F&I and Showroom, June 2019

BY GIL VAN OVER www fi magazine com 30 F I and Showroom June 2019 ACE E Every finance source you do business with has underwriting guidelines that are based on the three Cs of credit This age old philosophy looks to balance the customers character capacity and collateral Character intends to gauge the customers intent to repay the obligation Capacity measures the customers ability to repay the obligation Collateral quantifies the potential loss if the customer defaults on the obligation You can see any finance sources lending philosophy and collection capabilities by understanding how its guidelines determine what deals it will buy Superprime sources place a high value on credit scores above 750 These customers rarely default Collateral value is of less importance Because they have lower losses and lower collection expenses they offer lower rates On the flip side subprime companies are less concerned about credit scores but are highly focused on the customers capacity and collateral They have higher buy rates but will buy paper the superprime sources will not approve A finance sources lending philosophy is translated into its underwriting guidelines and lender agreements These guidelines lead to portfolio or transactional stipulations Knowingly violating these stipulations can lead to charges of potential bank fraud Lets look at some of the common potential violations of underwriting guidelines 1 SALES REPS COMMITTING BANK OR EMPLOYER FRAUD A reader named Joseph penned a letter printed in the March 2019 edition of this magazine responding to Dealers Are From Mars Finance Companies Are From Venus an article by Tom Hudson January 2019 Page 28 The topic was the rampant confusion over the word lender which more accurately applies to the dealer than the finance source and all that it implies Yes dealers are not aware of their liabilities Joseph wrote One reason may be bank reps Do you think they accurately disclose the extent of those liabilities Great point A credit union rep recently lost her job because she told a dealer the credit union would accept credit cards as down payments She followed up with a text message confirming same When the dealers general counsel asked the credit unions legal department to confirm this policy in writing the credit union terminated the rep for misrepresenting its position on credit card down payments I can envision a Federales case to prosecute sales reps or credit analysts from federally insured institutions when they knowingly misrepresent the finance sources position on contractual reps and warrants Im not aware though of any instance where an employer pressed charges against a terminated employee for misrepresenting the employers contractual reps and warrants Like kinky F I managers who are fired for fraud the employee can easily obtain employment at another finance source 2 SELF EMPLOYED NO AUTO APPROVAL A few finance sources state specifically on either their callbacks or in their programs guidelines that self employed applicants are not eligible for auto approval They are often asked to prove income via a bank statement or tax returns These more stringent stips or conditions are in place because of the higher failure rate of small businesses and the potential default risk if the applicants business goes under Because it can be more work many dealership managers believe it is okay to change an applicants employment status from self employed to employed and change the applicants job title from owner to manager The Federales are Expert lists four all too common situations in which failing to understand underwriting guidelines or falsifying required stips by dealership or finance source personnel can constitute not just noncompliance but outright fraud 4 F I Scenarios That Can Lead to Bank Fraud PHOTO GETTYIMAGES COM BLAKEDAVIDTAYLOR