When Hennessy Buick-GMC in Morrow, Ga., signed up this year for an Equifax system that automatically verifies employment and income, Finance Director Blake Bailey thought the system would mostly identify people who had overstated their income.
Instead, Bailey says, surprisingly, the dealership has been finding customers who underreport their pay. Learning a customer has underreported takes worry out of getting the deal funded for the dealership and customers alike.
Bailey spoke about customers and their paychecks by phone on Monday with Automotive News Special Correspondent Jim Henry.
With or without an automated system, how often do dealerships or lenders have to verify someone’s employment and income?
It’s going to be tier-based. Before 2007, customers with credit scores over 640 were prime risk. Now, it’s really above 680 that’s considered prime. Anybody below 680, that’s where [lenders are] going to look for verification. Call it 700 and above, you’re not really looking to verify income, unless there’s high debt.
How does that work? Is it a matter of phoning the employer?
I’d say it could be in the 70 percent-plus percent range [of customers] with some form of verification of employment, and not necessarily income. That means the bank is going to call the employer and say, “Do they work there?” It has to be on a land line, and not a cellphone, because the lenders don’t want [the customer’s] buddy to take the call. They want to get, say, the Wal-Mart supervisor on the phone to say yes, they do work here.
Does that always work?
No. Lenders don’t want to do that any more. They’re worrying about the time it takes. They’re worried about privacy. They’re worried about a lot of things.
A lot of the big, nationwide employers also can’t be bothered. They are not going to talk to you. You could call and sweet talk them all you want, but they are not going to say, “Sandy works here.”
How has your experience been with the automated system?
Just in the past two or three weeks, we’ve had calls where we submitted a deal, and we get an approval for more than we asked for. There’s a note that says, “Income and employment have been verified. This consumer has been verified for up to this amount.” If we’ve already verified they make more than they originally told us, there are several ways that makes it easier. It takes you out of the stipulation process. You know you’re going to get funded on the deal.
So people reported less income than they actually make?
You’d be surprised how many people don’t know. Everybody says they make $2,000, $2,500, whatever it is. But what most people actually know is what their take-home pay is, not what their gross compensation is. They also don’t take into account overtime wages and any incentives paid.
What happens then? Do you upsell them to another car?
Not necessarily. Lenders want a car payment that’s no more than, say, 12 to 18 percent of your income. If a customer tells you they make $2,000 a month, and they’re capped at 14 percent, they’re going to be capped at something like a $280 monthly payment. But if their gross earnings are $2,800 instead of $2,000, suddenly they’re going to qualify for a $390 payment.
That doesn’t mean they have to go out and buy more car. The point is: If they’re looking at an $18,000 car, at $2,000 they might not qualify for that car.
Do you see people who exaggerate their income?
We do. That has been helped, also. But it’s more the other way, believe it or not. My original thought process was right there with you. But almost immediately we saw people were underreporting.
For people who exaggerate, we often catch that just from experience. We look at the job description and time on the job and it just doesn’t fit. If you get a second-year schoolteacher, they’re not going to make $85,000 a year.
This always seems to happen on Saturday evening right around closing time. You get a customer who’s been told at several other dealerships, “You don’t qualify, you can’t afford it.” They’re the ones who are more susceptible.
Are you amazed that so many people short-change themselves in terms of earnings?
Part of the problem is we expect customers to have as much experience as we do. We take it for granted they know what’s going to help put this deal together. But that’s our job. If we don’t help them, how are they going to get this contract bought?
Editor’s note: According to Equifax, almost 25 percent of borrowers exaggerate their income by 15 percent or more. Seventy-five percent of loan applicants who earn $50,000 or more underreport their income.
You can reach Jim Henry at firstname.lastname@example.org