Many finance companies typically see a rise in repos during December, and this past year was no different. In fact, repo rates were higher than usual. Because of the way the holidays fell in 2020, BHPH dealers lost two Fridays, and essentially two Saturdays (usual collection days), resulting in more delinquencies, which could lead to more repos in January 2021 and beyond.
Again, this is true for finance professionals who were reactive rather than proactive. Every December there are holidays which claw at client’s ability to make timely payments. Those who plan for this by training their collectors and making it easier for clients to make payments with autopay platforms or text payments, will see fewer repossessions than those who simply wait until a customer is two or three payments in arrears. Typically, there’s no catching up for those clients.
In part one of this three-part series, we reviewed the state of the recovery industry and the impact the health and economic crisis had on vehicle finance professionals. Today, we will focus on what is happening with delinquencies and the importance of compliance.
During the pandemic, consumers have come to expect landlords, finance and insurance companies, and others to allow them more latitude in making timely payments. Insurance companies, for instance, have granted refunds or payment reductions because of their lower losses. Mortgage companies have offered clients forbearance, loan modifications, and adjustments to keep good clients on the books.
The American Recovery Association (ARA) lobbied federal legislators to ensure that there were no national moratoria on auto repossessions in federal stimulus legislation and were successful in their efforts. Despite no federal moratoria and most states allowing repossessions, consumers don’t take kindly to having their vital personal transportation taken from them.
Consumers faced with repossession have sought lawyers to assist them in preventing collections. Lawyers and consumer groups help them renegotiate their loans and some consumers even consider filing for personal bankruptcy. Even with legal challenges, higher auto repossessions rates loom as a growing possibility as unemployment and federal pandemic financial aid runs out. The $600 per person stimulus passed at the end of 2020 may help for just weeks, not months. It will buy some time in hopes various state lockdowns or near lockdowns ease as vaccines come online and unemployment rates fall.
What has become more apparent is the necessity to comply with all federal, state, and local laws and regulations as they pertain to repossessions. Lawyers, state and federal legislators are hearing from consumers more often, and the new administration will likely place a renewed focus on legal and regulatory compliance, especially as it relates to subprime finance, through the Consumer Finance Protection Bureau (CFPB) and other regulatory agencies. There are numerous law firms, agencies, dealer associations, and consultants that can assist with being sure you legally repo your collateral.
Repossession companies themselves have taken a hard hit during the pandemic. High insurance rates, legal and regulatory compliance costs, fewer repo agents in the market, and having far fewer repo contracts, have hit the repossession industry hard. Most repo agents have seen their business decline 40-50 percent or more. There are also added costs for vehicle sanitization as well as personal protective equipment for employees. Repo agents have begun to require $50 or more pandemic surcharges to their rates. Recently, the ARA said that most of the work coming to its 250 members currently is for voluntary repos, which makes their job somewhat easier.
Automotive Finance News reported as of the end of the second quarter of 2020, auto loans that were past due 90-plus days accounted for 5.03 percent of the total outstanding balance, up from 4.64 percent in 2019 (according to the New York Federal Reserve). As more consumers find themselves working remotely and no longer use their vehicles to commute, the need for ownership lessens, as does the urgency to make an auto loan payment. Lenders may see this translate into a higher number of motor vehicles voluntarily surrendered. Add the voluntary repos, to those who cannot repay their loans, and the avalanche begins to rumble.
Should an avalanche of repos occur, finance professionals should keep in mind that DMVs in every state will likely remain challenged by the pandemic. Lenders should ensure that they are in possession of a title for a vehicle that will be repossessed, and that the title is perfected. Addressing vehicle title processing issues early helps handle any exceptions and reduces costly delays.
Monitoring your assets will be extremely important in 2021. Tomorrow, we will cover smart tools that can help you keep a pulse on all the vehicle assets in your portfolio.