Industry Expertise | Behind the Wheel: Allied Solutions Reflects on Used Car Week
AFSA’s Industry Expertise allows Business Partners to provide thought leadership and best practices information directly with AFSA member companies. For more information about taking part, contact Dan Bucherer.
Behind the Wheel: Allied Solutions Reflects on Used Car Week
By: Suzi Straffon, Director, Finance Company Markets | Allied Solutions
Used Car Week was held in Scottsdale, AZ earlier this fall and was a valuable time for lenders and partners alike.
After sharing opening remarks for the keynote session, Allied Solutions’ representatives moderated a panel centered on key trends and concerns for the current lending and recovery environment. Here are our top takeaways from an action-packed Used Car Week:
Repossession and Product Refund Regulation on the Rise
Historical norms show that auto defaults are a precursor for repossessions, with approximately 80% of defaults ending in repossessions.[1] Despite the rise in defaults, lenders continue to be inundated with the record-breaking volume of repossessions that will close out 2023. We will likely see 2 million repossessions this year, with 30% less repo agents in the industry to service these repossession claims.[2] This is burdensome for both processes and balance sheets.
In product refund news: In late November, the CFPB fined a major indirect auto finance lender $60 million for its refund practices on ancillary products.[3] This litigation is piled on top of many class action suits with similar fines, indicating growing scrutiny and accompanying litigation regarding ancillary product refund practices.
Subprime Lending is a Growing Concern – and Cost
It’s no shock that subprime borrowers are struggling. They were frontloaded with cash during the pandemic, thanks to stimulus checks and unemployment payouts. Those who were subprime pre-2020 likely moved into the prime ranking (a process known as FICO migration) once they had the cashflow for bills and new credit purchases. Now this group is FICO migrating yet again but this time back into subprime. Credit accessibility is a struggle as many lenders are pulling back from subprime lending.
While tightening risk margins make sense for some it’s not without a cost. And the cost of pulling back from subprime lending? Less originations for the balance sheet and less accessibility across the board for the subprime borrower.
Blueprint for 2024: Precision is the Name of the Game
As we look ahead to an election year, the ramp up or slowdown of additional lending litigation may hinge on the incumbent or change of administration. Until then, the CFPB is hawk-eyeing lending practices, and the growing litigation around product refunds and repossessions is proof that it will be the survival of the fittest.
With growing repossession volume, regulatory pressure bubbling over, and a pending liquidity crisis, it’s more crucial than ever to keep lending and recovery processes aligned. Minimize human interaction in these processes wherever possible and leverage partner resources. Use these challenges and insights gained at Used Car Week to drive into 2024 with confidence
About Allied Solutions
Allied Solutions is one of the largest providers of insurance, lending, risk management, and data-driven solutions to auto finance companies and financial institutions in the US. With their consultative approach and commitment to the market, Allied Solutions uses technology-based solutions customized to meet the needs of 6,000 organizations. Allied Solutions is headquartered in Carmel, Indiana and maintains several offices strategically located across the country. Allied Solutions is a wholly owned and independently operated subsidiary of Securian Financial Group. Together, Allied and Securian boast 100+ years of industry experience.
[1] Cox Automotive. “Loan Defaults and Repossessions Returned to Historical Norms in 2022.” July 2023.
[2] SubPrime. “Gauging Client Mood with Allied Solutions.” November 2023.
[3] Yahoo Finance. “Toyota (TM) to Pay $60M Fine for Illegal Lending Practices.”
December 5th, 2023
