Delinquencies continue to climb to levels unseen since the financial crisis, which is why many lenders are focused on improving collections practices and bolstering their loss mitigation strategies.
Auto Finance News spoke with four collections experts to pinpoint best practices and optimal strategies for mitigating losses and improving collections. Here are eight tips for improving collections practices:
1. Take advantage of datasets
“How we deal with delinquent accounts now is different from how we dealt with delinquent accounts 10 years ago,” Jeremiah Wheeler, vice president of financial services at DRNData, told AFN. Big data is popular in the auto finance, with more statistics and digital information available than ever before, he said, so auto lenders should really “think outside of the box” to make the most out of it. For example, more than 300 auto lenders are partnering directly with DRNData for its vehicle location data analytics, which provides live alerts for targeting assets.
Another approach is to “segment your portfolio for collections activity,” said Brandy Bissett, business process outsourcing services product manager at Fiserv. Examples of the data which could be used to segment the portfolio include: non-sufficient funds, prime or subprime credit scores, collateral type, contract balance, and geographical data, she said.
2. Be involved with national and local associations
Auto lenders should build up networks and get involved with local associations, DRN’s Wheeler said. This is a good opportunity for lenders to not only learn new information, but also educate themselves on the latest regulations. For example, the Federal Communication Commission’s Telephone Consumer Protection Act, which restricts telemarketing and the use of automated phone equipment. Knowing and understanding these kinds of laws will help auto lenders contact their clients better, Wheeler added.
3. Be cautious about early signs of account delinquency
“Auto lenders should evaluate return mail for potential fraud, or, at a minimum, take it as an opportunity to correct consumer demographic data for future contacts,” said Jeff Hanna, auto account servicing product manager at Fiserv. It is important to evaluate missed payments for potential fraud as well, he added. Sometimes it may be just undelivered mail, but sometimes it is a sign for early-stage account delinquency.
Another way to avoid early-stage delinquencies is to “continually aggregate servicing data with original credit decision data to refine credit review and buying policies,” Hanna said. Lenders should follow the booking process in the first place. “Performing welcome calls can help identify a potential issue up front — such as fraud — and provide the opportunity to verify that all data submitted is correctly noted in the system,” he explained.
4. Collection is as important as origination
Auto lenders are likely to pay more attention to the loan origination process but oversee the debt collection part, Wheeler said. In fact, debt collection is equally important as originations because “if you don’t get the loans back, you are not generating profits,” he said.
5. Provide comprehensive, regular training for debt collectors
It is important to train debt collectors because a qualified agent will make a huge difference to auto lenders, said Brad Emerson, president of CAC Services. A qualified agent should be aware that debt collection is about “collecting rather than negotiating.” He or she should first and foremost protect the delinquent accounts’ confidentiality and comply with the Fair Debt Collection Practices Act. CAC Services quizzes its agents quarterly to assess their understanding of debt collection, Emerson said.
“Just continually train your staff members, monitor call quality, and ensure they are licensed in the individual states and are abreast of their policies,” Bissett added. “Transition staff members performing well in certain areas to tougher accounts and portfolios. If staffing is an issue, leveraging outsourcing services that specialize in collection strategies and loss mitigation is beneficial.”
6. Interpersonal communication is art
Collecting debt is all about communication, Emerson said, so debt collectors should be careful of the way they reach out to customers. “My suggestion is that you don’t reprimand,” he said. “You’d want to set up reminders and have in-person contact with the customers.” Many auto lenders will hire collection companies following inability to receive money from delinquent account holders after several late notices.
“Early-stage delinquencies are treated more as a customer outreach in contrast to a collection call,” Bissett said. The best way to start with a collection conversation is, “Did you receive your statement?” especially for those accounts that have not been delinquent before or are newer accounts, she said. However, as accounts fall further into delinquency, it is imperative to send frequent — but compliant — notifications.
7. Hire a repossession agent when necessary
As the account is aging through delinquency, it is increasingly important for auto lenders to have “constant knowledge” of the vehicle’s location and condition, said Chris Mitcham, senior vice president of servicing and analytics at Pelican Auto Finance. “A lot of collectors ask about the payments, but not the location and condition,” he said. “Collateral is in jeopardy, and you need to go get it.” He suggested auto lenders use tools like DRN and GPS to see if a car’s VIN has been registered somewhere else in order to keep tabs on its location.
8. Upgrade the servicing system continually
“It is significant to operate an efficient system with the least amount of manual,” Hanna said. “This is what we call an ‘optimization feature.’” An ideal servicing system should be rule-based and easily configurable relative to the collections queuing, as well as notification strategies based upon the lender’s analysis and portfolio segmentation activity.
Auto lenders should leverage multiple communication channels, such as phone, text, mail, and letters, to let a customer know payment is due or past due to avoid delinquency, Bissett said. Additional tools include integration with automated dialers for live agent hand-off or automated messages, and systems should be able to capture notes taken from the collectors call with client about status and track pay promises.