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Editor’s note: A version of this first appeared on Medium. I was fired from the Consumer Financial Protection Board’s Consumer Advisory Board last week, along with all of its other members. Why? Because the acting head of the bureau, Mick Mulvaney, appears intent on running the consumer protection bureau into the ground while claiming a lack of “global perspective” and wanting a “fresh start.” Never mind that this board has been the most diverse it has ever been — split about evenly between consumer advocates and business people (with some academics thrown in for good measurement). If Mr. Mulvaney was concerned the board was only wild-eyed consumer protection activists, he didn’t appear to notice executives from industry giants Citi, Discover, FICO, Mastercard and PNC. Or if he really cared about private sector innovation, as he claims, he missed the presence of fintech legend Max Levchin, TrueAccord’s Ohad Samet, NerdWallet’s Tim Chen, Oportun’s Raul Vazquez (both of the latter being Core portfolio companies, for disclosure) and myself. This mass firing is the latest in a string of actions meant to kill a regulatory body that was formed in response to the most devastating consumer financial abuse in nearly a century. Mr. Mulvaney, famous for having called the bureau a “sick, sad joke” before taking its helm, was installed as a cynical gesture by a president who knew the bureau was too popular to dismantle. Mr. Mulvaney has all but kicked the life out of the bureau through a series of navel gazing exercises and a moratorium on all (but Wells Fargo’s) enforcement of legal consumer protections. Acting Consumer Financial Protection Bureau Director Mick Mulvaney's decision to fire the bureau's consumer advisory board is just the latest example that underscores his desire to kill an important regulatory body. Bloomberg News “Good riddance,” you say? I’d ask you to think again. Yes, our financial regulatory system is a messy patchwork of state and federal agencies. Yes, the industry is spending way too much on compliance, shuffling way too much paperwork. Yes, I think the CFPB overused its stick relative to its carrots in the past. Instead, we should make a long-term, concerted effort to modernize our regulatory infrastructure (taking inspiration from the United Kingdom and Singapore). But consider the alternative: every rule in place today is a response to incredible harm done to hardworking Americans by greedy, unscrupulous, short-sighted and sometimes outright criminal actors in finance. The CFPB, in several short years, has collected more than $12 billion in penalties for 29 million Americans who were sold misleading products or services. As a profit seeking capitalist who invests in high-growth fintech startups (like Ripple, Mosaic, Oportun and more than 30 others), I believe in guard rails, in rules, in regulation. And I believe the prudential regulators’ primary responsibility of safety and soundness of our financial system does not adequately protect consumers. And I believe financial products are sufficiently complex and materially impactful on people’s lives and livelihoods that having a consumer watchdog is entirely warranted — even if it is a pain the ass, a cost to the system, and a drag on innovation. The stakes are just too damn high, for each household and for our country. So, yeah, I’m sad we were fired for no good reason. It was a genuine honor to serve on the Consumer Advisory Board for more than a year. But that’s completely immaterial to the systemic irresponsibility I believe Mr. Mulvaney is exhibiting to his duty to protect everyday Americans from harm. Further, wildly oscillating regulatory entities cost the industry by introducing even greater uncertainty. And what is perhaps to me the most annoying: Even a conservative, limited-regulation leadership can express itself in smart governance and shifting priorities; it does not need to resort to spreading organizational cancer. Arjan Schütte Arjan Schütte is the founder and a managing partner of Core Innovation Capital, a leading venture capital fund investing in financial services companies that empower everyday Americans.
