A recent blog post from GWC Warranty not only reiterated how your dealership customers can benefit immensely from a robust vehicle service contract, but the provider also emphasized how the finance company connected to the retail installment sales contract can have a better addition to its portfolio, too.
Along with going into different strategy to help your F&I office staff with its VSC presentation, GWC Warranty acknowledged, “At times it can be a struggle to get the back-end advance you need for stronger vehicle service contracts. That’s why it’s so important to work with lenders who see the value it provides them as well.
“Lenders who understand that a service contract can reduce late or missed payments will be more amenable to providing room for service contracts on the back end,” GWC Warranty continued in this blog post.
Once the dealership is aligned with finance companies that see the value of VSCs, GWC Warranty suggested that the store should “think big picture,” as F&I office representatives are making their sales presentations.
“Sure, you can make a quick profit on a more affordable service contract coverage level, but what happens with that 90-day coverage when six months after a purchase a major repair is required? Your dealership’s reputation is on the line in these instances, and a vehicle service contract could be the saving grace that protects your reputation in the event of a major repair,” GWC Warranty said.
“And when that happens, your customers will be more likely to come back for their next vehicles and refer you to friends and family,” the company continued.
Another recommendation GWC Warranty made revolved around the bonus options that can be included with a VSC.
“Another great selling point for customers could be additional options higher levels of coverage provide. Things like roadside assistance, towing and travel reimbursements are important aspects of higher levels of coverage that help customers feel more secure in their new vehicles,” GWC Warranty said.
“For customers looking for that peace of mind, these bonus options could be just what you need to get your customer into longer-term coverage,” the company continued.
While roadside assistance might be an easy benefit for customers to imagine, GWC Warranty also suggested that dealership staff go to great lengths to explain the more intricate advantages of robust VSCs.
“Packages you tack on to higher level coverage are also beneficial to customers, but only if you help them realize it. Coverage for specialty components like high-tech electronics in luxury vehicles protect your customers when expensive, little-known components break down,” GWC Warranty said.
“Other items like GWC’s No Worries, Just Drive package that provide added benefits like upgraded rental and towing coverage, a maintenance voucher, gas card, identity protection and other valuable upgrades sell themselves when you show the value of what they get for a relatively low cost,” the company went on to say.
Finally, GWC Warranty mentioned some general sales approaches that’s worked well in other dealerships that can deliver all of these benefits to consumers — and finance companies.
“Once you’ve sat down in the F&I office, it’s now time to show your customer why he or she needs that higher level of coverage. The best way to go about this is to work your way through your service contract offering backwards,” GWC Warranty said.
“Start with the highest level of coverage and if the customer isn’t sold, work back a level while calling out everything they’d be missing out on by saving a few bucks,” the company continued. “Knowing the cost of some common repairs or having past repair invoices on hand could help illustrate your point when explaining expensive component coverage the customer could be missing out on.”
During the recent National Automotive Finance Association Non-Prime Financing Conference, I led “Fraud Friday” sessions where I presented my taxonomy of fraud and showcased two panels highlighting more of the unique and innovative solutions in the space today.
While there is a lot of interest and enthusiasm around these tools, I spent time talking with folks about their use of traditional tools and was surprised to hear how many lenders are either not using them, or simply not aware of the strong results these solutions deliver.
This article seeks to highlight a powerful tool that did not get a voice on the Fraud Friday panels, and yet it is a fantastic tool for managing fraud and improving overall portfolio performance: field contact services.
