Mitigating Auto Delinquency Risk with Workflow
Jun 07, 2023, 15:49 ET
We’ve been told to trust the process. This works very well when your process is based upon best practices. Otherwise, it opens the company up to increased risk.
This is a lesson that is hitting many auto lenders hard right now. More people are falling behind on their car payments, for a variety of reasons. For many, including those living in low-income households, delinquencies are higher now than they were at the peak of the Great Recession.
On the plus side, lenders have more options now to work with borrowers to help them get back on track, but without a solid delinquency workflow they may not get the chance to help before it’s too late.
Dealing with increasing risk in auto lending
Unlike home loan lenders, who work with high loan balances and many auxiliary fees, auto lenders have much lower margins. When borrowers get into trouble, these lenders have more to lose.
As a result, auto lenders keep a close eye on every dollar they spend. To keep their costs down, they act quickly when a borrower gets into trouble, often reaching out within days of the first missed payment.
Unfortunately, the first thing any borrower does when they miss a payment is shut down communications. They’re often embarrassed and afraid that a creditor will force them to do something they feel they can’t afford. As a result, they often make their situation worse.
But it doesn’t have to be that way.
Smart auto lenders have found alternative ways to get the attention of borrowers in trouble. One way that is surprisingly effective is having someone drop off a letter at their home. Not a scary certified letter delivered through the post office, but rather a hand delivered note that encourages them to get in touch.
No auto lender has the resources to do this in-house, but many call on companies like ours to leverage our nationwide network to get the messages delivered. It works.
Getting personal with borrowers in trouble
When the letter on the borrower’s door doesn’t open up the lines of communication, the next step in a best practices delinquency workflow is what we call a field call.
This involves sending a person out to the borrower’s residence to knock on the door and make contact. The field agent doesn’t negotiate on behalf of the lender, but encourages them to contact their lender by phone.
A friendly face at the door often takes some of the fear out of the situation and makes it easier for the borrower to make contact.
While the field representative is at the borrower’s residence, it’s a good practice to perform a precursory collateral inspection on the vehicle. Little more than verifying the car is on the property and in good condition, this can empower the lender to take further action if required.
When a borrower becomes 60 days delinquent, a best practice is to perform a more in-depth inspection of the vehicle and conduct a field call that fully explains the downside risk the borrower faces by not working with their lender immediately.
Better outcomes through better outreach
Our data will show any auto lender how effective this kind of outreach is. In fact, we have clients who test us on a regular basis, tracking every dollar that results from our activity and tracking the ROI of working with us over time. It’s one of the reasons lenders stay with us for so many years.
If you’re interested in taking a closer look at your current delinquency workflow, through the lens of our experience, we would be more than happy to sit down with you and share some best practices that we have developed.