Regulatory attention on repossession and collection processes has encouraged Pelican Auto Finance LLC to charge off delinquent assets later in the lifespan of deteriorating loans, said Chief Performance and Compliance Officer Joel Kennedy.
The industrywide threat of regulatory enforcement from the Consumer Financial Protection Bureau and the Federal Trade Commission also prompted Pelican to restrict the use of tools, such as kill switches and “door knock” inquiries — which are used for communication rather than direct collections — he said. Other lenders are becoming more conservative in their collection and repossession processes too, Kennedy added.
“What you have is people saying, ‘There is a new way I have to do business. I can’t call as much, I can’t shut off the car, and I can’t do X, Y, or Z so early. I have to let [the delinquent loan] go out to 90, 120, or 180 days,’” he said. “Because of that, you are going to carry more in the later [delinquency] buckets.”
This mindset among lenders may partly explain why rising delinquencies in subprime have not matched loss rates. Subprime delinquencies hit a 20-year high in February, while losses — although rising — were at 9.7%, still 340 basis points below the latest peak during the financial crisis, according to Fitch Ratings’ auto ABS index.
“I don’t know if there is discretion applied to when you have to charge off an account, whether it’s 120 days or 180 days — it seems like companies do it different ways,” Kennedy said. “For us, a lot of it is driven by the governance that we have, with the financing facility we are with.”