Using field contact to avoid, identify, and mitigate fraud
Seeing is believing, and nothing beats an actual physical verification when it comes to a lender’s collateral. There is no fraud mitigation tool more powerful than field contact services. I have used field contact services to identify possible fraud with vendors, borrowers, and collateral:
—Independent physical verification and basic inspection of collateral, condition, and testing of a proper dealer installation of a GPS and / or starter interrupt device
—Physical verification / evaluation of a dealership or recovery agent facilities
—Useful for inspection of new dealers or recovery agents for purposes of third party vendor compliance management
—Useful for verifying the health of the facility before doing business or during the course of doing business (routine inspections)
—Physical verification / condition report on collateral held either at a repair facility or at an impound yard
—This is helpful to determine the validity of the stated condition by the repair agent / impound lot prior to paying for repairs or for the release of the vehicle
—Going the extra mile and exhausting all possible contact options for borrowers that have gone silent
—Field contact services can also be helpful at gathering additional information on your borrower, such as that your borrower has relocated,
—And determining the whereabouts and verifying the location and condition of collateral
Using field contact to deliver portfolio results
In today’s world of mobile enablement, sending an actual person out in the field to deliver a message may seem outdated. I can tell you that this is not the case. While our specific process changed over time, we routinely sent field calls on accounts that were 45-60 days past due, and on accounts where we had no recent contact or promise to pay on the books. I found that customers within this population responded to field calls, generating contacts (inbound calls) approximately a third of the time — making it an expense that was worthwhile.
Additionally, I made sure that the letter delivered to the customer outlined the programs available to help the customer through tough times and stated explicitly that we wanted to help keep customers in their vehicles. I only used a field chase company that was licensed as a collection agency (and not all of them are).
As an interesting add, I recently spoke with another subprime lender that utilizes the field call service in ttwo ways: for letter delivery, and standard field call. This company uses letter delivery for their 30-59, and 60-89 days past due (DPD) delinquent accounts. They report that for both of these populations nearly 50 percent of these customers will make a payment in full and either remain in their current delinquency bucket (churn) or cure.
Field calls are used at about 65 DPD, and for the overall 65-119 DPD population that field calls generate 36.5 percent customer payments. Their primary goal for a letter or field call is to get a right party contact, followed by getting a cure or stopping the roll, which is attributable to the collectors’ skill at negotiating.
Most important to this company’s process is making sure that all the letters go out by the 10th of the month — which allows enough time for field dispatch and field call intel to come back into the collections shop. According to this company, missing that 10th of the month submission can break their goals.
I also spoke with Jay Loeb from NCCI, the nation's largest provider of field contact services to the industry, to get his take on how being the "eyes and ears" for the lender in the field assists with both fraud issues and loan losses. Jay stated that, "When it comes to as fraud, you are correct, going out in the field is truly the best way to validate the collateral or process. We call it ‘inspect what you expect’ when it comes to your customers — whether those customers are vendors or borrowers."
Jay continued, "As far as loan losses, our core service of field contact continues to grow in the auto sector specifically for the reasons you mention. Losing $7,000 to $10,000 per car on charge off is not sustainable. An early field contact effort to reach the borrower and offer repossession avoidance opportunities serves not only to reduce the need to repossess but also allows for the opportunity to validate the address as correct and obtain collateral condition. Conducting the field visit compliantly is essential as well in ensuring that the borrower experience is positive and mutually beneficial to both the borrower and the auto lender."
When the going gets tough
Unfortunately, when budgets get tight, reducing the frequency of (or eliminating entirely) the use of field contact can be an easy expense to kill. My problem with this is that the results that the field contact so far outweigh the costs that it is absolutely the wrong place to try to cut corners and save money.
To me it is analogous to eliminating pulling credit or verifying stipulations on new loan packages – nobody would ever do that. I would argue that when budgets are tight is the absolute wrong time to skimp on any service that:
1. Mitigates fraud losses by verifying the health of dealerships, repair facilities, and recovery agents.
2. Helps to keep you from paying for repairs that weren’t completed, or for paying to release a vehicle from a repair facility or impound that should instead be abandoned.
3. Helps to generate customer payments to keep customers from rolling into a later delinquency bucket, and even curing.
There is simply no alternative or substitute to this service that can take its place.
Joel Kennedy is a director with Spinnaker Consulting Group. He has a passion for growing and improving auto finance ecosystem. He has more than 23 years’ experience helping big banks down to start-up finance companies to build, grow, improve and repeat. He can be reached at (240) 308-2169 or [email protected].
During the past 12 to 18 months, there has been a real increase in interest by lenders around the idea of establishing “all-in-one pricing” (AiO) with their repossession forwarders. Most of this interest has been spurred by concerns expressed by the Consumer Financial Protection Bureau regarding ancillary fees as well as a desire by lenders to simplify the invoicing/payment process.
