Auto lenders received some sobering news in May 2019 regarding the repayment of auto loan debt. The euphoria created by the recent record highs in newly originated auto loans and the average price per vehicle was tempered by the announcement that delinquencies continue to increase for some borrowers.
Specifically, serious delinquencies (90 days or longer) in auto loans have been on the rise since 2012 for individuals with credit scores below 720. These delinquencies represent 4.7% of the $1.16 trillion in auto loan debt held by Americans as of Q1 2019.
This trend underlines the importance of companies maintaining judicious lending practices and effective debt collection strategies, whether they operate their own collection departments or outsource debt recovery to third-party collection agencies.
The first installment of this series was devoted to the core disciplines of compliance, certification, data security and industry experience that benefit all types of credit and collection activities.
This second and final part focuses on the effective collection operations, receivables management technology, consumer relations and best practices that optimize the collection of auto loan debt.
When advocating for auto lenders, operations leaders at third-party agencies are responsible for maintaining effective day-to-day call center functions relating to strategies, employee supervision, technologies, reporting and more.
These leaders — often directors or vice presidents of collections — leverage strategic predictive analytics to generate cost-benefit analysis, simulations to determine break-even points, and advanced scoring methods to compare segmentations affecting individual accounts. Using predictive models, they analyze past behaviors to forecast the likelihood of future customer action such as making good on past-due notices, attrition or churn.
They are also responsible for directing daily scrubs on all accounts with receivables management technology to verify the status and background of each indebted consumer.
Strategic Predictive Analytics
Today’s leading debt collection agencies maximize their efforts by integrating strategic predictive analytics with receivables management software platforms. This approach harnesses the data processing advantages of traditional analytics with techniques such as cost-benefit analysis, real-time strategy simulations, and prioritizing collection activities with account scoring.
If the simulation models are successful, then the strategies are quickly rolled out to the appropriate account segments to begin or revise collection activities. Some software programs are capable of coding individual accounts to insure that the correct strategy is being applied downstream. The result is a customized treatment of each consumer.
After implementation, operations leaders run multiple reports and score cards to evaluate the performance of the revised strategy and individual collectors over numerous collection periods: daily, weekly, monthly, quarterly, yearly, year-to-year, and beyond.
Operations leaders also analyze the performance of their agency against the competition for clients contracting several competing collection agencies.
Agencies collecting auto loan debt optimize decisions and the recovery of outstanding balances with the help of risk, collection and or recovery scoring. These scoring models may be based on credit bureau scores, internal scoring systems, or a combination of both sources. Account scoring can help improve collections, reduce roll rates, minimize charge offs, and assist in the prioritization of accounts by determining their expected outcomes.
Risk scores are generally used to assess the likelihood of accounts becoming seriously delinquent (60 days or more past due) over the next six months.
Collection scoring predicts what will happen to an account over the next 30 to 60 days using data points that are proven to be effective in the credit and collections industry. For example, collection scores may identify:
- A consumer’s willingness and or ability to pay.
- A consumer making a payment on their account in the next 30 days.
- Self-curing accounts (i.e. those that may return to good standing during the current cycle).
- The most cost-effective approach to contacting a consumer (e.g. email or letter campaign versus phone calls).
Furthermore, early-stage collection scores identify accounts in jeopardy of rolling into later stages of delinquency while late-stage collection scores help companies define effective collection strategies.
Recovery scoring models are often designed for specific debt types and age as well as industries, thus offering more accuracy than generic versions.
Account scoring also enhances consumer relations because contact with individuals having an identified willingness to pay can be customized to abate pushback.
Account scoring is used to group consumers with similar payment trends and risk profiles (low, medium and high) followed by the generation of segmented efforts that assist recovery. This approach to segmentation is considerably more accurate than old-school applications that simply assigned the highest priority to accounts with the largest balances or highest credit scores and the lowest priority to those with the smallest balances or lowest credit scores. Accounts categorized as “high risk, high balance” represent the greatest potential loss to auto lenders.
Segmentations are generally based on the delinquency stages within the credit life cycle. For example, agencies may consider factors such as:
- The probability of current accounts reaching late-stage delinquency.
- The likelihood of mildly delinquent accounts becoming seriously delinquent.
- The amount of debt that can be recovered from seriously delinquent accounts.
Operations leaders segment portfolios into collection models that focus on accounts with the greatest expectation to pay as a function of their early-stage or late-stage collection scores. These models identify the type of consumer contact (letter, phone, email or text), the appropriate tone and content, and the best timing (immediate or delayed). Individual accounts may be augmented over time with data from receivables management software and documented collector notes. This is the new norm for prioritizing accounts.
The reporting function is also an important part of operations management because it offers benefits including documentation, transparency and accountability. Specific types include the report of accounts and balances received, standard summary report, and monthly status report.
Agencies run a variety of standard and customized reports that are submitted to internal management and auto lending clients according to pre-arranged schedules.
