September 2014 NCUA Report; Indirect Auto Lending; CFPB Releases Supervisory Highlights Report
Written by Bernadette Clair, Senior Regulatory Compliance Counsel
Last week, NCUA released its September 2014 Report. Featured articles include:
Indirect Auto Lending. One of the articles in this monthÃ¢ÂÂs NCUA Report discusses indirect auto lending at federally insured credit unions, and includes some of the red flags examiners should look for when reviewing credit unionsÃ¢ÂÂ indirect lending programs. The article also lists these red flags from recent exams as "items that can increase a credit unionÃ¢ÂÂs unintended risk exposure:
- Allowing a dealer to use a rebate on a new vehicle purchase to finance the negative equity on the trade-in vehicle.
- Having no loan-to-value ratio limit or dollar limit when financing negative equity on trade-in vehicles.
- Financing high-mileage automobiles, those with 100,000 miles or more, for 60 to 72 months, which exceeds the collateralÃ¢ÂÂs useful operating life.
- Loosening underwriting standards by increasing advance rates, lengthening terms, and originating loans to borrowers with lower credit scores.
- Having no portfolio limits for borrowers with lower credit scores.
- Paying commissions for grade D and E credit-quality loans.
- Pricing riskier loans inadequately with an interest rate not commensurate with the credit risk associated with these loans.
- Failing to adjust allowance for loan- and lease-losses methodologies or maintain adequate reserve levels to cover the increased risk exposure from C, D and E quality loans.
- Changing the management of a credit unionÃ¢ÂÂs indirect lending program.
- Allowing loan officers or lending managers to approve exceptions to policy.
- Granting indirect automobile loans to non-credit union members."
CFPB Releases Supervisory Highlights Report. The CFPB was also busy last week in the indirect auto lending space.Â In addition to announcing a proposed rule to oversee larger nonbank auto finance companies, the CFPB released a Ã¢ÂÂSupervisory HighlightsÃ¢ÂÂ report detailing its supervisory activities related to fair lending and the indirect auto lending market.Â The report follows a March 2013 CFPB Bulletin (2013-02) to indirect auto lenders about compliance with the Equal Credit Opportunity Act (ECOA), and is offered as further guidance to indirect auto lenders.
NAFCU Credit Union Compliance GPS. NAFCU's 2014 Credit Union Compliance GPS is still available. This comprehensive, electronic resource translates complex regulatory language into plain English. The latest edition includes improved user-friendly search functions, including more hyperlinks and bookmarks and much more. You can purchase a copy for your credit union here!