The NAF Association Road Forward – Lender Guidance

The National Automotive Finance Association (NAF Association) was organized in 1996, with the mission of exclusively serving the non-prime auto finance industry. Since inception, the NAF Association has delivered programs and education that have helped to strengthen the industry. Some highlights of the NAF’s accomplishments to date are:

• Annual Non-Prime Auto Financing Conferences
• Annual Non-Prime Automotive Financing Survey, providing the industry’s only measurements of growth and changes
• Creation of a publication of standards of financial reporting
• Development of a code of responsibility for the industry
• Policy statements
• Regional workshops
• Best-in-class compliance training for compliance managers, and for all other members of financial institutions

In recent years, since the passage of Dodd-Frank and the creation of the CFPB, much of the focus of the Association has been on compliance education and certification – as this is a crucial element of regulatory compliance for all financial institutions. As of the writing of this article, Dodd Frank has been law for just over nine years. The heavy focus on compliance will continue, grow, and adapt as changes in the regulatory environment at the federal and state levels never stop. And, the NAF Association will be there to serve the industry.

Our distinguished members who represent the automotive finance industry have risen to the compliance challenge and put in place compliance management systems, third-party vendor management systems, internal audit, management reporting, and many other structural and organizational changes that will continue to thrive. At the same time, lenders are looking for more. And, the NAF Association is fully vested in shaping the future.

At the recent NAF Association’s 23rd Annual Non-Prime Conference, questions arose about the industry’s path forward, and what role a trade association should play in that progression. To me, the value of a trade group seemed obvious: lead the industry in establishing standards and education, create a forum for two-way information flows between regulators/legislators and lenders, and provide a forum for lender members to share best practices in a way that helps the industry at large to “level up.” It’s a good time to solicit lenders on what their areas of concern are, and how the NAF Association can help them most directly address these needs.

Voice of the lender
So, I e-mailed every lender I could – members and non-members alike. I picked up my phone and started calling. My goal was to get re-set and build the agenda for the next two years squarely around the needs of the lenders, something process improvement practitioners call getting the “voice of the customer.” As of today, I have spoken with 13 lenders: 10 finance companies, 2 banks and 1 hybrid lender/leasing organization. The goal of these conversations has been to gather what is most important to lenders and create a link between that and what a trade organization can do to deliver on those needs.

Government relations/industry advocacy
My first order of business as president was to get the NAF Association a seat at the table with the federal regulators. NAF Executive Director, Jack Tracey, and I saw an opportunity to bring forth the voice of the non-prime lender to the CFPB in a meaningful way. While there are other lobbying entities that represent the automotive and consumer lending industries, the NAF Association is the only organization that deals specifically with the non-prime lenders – and this segment of the consumer market is of most interest to the CFPB when it comes to protection.

On July 3, less than a month in as president, Jack and I sat down with the CFPB at their offices in Washington, D.C. Our goal for the meeting was to introduce ourselves, outline the services we provide to our members, open the lines of communication with the CFPB – and let them know that they can utilize us as representatives of the industry. The meeting went extremely well, and we have held subsequent meetings to clarify our focus and discuss our work around unifying industry standards.

Feedback from the lenders is clear: we want more frequent and substantive updates on regulatory and legislative issues, including state-based issues. Jack and I have already initiated an email list for the distribution of CFPB and the House Committee on Financial Services updates. We are working to supplement that with state-based content as well. We have ideas on how to continue moving this forward, and we welcome more lender guidance also.

Best practice sharing
One of the cornerstones of the NAF Association is our annual Non-Prime Conference. This annual event is a forum for the NAF members and other interested parties to gather. Two of our most popular fixtures are the compliance and fraud session tracks – both of which received high marks in lender feedback. For this content and other content (i.e. collections and portfolio management, credit risk) lenders expressed particular interest in making sure that these tracks are peer-driven; they want to know what other lenders are doing more so than what solutions vendors are saying. Most importantly, lenders expressed a strong desire to keep the conversation going, with more frequency and intensity.