AiO can, indeed, offer benefits in these areas. However, as many lenders have come to understand, it must be approached very carefully and requires fairly deep analytics to gain a clear view of where the pricing should fall. While many lenders have been examining the strategy, at this point, very few have adopted it as they have come to realize they simply don’t have the data points necessary to gain a solid understanding.
The remainder of this article will examine the key issues surrounding AiO pricing with the aim of giving you a better understanding of the dynamics that come into play.
What Is AiO pricing?
Perhaps the answer is obvious, but we have found that different lenders do have different views. In its purest form, AiO pricing is a single flat fee that covers the cost of the repossession and all ancillary services that might come into play to complete the processes required by the specific case. This may include:
• Key cutting
• Personal property
• Storage
• Redemption
• Use of flatbeds
• Transportation to auction
It would be great if the full cost of these services could just be added to the cost of every repossession. However, since all, some or none of these services may come into a play on a given case, simply adding the full fee to each obviously would result in an AiO fee that would be ridiculously high.
So, the challenge lies in understanding the utilization factors relating to the various ancillary services possibilities. Unfortunately, the utilization factors can vary tremendously from portfolio to portfolio and, therefore, detailed analytics are required to come up with a fee that makes sense for both your customer and your vendor partner.
Let’s take a look at some of these variables and how they can impact the pricing model.
Key cutting
As we all know, sometimes a key is obtained when a car is recovered and many times one is not. To determine a key cost factor that can be applied to every repossession, you have to make an assumption about what percent of recoveries will require a key. This is data that we are able to track in our proprietary database and I can tell you we see a wide variation, ranging from 2 to 3 percent to as much as 10 percent where keys have been provided.
Another very significant factor is the mix of the types of keys required. Again, it can be very portfolio specific. For instance, we have one large captive lender client that was an early leader in the deployment of proximity keys which are very expensive. The average key cost is off the chart. Conversely, we have title lending clients where exactly the opposite is true.
The chart below summarizes the impact both can have on the AiO price.
| |
Captive Lender |
Title Lender |
| Percent of Vehicles Keys Must Be Cut |
10% |
10% |
| Average Key Cost (based on mix) |
$235 |
$144 |
| AiO Cost Factor |
$24 |
$13 |
Your institutions’ policy regarding keys can also have a major impact. Some lenders want operational keys available on all cars prior to transport. Others only want keys cut if required to access the vehicle for personal property determination. Several considerations, and we have only covered keys!
Redemption fees
Pricing for the costs related to the redemption of the vehicle by the customer is one of the trickiest aspect of AiO pricing.
The first hurdle is to understand the average redemption rate on the portfolio. To predict the variable with any confidence/accuracy, one must have at least six (preferably 12) months of history tracking the issue. Not only do redemption rates vary significantly by lender, but they also vary significantly by portfolio within the lender.
For instance, a post charge off skip portfolio will have a much lower redemption rate than a first placement pre-charge off portfolio.
To put the issue in context, we have one lender whose first placement business redeems at a 24-percent rate and another that redeems at a 42-percent rate. Assuming that the agent will be limited to a maximum total fee of $150 per actual redemption, the impact on the AiO rate would be:
AiO Cost Factor
| Port A (42%) |
Port B (24%) |
| $63 |
$36 |
The other very important component of the redemption related costs is the amount the agents are allowed to charge the lender in redemption situations. Any redemption has a potential combination of personal property, administrative and storage related cost that the agent does expect to invoice. Historically, these costs have varied by region and even by agents operating in the same region. However, for an AiO approach to work, these fees must be standardized across all forwarders/agents.
The approach to doing so is all over the board. We will leave that for another article.
Personal property — no redemption
In many cases, a car is not redeemed but the customer does want to retrieve personal property. Due to CFPB concerns, most lenders do not want the agent collecting any personal property related fees from the customer. However, it properly accounts for these fees in the AiO model, one must make assumptions on what percent of recovered vehicles will involve retrieval of personal property.
Again, it varies meaningfully by portfolio.
