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posted on 2018-06-12 by Arjan Schütte
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.
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posted on 2018-06-05 by Thee Chang
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.
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Captive Lender
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Title Lender
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% of Vehicles Keys Must Be Cut
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10%
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10%
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Avg Key Cost (based on mix)
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$235
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$144
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AiO Cost Factor
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$24
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$13
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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!
Redemption Fees
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:
AiO Cost Factor
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Port A (42%)
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Port
B (24%)
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$63
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$36
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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.
Storage
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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posted on 2018-03-12 by Dennis Falletti
It is well-known that litigation costs and
business failures have been rising.
Today, bankruptcies are at an all-time high,
but even more startling is the increase in businesses that simply lock their
doors and walk away.
Adding to the problem are companies that were
operating in the black, but now show too much red ink.
The results of this is an increase in
companies that are paying their bills slower, asking for extended payment
plans, paying their preferred or secured vendors first, then picking and
choosing who to pay and who not to pay.
Statistics show that the average credit
ratings of companies are declining and their “will to pay” is keeping pace.
Adding to their burden is an aggressive move by the IRS and state authorities
through increased audits resulting in (not anticipated) tax due with tax liens
placed upon their business.
Adding to the credit grantor’s misery is the
fact that debtors are more educated today about who to pay, when to pay and who
not to pay at all.
This trend can be tracked to the source, which
is the public media, social, advice from their attorneys or peer-based
experiences.
Too often we see debtor companies invite and
use litigation as a means to an end. Debtor companies know that if litigation
action is taken against them, they have a number of options and tactics they
can use to their advantage.
What are those
advantages?
1. Time
Debtors and their attorneys know that when
suit is filed, they can use various stalling tactics allowed by the court
systems.
Debtors can buy as much as 18 months or more
before they seriously are forced to make a payment decision.
Their tactics include the following:
●avoiding service
●disputes that need validated
●continuances
●motions for discovery
●demanding witnesses
●no show at trial resulting in
default judgments with no revenue recovery pursuit
These tactics, in many cases, are intended to
test your litigation policy and resolve allowing you to make errors that they
can use to their advantage.
2. Money
Many debtors know, since they are in business
themselves that companies set a suit threshold before they will consider filing
suit based on what the creditor believes is a balance size that justifies
litigation.
Not knowing what it is but having knowledge of
its existence gives them the advantage of waiting out collection agency phone
calls, letters and threats of potential litigation and will wait to see if and
when it happens.
Depending on the balance, many know for sure
that suit will not be forthcoming so the bill remains unpaid.
3. Poor credit rating
Debtors who have a poor credit rating have the
advantage. What more can you do to me? So why should I pay?
The problem here, if you are an unsecured
creditor, is that they will pay their secured creditors on time and neglect
your bill opting many times to simply find and switch to a competitor who will
grant them credit or operate C.O.D. when needed. They have no sense of urgency.
4. Lack of a good
credit risk management procedures
Nothing intimidates a potential debtor more
than complete and thorough credit risk investigation prior to adding them as a
customer. It is a physiological fact that impacts their thought process from
the beginning.
Having a weak policy or one that allows a
company with poor predictive pay patterns to order on terms sends a message
that advantage can be taken, at will, if needed.
5. Sympathetic court
system
Let’s face it - the court system is
overworked, crowded and has become more pro-debtor.
Cases for debt payment are being pushed out
farther into the future by judges due to defendant requests for more time as a
means to advance more pressing cases.
6. Counter suits
This tactic is very effective simply because
it elevates the plaintiff’s costs, time and interjects uncertainty in decisions
by the plaintiff and forces the plaintiff to consider their return on
investment.
It forces credit granters to ask themselves,
what will be the cost to pursue the debt and defend against a counter suit?
What are the odds of the plaintiff winning? What are the odds of the defendant
winning? What will I gain at the end? Is the cost simply worth the time and
return?
In some cases the answer is yes, but in other
cases, no.
7. Witnesses and
depositions
This tactic is a very effective method of
getting the case pulled at the plaintiff’s request due to the cost involved and
time constraints on under staffed departments.
Court systems are stopping the practice of
allowing phone witness depositions and forcing the plaintiffs to produce a
specific witness in person, not allowing your collection agency to represent
you or to use anyone available at your company.
Defendants and their attorneys subpoena
specific people as a “must” attend. If the plaintiff sends a witness, many
times the defendant’s attorney will ask for a continuance forcing the witness
and company to spend more money to the point that the return on investment will
not be worth the effort.
8. Settlement on the
courthouse steps
Too many times we have seen the litigation
process advance, costing the plaintiff substantial time and money only to
result in a settlement at the last minute, virtually within the courthouse just
prior to hearing the case.
Many of these settlements accepted are the
same amount or slightly higher than what was offered in months previous during
the collection phase of recovery.
The advantage for the defendant is that they
have successfully bought the time to plan the repayment on their terms.
The disadvantage to the plaintiff is that they
have spent more money and time through litigation costs and increased attorney
contingency fees for obtaining the settlement.
9. Judgments
When litigation is successful, the advantage
to the defendant is that in many cases they can get a court ordered payment
plan better than what was offered during the collection phase of the process.
An additional advantage is that they will not
stick with that plan and the Plaintiff and their attorney must keep spending
time and money to pressure the defendant to make the scheduled payments.
10. Default judgments
Debtors know, especially if they have a poor
credit rating, that a default judgment is nothing more than a legal document
stating they owe the money. Something you and they already know.
