In a quest to educate ourselves, our members and our clients on auto loans as one possible niche in the debt collection industry, we did some extensive online research. In today’s blog, we’re sharing some of what we found.
Auto loans increasing
“Overall consumer borrowing rose 3% to $2.58 trillion in June compared with May as a result of increases in auto and student loans. The total is just below the record high reached in July 2008, according to a Federal Reserve report. Non-revolving debt, the category that includes auto and student loans, increased 7% to $1.71 trillion,” reported Darren Waggoner in CollectionsCreditRisk.com.
Delinquency rate down…or up?
At the same time, the May 23rd issue of Credit and Collection News reported that, “The national auto loan delinquency rate (the rate of borrowers 60 or more days past due) reached its lowest level since TransUnion (a credit information company) began tracking the data in 1999. Auto loan delinquency rates in Q1 2012 dropped to 0.36%, down nearly 27% from Q1 2011 (0.49%). On a quarterly basis, auto loan delinquencies declined almost 22% from 0.46% in Q4 2011. Only 34% of metropolitan areas saw increases in their auto delinquency rates in Q1 2012.”
A more recent report shows that auto-loan delinquencies rose in August to 5.79% from 5.75% at Capital One Financial Corp., but it wasn’t the only such increase the company saw that month. Motor Finance Magazine reports that outstanding finance on used cars is becoming an increasing risk for dealers, and banks are giving risky auto loans to strapped consumers. Edmunds.com forecasts 15 million new car sales in 2013.
How many auto loans make it to collection agencies or law firms?
When NL looked for answers to that question, what we found focused more on the consumer and advice on “How to keep your car.” Repossession, bankruptcy and how the consumer can avoid the consequences are frequently written about. While resources the creditor can turn to seem to be largely ignored. You can learn more about what the car buyer is being told by reading articles like these:
- Default vs. Delinquency: Is there a difference?
- Car Loan Default Laws
- Bankrupt? Pay your full car-loan debt anyway
Car loans are no. 1 bill-paying priority
Pallavi Gogoi, AP Business Writer, posted on 3/29/12, “Car loans are now Americans’ no. 1 bill-paying priority. The recession and its hangover may have turned bill-paying habits upside down. Cash-strapped Americans are paying off their car loans before they pay credit card bills and make mortgage payments, a study finds. TransUnion studied the payment patterns of 4 million Americans with at least one car loan, one credit card and a mortgage and found a clear priority for staying current on the car loan. Among Americans who were late on payments last year, 39% were delinquent on the mortgage while current on the car loan and credit cards, and 17% were late on credit cards while current on the other two. Only 10% were late on the car loan while current on the other two. When TransUnion first did the study in 2006, staying current on the mortgage was the priority, says Ezra Becker, the company’s vice president of research and consulting.”
Jack Nerad, executive editorial director and executive market analyst for www.kbb.com and Kelley Blue Book, says “The trend is to have longer loan terms and lower down payments. More people are upside down. They owe a lot more than what the car is worth two years into the loan.” Bankruptcy attorney Tom Dickenson of Hodges, Doughty & Carson, explains “You can surrender the collateral (the vehicle), but if the collateral is sold and it doesn’t sell for enough to pay the debt in full, then we say the creditor is entitled to the unsecured claim.” This adds more debtor incentive to keep the car, if at all possible.
New ways to identify and locate delinquent debtors
Using technology, lenders are getting more creative when people don’t pay. Mike Gibb, of Auto Finance News, said, “For as long as there are auto loans, there will be people who don’t make payments. This dynamic forces lenders to continually look for ways to ensure that as many of their customers pay as possible. The past decade has seen lenders look to in-vehicle hardware and software — such as GPS devices or starter-interrupt devices — to help them identify and locate delinquent debtors and defaulted collateral.”
Auto Finance Summit*
But do any of these buying, borrowing and delinquency stats translate into more business for collection professionals?
“During my discussions at the Auto Finance Summit, I discovered that there is definitely a need for collections (dealerships, 3rd party and even some debt buyers),” reports David H. Rudd, Sr. VP of Finance & Administration for IAT SmartDial.
The Auto Finance Summit was held Oct. 22-24 in Las Vegas. Several law firms, financial services companies and software providers specializing in auto loan collections exhibited. One panel session entitled “Above the Law: What’s Next on the Legal Front?” centered mostly on the CFPB and compliance. Another attendee shared his opinion that, in the auto industry, “….sophistication in collections is relatively low.” (See Auto Finance News for more information on the Summit.)
At the NL, the verdict is still out on our initial question: “Is opportunity increasing for collecting auto loans?” We and our readers would like to know your opinion. Please comment and shed more light on the issue!
by Nancy Lender
*Organizations with more information:
- American Financial Services Assoc. (AFSA)
- www.Carloan.com Dealer Network
- National Automotive Finance Association (NAF)
- National Alliance of Buy-Here, Pay-Here Dealers (NABD)
- National Finance Adjusters (NFA)