Storage
Excess storage fees must also be accounted for in the model. Most repossession come with a certain amount of free storage, but what happens when that is exceeded? The AiO model must anticipate that possibility and assign a cost for it. Again, that can vary significantly by portfolio. We work with one lender that generally moves cars off the lot to transport within four to five days and another that averages almost 20 days.
Clearly the AiO pricing model has many moving parts. If you want the right price and you want to feel confident that your vendors will be able to live with that price for a reasonable period of time, you will need to be able to provide very solid data on your portfolio.
Final thoughts
If you are unable to do so, our recommendation is to have a very transparent process with your vendors in which all assumptions are provided along with the resulting pricing model. With that in place, all parties can monitor the actual performance and agree to make adjustments accordingly.
Mike Levison is the chief executive officer of ALS Resolvion. More details about the company can be found at www.alsresolvion.com.
Dave Kennedy and Les McCook of the American Recovery Association shared some vivid anecdotes originating from meetings with Jack Tracey and Joel Kennedy of the National Automotive Finance Association along with leadership of close to 30 finance companies with large and small portfolios.
“They saw the hardship that was being placed upon their vendor network. And in being a good business partner and caring about the other side, they are now rethinking their strategy,” said McCook, ARA’s executive director, during the annual Non-Prime Auto Finance Conference hosted by the NAF Association. “What’s important here is this is a beginning,”
That beginning is ARA and the NAF Association using last week’s conference as the springboard to announce the results of their first joint effort to establish a minimum compliance standard for third-party repossession vendors that work directly with an auto finance provider, not through a forwarding model.
Together with a working group of NAF Association bank and finance company members, the leadership of ARA has sought to address the lack of standardization of compliance programs by setting forth the following goals:
1. Create a set of baseline criteria for NAF Association members to use in the oversight, management, and auditing of recovery agents.
2. Produce a standard list of compliance requirements for recovery agents to help them satisfy all of their clients.
3. Streamline the process of third party management for recovery agents specifically, resulting in lower costs for all parties.
Dave Kennedy, who is ARA’s president, shared an analogy with conference attendees in an attempt to summarize the entire situation; one that might have generated extra impact with individuals who have children currently attending a college or university or recently graduated.
“Say you go to college and you get your degree. You go to school at say Temple, and you pass the baseline standards for that degree. But then your employer says, ‘We like you, but we now require that all of our employees to go Harvard, so you’re out of a job.’ That doesn’t make any sense,” Kennedy said.
The initial agreement indicates repossession agencies can complete training curriculum from five different providers, including:
— Recovery Industry Services Company
— Recovery Standard Training
— Vendor Transparency Solutions
— American Recovery Association
— Recovery Specialist Insurance Group
“The key is to bring efficiency. All of these training programs meet the basic criteria. This is going to save hundreds of thousands of dollars for lenders. They’re all great programs. Now if an agent can prove he has one, it’s going to save hundreds of man hours,” Dave Kennedy said.
“It's an excellent initiative and something that’s going to bring a lot of efficiency and comfort to both sides of the table,” Kennedy added.
Joel Kennedy, an NAF Association board member, former finance company executive and now director with Spinnaker Consulting Group, emphasized the concept of bringing efficiency and addressing potential problems that might be keeping finance companies “up at night.”
Kennedy also pointed out how crucial the input was from an array of finance companies, not just large players dictating the situation.
“It’s all about trying to drive better efficiencies and synergies for the process that we have right now,” Kennedy said. “The whole point is each individual finance company has a responsibility from a third-party vendor management standpoint to make sure they’re managing their own vendors as if it was their own company. With repossessors, there is additional risk involved given the customer engagement.
“What we came up with was a baseline set of standards that can be ascribed to by all of the NAF Association members to say, ‘Here is the bare minimum of what we think you need in order to safely management this relationship.’ There really isn’t any kind of guidance from any regulatory body that says chapter and verse how you manage this relationship and risk,” Kennedy continued.
The resulting baseline standards encompass the key areas of vendor compliance, including:
1. Owner / business regulatory reviews
2. Training
3. Policies and procedures
4. Vendor site visits
“We want to create a significant solution for both sides of the auto-lending and recovery industries,” said Tracey, executive director of the NAF Association. “I look forward to our continuing relationship and mutual problem solving.”
