trends that stood out to me was the neck-and-neck race between Millennials and Gen X for supremacy in the used vehicle market. Five years ago, in 2019, Millennials were responsible for 33.3% of used retail registrations, followed by Gen X (29.5%) and Baby Boomers (26.8%). Since then, Baby Boomers have gradually fallen off, and Gen X continues to close the already minuscule gap. Through October 2024, Millennials accounted for 31.6%, while Gen X accounted for 30.4%. But trends can turn on a dime if the last year offers any indication. Over the last rolling 12 months (October 2023-October 2024), Gen X (31.4%) accounted for the majority of used vehicle registrations compared to Millennials (30.9%). Of course, the data is still close, and what 2025 holds is anyone’s guess, but understanding even the smallest changes in market share and consumer purchasing behaviors can help dealers and manufacturers adapt and navigate the road ahead. Although there are similarities between Millennials and Gen X, there are drastic differences, including motivations and preferences. Dealers and manufacturers should engage them on a generational level. What are they buying? Some of the data might not come as a surprise but it’s a good reminder that consumers are in different phases of life, meaning priorities change. Over the last rolling 12 months, Millennials over-indexed on used vans, accounting for more than one-third of registrations. Meanwhile, Gen X over-indexed on used trucks, making up nearly one-third of registrations, and Gen Z over-indexed on cars (accounting for 17.1% of used car registrations compared to 14.6% of overall used vehicle registrations). This isn’t surprising. Many Millennials have young families and may need extra space and functionality, while Gen Xers might prefer the versatility of the pickup truck—the ability to use it for work and personal use. On the other hand, Gen Zers are still early in their careers and gravitate towards the affordability and efficiency of smaller cars. Interestingly, although used electric vehicles only make up a small portion of used retail registrations (less than 1%), Millennials made up nearly 40% over the last rolling 12 months, followed by Gen X (32.2%) and Baby Boomers (15.8%). The market at a bird’s eye view Pulling back a bit on the used vehicle landscape, over the last rolling 12 months, CUVs/SUVs (38.9%) and cars (36.6%) accounted for the majority of used retail registrations. And nearly nine-in-ten used registrations were non-luxury vehicles. What’s more, ICE vehicles made up 88.5% of used retail registrations over the same period, while alternative-fuel vehicles (not including BEVs) made up 10.7% and electric vehicles made up 0.8%. At the finance level, we’re seeing the market shift ever so slightly. Since the beginning of the pandemic, one of the constant narratives in the industry has been the rising cost of owning a vehicle, both new and used. And while the average loan amount for a used non-luxury vehicle has gone up over the past five years, we’re seeing a gradual decline since 2022. In 2019, the average loan amount was $22,636 and spiked $29,983 in 2022. In 2024, the average loan amount reached $28,895. Much of the decline in average loan amounts can be attributed to the resurgence of new vehicle inventory, which has resulted in lower used values. With new leasing climbing over the past several quarters, we may see more late-model used inventory hit the market in the next few years, which will most certainly impact used financing. The used market moving forward Relying on historical data and trends can help dealers and manufacturers prepare and navigate the road ahead. Used vehicles will always fit the need for shoppers looking for their next vehicle; understanding some market trends will help ensure dealers and manufacturers can be at the forefront of helping those shoppers. For more information on the Special Report: Automotive Consumer Trends Report, visit Experian booth #627 at the NADA Show in New Orleans, January 23-26.
The automotive industry is constantly changing. Shifting consumer demands and preferences, as well as dynamic economic factors, make the need for data-driven insights more important than ever. As we head into the National Automobile Dealers Association (NADA) Show this week, we wanted to explore some of the trends in the used vehicle market in our Special Report: State of the Automotive Finance Market Report. Packed with valuable insights and the latest trends, we’ll take a deep dive into the multi-faceted used vehicle market and better understand how consumers are financing used vehicles. 9+ model years grow Although late-model vehicles tend to represent much of the used vehicle finance market, we were surprised by the gradual growth of 9+ model year (MY) vehicles. In 2019, 9+MY vehicles accounted for 26.6% of the used vehicle sales. Since then, we’ve seen year-over-year growth, culminating with 9+MY vehicles making up a little more than 30% of used vehicle sales in 2024. Perhaps more interesting though, is who is financing these vehicles. Five years ago, prime and super prime borrowers represented 42.5% of 9+MY vehicles, however, in 2024, those consumers accounted for nearly 54% of 9+MY originations. Among the more popular 9+MY segments, CUVs and SUVs comprised 36.9% of sales in 2024, up from 35.2% in 2023, while cars went from 44.3% to 42.9% year-over-year and pickup trucks decreased from 15.9% to 15.6%. 2024 highlights by used vehicle age group To get a better sense of the overall used market, the segments were broken down into three age groups—9+MY, 4-8MY, and current +3MY—and to no surprise, the finance attributes vary widely. While we’ve seen the return of new vehicle inventory drive used vehicle values lower, it could be a sign that consumers are continuing to seek out affordable options that fit their lifestyle. In fact, the average loan amount for a 9+MY vehicle was $19,376 in 2024, compared to $24,198 for a vehicle between 4-8 years old and $32,381 for +3MY vehicle. Plus, more than 55% of 9+MY vehicles have monthly payments under $400. That’s not an insignificant number for people shopping with the monthly payment in mind. In 2024, the average monthly payment for a used vehicle that falls under current+3MY was $608. Meanwhile, 4-8MY vehicles came in at an average monthly payment of $498, and 9+MY vehicles had a $431 monthly payment. Taking a deeper dive into average loan amounts based on specific vehicle types—as of 2024, current +3MY cars came in at $28,721, followed by CUVs/SUVs ($31,589) and pickup trucks ($40,618). As for 4-8MY vehicles, cars came in with a loan amount of $22,013, CUVs/SUVs were at $23,133, and pickup trucks at $31,114. Used 9+MY cars had a loan amount of $19,506, CUVs/SUVs came in at $17,350, and pickup trucks at $22,369. With interest rates remaining top of mind for most consumers as we’ve seen them increase in recent years, understanding the growth from 2019-2024 can give a holistic picture of how the market has shifted over time. For instance, the average interest rate for a used current+3MY vehicle was 8.0% in 2019 and grew to 10.2% in 2024, the average rate for a 4-8MY vehicle went from 10.3% to 12.9%, and the average rate for a 9+MY vehicle increased from 11.4% to 13.8% in the same time frame. Looking ahead to the used vehicle market It’s important for automotive professionals to understand and leverage the data of the used market as it can provide valuable insights into trending consumer behavior and pricing patterns. While we don’t exactly know where the market will stand in a few years—adapting strategies based on historical data and anticipating shifts can help professionals better prepare for both challenges and opportunities in the future. As used vehicles remain a staple piece of the automotive industry, making informed decisions and optimizing inventory management will ensure agility as the market continues to shift. For more information, visit us at the Experian booth (#627) during the NADA Show in New Orleans from January 23-26.
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typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.