CFPB FinEx Webinar June 23, 2016 1:00 pm CT Coordinator: Welcome and thank you for standing by. At this time all participants are in listen-only mode except during question and answer portion of the call. If you would like to ask a question today, please press Star followed by the number 1 on your touchtone phone. You will then be prompted to record your first and last name. Today's conference is being recorded. If you have any objection, you may disconnect at this time. Now I'd like to turn the call over to your host, Ms. (Jublis Coreal). Thank you. Irene Skricki: Hi. Actually it's Irene Skricki speaking. (Jublis) is here in the room with me, but I will be speaking and sorry everybody for the brief delay there. There were a couple of technical problems with our WebEx provider, but we are up and running now. So welcome everyone to the CFPB Financial Education Exchange Webinar on our new auto loan resources. Just - I'm going to do my usual spiel and run through a few slides initially on FinEx in case anyone who is with us today is new and doesn't know about FinEx. It'll just take a minute. First, to do our standard disclaimer that we're not presenting legal interpretation or other types of guidance and the presentation is our opinions and not necessarily the Bureau's views. Quickly, I think most of you probably know the CFPB, but we are the new Federal Agency in town -- actually almost five years old now -- working to help consumers finance markets work better. So educating consumers, enforcing federal consumer financial laws and studying both markets and consumers to better understand the consumer financial marketplace. And just quickly, on the consumer-facing side of the Bureau, FinEx is managed by the Finance Education Office -- one of six offices in Consumer Education and Engagement. We're also joined today by the Consumer Engagement Office which has responsibility for our digital properties and they will tell you about some of the Web site tools we have our auto loan resources. FinEx -- again for anyone who's new -- is an opportunity for us to share our resources with financial educators of all kinds and also to learn back from all of you what you're learning through assorted mechanisms. If anyone on this call is not signed up and if you're not getting a monthly - at least monthly newsletter from us, please do sign up by emailing cfpb_finex@cfpb.gov. Just quickly, we've had monthly Webinars for the past 14 months. They're pretty much all available on our Web site if you want to listen to any of them. This one will also be posted in a week or two. And we have almost 1600 people now signed up for FinEx. Most of our resources -- actually all of them can be found on the Resources for Financial Educators page, consumerfinance.govadult dash - sorry backslash adult-financial-education -- not the catchiest, but that is our URL. It's up on the screen for those of you who are on the WebEx portion. And we have a resource inventory with all of our resources, except things in the last month or two, which you can both Download and look at on the Web site. I think a number of you have seen this before. So that's our kind of background. We also have a LinkedIn group that you can join to discuss finance education topics with us and with your peers. So that's my standard background -- shortened even more than usual due to our slightly late start. Today we're really excited to share with you a new set of materials and research on financing a vehicle. We use the term "vehicle" rather than "car" just because we want to be inclusive of SUVs, light trucks, other types of vehicles people might be buying. So we're going to talk about some new research and tools that are intended to help consumers navigate the process of financing a vehicle. And as financial educators, obviously you can use these materials to help consumers navigate this process -- and also to familiarize yourself with the process so you can better understand how to guide people through that if they need assistance. Just quickly before I jump in, I'll just say the initiative is encouraging people - or really our message is to encourage people to shop for an auto loan with as much care as they shop for the vehicle itself. To look beyond the monthly payment and use total cost to compare and negotiate for financing -- and then to know before you owe by spotting situations and financing features that could lead to unexpected or higher costs later. So you'll hear more about all of those, but kind of that's the big picture. So the first thing I'll do is to start out by describing why auto finance is important to consumers -- and what we learn through qualitative research on that topic. No surprise to all of you, but it's an important part of people's financial lives. Vehicle loans are the third largest category of household debt for American consumers, behind mortgages and student loans -- about 100 million auto loans outstanding. And about 90% of households own cars. And since 2/3 of vehicle purchases are financed, that's a lot of car loans for a lot of people. And consumers typically buy and finance vehicles multiple times over a lifetime -- the average vehicle is owned about eight years. So obtaining auto finance is something that people may do over and over