Non-credit data is becoming increasingly valuable to auto dealers and lenders across the customer lifecycle.
TransUnion’s Financial Services Research and Consulting group recently looked at data on automotive loan and lease delinquency rates, and the results are notable. Non-prime borrowers are showing signs of distress—delinquency rates on their auto loan payments are now the highest in more than three years. Asset recovery and repossession efforts require added focus for this group of higher risk consumers. But what are the best strategies to help diminish the impact of this trend on your organization? Here are three tactics to get you started.
Improve front-end authentication and clear red flags
Big data solutions provide a wealth of information on consumers in almost every market—but how you use this data makes all the difference. After all, what good is data if it’s not the right data—and how can you use it to make more informed decisions? Whether your dealership arranges or directly extends credit to borrowers, authenticating the identity of your customers on the front end has benefits you may not immediately realize.
The Red Flags Rule, a rule administered by the Federal Trade Commission, requires certain companies to establish a formal identity fraud prevention program and to follow procedures for identity verification and fraud mitigation. However, identity verification and fraud mitigation often means gathering more information than just a driver’s license and pay stub. New forms of fraud can circumvent minimum requirements—pay stubs and driver’s licenses can easily be altered. As a result, it’s important that lenders and dealers leverage different forms of information during the customer acquisition and lending process.
Ramp up collections
TransUnion data, as seen below, show a recent increase in auto charge-offs, which is consistent with the increased participation by subprime lenders. In 2016, 1.2M accounts totaling over $11B were charged off, up from $1M accounts totaling $6.5B in 2012. Before handing over that delinquent account to a third party for pennies on the dollar, you can—and perhaps should—be doing more to secure outstanding debt if you engage in buy-here-pay-here, in-house financing. Right-party contact is critical, and investigative tools can help to track down debtors before they become a serious problem.
Gathering more information can help you make contact should delinquency occur. Finding places of employment can mean finding the vehicle and the customer, and access to better phone numbers and current addresses translates to spending less time scratching your head and more time recovering outstanding balances.
Use innovative tools
One pitfall organizations make is an unwillingness to invest in solutions which actually present longer-term cost savings. What if you could find where a delinquent vehicle has been spotted that is thirty-days-or-more past due? Perhaps you are having trouble getting ahold of the debtor and want to discuss revised payment terms or you may be working towards repossessing the vehicle. With TLOxp®’s Vehicle Sightings, for example, you can view where a vehicle has been spotted to help inform your recovery strategy.
These strategies, when used in conjunction with disciplined sales and lending practices, are just a few simple, albeit less obvious ways to dramatically improve your operations. Alternative non-credit data is becoming increasingly valuable to auto dealers and lenders across the customer lifecycle. Reducing exposure points with access to higher quality data may have short-term expenses, but is sure to yield long-term dividends.
 Source: TransUnion Credit Database; Research & Consulting Analysis
*Please be advised that any mention of laws or regulations in this communication is not intended to nor should be construed or relied upon as legal advice. You should consult your own legal advisor for information on laws and regulations applicable to your particular circumstances.