Consumer Portfolio Services (CPS): An Often Misunderstood Financing

Over the last six years, a finance company that has polarized SF managers and dealers more than most is Consumer Portfolio Services (CPS).

They have survived a checkered history, and two issues ago were named as one of the more aggressive companies in the market. Nevertheless, some dealers and SF managers harbor some strong negative feelings and as a result, refuse to even give them a look. Much of these feelings are either a result of some bumpy financial roads that CPS encountered in the early and late 1990s, as well as a perception of deals being extremely hard to fund.

Regarding their all important financial stability, it would appear that the financial misfortunes that took place almost a decade ago have been left in the past. Indeed, they became so solid that they were able to buy the remains of Mercury Finance out of bankruptcy, as well as The Finance Company (one of a few strong sources of financing for military personnel).

I have a number of clients that do a significant amount of business with them and report that the perception about their funding is simply not correct. Dealers have complained most often about “back-stipping”, which involves CPS changing a call after an approval has been given. Usually, the approval is based on the customer and vehicle information that was originally submitted. CPS will offer an approval based on these facts, which are not verified until CPS receives the deal. If the income, job time, residence or other meaningful part of the deal changes when verified, often so will the call. The smart move is to verify the facts before you deliver, or at least before funding.

Why CPS has become so popular with some departments is that they like still seem to buy aggressively. They also will calculate an advance based on the greater of NADA or Kelley Blue Book, up to 140 percent for the total deal. CPS has a minimum income requirement of just $1,300 per month. In addition, they have no minimum FICO score requirement, will let you make up to three points of reserve and will advance up to $2,900 on a service contract.

There are some other important items to note about CPS to ensure a good relationship. First, they prefer to give you payment calls rather than have you submit a structured deal for approval. Most SF managers prefer this anyway, as they would rather know what kind of payment the customer will qualify for, then figure out what the best vehicles they have in inventory to both satisfy the customer and maximize the gross profit.

Once you receive a payment call and close the deal on the desired unit, you may wish to resubmit the structured deal to CPS. If it is a late model or new vehicle, they will often reduce the buy rate.

CPS also has a program for people with open Chapter 7 bankruptcy filings. It requires an addendum to the dealer agreement, and will cost you an extra $175 fee with each deal, but does provide another source for open Chapter 7s.

A number of SF managers know CPS for their Mercury program (which was named after the old Mercury finance low-end program). It is a higher fee program that they use to buy very deep on people that have had some significant problems in the past, but have both a good job and good income (the old “your job is your credit” mantra).

One thing to keep in mind with CPS is they get touchy about look-to-book ratios. They expect a minimum 10 percent ratio of financed deals to apps. To help dealers, CPS prints their “Dead on Arrival” list. These are the instant KOs – it is too long to print here. The bottom line is, they buy deep, but they don’t want to see the applications that they absolutely won’t buy. A review of the list and a discussion or two with your buyer should be all it takes to avoid this pitfall.

If you haven’t used them, you can find them at  HYPERLINK "http://www.consumerportfolio.com" www.consumerportfolio.com. If you are signed up and they haven’t been on your radar screen lately, it might be time to reacquaint yourself.
 
Vol. 1, Issue 3