again during their lifetime. And so it can be a very significant and substantial part of their financial lives. And it is a significant financial decision, as well as a complicated one. Like other situations where the purchase and financing of something happens at the same time -- or almost at the same time -- it can be hard for consumers to separate the two processes and consider each individually. So consumers face many choices in the auto finance process. For example, where to get financing, how much to finance, the duration of the loan, how much of a down-payment to make, whether to trade in a vehicle or sell it separately, whether to purchase and finance additional features related to the vehicle and the financing. And by those additional features or add-ons, we mean features or credit products that are typically added into the financing like Gap insurance or extended warranties. And of that list I just said to you, most if not all of those factors are negotiable. And all of them, then, influence how much the consumer will borrow and pay for the vehicle. So consumers may have trouble keeping track of all those changes and factors during negotiations -- especially because these terms can change simultaneously as you are negotiating. So we wanted to understand the experience -- the consumer experience in navigating the auto financing process. And so we undertook some qualitative research on this topic. In general in our finance education work -- order to understand how consumers - how to help consumers make well informed financial decisions and achieve their own financial goals. We seek to understand what consumers know and how they think about financial issues through both listening to consumers talk about their experiences -- and in some cases looking at complaint data that's been submitted to the CFPB by consumers. So we use this process in the auto finance area and the results are in the paper. There's a Screenshot up there that's available called Consumer Voices on Automobile Financing. Some of you may know, we've had a couple other papers in a series that have come out -- Consumer Voices on Credit Reports and Scores -- and actually just a month or two ago, Consumer Voices on Financial Rules to Live By -- you can access on our Web site. So in this case, similar to those other two papers I described, we did both focus groups and looked at consumer complaint data. We did focus groups with about 308 consumers in four cities in the summer of 2014. And we asked about consumer attitudes, perceptions, motivation and actions around financial decision making topics -- including auto finance. We also looked at consumer complaint data. As many of you know, the CFPB has taken complaints from consumers for almost all of five years of the CFPB's existence. And just over a year ago, we allowed consumers the option of sharing their stories -- or the narratives behind their complaints publicly. As of April 2016, there were just over 2400 public narratives on the CFPB complaint database related to auto financing. And so we looked through those complaints for themes related to the consumer experience in obtaining auto finance. And so that was our other data source. And I just want to emphasize that both of these data sources gave us qualitative insights into a broad range of consumer thinking. But they're not necessarily representative of US consumers as a whole -- and so we're using them to kind of inform our financial education work and just need to be careful in how we actually use those - use that data. So I'll just quickly run through the findings and then we turn to the materials that you can use. So first the themes from the focus groups. Consumers told us that they shop primarily for the vehicle and not the financing. So they often research vehicles, the vehicle's features and prices, but they generally didn't do the same for the financing of the vehicle. Secondly, they often focused on the monthly payment when looking at financing -- and no so much on other terms or features of the loan such as the length of the loan or the interest rate. And lastly, consumers often - frequently they said they did not negotiate the financing terms. They may negotiate on the vehicle price -- sometimes on monthly payment or interest rate -- but quite often not on the other terms of the loan -- all of which have implications for the ultimate cost of the loan. In our consumer complaint data, we found themes that really reinforced the findings from the focus groups. First, again the idea that we heard a lot of consumers indicated they didn't always comparison-shop. In some cases, they didn't understand their options -- forgetting financing, the different options that they had. They were in some cases not confident about exploring other financing options. And in some cases, they thought there wouldn't be a difference between the different financing options that were available. Secondly, we also heard about challenges in understanding and negotiating vehicle loan terms. Consumers said they in some cases found the terms confusing. Some cases, they didn't know - didn't really know or understand the terms until later once they began making monthly payments. And some reported fees that they didn't know about or found confusing. We also