By Karen Townsend
Being an auto lender comes with several perks—you get to experience the joy of putting your members in a vehicle that they need, you build and deepen relationships with those members who, hopefully, will continue to do business with you; and you create a stream of interest income.
However, auto lending also comes with the challenge of delinquency, insurance tracking and placement, and in the worst of cases, repossession. I can’t imagine a lender ever wants to repossess their member’s vehicle, but sometimes that is the only option you have to recoup your assets. When it does, consider what repossession really costs.
Time
Repossessing a vehicle is time-consuming. Your collection staff has to take time away from their regular duties to contact the third-party vendors required to repossess and remarket the vehicle, and see the process through. It can take weeks of follow-up, and without a streamlined process in place, the communication process can be disjointed.
Furthermore, when your staff has to manage the process, they are not making contact and/or receiving payments from early-stage delinquent borrowers, and the further borrowers fall into delinquency, the higher the likelihood they could potentially experience repossession.
Actual Dollars
Time is money, but an inefficient recovery process could also cost you actual dollars. Asset recovery is complex—it involves repossession agencies, transportation companies, and auction facilities. Partnering with a remarketing agency can give you access to better rates based on volume. In addition, these agencies have programs designed to maximize returns at various auctions for the highest return on your assets.
Compliance Risk
Remaining compliant is a critical component of risk management. Asset recovery comes with its own set of compliance requirements, including due diligence on vendors, which can be time-consuming, as it involves making sure insurance, licenses, and bonds are in place and that they remain up-to-date. If the staff handling your repossession efforts do not stay abreast of the various requirements and keep meticulous records, it could put your entire organization at risk.
Member Relationships
Repossessing a vehicle is probably the last thing that you want to do. Repossessions cause deficiency balances and income loss, and they put a major strain on your members, which impacts your relationship with them. Even if you worked tirelessly with your member to avoid repossession, you still end up being coined the “bad guy” in their eyes.
Moreover, when it comes to lender placed insurance policies that push members deep into delinquency, resulting in repossession, the noise and loss of relationship is even more unfortunate. Repossession could lead to a member discontinuing their relationship with you altogether.
Understanding the negative impact that repossession due to premium add-on can have both to our credit union clients and their members, we developed a product that reduces lender placed premiums to $50 to $90 per month, instead of the typical $2,000 annual policy. This CFPB-friendly product, while reducing compliance-related risk for credit unions is more readily accepted by borrowers, too.
Visit swbc.com/hybrid to learn more about Hybrid CPI.
Karen Townsend is the Asset Recovery Program Manager for SWBC.