Credit Acceptance Profile
Credit Acceptance Corporation offers financing programs that enable automobile dealers to sell vehicles to consumers.
The company’s financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements for its financing programs, but who actually end up qualifying for traditional financing.
Without its financing programs, consumers are often unable to purchase vehicles or they purchase unreliable ones. The company was founded to collect retail installment contracts (referred to as Consumer Loans) originated by automobile dealerships owned by Donald Foss. The company refers to automobile dealers who participate in its programs and who share its commitment to changing consumers’ lives as Dealers. Upon enrollment in its financing programs, the Dealer enters into a Dealer servicing agreement with the company that defines the legal relationship between Credit Acceptance and the Dealer. The Dealer servicing agreement assigns the responsibilities for administering, servicing, and collecting the amounts due on Consumer Loans from the Dealers to the company.
The company is an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the Dealer and assigned to it. The majority of the Consumer Loans assigned to the company are made to consumers with impaired or limited credit histories.
Principal Business
The company offers Dealers financing programs that enable them to sell vehicles to consumers, regardless of their credit history. The company has two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, the company advances money to Dealers (referred to as a Dealer Loan) in exchange for the right to service the underlying Consumer Loans. Under the Purchase Program, the company buys the Consumer Loans from the Dealers (referred to as a Purchased Loan) and keeps all amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans.
Portfolio Program
As payment for the vehicle, the Dealer generally receives a down payment from the consumer; a cash advance from it; and after the advance balance (cash advance and related Dealer Loan fees and costs) has been recovered by it, the cash from payments made on the Consumer Loan, net of certain collection costs and its servicing fee (Dealer Holdback).
Purchase Program
The Purchase Program differs from the company’s Portfolio Program in that the Dealer receives a one-time payment from it at the time of assignment to purchase the Consumer Loan instead of a cash advance at the time of assignment and future Dealer Holdback payments. For accounting purposes, the transactions described under the Purchase Program are considered to be originated by the Dealer and then purchased by the company.
Servicing
The company’s largest group of representatives services Consumer Loans that are in the early stages of delinquency. The company’s representatives work with consumers to attempt to develop a solution that will help them avoid becoming further past due and get them current where possible. The company utilizes a variety of methods to attempt to contact the consumer or to remind them of upcoming scheduled payments, including phone calls, email, text messaging, mail, and mobile notifications.
Representatives service Consumer Loans through the company’s servicing platform, which consists of the following two systems:
The collection system, which assigns Consumer Loans to representatives through a predictive dialer and records all collection activity, including details of past phone conversations with the consumer; collection letters sent; promises to pay; broken promises; payment history; repossession orders; and collection attorney activity.
The servicing system, which maintains a record of all transactions relating to Consumer Loan assignments and is a primary source of data utilized to determine the outstanding balance of the Consumer Loans; forecast future collections; analyze the profitability of its program; and evaluate its proprietary credit scoring system.
Ancillary Products
The company provides Dealers the ability to offer vehicle service contracts to consumers through its relationships with Third-Party Providers (TPPs). A vehicle service contract provides the consumer protection by paying for the repair or replacement of certain components of the vehicle in the event of a mechanical failure. The company recognizes its fee as finance charges on a level-yield basis over the life of the related Loan. The company markets the vehicle service contracts directly to Dealers. The company’s agreement with one of its TPPs allows it to receive profit sharing payments depending on the performance of the vehicle service contracts.
The company’s wholly owned subsidiary VSC Re Company (VSC Re) engages in the business of reinsuring coverage under vehicle service contracts sold to consumers by Dealers on vehicles financed by it. VSC Re reinsures vehicle service contracts that are offered through one of the company’s TPPs. Vehicle service contract premiums, which represent the selling price of the vehicle service contract to the consumer, less fees and certain administrative costs, are contributed to trust accounts controlled by VSC Re. These premiums are used to fund claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As such, the company’s exposure to fund claims is limited to the trust assets controlled by VSC Re and its net investment in VSC Re.
The company provides Dealers the ability to offer Guaranteed Asset Protection (GAP) to consumers through its relationships with TPPs. GAP provides the consumer protection by paying the difference between the loan balance and the amount covered by the consumer’s insurance policy in the event of a total loss of the vehicle due to severe damage or theft. The retail price of GAP is included in the principal balance of the Consumer Loan. The company recognizes its fee as finance charges on a level-yield basis over the life of the related Loan. TPPs process claims on GAP contracts that are underwritten by third-party insurers. The company’s agreement with one of its TPPs allow it to receive profit sharing payments depending on the performance of the GAP contracts.
Under its Purchase Program, the company provides Dealers that meet certain criteria the ability to offer vehicle service contracts and GAP to consumers through the Dealers’ relationships with TPPs.
Sales and Marketing
The company’s target market is approximately 60,000 independent and franchised automobile dealers in the United States. The company has market area managers located throughout the United States that market its programs to prospective Dealers, enroll new Dealers, and support active Dealers.
Regulation
The company’s business is subject to laws and regulations, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, prohibitions against unfair, deceptive, and abusive acts and practices, and various other state and federal laws and regulations.
The company is subject to supervision by the Bureau of Consumer Financial Protection (the Bureau). The Bureau has rulemaking and enforcement authority over certain non-depository institutions, including the company. The Bureau also has authority to interpret, enforce and issue regulations implementing enumerated consumer laws, including certain laws that apply to its business. In addition, the Federal Trade Commission has jurisdiction to investigate aspects of the company’s business.
History
Credit Acceptance Corporation was founded in 1972. The company was incorporated in 1972.