heard about some situations that we think consumers should be wary of when they go into the auto financing process. For example, from some consumers we heard about the possibility of refinancing in the future. Some consumers said they knew the loan terms they were getting weren't great, but they were told they could refinance for better terms in the future. When they actually tried to do so, they were unable to refinance -- often because the size of the loan was too large relative to the value of the car. And so they were left with a loan that may have been more than they had originally planned to pay. We also heard about loans that lasted beyond the life of the vehicle. For example, we heard about cases where cars had been damaged, stolen or even returned to the dealer -- but consumers were left with balances on the loans that needed to be paid. Some consumers expressed surprised that several years into paying their loans; they had made a very small dent in the principal based on the structure of the loan. We also heard about challenges and problems with the purchase of add-ons instead of additional features added into the financing. Some consumers said they felt pressured to buy add-ons in order to qualify for financing. In some other cases, people reported that they found add-ons they had purchased were difficult to use or unhelpful. For example, Gap insurance policies that didn't cover when something happened to the car -- the Gap insurance policies that didn't cover the entire balance of the loan -- again, leaving people with unpaid balances and no car. And then lastly, we heard some cases of consumers who said they had visited a car lot and then discovered later applications - loan applications in their name -- or multiple credit inquiries that they had not expected or did not authorize. So these situations are just things that consumers -- if they're informed about the possibility of these things -- they can prepare, they can ask questions, walk away, examine their documents and - in order to protect themselves from potential problems down the line. So all of the things I've just shared -- in addition with other publicly available research -- suggested to us that many of the consumers - many of the - many consumers face challenges in getting auto loans that are right for them. And so to help consumers overcome these challenges, we've designed a set of educational materials with three main goals for the consumer. Again, as I said earlier -- to shop for a loan with as much care as you shop for the vehicle, look beyond the monthly payment and use total cost to compare and negotiate for financing and know be you owe by spotting situations in financing features that could lead to costly surprises later. And now happily we have another person to tell you about some of the materials that we've come up with. (James Franco) from our Consumer Engagement and Consumer Response units at different times will walk us through the materials on auto financing. And we're going to switch seats without a lot of grace here. (James Franco): (I thought your grace was phenomenal.) Irene Skricki: Thank you (James). (James Franco): Hello everyone. Thank you, Irene for that amazing introduction. I'm here to talk a little bit about the tangible efforts that we've done in the Web space to move the needle on some of these different issues that consumers are facing. Obviously, there was a need to focus and the points that Irene has mentioned so gracefully a few times helping consumers to know before they owe, take control of their loans, as well as to have something that will help them understand all of the things that go into their total cost. So we've got a variety of different products that are on our Web site. I'm going to switch over for just a second and show you the site itself. It's accessible from our Home page if you go to the Consumer tools and it's the first one in the middle column called Getting an Auto Loan. And then it brings you to the page here and as you can see, the primary deliverable -- the first thing that you're presented with when you arrive is an auto loan worksheet. It's a print-deliverable that can help a consumer understand the total costs and we're going to go through that a little bit more in detail. You'll also see that in the Resources section here we have a Link to Irene's research, as well as to a full print Auto Guide. So if you think about the structure of this information, there's really a small, medium and large in terms of what we've provided for consumers. As well as educators or other intermediaries who might choose to help consumers -- the shortest being the worksheet -- which is a two-pager that highlights some of the things that you can negotiate with this Icon. It breaks down the costs, helps the consumer understand how much they're borrowing, as well as how much they will pay over the life of the loan. And we're going to go into this in a little bit more detail in just a second. So I'm going to go back to the page if it lets me. The - that's the smallest version. The medium version is sort of what it (lives) on the Web site itself -- broken down into four categories that follow the process that a consumer might want to think about getting for a loan. So planning to shop for your