Year-round curriculum and peer interaction
The NAF Association’s compliance training programs are truly like no other. As a lender, I completed the NAF Association’s Consumer Credit Compliance Professional program. I kept the course materials printed out and in a three-ring binder that always stayed within arm’s reach. I still keep this content within arm’s reach today – it is a fantastic resource. As each organization has unique takes on compliance based on their particular nuances. For this reason, our quarterly compliance roundtables and our compliance listserv have been a valuable resource to all lenders to get answers to compliance questions, and in particular, how to make sure that their operational practices and controls are sufficient.

There are many topics of interest beyond compliance that lenders have an appetite for, which include:
• Dealer relations/management – including BHPH dealer engagement
• Finance/accounting/FASB CECL
• Risk management
– Credit risk & analytics
– Loss mitigation
– Third party vendor risk management
• Collections practices
• Information security/cyber-risk management
• Diversity and inclusion

Not to discount the need for continued compliance training, lenders consistently expressed interest in getting more training and education around FDCPA, TCPA, and MLA. Their interest is in learning about the statutes, understanding the operational aspects of how they can (and their peers are) interpreting and controlling for these regulations on their operations floors.

To deliver on this need, lenders expressed a desire to create committees. When probed further, lenders highlighted that committees work best when they have strong moderators, they focus on best practice sharing, and they deliver on the promise of creating more clarity. In response to this need, we will be creating informal committees to test out the viability of them. For committees to work, they must be heavy on lender participation and I need to see that they are relevant – as measured by attendance, levels of engagement, and ongoing feedback. Once we see that, we can determine the best way to resource and support them on a go-forward basis.

Expanding lender participation and involvement
The NAF Association members consist of lenders (finance companies, captives, banks, and credit unions), vendors, and some dealers. The introduction of our compliance training programs has drawn in many BHPH dealers as participants, and I think this is a positive thing. Many dealers that hold and service their own contracts tend to forward integrate and offer their financing to other lenders. We welcome this contingent as members as we do all lenders and supporting industry players. Of particular interest to me is to make sure that we create an environment that keeps the lenders and their needs at the core of our focus, and BHPH dealers can bring more depth to this conversation. I want to grow lender membership and participation, and it is my hope that by creating a valuable and relevant trade association that is directed by their needs that we will attract them.

Setting industry standards that Improve the value chain
As laid out in my previous Non-Prime Times articles, the NAF Association is leading lenders in defining a common set of standards to use in managing recovery agents (either directly or via forwarders). While our consideration is to establish standards that provide efficiencies for lenders, forwarders, and recovery agents, we are focused on our lender contingent. In the coming months we will be producing a more comprehensive set of standards for managing this critical third-party vendor.

Education – the foundation of everything
In my interviews, education was a common thread that ran across all dimensions of lender feedback. Lenders are looking to hear more from peers about how they are managing risks and opportunities, like keeping steps on technology, fraud, financial management, and risk management, etc. Lenders highlighted a need for more proactive, frequent, and information-rich updates on regulatory and legislative changes coming down the pike.

Lenders want to make sure that they are on the front foot when it comes to compliance. In short, lenders want to LEARN. This is a call to action to all lenders to get involved and take some value from our efforts, but more importantly make some deposits to the lender ecosystem that has helped to get us where we are today, and will surely guide us to a brighter tomorrow.

The path that lenders built
NAF Association Executive Director Jack Tracey and I recently met to review the lender feedback and ensure that our direction forward is consistent with delivering on their needs. The following areas of focus define our path forward that is defined by our lender members:
• Increase regulatory awareness and advocacy
• Excellence in compliance
• Lead the way in setting industry standards
• Drive lender engagement and best practice sharing
• Lead the way in relevant education curriculum
• Expand lender footprint
• Diversity and inclusion

Joel Kennedy is director of Business Development at Nortridge Software Company. He has a passion for growing and improving auto finance ecosystem. Joel has over 24 years’ experience helping big banks down to start-up finance companies to build, grow, improve, and repeat. He is the current president of the National Automotive Finance Association, and a board advisor to TruDecision. Joel can be reached at 240-308-2169 or [email protected].