Modernizing collections in auto finance

As the balance owing on newly delinquent car loans skyrockets to highs not seen since the Great Recession, lenders seem to be faced with a dilemma. They can either hire more collectors to convince past due borrowers to pay up or they can hire more repo men to get their collateral back. Both options are costly. What they need is a third alternative…
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As the number of delinquent auto loans skyrockets, businesses should turn to proactive engagement to improve their collections strategy.

The Federal Reserve Bank of New York recently reported that the balance owing on newly delinquent car loans in the U.S. rose to over $23 billion in the fourth quarter of 2016, a level not seen since 2008 when the economy was sinking into what became known as the Great Recession. The graph below from Quartz illustrates the trend.

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While cogent arguments could be made that “this time it’s different,” by pointing to steady if slow economic growth and low unemployment, one thing is the same – more past due loans mean lenders are facing increased costs in their collections operations as they hire more collectors and repossess more vehicles. That is, unless they change how they engage past due borrowers.

For over 30 years, the standard equipment in large collections operations has been the predictive dialer. When introduced in the mid-Eighties, these systems revolutionized collections by automating the process of reaching customers by phone. Previously, collectors placed all their calls manually, wasting time on no answers, busy signals and home answering machines (this was before the widespread use of cell phones and voicemail) and only occasionally reaching the borrower. The predictive dialer disposed of all the unproductive calls and connected only the live answers to the collectors, increasing their productivity by 200% or more.

Over time however, consumers answering the phone became familiar with the inescapable pause that occurs while the dialer distinguishes between them and their answering machines. Having learned that what was likely to happen next was a conversation they didn’t want to have, these consumers began hanging up during that pause and the effectiveness of the dialer began to erode. Instead of being passed a steady stream of customer contacts, collectors were increasingly wasting time being connected to dead air.

As we moved into the new millennia, consumers began to eschew the telephone call altogether in preference to email, text messaging and chat apps, not only for interacting with friends and family, but increasingly with the companies they do business with. Unfortunately, many lenders have been slow to adopt these digital channels when it comes to reaching past due borrowers.

Sometimes it takes a crisis to spur change, and while auto loan delinquency may not yet be at the panic stage, it is worrisome enough that lenders should heed the warning and conclude “business as usual” is a risky business. It’s time to modernize collections in auto finance.

While there are many elements to a modern collections strategy, here are three must do’s that will help collect more while costing less:

  • Add digital channels, cutting costs by 40 to 60 percent. Since only one in three connections made by a predictive dialer result in a Right Party Contact, agent calls assisted by a predictive dialer can cost over $4 per contact. On the other hand, engaging customers with interactive voice and text messages, emails and push notifications costs just pennies using modern proactive engagement solutions.
  • Leverage customer preference and predictive analytics to engage customers in the right channel at the right time. The most effective collections solutions capture the outcomes of previous interactions as well as customer preferences (like their preferred channels, language preferences, and even the time of day they are most responsive) to deliver a personalized experience that increases cure rates and customer satisfaction.
  • Manage compliance through configurable rules that automatically keep you inside the guard rails you set. A critical component of collecting more money and spending less is preventing costly fines or lawsuits for violating state and federal regulations.

If your company is still relying on your dialer for your collections outreach, you don’t need to abandon it. Cloud-based systems like Nuance Proactive Engagement provide these modern capabilities and can work alongside your dialer. A major provider of outsourced collection services recently did this and improved their rate of self-service payments by 19% while realizing significant cost savings:

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Wondering how much your operation could save? Ask Nuance for a free Business Assessment.

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Brian Moore

About Brian Moore

Brian Moore, senior principal, industry solutions of Nuance’s Enterprise division, brings more than 30 years of experience in financial services, mortgage and collections operations and technology to the company. He is also our resident compliance expert, advising companies on the TCPA, FDCPA, TSR and other regulations impacting customer engagement.