auto loan, learning to explore loan choices, knowing what's negotiable and understanding how to close the deal. And then for each of these pages, there are different bits of information, as well as actions to take and decisions to make. One of the things that came up in Irene's research -- and it's not one of the high-level points, but it is something that was very valuable to us from a user experience standpoint. Is that consumers can be very overwhelmed with the sheer number of decisions that they have to make on the day when they're going to buy and finance an auto. And so by spreading them out throughout the process, you can alleviate some of that stress and hopefully have a consumer under less pressure and make a better decision for them. Everything that we're doing is targeted at helping consumers get the auto loan that is right for them. And you will see it on the Web page -- that language repeated a number of times. So some of the decisions for this particular example is how much can I afford, how much can I pay as a down-payment, do I want or need a co-signer, how much is my trade-in worth? And then there are actions that are supposed to serve as the (list) in and of themselves. But then if you want additional information on how to do that, you can Click into any of the expandables and you'll see fairly short descriptions in most cases -- as well as tips. There are a couple of notable examples where we try to use multimedia to help a consumer understand different key factors of the - some of the key points. Like for instance, in this situation one of the key points is that the longer your loan term, the more you'll end up paying in interest. And throughout some of the testing that we did for these, people said that sometimes interest is an invisible number -- it's an imaginary number, but that seeing it as a dollar amount really helped to solidify in their head that they were really spending this money. And hopefully that's something that will be information-valuable in a consumer when deciding their term, as well as the amount that they borrow. So I'm going to go a little bit more in depth on walking you through the worksheet and then I'm going to switch back to the slide here. So the worksheet is two pages -- broken up into four blocks. The first block is about determining your upfront costs. So how much are you spending on the car, how much are you spending on some of the services that Irene had talked about? Taxes, title and negotiable fees -- you'd be surprised that consumers don't necessarily think about the fact that in some cases they might need to spend hundreds or thousands of dollars -- and that there's not much they can do about it. The flip side of that coin is that there are negotiable fees that consumers sometimes have a lot of latitude over if they want to push for. And so helping a consumer understand the difference between what fees are something they can maybe try to influence versus things that are just locked down by, you know, state and local government -- is one of the values that we were hoping to provide here. As well as just having them understand, you know, how much are they paying before the interest is applied? We try to help consumers understand how much they're going to need to borrow by taking the amount that they're going to need to put out for the car -- and deducting some of the upfront payments -- so you're down-payment or the value of your trade-in if you have one. And this really helps the consumer understand -- this is how much money I'm borrowing. And then once you know how much money you're borrowing, you can flow into how much are you going to pay to borrow that money? We give them multiple blocks. This is actually - there's a slight format change here, but it was straight out of what people told us they wanted. When we talked to real people about this, they said, you know, "Two options isn't enough. When we're talking to someone about different financing, they give us three, four, maybe even five that are combinations of different loan terms, as well as different interest rates." And so we really wanted the form to model the real situation. And so for instance in this Example column, you know, if you've got a 3.5 interest rate, 48 months, you can use a loan calculator or in many cases ask your lender or dealer how much your payment's going to be. And then multiply out the length of the loan in months times your monthly payment to figure out how much it is. And then some - the consumers might not necessarily do this if a form doesn't prompt to, but then they found it very valuable to see just how much the amount they were potentially spending changed over time. And this is very much akin to the (grant) that we showed on some of the other slides - or when I was viewing the Web site. Finally, to bring it on down home to total cost, we take back - we add back in the amount that you paid up-front -- so your down-payment or trade-in if you have one. And that really summarizes how much you're paying in total for the whole loan. So this is the - over the course of the entire life of the loan, counting your interest, counting everything that you have to pay upfront, counting everything you have to pay in the middle -- this is really how much you're spending. And