Data driven insights are increasingly bringing new perspectives on the usefulness of long-established processes and practices. Over the last few years, MBSi Corp. has begun to dive deeply into the tens of millions of repossession-related data points contained within its iRepo database in an effort to discover new insights, uncover inefficiencies and challenge long held assumptions.

Those efforts have yielded more than a few head-scratching revelations. But none more significant, or potentially impactful, than what was discovered when we analyzed the cost of “mandatory assignment updates” and their benefits.

The mandatory update

In the recovery world, an “update” refers to a practice where a recovery company provides their clients information on the progress or ongoing efforts to locate a debtor or asset. Over the years, in an effort make sure their vendors were working the accounts, lenders and forwarders began mandating, through their contracts, the recovery company provide them an update on a regular basis, often every 24 to 48 hours.

Contractually, these updates are required even if the recovery company has no new, meaningful information and has not been able to check the address again during the required interval. When this occurs, the agent is often forced to choose between providing no update, advising the client they have not been able to run the address again, or providing a “fluff” update to meet the requirements of the contract.

These “fluff” updates have become the norm. While an update with new information is always valuable, a “fluff” update actually works against the lender’s and recovery agent’s mutual interest because it provides little value to lenders and yet exacts a heavy cost on recovery service providers. Nonetheless, contracts that require regular updates, even when there is no new information, continue to proliferate throughout the industry.

This outdated practice has resisted all advancements in technology such as email, assignment and mapping software, and even smart phones. Meanwhile, with increasing compliance requirements and shrinking margins the industry faces more challenges than ever before.

It’s clear that there is no “silver bullet” that will solve all the industry’s issues overnight. However, simple process changes such as addressing the ineffectiveness of the mandatory update can make an outsized impact on the health of the recovery industry.

Trust but verify

All industry participants share responsibility for allowing the wasteful practice of mandatory updates to continue: lenders who require updates but often don’t read them, repossessors who “fluff” updates to meet contract terms, and software companies that have enabled and encouraged the practice through automation.

So, why do we continue to do this?

One reason may be due to trust, or a lack thereof. Lenders and forwarders don’t trust that their agents are running assignments as often as they believe are necessary are failing to recognize the agent and lender’s interests are aligned due to the contingent nature of the contract.

Repossession agencies who fear a client will terminate them if they don’t provide an update, even a “fluff” one if necessary, are perpuating the cycle. This lack of mutual trust may be based on past experiences, both real and perceived, but it’s time to revisit this part of the lender-vendor relationship. This ongoing practice has created burdens without yielding any measurable benefit.

Economic impact of updates

In the keynote address at the Re3 Conference during Used Car Week 2016, MBSi shared findings with the industry in an effort to spur a genuine conversation regarding  the cost benefit  of this practice  of requiring mandatory updates.

According to data gathered by MBSi, repossession professionals regularly submit more than 30 updates, both real and “fluff,” per recovered vehicle. Each update requires a person on both the agent side and lender side to “touch” the assignment as they input and read the update information.

Forwarders experience a great impact, they must “touch” each update twice as they read the update from their recovery vendor and then provide the lender their own update. After analyzing the MBSi data, as well as information from industry participants, we concluded that each update “touch” takes about 3.2 minutes to process.

Based on recoveries recorded in the MBSi database from 2014-2016, the data revealed that despite more than an estimated $127 million spent annually processing mandatory updates, there is no statistical correlation between vehicle recovery rates and the number and/or frequency of updates.

Rolling up our sleeves

Based on these findings, MBSi worked with our clients to identify the necessary conditions that would allow lenders to change their update policies. Three critical lender questions were idenfitied:

1. Can the lender be certain the agent received and ran the assignment in a timely fashion?

2. Does the agent have real-time access to the account status to avoid wrongful repossession when a debtor brings an account current?

3. Is the agent who is working the assignment a trained professional that meets the lender’s compliance standards?

These questions were the driving force behind the development of MBSi’s Recovery Connect and Compliance Made Easy platforms. Now that these two platforms have been fully deployed, lenders can answer all three questions in the affirmative, on every assignment. 

Mobile technology and platforms like Clearplan and Recovery Connect allow lenders to verify that the recovery agent has received the assignment, physically run the address, and if a vehicle is located, check the status of the account before recovery–all in real-time. If the vehicle is not located, the technology can instantly verify the agent ran the account using MBSi Smart Updates that are geocoded and time-stamped, allowing the agent to create a verified update with a single button.

Elimination of the mandatory update process allows recovery agents to spend more time locating assets and providing genuinely valuable updates when new, meaningful information becomes available.  

Additionally, these mobile platforms are now integrated and connected in real-time to powerful compliance platforms like MBSi’s Compliance Made Easy solution that allows lenders to instantly view a repossession agent’s proper documentation, including license, insurance, training certifications and storage lot inspections. These solutions work together whether the lender uses a direct to agent, forwarding or hybrid recovery strategy.

One simple step in the right direction

The good news is that the solutions described above are available today. The technology been developed, deployed and adopted by almost all of the national forwarders and more than 1,700 repossession professionals nationwide. This widespread industry adoption demonstrates that recovery professionals are willing to take steps and adopt new processes that can drive big improvements in efficiency and compliance.

In the weeks ahead, we expect to see the first large national auto lender modify their policy on mandatory updates, and move toward smart updates. With this one lender, MBSi expects to eliminate more than 10 million updates or “touches” annually, saving repossession agencies and forwarders more than $8.6 million or $24 on every recovered vehicle. Hopefully, this is the first of many lenders to address this outdated practice.

Willingness to honestly evaluate the cost effectiveness of the mandatory update requirement is a step in the right direction for the auto recovery industry. Check out the recording of MBSi’s webinar here as we dive deeper into the impacts of updates and the opportunities to use technology for massive cost savings through Smart Updates.

Cort DeHart is the president of MBSi Corp. He can be reached at cdehart@mbsicorp.com.