Established as the Consumer Credit Insurance Association in 1951 to preserve a creditor’s ability to offer debtors life, disability or property insurance, the Chicago-based Consumer Credit Industry Association (CCIA) has been busy of late. Aside from monitoring the impact of employment protection on F&I revenue streams, the association is taking on a new legislative threat to the auto industry. Executive Editor Gregory Arroyo sits down with William Burfeind, executive vice president of the association, to discuss the organization’s recent activities.
F&I: The association has obviously been around a long time. How has its role changed since its formation?
WB: The insurance provided by our members still provides the same financial security and peace of mind to debtors, as well as an additional income stream to creditors. When we first formed, our mission was to preserve a regulatory environment conducive to the business. And that mission essentially remains the same today.
Of course, the scope of the association has expanded commensurate with the scope of optional products over the years. And as this expansion began to include non-insurance products, the association began doing business as the Consumer Credit Industry Association, recognizing it was not just insurance products in which our members were engaged. Our membership now includes insurance companies and other financial service providers.
F&I: You mentioned preserving the business. My understanding is there is a major legislative threat against the industry right now.
WB: The composition of Congress suggests an inclination to enact consumer protections long favored by consumer advocates. In fact, in a speech to the Consumer Federation of American assembly, Senator Chris Dodd (D-Conn.), who chairs the Senate Committee on Banking, Housing, and Urban Affairs, said the current financial mess has presented a “window of opportunity” to achieve a number of objectives that have been “elusive” over the years.
Right now, the most ominous threat to our industry are several bills making their way through Congress that would establish a national usury rate of 15 percent in one instance, and 36 percent in others. One of those bills, S. 500, was introduced by Senator Dick Durbin (D-Ill.).
F&I: We wrote about this legislation last month. My understanding is these proposed caps would seriously impact F&I.
WB: A usury rate at any level will limit the credit available to some market segments. Arguably, any limitation in credit availability limits the market potential for debt- and asset-protection products. The more certain threat to our business is these bills include credit insurance premiums and ancillary product charges into their calculations of the annual percentage rate (APR) limit. This will have a chilling effect on sales and will amount to a de facto product prohibition in connection with some subprime credit. Further complicating matters is the bills do not define ancillary products. Does it refer to GAP, extended service contracts, and VIN etching? I can only assume it does.
Another bill introduced by Sen. Durbin, S.566, would create a Financial Product Safety Commission modeled after the Consumer Product Safety Commission. It would be authorized to adopt consumer protection rules applicable to all consumer credit products. And again, the bill includes ancillary products, but does not define what that means.
F&I: So what’s your association doing to combat these bills?
WB: The association has retained a lobbyist to cultivate a favorable Congressional understanding of our business, promote action by other associations that should have an interest in these bills, and coordinate with companies and associations already active. It’s still early in the legislative process, but collectively we’re making good progress.
F&I: What can dealers do right now to support your efforts?
WB: Nothing captures a legislator’s attention more than his or her constituents, and every legislator has an automobile dealer constituent. And given the current economic difficulties for automobile sales, a legislator has to be responsive. So, contact your U.S. Senator and Congressman and let them know that these bills are bad for your business.
F&I: Speaking of the current economic situation, what’s your take?
WB: From my vantage point, the current economic crisis is reminiscent of the early 1980’s recession. Interest rates soared and consumers simply stopped spending and borrowing. And like today, dealers struggled to survive. And unless there’s a credit transaction, credit insurance can’t be offered. So, credit insurance companies similarly struggled to survive. The difference this time around is government’s involvement in trying to remedy the economy. My fear is the new business models that emerge may render existing models obsolete.
F&I: Some say credit insurance has been rendered obsolete. What’s your take?
WB: Traditional credit insurance has been competing with an expanding array of products before this economic recession. So that’s certainly been a challenge for the category. But what’s also impacted the category is the limited budget consumers have. And in this current economic environment, customers are simply most concerned about unemployment.
F&I: I guess that’s why employment protection is such a hot item. I know it’s made a difference for Hyundai.
WB: It certainly has. And it has since sparked a lot of imitators. Aside from GM and Ford, other companies which launched similar programs include JetBlue, Walgreens and clothing company JoS. A. Bank. If these programs prove cost effective, will they become models for extending other benefits traditionally offered for purchase? Whatever the benefits are, the risks come with a cost to be borne by someone. How these new business models impact the F&I revenue stream and the business of traditional insurance underwriters currently occupies our thoughts.
F&I: A dealer recently told me he was having some luck with credit insurance by focusing more on disability. Do you have any recommendations?
WB: Anecdotal reports from my member insurance companies suggest that consumer acceptance rates would increase if these products are presented consistently and confidently. And there are plenty of marketing materials created by underwriters and servicing companies that can help. Basically, it comes down to identifying a consumer’s need, and generally, disability protection is a need shared by almost all consumers. In fact, prior to the subprime mortgage debacle, disability was known to be the leading cause of home foreclosure and a significant factor in consumer loan delinquency and default. Armed with a few facts and a consistent presentation, a dealer ought to achieve an uptick in disability coverage acceptance.
F&I: So what’s your outlook for the credit insurance industry, and what would you tell that dealer who has lost faith in the category?
WB: Be reminded that our industry is not just credit insurance anymore. Credit insurance companies still underwrite insurance, but they also service non-insurance, debt-protection programs. Some of these programs have been referred to as the functional equivalent of credit insurance without regulation. Actually, these programs are regulated, but they currently offer more flexibility and ease of administration. Some view these products as the natural evolution from credit insurance. Although the product history has been relatively short, it appears that many of these programs are moving back toward credit insurance benefit models. Still, there are distinct advantages for each. For the foreseeable future, credit insurance and non-insurance, debt-protection products are on parallel production tracks, which, together, should grow once our economy gets past this current, and hopefully short, economic aberration.