There have been many recent discussions regarding the practice of forwarding repossession assignments. In addition, the industry has targeted companies that do forwarding, questioning the value, or lack thereof, that these companies provide to the repossession process and to the industry.

From the agent’s perspective, the standing argument is that lenders benefit from a direct relationship with a repossession agent and that by cutting out the middleman, or the company forwarding the assignments, repossession recovery rates can increase through improved service levels. 

On the other hand, lenders have targeted initiatives to reduce costs associated with the highly visible repossession, recovery and remarketing fees typical of the recovery process. Even with the best of efforts, repossessions rarely make the lender whole and often represent a part of the business that operates at a loss. Working with forwarders provides lenders consolidated volume pricing and a single point of contact for the large number of repossession assignments, which can be geographically distributed throughout the country.

Forwarding simplifies supplier management by reducing the burden of maintaining and executing hundreds of contracts, processing and paying invoices and certifying compliance with varying state laws that regulate the repossession process. In addition, it dramatically reduces the enormous demand on resources related to the barrage of emails, phone calls and faxes received from each agent.

It is difficult to accept that today the relationship between the repossession agent and the lender is no longer the center of the universe. Lenders that work with more than just a few agents will not see the supplier relationship as strategic. How can it be strategic if a lender works with 50 to 150 or even more repossession agencies throughout the country? Through the advancement of technology, the Internet and virtual or physical centralization of collection centers, the need for hundreds of direct relationships with repossession agents across numerous ZIP codes no longer exists.

The challenge is that it becomes impossible to optimize performance and supplier costs when you contribute to the problem. When forwarders embed their service fees and then demand preferred pricing with highly discounted rates, it puts the agents at odds with the forwarders, which negatively effects behavior and supplier performance. 

What the industry needs is a solution that leverages the best of forwarding, along with high service levels from agents.

Forwarders have to prove that they add value to the process and bill lenders for their services separately and not expect the agent to pay them from their profits just for the privilege of doing their jobs. Forwarders should not dictate price because the market and competition should set the price. Forwarders should also acknowledge that contingency based compensation limits the effort that can be applied to the assignment and negatively impacts repossession recovery rates. 

This new solution, let’s call it managed repossession services rather than forwarding just to differentiate, allows complete transparency, including the cost of the servicing fee along with the actual fees from the agent (not embedded as a part of the agent’s fee). These fees, along with the transport, storage, key fees and auction fees, are all billed as a separate line item costs. There are no contingency-based repossession assignment fees, and the focus is on performance with close fees and costs managed by the free market in which managed service providers and agents compete.

Agents set the price for their service based on the markets they serve.  Let the market set the price. Supply and demand, coupled with good healthy competition has historically proven to be very effective in controlling cost without sacrificing service levels.

Ultimately, something has to give, drive the costs low and less effort is applied to the recovery of the asset, repossession recovery rates drop and charge offs increase.  If the costs go below market value, little or no profit remains to sustain a viable business, pushing good agents out, in favor of lower costs providers that cut corners to control expenses, exposing lenders to unwanted risks.

Terry Groves is vice president of world-wide sales for Consolidated Asset Recovery Systems.

Editor’s Note: Groves addresses one side of the topic in this column. For the other side, view ARA’s Les McCook’s take in this same Repo & Recovery e-newsletter.