then as one final step for those consumers that are interested, we can help them calculate the amount that they're paying in interest and just see that number. And again, that was something where they said, "You know, that changes the way I think about it because a $1000 -- that's a vacation that's, you know, another bill that I could pay -- that's paying down the debt -- that's real money and it can be tangible over the course of a few years." So this is some of the high-level work page - or the high-level Web site material that I showed a little earlier. It was important that we tried to make this structure as simple as possible to make it easy for consumers to get things. And so that they wouldn't get lost -- so that they could really get to the main point of understanding their total costs, you know, and knowing before they owe on the loan. So I think that… Irene Skricki: Go to this next slide. (James Franco): Do they see it? Now we do have a step - so I'm going to kick it back to Irene. Irene Skricki: Okay. (James Franco): Going to talk a lot step-by-step guide which is the - we've already talked about the small and the medium being the worksheet and the Web site. And this is the big daddy -- this is the large version of our content, so… Irene Skricki: Right, so basically the worksheet and the Web site content you just saw is fairly easy to navigate through meant to be helpful to consumers. For people who want more detail or want it in a step-by-step format, we have a sort of a more principal guide to take control of your auto loan, a step-by-step guide which has the same content, plus a few extra pieces all in one place -- including the worksheet. You can Download this from the Web site. We will also have printed copies I think that you can order -- most likely we'll - as some of our other materials. And so this is - we think is particularly useful resource for financial educators like yourselves who could actually have this as a reference guide or something they can look through -- and help to give assistance to consumers who are thinking about buying a loan. So this again is on this site. And just wanted to give you one more quickie -- then one more. (James Franco): And the next - talk about the (ask) question. Irene Skricki: Right and then we also - some of the - many of you may know we have an - a question and answer - a sort of frequently asked questions section on our Web site called Ask CFPB which has a lot of useful plain language information for consumers. We have updated the Auto section of that - Auto Loan section of that so there's a number of new questions, more streamlined questions -- and that is also new as we've launched this new set of materials. I think - so to get to all of this material, woops, it should be consumer - sorry, consumerfinance.gov -- consumer.gov is actually a (FPC) Web site -- consumerfinance.govautoloans -- and you can go one more slide. (James Franco): Or you can go to cfpb.gov/autoloans too -- that'll work. Irene Skricki: Okay, didn't like that. And then at the end, I always want to put the - just generally again all of our materials can be found at the Resources For Financial Educators page -- that's the adult/financial-education page. (If) you haven't signed up for FinEx, email cfpb_finex@cfpb.gov and I also put up the LinkedIn address as well for people to join that discussion group. So again, we think this is a useful set of materials. There are other auto calculators and tools out there. I think what this does is try to frame it around total cost to help people - give people something they can compare apples-to-apples -- and try to get people off of just a monthly payment as a - something to anchor on. And have them think about the, you know, again the full cost of the purchase -- and also understand what they can negotiate. As we said, there's - we've really learned that people either don't know what's negotiable or may feel uncomfortable. And so one idea is that people can take the worksheet and actually bring it with them when they're shopping -- either getting financing ahead of time through a bank or other type of financial institution. And if they go into the dealer, bring it into the dealer and then use that as a way to help guide their own thinking about the negotiation and the process of comparing different factors and features of a loan. And I will just address because I know this question will come up. Right now it is a paper worksheet. (James Franco): Oh yes. Irene Skricki: It's on the computer, but it doesn't - it is not an interactive - the worksheet alone is not an interactive tool that does the math for you. For assorted reasons right now, it is only in - it is only a version that - where you have to physically write the numbers in. (James Franco): Yes. Irene Skricki: So we just wanted to make sure people - someone's going to say to us, "Hey, it's not adding up for us." We tell you how to do the math, and again we want this to be something people can take with them more easily. At future points, we may have a more calculating version. (James Franco): Right. Irene Skricki: So I think we will now stop and take questions from folks. You have two options for questions. You can either use the - if you're on the WebEx portion, you can use the