Earlier this year, lawmakers were ready to set a federal usury cap that would have virtually eliminated the special finance market. Friendly Finance Corp. President Steven Pittler emerged as a vocal opponent. His company has been there for the special finance segment since 1949. F&I and Showroom sits down with Pittler this month to discuss how his company can help dealers finance the undesirable.

F&I: So, where do you think we’re at in the recovery?

SP: As of early December, economic data continued to be mixed, but the general consensus seems to be that we are in the midst of a steady and very slow recovery. Although we have lost several million jobs this year and unemployment is now at 10 percent, unemployment claims have fallen for the fifth straight week. Weekly jobless claims are on the decline, but continuing claims are exceeding expectations. The one thing that everyone seems to agree on is that this recovery will be a long and bumpy ride.

F&I: The American Bankruptcy Institute recently predicted that BK filings could reach their highest point since the rules changed in 2005. Why should dealers be interested in this segment?

SP: There are many opportunities for dealers who are willing to take on the bankruptcy niche market. However, to be successful, they need to partner with a finance company with the experience and proven track record in this area. There are, of course, a number of subprime auto finance companies that will finance consumers with prior bankruptcies. The way Friendly Finance Corp. differs from many other lenders is our focus on consumers who are currently in open Chapter 7 or 13 bankruptcies. We will even consider individuals who filed for bankruptcy more than once, and we don’t require any reestablished credit if their bankruptcy has already been discharged. 

We can also provide our dealers with lists of potential customers who are currently in an open or discharged bankruptcy, as well as provide materials and suggestions to assist in their marketing efforts. Basically, we give our dealers the ability to get their customers on the road before their competitors even get the opportunity to seek financing.

F&I: In which states do you operate?

SP: We purchase retail installment sales contracts from franchise and independent dealers in Ohio, Michigan, Indiana, Illinois, Kentucky, Virginia, Tennessee, Georgia, Delaware and Maryland. Since we never require dealer agreements, dealers can simply sign up with us and immediately start sending applications using DealerTrack, our Website, or by fax.

F&I: Is it true Friendly doesn’t employ scoring systems?

SP: We don’t believe that an individual’s credit score is a good indicator or predictor of whether or not that person should qualify for an auto loan. With six decades of experience, we understand the importance of financing subprime customers with payments they can afford while still maximizing profits for our dealers. We look for ways to put deals together that make sense for both the consumer and the dealer, regardless of the applicant’s credit score.

F&I: You have spoken out in the media against SB 257, the bill that would disallow any claims arising from a high-cost consumer credit transaction. I understand another bill, SB 500, could threaten special finance by setting a federal usury cap. Can you provide an update on these regulations?

SP: To be brief, SB 257 and SB 500 are still floating around out there; however, HR 4173, the Wall Street Reform and Consumer Protection Act, is what everyone is talking about these days. This bill, which is the repackaged version of HR 3126, is designed to overhaul financial-industry regulations and create a new government bureaucracy, or super-regulator, to assume regulatory responsibilities related to consumer finance that have traditionally fallen under the jurisdiction of several other agencies.

This new regulator, called the Consumer Financial Protection Agency (CFPA), would have broad oversight over nearly every consumer financial product, including auto loans. The federal government could possibly be assuming a new role of dictating who can receive loans, how much the financial institution can lend, and what consumer financial products would be available.

Passage of this bill in its present form will severely restrict available credit to subprime consumers and increase the costs of lending. I should mention that there is an amendment to this bill which exempts auto dealers from the jurisdiction of the CFPA; however, finance companies that purchase retail installment paper from auto dealers are not exempt. Therefore, auto finance companies, as well as auto dealers, should be very concerned and aware of what is happening in Washington these days.