LAS VEGAS — Powersports lenders need to adjust their scorecards regularly to take new metrics into consideration — including child support payments — as delinquencies and losses continue to rise in the subprime spectrum of the powersports finance space, Donal Hummer, the company’s president and chief executive, told attendees at PowerSports Finance 2016.
Many lenders do not factor in child support payments into their various scoring models and calculations, Hummer told Powersports Finance, “and to my knowledge, most commercial scoring models do not factor in these either.”
ThunderRoad Financial “has always taken into account an applicant’s child support payment obligations,” he said. “We do this because first and foremost it is an obligation that the debtor has to pay.”
Federal law requires child support payments to be automatically deducted from the parent’s paycheck, “and sometimes those are very large portions of the customer’s payment obligations,” Hummer said. “That’s just about the only one [payment] — other than the IRS — that can be taken right out of his paycheck.”
Not taking child support payments into account when determining the consumer’s ability to pay and the debt-to-income ratio “is doing a disservice to the applicant, and, at the same time, increasing our risk on the potential debt obligation.”
Additionally, if the consumer is not paying child support or has fallen behind on those payments, “that is equally concerning as I feel that they should be paying for their children before they start buying toys,” Hummer added. “In addition, the various state child support agencies can garnish most if not all their wages if they fail to make their child support payments, thereby making it difficult if not impossible for the applicant to service their credit obligations.”
Reno, Nev.-based ThunderRoad Financial makes loans for 375 dealers in 30 states. Approximately 20% of its overall portfolio are subprime or near-prime consumers. ThunderRoad’s portfolio increased 279% to 5,717 loans as of January, up from 1,510 loans at the same time a year prior, according to a Morningstar report.