Joel Kennedy closed his portion of conference presentation about this development by delving into how ARA and the NAF Association can forge forward on the current developmental path.
“I think this is the kind of thing that not only can provide guidance to our members to streamline and build efficiencies where we can all spend a little less time schlepping and more time analyzing on the high-value, high-risk targets we can get solved,” he said.
“The next steps are to carry this through and see how far we can take this,” he continued. “Can we collaborate on data? Can we collaborate on sending the field guys to chase information? Can we get into more self-reporting for the recovery agents where we can get the data into a repository and all the members can utilize it?”
Tracey later added, “There are some serious dollars to be saved.”
With more data than ever to consider, the National Automotive Finance Association and the American Financial Services Association highlighted seven of the most important findings from this the 2018 Non-Prime Automotive Finance Survey.
Released last week during the annual Non-Prime Auto Finance Conference, the NAF Association and AFSA collaborated with FICO, TransUnion, IHS Markit and Black Book to generate the report that serves as a key source of benchmarking for those who participate in or support non-prime automotive financing.
The 2018 report represents 40 financing sources and $34.6 billion in principal balance as of the end of 2017 — an increase for the seventh consecutive year.
In addition to key financial metrics, this report helps to promote best practices and collective knowledge of leading industry professionals to ensure that financing companies can meet their portfolio goals and work effectively with their dealers, liquidity providers, vendors and other partners to create compelling customer value.
This year’s data survey has been managed by FICO and provided the analysis and conclusions in the report.
Key findings from the survey include:
• Non-prime portfolio balances have increased 5.3 percent year-over-year in 2017. However, the number of contracts originated in each of the last two years has decreased.
• Competition remains robust overall, but niches of underserved sub-segments still exist.
• Financial metrics were mixed overall and softened for some.
• Automated origination activity is increasing.
• Rise in dealer, first-party and synthetic identification fraud
• Used-vehicle depreciation was mitigated by destructive hurricanes, which increased the demand for used vehicles.
• The customers of non-prime auto finance companies represent mainstream America.
The survey report, which has been produced for the past 22 years, is distributed at no cost to finance company participants. Others may purchase a copy of the report for $500. Ordering is available online at nafassociation.com.
Here is another development in the industry’s effort to help contract holders make their monthly payments in ways they prefer.
Payment technology and services provider BillingTree recently announced that auto dealer management specialists Car-Ware will integrate the myPayrazr solution suite into its software platform. The completed integration enables Car-Ware clients to utilize BillingTree merchant services and deploy the myPayrazr gateway, portals and Interactive Voice Response (IVR) to manage auto finance transactions simply and effectively.
Officials added the integration also offers their end-customers a wide range of digital options to settle payments quickly and easily.
“Given the scope of Car-Ware solutions and the proven experience of BillingTree in auto finance, this partnership is a strong fit,” said Mike Dooney, president and chief executive officer of Car-Ware.
“BillingTree solutions perfectly align with our focus on offering the latest digital tools to help dealers better manage their business. The in-built security means our customers can remain safe in the knowledge that the technology they are deploying is fully compliant with industry standards,” Dooney continued.
Car-Ware has been providing software support in the dealer management and automobile industry for more than 15 years. The company services the financing, accounting, customer relationship management and inventory management needs of a nationwide roster of clients.
The integration of the myPayrazr solution suite means dealers can now offer a wider range of innovative payment channels and greatly increase the payment options available to end-customers. Channels include IVR, online payment portals and recurring payment plans.
The companies added that Car-Ware clients also benefit from BillingTree merchant services to maintain compliance and best practices for secure payment acceptance.
“Payment technology is a key revenue driver in the auto finance industry, and customers are looking for more convenient ways to keep up with auto loan payments.” said Jason Hiland, director of sales and business development in financial services at BillingTree.
“This strategic partnership provides automated, convenient and secure payment channels, putting both dealers and consumers in control when it comes to managing their finances,” Hiland went on to say.
This development is the latest BillingTree partnership in the auto industry, and the BillingTree auto finance team will be hosting a joint webinar with Car-Ware on June 14 beginning at 2 p.m. ET to explain the implications and benefits of the integration.