Standard reports may document bankruptcies, call and letter campaign logs, compliance training and management, payments by consumers, internal and external audits and other parameters.
Many reports address the effectiveness of agency operations. Examples include individual, team and bucket scoring; right-party contacts; dialer efficiency and conversion rates; and gross amounts for day-to-day, week-to-week, month-to-month and year-to-year collections.
Reports can be customized and delivered in any frequency desired by clients.
Receivables Management Technology
Operations leaders at collection agencies use customizable receivables management (RM) software platforms that work in tandem with the collection scoring, segmentation and reporting processes discussed above to help manage client portfolios.
The best packages on the market also assist in business rule automations, database management, electronic payment processing, the generation of client statements, and transaction auditing.
These programs support robust compliance integration that covers credit and collection laws such as HIPAA, GLBA, FCRA, FDCPA, SCRA and TCPA.
The technology may offer hosted dialer technologies, skip tracing and interactive voice response technology (IVR) to deliver favorable results. Features include options for manual, power and predictive dialing collection strategies; answering machine detection; integrated cell phone consent and scrubbing capabilities; collector conversation management for “whisper, monitor, barge-in and commandeer” modes; and other components that manage how and when to make compliant contact with consumers.
Predictive Dialers and IVR
In particular, the predictive dialer “plug ins” to these platforms are especially meaningful to call center labor management because they recognize a variety of responses: answering machines, answer/hang-ups, no answer, busy signals fax machines, disconnected numbers and modems.
Furthermore, they also automate the dialing of consumer phone numbers independent of human interaction. These systems save time for agencies as well as consumers since calls are properly routed to the proper destination.
If a live voice is detected, the programs instantaneously transfer the calls to the next available consumer relations representatives. On the other hand, if there is no answer or numbers are out of service, then the apps assign the numbers for future callbacks or deletion. The results are logged on agency network servers to fulfill documentation.
Finally, interactive voice response technology directs consumers to their preferred destination without live operators via prerecorded messages and options selected via keypad or voice commands. With effective programming, IVR also creates an improved consumer-centric experience, 24/7 access and full customization.
Responsible agencies collecting auto loan debt are committed to preparing and empowering their collectors so that compliant, cost-effective results are achieved for their clients.
This process begins with comprehensive new-hire training that transitions to ongoing refresher instruction throughout employment terms. Educational tools include individual and group sessions as well as the study of training manuals, compliance manuals, reference materials from ACA International, call audits, compliance quizzes, and roll playing to address successful negotiations.
The educational component is supported by a compliance management system (CMS) that monitors the entire compliance process, including training logs, policies and procedures, performance metrics, note taking, and self-assessments about the applicable laws and regulations.
All collectors should understand how to confirm the debt, listen to consumer concerns, answer questions, explain details, and bypass gate keepers on their way to decision makers.
Most importantly, collectors should be well versed in telephone etiquette, consumer stall tactics, and finally, negotiating a promise to pay (PTP) the auto loan debt.
This approach to consumer relations increases customer retention and provides a greater level of protection from bad publicity or lawsuits.
Best Practices for Collecting Auto Loan Debt
Best practices in collecting auto loan debt begin with frequent account monitoring in addition to regular updates of credit reports, account scores, and payment records. This approach allows for the modification of individual collection strategies and the placement of accounts into segments that are better suited to the revised collection data.
Following a similar line of reasoning, agencies that remain focused on priority accounts stand a better chance of optimizing efforts and producing a more favorable return on investment for their clients.
Timing is also critical to auto lenders. Sending pre-collection notices to past-due accounts is a proactive approach to preventing them from becoming delinquent.
Furthermore, once accounts become past due, lenders would be well served by an immediate transition to the collection process whether they conduct their own efforts or contract collections to reliable third-party agencies.
Finally, contracting a well-qualified agency to conduct collections allows auto lenders to remain whole in the eyes of consumers who generally prefer remaining loyal to the brand.
Agencies that are successful in collecting auto loan debt augment their core disciplines of compliance, certification, data security and industry experience with effective collection operations, receivables management technology, consumer relations and best practices.
On the operations level, leaders blending industry experience with the tools offered by collections technology are able to develop strategies that deliver consistent performance quarter over quarter.
Their approach — not unlike the triage process in medicine — calls for the routine sorting and allocation of resources according to a system of priorities established by the collaboration of agencies and clients. This solidarity maximizes the potential for achieving budgeted goals as well as a favorable return on investment, brand protection and customer retention.
Optio Solutions was established on a foundation of compliance, certification, data security and industry experience. Furthermore, the agency is affiliated with a financial services company having over 35 successful years of collecting retail automotive debt.
Optio is one of only 50 agencies in the United States to have garnered Professional Practice Management System (PPMS) certification from ACA International. The rigorous PPMS certification process confirms Optio’s successful implementation and performance of procedures and policies that allow it to conduct best-in-class collection activities for national clients in industries such as automotive, education, energy and retail.
Contact us today to learn more about an individualized collections strategy for your auto lending company.