The advantage for the defendant is that
judgment enforcement is costly and many plaintiffs will not pursue the
enforcement due to the additional costs.
It is reported by many of our clients that their
chosen attorney is remiss in pursuing enforcement because their client will not
pay more for the enforcement and they will not want to incur cost out of pocket
to do so.
They simply decide to pursue better case
options. In this scenario the defendant gets away without paying.
Today more than ever, a change in the status
quo of litigation policy and procedures is needed.
[ Related:When is Litigation the Answer? ]
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posted on 2018-03-12 by Dennis Falletti
It seems like a
straightforward enough question. Any receivables manager should be able to
answer it with a quick glance at a report or two.
Unfortunately, the
number at the bottom of the page is a lot like the tip of the iceberg. It’s
what you don’t yet see that may end up doing the most damage.
Tightening up
requirements
You’d be hard pressed
to find a company not taking a long hard look at their credit and collection
policies, and for obvious reasons. Shorter terms, lower balances, additional
and more thorough credit references are just a few areas we’ve all tightened up
on the front end.
Working accounts
sooner, with a more uniform and accelerated escalation process is becoming a
new doctrine for collection managers on the back end.
So if we’ve tightened
up requirements on the front end, and we’ve taken in some slack we previously
extended to our slow payers, where should we look now?
Even the most diligent
credit manager or analyst would be hard pressed to consistently and accurately
read the future. Your best customer two years ago could very well be succumbing
to the same financial hardships so many others have.
And, unlike the one
time, hit-and-run customer, your instincts will likely be to extend some
leniency their way if they do slide a little.
Unfortunately, the
slide could be more rapid than anyone expects. So instead of relying on a
credit application from ten years ago and a previously solid payment history,
why not take an additional step to protect your interests?
Annual credit risk
assessments
An annual credit risk
assessment of your active customers can provide insight and allow you to make
more informed and appropriate decisions based on their current financial
health. Some clients run a complete portfolio analysis for all customers
annually and even run their “B” and “C” tiers of customers quarterly.
On more than one
occasion, the trending information they’ve received has allowed them to probe a
bit further before green lighting a large order. And in some cases, the order
size or terms can now be adjusted to reflect the updated potential risk
factors.
Accessing the various
databases and information needed to come up with useful results would likely be
cost prohibitive for most companies to do themselves. However, in some cases,
the cost of programs such as these can be zero.
More often than not,
the results of a credit risk assessment hold at least a surprise or two.
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posted on 2018-03-12 by Mikaela Parrick
When the bitcoin bubble
bursts, there will be quite a few investors in debt.
According to Cointelegraph, about 22% of
bitcoin investors used borrowed money to purchase bitcoin.
People are even taking
out mortgages to buy bitcoin, in addition to using credit cards and equity
lines.
This means there’s a lot of people accumulating a lot of “bad debt.”
Bitcoin is still so new
and unregulated that these individuals are taking huge risks to invest, hoping
to strike it rich.
Many people, including
the founder of another popular cryptocurrency dogecoin, are predicting the bitcoin
bubble to burst… and soon.
So when the value of
bitcoin tanks, there will be massive amounts of debt left behind.
Some are even drawing
parallels to the 2008 housing crisis because people
took on huge amounts of debt with the expectation that the housing marketing
would boom, only for the bubble to burst.
People were left with
too much debt and not enough assets to cover it.
What is bad debt?
Bad debt is debt that doesn’t
increase your net worth, has no future value and that you don’t have money to
back for.
Some examples of bad
debt are auto loans and credit cards.
Good debt is considered
an investment that generates long-term income or value.
How much debt is too much?
While any amount of
debt is too much, there is an easy way to find out if your amount of debt is
too high.
A good metric to use is
your debt-to-income ratio.
To find this, add up
all your monthly debt payments and divide that by your monthly gross income.
Anything over a 43%
debt-to-income ratio is a red flag to potential lenders.
Learn more about bad
debt here.
Can I invest in bitcoin without going into
debt?
Yes! Here are a few
words of advice to those interested in investing in bitcoin:
1. Buy only
what you can afford
To prevent going into
bitcoin debt, first we suggest only buying what you can afford.
A good rule of thumb is
that if you have to borrow, or you can’t buy the same thing twice, you can’t
afford it.
2. Start with a
small share
Bitcoin can be
purchased in fractions for a cheaper price.
Start small before
spending all your hard-earned money.
3. Do your
research
Bitcoin might not even
be the smartest cryptocurrency to invest in. There’s a host of other options
available, most of which are currently doing well.
Research some other
(possibly cheaper) options, like ethereum or litecoin.
4. Buy insured
bitcoin
Insured bitcoin can be
bought through Coinbase, which is better than
uninsured.
However, keep in mind
that only 2% of Coinbase bitcoin is insured.
Always read the fine
print!
5. Buy low, sell
high
Similar to the stock
market mindset, to survive in bitcoin you’ll need to buy low and sell high.
We realize this advice
is a little too late, considering bitcoin was $500 a few years ago and is now
in the tens of thousands, but it’s still good advice to follow nonetheless.
This is where the
gamble comes in. You never know when the price will fall or shoot back up, so
prepare for anything.
6. Stay
up-to-date on the market
If you’ve invested in
bitcoin or any other cryptocurrency, you need to watch the value like a hawk
and sell if you see the market start to tank.
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