Q & A function which is on the right side of your screen to type a question and we will read those. And you can also do it via phone and Operator, can you give instructions for phone questions? Oh Operator? Coordinator: Yes. If you would like to ask a question, you may press Star followed by the touchtone 1 on your phone. That's Star and then 1. Irene Skricki: Great. So let me see if we are getting any emailed questions. Let me get to the Q & A section. Do we have - Operator, do we have any phone questions? Coordinator: No at this time we have no one in the queue. Irene Skricki: Okay, sorry I'm trying to get to the Q & A section here. We're having more technical difficulties today than usual, sorry we don't want that. Well, I'm hoping the fact that there are no questions means that everyone feels they've had - oh, here we go. We've had our first question. Are the brochures available to order on - assuming that means online. They will be, they're not yet. Right now you can only get things through the Web site. As we just launched this a couple weeks ago, we don't yet have things at our (fulfillment house) where you can order things. My hope is that that will happen. But right now, you'll have to - you'll need to access it through our Web site. Again, consumerfinance.gov/auto-loans. And I don't see any other - oh, do we reference any calculators? Thank you for the question. (Bruce), do you want to answer that? (Bruce): Yes, there are two calculators referenced in the materials. Ones from the (Nada Guides) and one's from (Consumer Reports). So consumers would have the choice of using both or either one. Irene Skricki: Or others. Those are just a couple. We gave examples of auto calculators you could use to do the math for you -- not as National automobile Dealer's Association. (Consumer Reports) of course is a consumer resource. And those are Linked. There's a number of other Links throughout the materials that Link to some other external and internal resources. So as you go through the materials, terms that are - where we have a definition or a question and answer and ask if you'd be able to Link to the CFPB question -- we Link in some cases to the (FDC) at a Federal Reserve. So we've tried to help people get to other resources as needed. For example, we don't cover vehicle leasing, just a very brief, little bit of information in the longer guide. But we do Link to a guide to leasing that the Federal Reserve put out so that people can get that source of information. (Bruce): And we initially have asked CFPB questions on leasing too, so can get more answers there too. Irene Skricki: Great. Operator, are there any other phone questions? Coordinator: No mam, at this time we have nobody in the queue. Irene Skricki: Okay. We also have a question coming in the Chat side. Thank you. Does this educational material include teaching people to continue making their car payments themselves after their car is paid off so they can pay cash for their next car -- or least put down a down-payment on the next car? We don't reference that -- that is an excellent idea. I know there have been some innovative programs in short-term lending where people have kind of continued to pay once they've finished paying something off in order to have savings. That's an excellent idea -- it's not in the materials -- but it was something for educators to think… (James Franco): Yes. Irene Skricki: …about. If you have a (unintelligible) place to put it -- you're not going to want to continue to pay your auto lender once you've paid up your loan. But the idea I think of holding that - those resources and thinking about paying cash or financing less in the future is certainly something that people could consider. Again, any other questions? You can type into the Q & A on the WebEx or Operator, any other phone questions? Coordinator: No we have no one in the queue. Again, that's Star 1 if you would like to ask a question -- Star 1. Irene Skricki: Great. All right, well we may be finished if people don't have additional questions. So (any callers), thank you very much everyone for joining the Webinar. We encourage everyone to look at the materials -- to use them, to encourage consumers to use them. We will be doing a lot to try to get them out broadly to give consumers more assistance in navigating this process. So unless you have any final questions, I think we will end early and give you 20 minutes back. All right, okay. Thank you everyone. Coordinator: This does conclude today's conference. You may disconnect your lines at any time. Thank you for your participation. Irene Skricki: Operator, can we get a line count? Coordinator: Mam, one moment please. I'd be more than happy to get that for you. Irene Skricki: This isn't right, this is (18 goal) Webinar. Coordinator: Okay, I think we had 20, 28 lines. Irene Skricki: All right, so we actually had more - okay great. Coordinator: Thank you. Is there anything else I can do for you today, mam? Woman 1: Twenty-eight lines. Irene Skricki: Yes, and it's… Woman 1: Whatever we've seen here. Irene Skricki: Right. And that was the phone line numbers? Coordinator: Yes mam, that is correct. Irene Skricki: Okay great. All right, thank you. Coordinator: You're welcome. You have a great rest of your day. END