Lenders Need Combo of Loss-Mitigation Tactics to Keep Delinquencies in Check
LAS VEGAS — Like chef Emeril Lagasse, auto financiers have to “kick it up a notch” when it comes to default management these days.
Delinquencies and chargeoffs are mounting, and faltering used-car prices are intensifying loss severity. As a result, lenders should evaluate existing loss-mitigation servicing and collection policies for potential improvements and enhancements.
Rod Arends, assistant vice president of collections at Deerfield Beach, Fla.-based World Omni Financial Corp., offered an array of default-management tips — both tried-and-true, as well as innovative and untested — during a presentation at the Auto Finance Summit last month. Here is a rundown:
• Segment the portfolio by risk categories. For example, you could stratify loans by origination or behavioral scores, deal characteristics, or remaining balance. Keep in mind that loan performance has worsened in recent months. “What was a 680 [credit score] six months ago might be performing like a 620 today,” Arends said. Another idea: You may have a whole separate set of data points for new-versus-used-vehicle loans. “You want to line up your efforts according to risk,” he added.
• Allow debtors to send post-dated checks. World Omni recently instituted a policy with a five-day post-date maximum, and the rate of return for insufficient funds has been lower than on regular payment commitments.
• Queue calls based on collectors’ skills. Use your best collectors on your highest-balance accounts, and closely monitor their collection workload.
• Use a courier service to deliver delinquency notices. In some cases, World Omni overnights via UPS an 8½x11 envelope to delinquent borrowers with a letter containing the message: “We’ve been trying desperately to contact you.” Because the initiative is “very expensive,” Arends said — the cost of the UPS shipping plus $0.50 to $0.60 per letter — the company targets accounts with higher balances and greater probability of loss.
• Call customers whose vehicles have been repossessed to see if they want to negotiate a deal for its return.
• Employ a vendor that guarantees agentless right-party contacts. That way, collectors don’t waste time on the phone trying to track down debtors.
• Contact debtors via text messages. There are three prerequisites for text-messaging, Arends said. First, it must be guaranteed free to the end user. Second, you must have full disclosure, like language at the bottom of a credit application that says that they give you permission to contact them. Third, you need an opt-in/opt-out process that works.
• Seek out a vendor for license plate recognition. This technology comes in handy for spotting vehicles wanted for repossession.
• Equip financed vehicles with GPS starter-interrupt devices. Borrowers will require payment codes as it gets closer to their payment due dates. If they fail to pay, their vehicles won’t start. Keep in mind that you must be prepared for an influx of inbound calls.
• Increase use of payment plans as opposed to settled-in-full or paid-in-full arrangements.
• Skiptrace delinquent debtors using data from a bureau that specializes in “thin-file” customers, those with limited credit histories. These credit-tracking firms collect information from pawn shops, rent-to-own companies, and payday lenders, among others.
The bottom line: “Get every strategy in place that you can,” Arends said.
—Marcie Belles
