Subprime lender adds markets, resists looser standards

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Subprime auto lender Consumer Portfolio Services is resisting a trend among some of its rivals to push “too aggressively” to loosen credit standards, CEO Charles Bradley says.

Instead the company has tightened standards a bit during the past year, he says, choosing to grow by adding markets and marketing representatives rather than compete exclusively on price.

Consumer Portfolio, of Irvine, Calif., buys subprime loans from about 16,000 dealerships nationwide, two-thirds of which are new-car stores. In 2013, 91 percent of Consumer Portfolio’s contracts were for used cars, and 9 percent were for new cars.

For the first quarter of 2014, originations were $190 million, up about 5 percent from the same quarter a year earlier, the company said. Net income was up 77 percent to $6.7 million, in part because the company lowered its interest expense.

More reps

At the end of 2013, Consumer Portfolio had 95 marketing representatives, according to the company’s annual report. Bradley said the number is now about 117 and should increase to around 140.

“As you put those sort of boots on the ground, you get lots of business,” he said during a conference call for investors last week. “So rather than compete, certainly, on credit, and as long as we can hold off competing on price, we will continue to work on expanding our footprint to grow, rather than using those two other areas.”

Consumer Portfolio has taken several actions to cut costs, such as repaying older debt that was incurred at higher interest rates.

Consumer Portfolio is taking advantage of a low cost of funds in the securitization market, the company said, a move that other auto lenders also have said they’re doing.

‘Don’t have to chase

In securitization, auto lenders sell off their loans to investors, after first bundling them into new financial instruments, as a way to raise money to make new loans. Investors like the practice because defaults on auto loans are low and because auto loans performed as predicted during the last recession, unlike mortgages.

“We keep sort of putting ourselves in a position to cut price and really not having, needing to,” Bradley said during the conference call. He said the company could afford to be relatively conservative. “We don’t have to chase.”

You can reach Jim Henry at autonews@crain.com.

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