Over the past 12-18 months, there has been a real increase in interest by lenders around the idea of establishing “all in one pricing” (AiO) with their repossession forwarders.Most of this interest has been spurred by concerns expressed by the CFPB regarding ancillary fees as well as a desire by lenders to simplify the invoicing/payment process. AiO can, indeed, offer benefits in these areas.However, as many lenders have come to understand, it must be approached very carefully and requires fairly deep analytics to gain a clear view of where the pricing should fall.While many lenders have been examining the strategy, at this point, very few have adopted it as they have come to realize they simply don’t have the data points necessary to gain a solid understanding.The remainder of this article will examine the key issues surrounding AiO pricing with the aim of giving you a better understanding of the dynamics that come into play. What Is AiO Pricing? Perhaps the answer is obvious, but we have found that different lenders do have different views.In its purest form, AiO pricing is a single flat fee that covers the cost of the repossession and all ancillary services that might come into play to complete the processes required by the specific case.This may include: ·Key cutting ·Personal property ·Storage ·Redemption ·Use of flatbeds ·Transportation to auction It would be great if the full cost of these services could just be added to the cost of every repossession.However, since all, some or none of these services may come into a play on a given case, simply adding the full fee to each obviously would result in an AiO fee that would be ridiculously high. So, the challenge lies in understanding the utilization factors relating to the various ancillary services possibilities.Unfortunately, the utilization factors can vary tremendously from portfolio to portfolio and, therefore, detailed analytics are required to come up with a fee that makes sense for both your customer and your vendor partner. Let’s take a look at some of these variables and how they can impact the pricing model. Key Cutting As we all know, sometimes a key is obtained when a car is recovered and many times one is not.To determine a key cost factor that can be applied to every repossession, you have to make an assumption about what % of recoveries will require a key.This is data that we are able to track in our proprietary database and I can tell you we see a wide variation, ranging from 2-3% to as much as 10% where keys have been provided. Another very significant factor is the mix of the types of keys required.Again, it can be very portfolio specific.For instance, we have one large captive lender client that was an early leader in the deployment of proximity keys which are very expensive.The average key cost is off the chart.Conversely, we have title lending clients where exactly the opposite is true.The chart below summarizes the impact both can have on the AiO price.
Your institutions’ policy regarding keys can also have a major impact.Some lenders want operational keys available on all cars prior to transport.Others only want keys cut if required to access the vehicle for personal property determination.Several considerations….and we have only covered keys!
Pricing for the costs related to the redemption of the vehicle by the customer is one of the trickiest aspect of AiO pricing.The first hurdle is to understand the average redemption rate on the portfolio.To predict the variable with any confidence/accuracy, one must have at least six (preferably 12) months of history tracking the issue.Not only do redemption rates vary significantly by lender, but they also vary significantly by portfolio within the lender.For instance, a post charge off skip portfolio will have a much lower redemption rate than a 1st placement pre-charge off portfolio.
To put the issue in context, we have one lender whose 1st placement business redeems at a 24% rate and another that redeems at a 42% rate.Assuming that the agent will be limited to a maximum total fee of $150 per actual redemption, the impact on the AiO rate would be:
The other very important component of the redemption related costs is the amount the agents are allowed to charge the lender in redemption situations.Any redemption has a potential combination of personal property, administrative and storage related cost that the agent does expect to invoice.Historically, these costs have varied by region and even by agents operating in the same region.However, for an AiO approach to work, these fees must be standardized across all forwarders/agents.The approach to doing so is all over the board.We will leave that for another article.
Personal Property – No Redemption
In many cases, a car is not redeemed but the customer does want to retrieve personal property.Due to CFPB concerns, most lenders do not want the agent collecting any personal property related fees from the customer.However, it properly account for these fees in the AiO model, one must make assumptions on what percent of recovered vehicles will involve retrieval of personal property.Again, it varies meaningfully by portfolio.
Excess storage fees must also be accounted for in the model. Most repossession come with a certain amount of free storage, but what happens when that is exceeded?The AiO model must anticipate that possibility and assign a cost for it.Again, that can vary significantly by portfolio.We work with one lender that generally moves cars off the lot to transport within 4-5 days and another that averages almost 20 days.
Clearly the AiO pricing model has many moving parts.If you want the right price and you want to feel confident that your vendors will be able to live with that price for a reasonable period of time, you will need to be able to provide very solid data on your portfolio.If you are unable to do so, our recommendation is to have a very transparent process with your vendors in which all assumptions are provided along with the resulting pricing model.With that in place, all parties can monitor the actual performance and agree to make adjustments accordingly.
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