CARY, N.C. -

Even though S&P Dow Jones Indices and Experian just reported auto loan defaults still are near the all-time low, Digital Recognition Network is continuing to counsel finance companies about how its data can help not only during the recovery process, but also with mitigating risk during underwriting.

DRN chief executive officer Chris Metaxas explained the reasoning and more trends as part of Auto Remarketing’s annual Power 300 issue.

Below is our Q&A with Metaxas — who again will be one of the keynote speakers as DRN is a presenting sponsor of the Re3 Conference at Used Car Week — as featured in the Aug. 1 issue of the magazine:

Auto Remarketing: How much more crucial is risk mitigation in light of lengthening contract terms and larger sums being financed?

Chris Metaxas: Risk mitigation acts as the foundation that drives the ability for lenders to continue the expansion we’ve seen over the last few years. One of the key elements associated with risk mitigation is the ability to increase the rate of recovery of vehicles and to prevent the repossession function from occurring.

One of the most interesting findings we’ve seen from lenders is that if a vehicle has been scored highly with DRN’s data and analytics, then the risk on that loan is lower, and the profitability is more than 2 percent greater. This ability to use DRN data insights as predictive indicator on risk has a direct impact on profitability.

Additionally, DRN has implemented new solutions with lenders that allow the lenders to reach consumers at new, previously unknown, locations (called DRN Addresses) for the purpose of having the conversation with the consumer about payment plans. And finally, our live recovery solutions have increased dramatically the rate of repossession volumes. All these factors are significant drivers in mitigating risk with a direct impact on increasing loan volumes and larger loan values.

AR: What regulatory challenges still concern providers of license plate recognition technology?

CM: I’m really very proud of my government affairs team in keeping a lid on any adverse legislation associated with LPR solutions. We’ve been instrumental in helping legislators craft new laws that support a healthy balance of protecting privacy while supporting those constitutional rights we have to use data insights to mitigate risk and ensure public safety (DRN has a public safety interest as well).

We’ve seen most of the legislative challenges in 2015 mitigated where we are even seeing positive progress in California where we hope to see a progressive bill emerge out of this current session. In addition to regulatory challenges we are seeing Intellectual Property Rights Challenges act a limiter to lenders seeking to take advantage of LPR technology to improve their results. To combat the unlicensed use of LPR Intellectual Property DRN has teamed with its competitor, MVTRAC, to enforce their combined IP rights. Intellectual property rights are another regulated element that lenders need to ensure compliance with to avoid portfolio risks.

AR: What factor do you see impacting the auto finance industry most for the remainder of 2015 and going into next year?

CM: I am really not sure that lenders understand the formula of risk and return. As a lender would you make the investment decision to eradicate the last 10 percent of risk from your portfolio if it delivered a return of 300 percent? The answer would be yes, of course.

However, many lenders are more expense minded than return minded and have not pushed banking philosophies down to decision makers in the trenches of the auto finance market. There is a natural industry constraint that is grounded in legacy norms on how auto finance lenders look at how they pay for risk reduction. Fortunately, we’ve been able to develop relationships with some very progressive lenders who are now stepping out of the box and looking at return on investment factors as the basis for decisioning. These are the lenders we feel will be the most progressive and competitive in the market

AR: How much more robust is the data in DRN’s portfolio than it was three years ago or even last year?

CM: The data is really becoming meaningful right now. As it relates to repossession activity, our data is responsible for nearly 7 percent of all repossession across all lenders. In other words, without our data insights repossessions would be 7 percent less. That’s really big.

Our recovery network has grown over 42 percent this past year where we now have the ability to deliver solutions that give lenders the ability to reach their consumer at locations they’ve never known about; we have the ability to give lenders insights on where their consumer is so they can predictively make contact or perform a repossession without wasting time or sending someone to the wrong location. We also have the ability to use our data insights to expand the loans lenders make to new types of underserved consumers by having our data contribute to the insights lenders use to understand the stability of that consumer.

DRN has entered into the insurance market as well where our data insights now contribute to how insurers determine garaging fraud and rate evasion. We hope to keep expanding the use of our data in industries with permissible purpose.

Other features in this special section include:

4 questions with NextGear’s Brian Geitner
4 questions with NADA Used Car Guide's Larry Dixon
4 questions with Infiniti CPO manager Sam Liang
4 questions with Black Book’s Anil Goyal
4 questions with Autotrader president Jared Rowe
4 questions with Geoff Parker of ADESA Cincinnati-Dayton
4 questions with Hudson Cook chairman Tom Hudson
4 questions with Edmunds CEO Avi Steinlauf
4 questions with Experian Automotive’s Melinda Zabritski