Spinnaker Consulting Group
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In today’s world of mobile enablement, sending an actual person out in the field to deliver a message may seem outdated.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:
Mitigates fraud losses by verifying the health of dealerships, repair facilities, and recovery agents.
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.
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 firstname.lastname@example.org.