Registration for the free session can be completed here.
The compliance education and training offerings from Recovery Industry Services Company (RISC) just became much more robust.
On Tuesday, RISC announced the acquisition of Recovery Standard Training, which is curriculum created and maintained by Hudson Cook.
Officials highlighted the program will soon be added to RISC’s CARS certification and continuing education programs. Hudson Cook will continue to support and update the Recovery Standard curriculum and provide oversight and updates to the CARS curriculum, ensuring third-party vendors and lenders are kept up-to-date with the latest government regulations.
“We are excited about this transaction, which represents unification of robust education curriculum offered to the collateral recovery industry,” RISC founder and chief executive officer Stamatis Ferarolis said.
“The course material and software platform developed by Recovery Standard adds extensive value to RISC’s industry leading CARS certification program,” Ferarolis continued. “This acquisition helps standardize vendor training and certification allowing repossession companies, national forwarders and lenders access to the most comprehensive option for ongoing compliance training.”
Ferarolis went on to stress that auto finance companies expect third-party vendors to meet ongoing compliance standards while ensuring agents are annually trained and comprehensively vetted.
The addition of Recovery Standard Training, which comes one year after RISC’s acquisition of Recovery Compliance Solutions’ vendor vetting services, reinforces RISC’s commitment to consistently offer the best-in-class vendor vetting and compliance training.
Recovery Standard Training materials will be added to RISC’s CARS continuing education program over the course of the next three months. In addition, RISC will add a new course for finance companies, covering skip tracing, cyber security and repossession agent scenarios.
“I am pleased to join forces with RISC to deliver the most up-to-date compliance curriculum for third-party vendors and automotive lenders. RISC’s advocacy for professional repossession demonstrates a commitment to compliance, much like our mission at Recovery Standard Training, making it a clear choice to move forward with this opportunity and bring more unification to the collateral recovery industry,” said Brad Shrader, chief executive officer of Recovery Standard Training.
Key findings of BillingTree’s sixth annual Operations and Technology Survey involving collections, recoveries and more, are showing just how much of an impact all of the widespread changes at the Consumer Financial Protection Bureau are leaving on service providers.
For the first time in the history of the survey, BillingTree found that concerns over CFPB regulations ranked lower than all other compliance issues, including payment card industry (PCI) compliance, mandates from NACHA – The Electronic Payments Association, as well as obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E.
BillingTree contends this overall trend is consistent with prior survey predictions after the emergence of the PCI 3.0 compliance rule changes in 2015.
“However, with CFPB plans to release a proposed rule concerning collectors’ communications practices and consumer disclosures (involving the Fair Debt Collection Practices Act), there is a chance this area will experience further disruption,” survey orchestrators said.
Beyond compliance concerns, BillingTree highlighted survey results — collected from more than 150 agencies of all sizes — cited innovative technologies to expand payment channels and enhance collection effectiveness as top factors for growth.
Survey results mentioned the growing consumer demand for mobile payments is driving change, with text payments cited by respondents as the most desired payment option.
However, rather than mobile text to pay being held back by technology limitations, BillingTree learned it is the perceived compliance risks putting the brakes on adoption. This technology out-ranked agent-assisted payment authorization and notification as the payment option carrying the greatest compliance risk.
One respondent stated, “These technologies are available, but with no safe harbor.”
When asked about future technology plans, the survey showed mobile device presentment and payment ranked second at 29 percent, just behind online portals at 31 percent.
Alternative forms of payment including PayPal, e-cash and Bitcoin ranked high, with 24 percent of respondents considering adoption, which suggests recover organizations are ready to embrace consumer technology trends and expand payment channels.
Consistent with prior years, the BillingTree survey indicated Interactive Voice Response (IVR) adoption continues to grow, with 36 percent relying on IVR compared to 28 percent in 2017.
BillingTree will be presenting the survey findings during a free webinar on Thursday beginning at 1 p.m. ET. Registeration can be completed here.
To request a complimentary copy of the 2018 ARM Industry Operations, Technology & Payments report, go to this website.
